Appeal No 13 of 1966
Appeal from the judgment and order dated January 13 1964 of the Punjab High Court Circuit Bench at Delhi in Civil Writ No 557 D of 1961
MP Vashi Dalip K Kapur SV Tambwekar and A G Ramaparkhi for the appellant
D Narsaraju RM Mehta and SP Nayar for the respondents
The Judgment of the Court was delivered by Hegde J
In this appeal by certificate though
several contentions were raised in the memo of appeal only two of them were pressed at the time of hearing
They are 1 under the circumstances of the case the confiscation ordered by the Collector Central Excise is illegal and 2 under any circumstance he could not have confiscated the entire quantity of tobacco used in the mixture
The appellants are tobacco merchants in Dashrath village near Baroda in Gujarat State
At the relevant time they were holding Central Excise licence in form L 2 and L 5 for the purpose of storing selling and processing duty paid and non duty paid tobacco
They had their own duty paid and non duty paid godowns
In about December 1958 according to their books they possessed the following lots of different varieties of tobacco
variety of tobacco Quantity Rate of duty Veriety of tobacco Quantity Rate of duty Bmds
Rs Biri Patti  2518 120 np per Ib Stems Kandi  28720 050 Do
Rava  132614 050 Do
Stalk Kandi  5720 006 Do
582 On December 13 1958 the appellants obtained permission from the Local Central Excise authorities to mix the above lots of tobacco
The percentage of different varieties of tobacco when mixed would have been as under Rava 6897  Stems Kandi 1486  Biri Patti 1307  Stalk Kandi 300 On December 23 1958 when the process of mixing was still going on the Superintendent of Central Excise Preventive Headquarters Baroda and his party raided the duty paid premises of the appellants
There he seized the entire mixture tobacco weighing Mds
20043 srs
ie 16483450 lbs
of tobacco
According to that Superintendent when experiments were conducted he found in the above mixture percentage of different varieties as under Rava 44  Biri Patti 5150  Stems Kandi 3 74  From this he concluded that considerable quantity of non duty paid Biri Patti tobacco had been utilised in the manufacture of the mixture
Hence notice was issued to the appellants on January 6 1959 to show cause why action should not be taken against them under rule 40 of the Central Excise Rules 1944 inasmuch as they brought into duty paid premises 60770 lbs
of Biri Patti tobacco without payment of duty
It was also alleged in that notice that the appellants had removed certain quantity of Rava tobacco from L 2 premises
The appellants submitted their reply on March 13 1959
At the hearing before the Collector as the appellants challenged the correctness of the experiments conducted by the Superintendent Central Excise the Collector himself in the presence of the appellants conducted a fresh experiment
On the basis of that experiment he came to the conclusion that the results obtained by the experiment conducted by the Superintendent Central Excise are by and large correct
By his order dated April 13 1959 the Collector Central Excise held the appellants guilty of contravening rule 40 and consequently levied on them a penalty of Rs 2000 as well as the duty payable under law
He also ordered the confiscation of the seized tobacco weighing 16483450 lbs
But he gave an option to the appellants of redeeming the same on payment
of a fine of Rs 1 lac
The appellants paid the amount of fine
under protest and got the goods released
Thereafter they moved the High Court of Bombay under article 226 of the Constitution for quashing the order of the Collector but that application was withdrawn as the appellants first 583 wanted to exhaust their remedy under the Central Excise Act
The appellants unsuccessfully went up in appeal and thereafter in revision under the Central Excise and Salt Act 1944 against the order of the Collector
After the 3rd respondent dismissed their revision petition they filed in the High Court of Punjab at Delhi Civil Writ No 557 D of 1961 challenging the legality of the order made by the Collector of Central Excise on April 13 1959
That petition was dismissed by a Division Bench of that Court on January 13 1964
This appeal is brought against that decision
in this Court the finding of the Collector of Central Excise that the appellants were guilty of mixing the duty paid tobacco with non duty paid tobacco and thereby they contravened rule 40 was not challenged
Nor was there any dispute about the quantity of non duty paid tobacco used in the mixture
The main contention of Mr MP Vaish learned Counsel for the appellants was that under rule 40 the Collector could not have confiscated the tobacco mixture as it consisted of both duty paid tobacco as well as tobacco on which duty had not been paid
