Civil Appeal No 4102 of 1984
From the order dated 3171984 of the Customs Excise and Gold Control Appellate Tribunal New Delhi in Appeal No CDSBT 8 1782D
Harish N Salve and ND Garg for the Appellant
B Datta Additional Solicitor General RP Srivastava DN Mukherjee and Ms section Relan for the Respondents
The following Judgments of the Court were delivered RANGANATH MISRA J We have had the benefit of reading the judgment proposed by our learned Brother Ray J We agree with the conclusion that the respondent No 1 is liable for the loss or damage to the goods and would like to briefly indicate the reasons for such conclusion
The appellants imported 58 bales of woollen rags through the State Trading Corporation from Canada
When the goods arrived at Calcutta the Customs authorities called upon the appellants to show cause as to why the same may not be confiscated under the provisions of the hereafter referred to as the Act
After hearing the appellants as also the State Trading Corporation respondent No 1 to which a notice was also issued the Collector of Customs by his order of 12th March 1981 directed confiscation of the goods in exercise of power under section 111d and m of the but in lieu of confiscation the appellants were given the option under section 125 of the Act to clear the goods on payment of redemption fine of Rs 50000
The appellants appealed to the Central Board of Excise and Customs which sustained the order of confiscation but 605 reduced the redemption fine to Rs20000 and directed A   after the goods are mutilated to the satisfaction of Collector of Customs Calcutta by the importers at their cost and under customs supervision so as to render them unfit for use except rags and after payment of appropriate duty the goods be released on payment of a fine of Rs20000 within three months hereof
 The appellants then moved the Central Government in revision against the Board s order and in due course the revision was transferred to the Customs Excise and Gold Control Appellate Tribunal
The Tribunal by its order dated 31st July 1984 gave the following direction while disposing of the appeal  the goods be released on payment of customs and other related duties under TI 6302 with counter vailing duty as leviable under corresponding entry in the Central Excise Tariff
This is subject to Board s order about payment of redemption fine of Rs20000 and mutilation of the goods to the satisfaction of the Collector at the cost of the appellants and under the supervision of the Customs authorities  The appellants then moved this Court by way of appeal under section 130 E of the 
On 17th December 1986 this Court directed waive of the redemption fine
Mr Salve for the appellant agreed to pay the duty as directed when delivery was to be taken of the goods
When appellants complained that a part of the goods was not traceable notice was issued to the Calcutta Port Trust authorities and it has been joined as respondent No 2 to this appeal
In view of the order waiving the demand of redemption fine and the appellants  agreeing to pay the demand of appropriate duty as directed by the Tribunal the only question that survives for examination is as to the availability of the goods return whereof has to be made to the appellants and in case the whole or part of the goods is not traceable in what way the direction of the Tribunal for return of the goods has to be worked out
It is not disputed that 58 bales of the goods in question had been received nor is there any dispute that the entire goods had been confiscated under the Act
Section 45 of the Act provides 606 45
Restriction on custody and removal of imported goods
1 Save as otherwise provided in any law for the time being in force all imported goods unloaded in a customs area shall remain in the custody of such person as may be approved by the Collector of Customs until they are cleared for home consumption or are warehoused or are transhipped in accordance with the provisions of Chapter VIII
2 The person having custody of any imported goods in a customs area whether under the provisions of sub section 1 or under any law for the time being in force a shall keep a record of such goods and send a copy thereof to the proper officer b shall not permit such goods to be removed from the customs area or otherwise dealt with except under and in accordance with the permission in writing of the proper officer
 Under section 47 provision for clearance of the goods for home consumption is made
Section 49 makes provision for storage of imported goods in warehouse pending clearance but such storage is permissible only when the importer applies for it
Section 125 provides that Whenever confiscation of any goods is authorised by this Act the officer adjudging it may in the case of any goods the importation or exportation whereof is prohibited under this Act or under any law for the time being in force and shall in the case of any other goods give to the owner of the goods an option to pay in lieu of confiscation such fine as the said officer thinks fit    Where such option is not given or even if such option is given it is not availed of under section 126 the goods are confiscated and upon confiscation they vest in the Central Government
