M/S. TATA CHEMICALS LTD. Vs. COMMNR. OF CUSTOMS(PREVENTIVE)JAMNAGAR

CUSTOMS ACT, 1962

Section 18 - Provisional assessment of duty

Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 7439-7440 of 2004, Judgment Date: May 14, 2015

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.7439-7440 OF 2004

M/S. TATA CHEMICALS LTD. …APPELLANT

VERSUS

COMMISSIONER OF CUSTOMS
(PREVENTIVE) JAMNAGAR ...RESPONDENT

WITH

CIVIL APPEAL NOS.7628-7629 OF 2004

J U D G M E N T

R.F. Nariman, J.

1. The appellants were engaged in the manufacture of soda ash and Coke.
For the manufacture of Coke, they require coking coal which was imported by
them. Notification No.35/90 exempted coking coal having an ash content
below 12% from basic customs duty that was in excess of 5%. In addition,
notifications 36/90 and 23/91 exempted coking coal with ash content of less
than 12% from the whole of auxiliary duty and additional duty of customs.

2. On 4.2.1991, the appellants had entered into an agreement with
Philbro Energy Company (situated in the USA) for supply of 30500 metric
tons, CIF, Okha of Low Ash Metallurgical Coal produced by M/s Kembla Coal
and Coke, Australia. The contract specifically provided that the ash
content was not to exceed 10.3% and that the sampling and analysis was to
be done by an independent inspection agency of international repute,
namely, M/s Cargo Superintendents Company (Asia) Pty. Limited (CASCO), at
the loading port and that CASCO should give a certificate regarding
analysis of the coking coal. In accordance with the aforesaid agreement,
the appellants in Civil Appeal Nos.7439-7440 of 2004, namely, M/s. Tata
Chemicals Limited imported 33462 metric tons and appellants in Civil Appeal
Nos.7628-7629 of 2004, namely, M/s. B.L.A. Coke Private Limited imported
5000 metric tons of coking coal. Detailed sampling was done by CASCO while
the coal was being loaded on to the ship and CASCO had meticulously
followed British Standards equivalent to IS standards 436 and 1350. The
two consignments were divided into samples of 3000 metric tons each and
from each sample CASCO took samples weighing 470 kilograms each. The
primary samples were passed through secondary sampling, crushing and
tertiary treatment. 13 sample units were separately tested, their analysis
report obtained and the average furnished in the form of a consolidated
test report. This report stated that the moisture content was 7.2% and the
ash content of the said coking coal was 9.8%.

3. When the aforesaid consignment arrived at Okha, the appellants in
both the appeals filed bill of entry dated 15.3.1991 and claimed exemption
under the aforesaid notifications. Along with the bill of entry, the
appellants also submitted the certificate of CASCO. It is important to
note that the Department at no stage stated that they have not accepted the
CASCO report or that the CASCO report was defective in any manner.
However, the Customs Inspector at Okha apparently drew samples of 20
kilograms each – one from the vessel and one from the shore on 18.3.2001
and beat them with stones to crush them. The samples were then made into
powder form.

4. The samples were not drawn in the presence of any employee of the
appellants. It was alleged by the Department that the Inspector had drawn
the samples in the presence of Shri K.M. Jani who was allegedly an employee
of Bhagwati and Company, clearing agents appointed by the appellants. It
is common ground that the sample so drawn had not been drawn in accordance
with IS 436.

5. The samples so drawn, however, were sent to the Central Fuel Research
Institute, Dhanbad, to be analysed. On 13.1.1992, the appellants were
informed by the Superintendent of Customs that the test agency stated that
the ash content in the samples was more than 12%. A copy of the report was
subsequently furnished to the appellants which indicated that the ash
content of the coal belonging to Tata Chemicals was 13.8% and that
belonging to M/s. B.L.A. Coke Private Limited was 12.6%. On objection
being made to the said report, the Superintendent Okha sent two samples to
the Chief Chemist, Central Revenue Control Laboratory (CRCL) on 15.2.1992.
CRCL in turn submitted its report after another delay of 10 months and
reported that Tata Chemicals coal had an ash content of 12.21% and that of
B.L.A. 12.33%.