His alternative contention was that under any circumstance the Collector could not have confiscated anything more than 60770  lbs
of the mixture which can be said to represent Biri Patti tobacco on which duty had not been paid
In support of his first contention he heavily relied on the decision of KT Desai J in Messrs Valitmahomed Gulamhusain Sonavala  Co vs CT A Pillai 1
The seized tobacco mixture weighed 16483450 lbs
That included 60770 lbs
of Biri Patti tobacco on which duty had not been paid
But on the remaining quantity duty had been paid
The tobacco seized was found in the godown licenced to store duty paid tobacco
Hence the appellants were clearly guilty of contravening rule 40 of the Central Excise Rules which reads Except as provided in the proviso to sub rule 1 of rule 32 and in rule 171 no wholesale purchaser of unmanufactured tobacco for the purpose of trade or manufacture and no wholesale purchaser of other unmanufactured products from a curer shall receive into any part of his premises or into his custody or possession any unmanufactured tobacco or other unmanufactured products other than tobacco or other unmanufactured products imported from a foreign country otherwise than under a valid permit granted by an officer showing that the proper duty has been paid and every such wholesale purchaser who receives or has in his custody or possession any such goods in contravention of this rule shall in respect of every such offence be liable to pay the duty leviable on such 1 1960 42 BLR p 634
584 goods and to a penalty which may extend to two thousand rupees and the goods shall also be liable to confiscation lm0
In view of this rule the legality of the order made by the Collector in so far as he levied duty as well as penalty cannot be challenged and was not challenged before us
But so far as the confiscation is concerned  it was urged that under the rule in question only tobacco on which duty had not been paid could alone have been confiscated
In the instant case even according to the finding of the Collector only on 66770 lbs
of Biri Patti tobacco the duty had not been paid but on the remaining tobacco seized duty had been paid it was not possible to separate the duty paid tobacco from the non duty paid tobacco hence it was impermissible for the Collector to confiscate the said tobacco under Rule 40 as that rule permitted the confiscation of only non duty paid tobacco
In Sonavala s case1 referred to earlier Desai J had held that the right to confiscate smuggled goods under section 1678 of the does not carry with it the right to confiscate unsmuggled goods
The words such goods  appearing in section 1678 of the Act cannot be interpreted to mean similar goods
It is not open to the Customs authorities to confiscate similar goods even though they may be of the same quality bulk and value
The words such goods  mean the very goods which have been smuggled
If the smuggled goods lose their identity it would not be open to the Customs officers to confiscate any part of those goodS
Where therefore gold that has been smuggled has in the melting process got so mixed up with gold that is unsmuggled that it is impossible to separate the smuggled gold from the unsmuggled one the right to confiscate smuggled gold ceases when the two get inextricably mixed up
The broad proposition laid down by Desai J undoubtedly supports the contention advanced on behalf of the appellants
We shall presently show that this statement of the law is not correct but it is necessary to mention at this juncture that in the Sonavala s case1 an innocent third party had purchased the smuggled gold for proper value and mixed the same with unsmuggled gold which circumstance had an important bearing on the decision of the case
In Institutes of Justinian at page 104 dealing with the topic commixtio it is observed If the things mixed still remaining the property of their former owners were easy to separate again as for instance cattle united in one herd when one owner brought his claim by vindicatio his property was restored to him without difficulty but if there was difficulty in separating the materials from each other as in dividing the grains of wheat in a heap the obvious 1960 42 BLRp
585 mode would be to distribute the whole heap in shares proportionate to the quantity of wheat belonging to the respective owners
But it might happen that the wheat mixed together was not all of the same quality and therefore the owner of the better kind of wheat would lose by having a share determined in amount only by the quantity of his wheat and the judge therefore was permitted to exercise his judgment how great an addition ought to be made to his share to compensate for the superior quality of the wheat originally belonging to him