6. As a result of the ash content being more than 12%, show cause
notices dated 4.1.1993 was issued to both the appellants and differential
duty was demanded from both of them.

7. By an order dated 31.3.1995, the Assistant Collector demanded an
amount of Rs.3,95,77,324/- from Tata Chemicals and an amount of
Rs.59,136,771/- from M/s. B.L.A. Coke Private Limited.

8. On an appeal filed to the Commissioner (Appeals) Ahmedabad, the
Commissioner by an order dated 30.12.1997, set aside the order of the
Assistant Collector in the following terms:-

“10. In view of the above discussion and after going through the comments
of the Assistant Commissioner, Customs, Jamnagar as discussed in para 5.3
supra, wherein he was asked to give his comments on the submission made by
the appellants during the course of personal hearing. It is seen that the
Assistant Commissioner has accepted all the points raised by the appellants
and he has not been able to controvert any of their submissions. I come to
the conclusion that the appellants have substantial force in their
arguments and therefore I held that nothing can be added into the
notification and when notification does not prescribe the method of
analysis for ascertaining the ash content in the coal, it should be
ascertained on as received basis. I rely upon the ratio of the decisions
cited by the appellants in this regard. The CFRI and CRCL have conducted
analysis to ascertain the ash content on gross air dried basis, in spite of
clear instruction of the Asttt. Commissioner, Customs, Jamnagar to give the
report on as received basis, therefore, these reports should have been
given on as received basis. I accept the plea of the appellants that these
results can be converted into as received basis, which fact has also been
accepted by the Assistant Commissioner as discussed in para 5.3 above, by
applying the formula followed internationally. By applying the formula
which is accepted all over the world and has been given by the appellants
during the course of their submissions, the ash content on as received
basis would be 11.8% and 11.6% in the case of M/s. BLA Industries and 13.9%
and 11.4% in the case of M/s. Tata Chemicals Ltd. The formula for working
out these results is as under:

100 – Mar Mar: Moisture as received

100 – Mad Mad: Moisture as dried.

It is seen that in case of M/s BLA Industries results of both laboratories
converted into as received basis gives ash content below 12% and in the
case of M/s Tata Chemicals Ltd. Though the first result even after such
conversion crossed 12% marginally, but the result of subsequent analysis
conducted by CRCL after such conversion gives content of ash content below
12%. Therefore, after conversion on as received basis, which is the
requirement of the law, the ash content in both the cases is below 12% and
therefore both the appellants are entitled for partial concessional rate of
Customs duty in excess of 5% as prescribed by Notification No.35/90”

9. Revenue appealed to CESTAT who by the impugned judgment and order
dated 24.9.2004 allowed Revenue’s appeal and set aside the order of the
Commissioner (Appeals) basically on the ground that even though the samples
drawn by the Inspector were contrary to IS 436, yet since a representative
of the appellants was present, the appellants are estopped from turning
around at a later stage inasmuch as they did not immediately object to the
drawing of samples contrary to law.

10. Shri S.K. Bagaria, learned senior advocate on behalf of the
appellants argued before us that the Australian Company from whose mines
the coking coal was sent, generally mined coal with an ash content of less
than 12%. He referred to and relied upon a great deal of material to
establish this fact. Further, he went on to state that CASCO, the test
agency, was internationally renowned and had given a test
report/certificate of quality which described how meticulously they have
taken samples in accordance with law and how ultimately the samples were
found to contain ash at only 9.8% following the gross air dried method. He
also referred us to Section 18 of the Customs Act and stated that since no
fault had been found with CASCO’s certificate, the entire sampling done by
the customs authorities was invalid in law. He further went on to refer to
the cross-examination of the Inspector who drew the samples and stated that
the samples were drawn in the afternoon of 18.3.1991, the entire operation
being completed by 1730 hours. No panchnama was drawn. 20 kilograms was
taken from the shore and 20 kilograms from the vessel contrary to a minimum
of 75 kilograms for six lots to be taken under IS 436. When cross-
examined, the Inspector stated that he did not know about IS 436 and he
further admitted that he put the samples in a plastic bucket which did not
have any lid. He further went on to state that he had broken up the
sampled lumps with stones and then put the resultant powder in containers.
He further referred to the cross-examination of the Superintendent who had
deputed the Inspector to carry out the samples who was equally in the dark
about IS 436. Above all, he characterized as perverse the Tribunal’s
findings that the appellants were estopped because their representative was
present when the sampling was done. He stated that no representative of
either appellant was present. One K.M. Jani alone was present who admitted
in his cross-examination that he did not work for the appellants Clearing
Agent, namely, M/s Bhagwati & Company. Further the said Mr. Jani did not
go together with the Inspector and no samples were actually drawn in his
presence.

11. Shri Radhakrishnan, learned senior advocate appearing on behalf of
the respondent countered the submissions of Shri Bagaria by reading
copiously from the order of the Assistant Collector and the order of the
Tribunal. According to him, the samples taken by the Inspector could be
taken because statutory authority is given for the same by Section 18 of
the Customs Act. He went on to further state that even though the samples
may not have been taken strictly in accordance with IS 436 nonetheless as
Shri Jani was present, the rule of estoppel would apply against the
appellants.

12. Having heard learned counsel for the parties, it is important to
first extract Section 18 of the Customs Act. Section 18 of the Customs
reads as under:-

“Section 18. Provisional assessment of duty

(1) Notwithstanding anything contained in this Act but without prejudice to
the provisions contained in section 46-

(a) where the proper officer is satisfied that an importer or exporter is
unable to produce any document or furnish any information necessary for the
assessment of duty on the imported goods or the export goods, as tie case
may be; or

(b) where the proper officer deems it necessary to subject any imported
goods or export goods to any chemical or other test for the purpose of
assessment of duty thereon ; or

(c) where the importer or the exporter has produced all the necessary
documents and furnished full information for the assessment of duty but the
proper officer deems it necessary to make further enquiry for assessing the
duty, the proper officer may direct that the duty leviable on such goods
may, pending the production of such documents or furnishing of such
information or completion of such test or enquiry, be assessed
provisionally if the importer or the exporter, as the case may be,
furnishes such security as the proper officer deems fit for the payment of
the deficiency, if any, between the duty finally assessed and the duty
provisionally assessed.

(2) When the duty leviable on such goods is assessed finally in accordance
with the provisions of this Act, then-

(a) in the case of goods cleared for home consumption or exportation, the
amount paid shall be adjusted against the duty finally assessed and if the
amount so paid falls short of, or is in excess of 20[the duty finally
assessed,] the importer or the exporter of the goods shall pay the
deficiency or be entitled to a refund, as the case may be;

(b) in the case of warehoused goods, the proper officer may, where the duty
finally assessed is in excess of the duty provisionally assessed, require
the importer to execute a bond, binding himself in a sum equal to twice the
amount of the excess duty.”

13. The Revenue has grounded its case in Section 18(b) which provides
that imported goods can be subjected to chemical or other tests for the
purpose of assessment of duty thereon where the proper officer deems it
necessary to so subject the imported goods.

14. In our opinion, the expression “deems it necessary” obviously means
that the proper officer must have good reason to subject imported goods to
a chemical or other tests. And, on the facts of the present case, it is
clear that where the importer has furnished all the necessary documents to
support the fact that the ash content in the coking coal imported is less
than 12%, the proper officer must, when questioned, state that, at the very
least, the documents produced do not inspire confidence for some good prima
facie reason. In the present case, as has been noted above, the Revenue
has never stated that CASCO’s certificate of quality ought to be rejected
or is defective in any manner. This being the case, it is clear that the
entire chemical analysis of the imported goods done by the Department was
ultra vires Section 18(b) of the Customs Act.

15. Statutes often use expressions such as “deems it necessary”, “reason
to believe” etc. Suffice it to say that these expressions have been held
not to mean the subjective satisfaction of the officer concerned. Such
power given to the concerned officer is not an arbitrary power and has to
be exercised in accordance with the restraints imposed by law. That this is
a well settled position of law is clear from the following judgments. See:
Rohtas Industries Ltd. v. S.D. Agarwal, (1969) 3 S.C.R. 108 at 129. To
similar effect is the judgment in Sheo Nath Singh v. Appellate Assistant
Commissioner of Income Tax, Calcutta, (1972) 1 SCR 175 at 182. In that
case it was held as under:

“…There can be no manner of doubt that the words “reason to believe”
suggest that the belief must be that of an honest and reasonable person
based upon reasonable grounds and that the Income Tax Officer may act on
direct or circumstantial evidence but not on mere suspicion, gossip or
rumour. The Income Tax Officer would be acting without jurisdiction if the
reason for his belief that the conditions are satisfied does not exist or
is not material or relevant to the belief required by the section. The
Court can always examine this aspect though the declaration or sufficiency
of the reasons for the belief cannot be investigated by the Court.”