 In Williams on Personal Property 18th Edn at p 50 it is observed The acquisition of ownership by accession or confusion of substances also presupposes a previous title
Thus the young of a domestic animal belong to the owner of the mother
If any substances for instance tallow belonging to
various owners be mixed by consent or accidentally the mass appears to belong to the owners of its parts in common
And if the confusion be made wilfully by one without the other s leave the mass belongs to the latter whose ownership is thus unlawfully invaded Dealing with the same topic it is observed in Halsbury s Laws of England 3rd Edn
Vol 29 at p 378
Ownership of goods may be acquired by confusion or intermixture if the goods when mixed are indistinguishable
If the goods are mixed by agreement or consent the proprietors have an interest in common in proportion to their respective shares if mixed by accident or the act of a third party or which neither owner is responsible the proprietors become owners in common of the mixed property in proportion to the amounts contributed
Where however one man wilfully mixes his goods with those of another without the approbation or knowledge of the other the whole be longs to the latter
 The law on this topic was stated by Bovill CJ as early as 1868  in Spence and Anr
vs The Union Marine Insurance Co Ltd1 thus In our own law there are not many authorities to be found upon this subject but as far as they go they are in favour of the view that when goods of diffe 1 Law Reports Common Pleas 3 1867 68
586 rent owners become by accident so mixed together as to be undistinguishable the owners of the goods so mixed become tenants in common of the whole in the proportions which they have severally contributed to it
The passage cited from the judgment of Blackburn J in the case of the tallow which was melted and flowed into the sewers is to that effect Buckley vs Gross
And a similar view was adopted by Lord Abinger in the case of the mixture of oil by leakage on board ship in Jones vs Moore  It has been long settled in our law that where goods are mixed so as to become undistinguishable by the wrongful act or default of one owner he cannot recover and will not be entitled to his proportion or any part of the property from the other owner but no authority has been cited to shew that any such principle has ever been applied nor indeed could it be applied to the case of an accidental mixing of the goods of the two owners and there is no authority nor sound reason for saying that the goods of several persons be the property of their several owners and become bona vacantia
 The same principle was again reiterated by the House of Lords in Smurthwaite and Ors
vs Hannay and Ors1 The rules enunciated above are of assistance in finding out a solution to the problem before us though they do not govern the same
In the instant case there is no doubt that the appellants were guilty of an unlawful act in mixing duty paid tobacco with the non duty paid tobacco but the fact remains that they were the owners of both those lots at the time they mixed them and hence the legal principles set out earlier do not cover such a case
It must also be remembered that in dealing with a provision relating to forfeiture we are dealing with a penal provision
It would not be proper for us to extent the scope of that provision by reading into it words which are not there and thereby widen the scope of the provision relating to confiscation
Rule 40 permits the Central Excise authorities to confiscate only those goods on which duty has not been paid
It does not permit them either specifically or by necessary implication to confiscate other goods
Therefore it was not permissible for the Collector to confiscate the entire tobacco mixture
At the same time no person can be permitted to benefit by his wrongful act
No rule of law should be so interpreted as to permit or encourage its circumvention
If by the wrongful act of a party he renders it impossible for the authorities to confiscate under rule 40 the non 1 1894 ACp
587 duty paid goods it is in our opinion open to those authorities to confiscate from out of the goods seized goods of the value reasonably representing the value of the non duty paid goods mixed in the goods seized
Applying that rule to the facts of this it follows that the Collector Central Excise could have confiscated out of the tobacco seized
much of it as can be held to reasonably represent the value of the tobacco on which the duty had not been paid
As noticed earlier the tobacco confiscated had been returned to the appellants after realising from them a sum of Rs 1 lac as fine