See also Bar Council of Maharashtra v. M.V. Dabholkar, [1976] 2 S.C.R. 48
at 51. N. Nagendra Rao & Co. v. State of A.P. (1994) 6 SCC 205 at 216.

16. The admitted position on record is that the samples drawn were not
drawn in accordance with law and were drawn with no regard whatsoever to IS
436. That IS 436 would apply to the facts of the present case is made
clear by our judgment reported in Bombay Oil Industries (P) Ltd. v. Union
of India, 1995 (77) E.L.T. 32 (S.C.), where this Court held following Union
of India v. Delhi Cloth & General Mills Co. Ltd., 1963 Suppl. (1) SCR 586,
that if the method of testing of any item of Central Excise tariff is not
mentioned, then the Indian Standard Institution’s method should be applied.
That this would apply to the Customs Act as well. IS 436 lays down:-

““5. SAMPLING FROM SHIPS DURING LOADING OR UNLOADING

5.1 Sub-lots – For the purpose of sampling, the entire quantity of coal in
a ship shall be divided into a suitable number of sub-lots of approximately
equal weight as specified in Table 1.

5.1.1 A gross sample shall be drawn from each of the sub-lots and shall be
kept separately so that there will be as many gross samples as the number
of sub-lots into which the lot has been divided.

5.2. Sampling of coal from ships shall be carried out, as far as
practicable, when coal is in motion. If it is taken on a conveyer, the
gross sample shall be collected as per the procedure laid down in Table 3.
If not, the gross samples may be drawn during loading or unloading of the
ship. For this purpose, the number of increments to be taken shall be
governed by the weight of the gross sample and the weight of increment as
specified in Table 3 for various size groups of coal.”

TABLE 1 NUMBER OF SUB-LOTS/GROSS SAMPLES

( Clauses 0.3.4.1 and 3.1 )

Weight of the Lot No. of sub-Lots/Gross Samples

(Metric Tonnes)

Upto 500 2

501 to 1000 3

1001 to 2000 4

2001 to 3000 5

Over 3000 6.”

Then the IS 436 goes on to describe the procedure to reduce a gross sample
into a sample for a lab test etc. in great detail, and speaks about the
minimum weight of a gross sample being 75 Kg so far as “Coal, small” is
concerned.

17. Clearly the samples drawn by the Inspector in the present case, have
been drawn contrary to the express provisions of IS 436. On this count
also, the samples being drawn not in accordance with law, test reports
based on the same cannot be looked at.

The Tribunal’s judgment has proceeded on the basis that even though the
samples were drawn contrary to law, the appellants would be estopped
because their representative was present when the samples were drawn and
they did not object immediately. This is a completely perverse finding
both on fact and law. On fact, it has been more than amply proved that no
representative of the appellant was, in fact, present at the time the
Customs Inspector took the samples. Shri K.M. Jani who was allegedly
present not only stated that he did not represent the Clearing Agent of the
appellants in that he was not their employee but also stated that he was
not present when the samples were taken. In fact, therefore, there was no
representative of the appellants when the samples were taken. In law
equally the Tribunal ought to have realized that there can be no estoppel
against law. If the law requires that something be done in a particular
manner, it must be done in that manner, and if not done in that manner has
no existence in the eye of law at all. The Customs Authorities are not
absolved from following the law depending upon the acts of a particular
assessee. Something that is illegal cannot convert itself into something
legal by the act of a third person.

18. It is clear therefore that the Tribunal judgment has to be set aside
on all these counts. The appeals are, therefore, allowed with no order as
to costs.

……………………….J.
(A.K. Sikri)

……………………….J.
(R.F. Nariman)
New Delhi;
May 14, 2015

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