The Counsel for the parties agreed at the hearing that the  value of the Biri Patti tobacco used in the mixture for which no duty had been paid could be fixed at Rs 35000
In view of this agreement it is not necessary for us to remit the case back to the Collector of Central Excise for assessing the value of the tobacco on which duty had not been paid
In view of our earlier findings the fine to be levied on the appellants in lieu of the confiscation that could have been ordered has to be fixed at Rs 35000
From this it follows that the Collector has to refund to the appellants a sum of Rs 65000 which he has collected from them in excess of the aforementioned Rs 35000
The appeal is allowed to that extent
In the circumstances of the case we direct the parties to bear their own costs both in this Court as well as before the High Court
RKPS Appeal allowed in part


Summary:
The appellants were tobacco merchants in Baroda in Gujarat State and were holding Central Excise licence in Forms L 2 and L 5 for the purpose of storing selling and processing duty paid and non duty paid tobacco
On December 23 1958 while the process of mixing some tobacco was going on in a godown where duty paid tobacco was
kept the Superintendent of Central Excise Preventive Headquarters Baroda and his party raided the premises of the appellants and seized a mixture of tobacco weighing 16483450 lbs
tobacco This mixture included 60770 lbs
of tobacco on which duty had not been paid
After the appellants were issued a show cause notice why action should not be taken against them under rule 40 of the Central Excise Rules 1944 and after they had filed their reply the Collector Central Excise by his order dated April 13 1959 held the appellants guilty of contravening rule 40 levied on them a penalty of Rs 2000 as well as the duty payable under the law and also ordered the confiscation of the entire quantity of the tobacco seized
As he gave the appellants the option of redeeming the same on payment of a fine of Rs 1 lakh they paid the fine under protest and secured release of the tobacco
The appellant s appeal as well as revision against the Collector s order under the provisions of the Central Excise and Salt Act 1944 were both dismissed
The appellants then filed a writ petition under article 226 of the Constitution challenging the legality of the Collector s order but this was dismissed by the High Court
In appeal to this Court the only challenge was to the Collector s order of confiscation
It was contended relying on the decision in Messrs Valimahomed Gulamhusain Sonavala  Co vs
CTA Pillai 1960 42 BLR p 634 that the Collector could not have confiscated the tobacco mixture as it consisted of both duty paid tobacco as well as tobacco on which duty had not been paid the alternative contention was that the Collector could not in any extent have
confiscated more than 60770 lbs
of mixture which could be said to represent tobacco on which duty had not been paid
HELD Rule 40 permits the Central Excise
authorities to confiscate only those goods on which duty had not been paid
It does not permit them either specifically or by necessary implication to confiscate other goods
Therefore it was not permissible for the Collector to confiscate the entire tobacco mixture
At the same time no person can be permitted to benefit by his wrongful act
No rule of law should be so interpreted as to permit or encourage its circumvention
If by the wrongful act of a party he renders it impossible for the authorities to confiscate under 581 rule 40 the non duty paid goods it is open to those authorities to confiscate from out of the goods seized goods of the value reasonably representing the value of the non duty paid goods mixed in the goods seized
Applying that rule to the facts of the present case it follows that although the appellants were guilty under Rule 40 of an unlawful act in mixing duty paid tobacco with non duty paid tobacco the Collector could have confiscated out of the tobacco seized so much of it as can be held to reasonably represent the value of the tobacco on which the duty had not been paid
586 G 581 B As the parties were agreed that the value of the tobacco used in the mixture for which no duty had been paid could be fixed at Rs 35000
the fine to be levied on the appellant in lieu of the confiscation that could have been ordered had to
be fixed at Rs 35000
The Collector therefore had to refund to the appellant a sum of Rs 65000
Institutes of Justinian p 104 Williams on Personal Property 18th edition p 50 Spence and Ant
vs The Union Marine Insurance Co Ltd Law Reports Common Pleas 3 1867 68 and Smurthwaite and Ors
vs Hannay and Ors
 1894 ACp 494 referred to