In view of these provisions in the Act there can be little scope to dispute that until the goods is cleared for home consumption the scheme of the Act requires the goods to remain in the hands of the Customs authorities and obviously the statutory liability to account for the goods would be of the authorities under the Act charged with the responsibility of keeping the goods
607 19 bales as alleged appear to be missing and 39 bales are said to be available
The appellants have contended that the goods have not been properly preserved and parts of some of the bales have been taken out to be made into independent bales These allegations have not been accepted by the respondent No 1 Respondent No 2 has totally denied any liability in the matter
In case it is ultimately found that the Customs authorities by themselves have the total liability to account for the goods or in case their liability in that behalf has to be shared by the Calcutta Port Trust and even though one or both are liable to account for the goods and they fail to do so in what manner the appellants would in such eventuality be compensated are matters which require factual consideration and would warrant reception of evidence
This proceeding before us is thus not appropriate for looking into this part of the grievance
A situation has now arisen where the order of the Tribunal as modified by this Court for the return of the goods cannot be fully given effect to
We think it appropriate to require the Tribunal to finally dispose of this question
Appellants
counsel has relied upon a decision of this Court in State of Bombay now Gujarat vs Memon Mahomed Haji Hasam As the matter is being left open to be dealt with by the Tribunal we do not propose to refer to this decision at any length
The Tribunal would give reasonable opportunity to the appellants as also the two respondents in the matter of adjudication of this aspect of the dispute
In case the goods are not finally traceable and the liability to account for the goods is fixed in the hands of one or both of the respondents the Tribunal would do well to examine and decide what amount of compensation in lieu of the goods should be payable to the appellants
This should be done within three months from today
Costs to be in the discretion of the Tribunal
BC RAY J
This appeal under Section 130 E of the is against the judgment and order No 43484 D dated 31st July 1984 of the Customs Excise and Gold Control Appellate Tribunal New Delhi whereby the Appellate Tribunal directed the release of the imported woollen rags to the appellant on payment of customs and other related duties under TI 6302 with countervailing duty as leviable under corresponding entry in the Central Excise Tariff
It was also directed by the said order that the appellant will have to comply with the order of the Board about payment of redemption fine of Rs20000 and mutilation of the goods to the satisfaction of the Collector at the cost of appellant and under the supervision of the customs authorities
608 The matrix of the case is that in accordance with the import policy of 1979 80 which provided for import of certain items including woollen rags through canalised agency the appellant company placed order to the State Trading Corporation the canalised agency for import of mutilated woollen rags in which the contents of wool would be minimum 80 under the order of allocation issued by the Textile Commissioner Bombay in the name of the appellant
On 441979 the foreign suppliers namely Ms Gorodensky Regd 8 Queen Street Montreal Canada entered into a contract for the supply of old rags of woollen textile fabrics including knitted and crocheted fabrics which are required for manufacture of shoddy yarn and not consist of articles of furnishing or clothing or other clothing so worn out soiled or torn as to be beyond cleaning or repair
Fumigation Certificate from Government or Municipal Health Authorities was to be provided by suppliers at their cost with the State Trading Corporation
The specification of the goods was stated to be CM old original mutilated woollen hosieries 60 dark 40 fancy minimum 80 wool contents  65 US cents per kg
CIF quantity 20000 kg
The suppliers sent the goods comprising of 58 bales of woollen rags through the State Trading Corporation on 15979 to be delivered at Calcutta Port and the invoice was drawn in favour of State Trading Corporation allocation to the appellant herein
Along with it there was a certificate from the suppliers to the effect that goods shipped are in conformity with contract No STCCI247WR23978 79 dated 441979
 It further certified that the minimum wool content is 80 in each bale
These documents were transferred to the appellant by the State Trading Corporation in short STC on High Sea Sales basis
The appellant imported 58 bales of woollen rags through the STC and in order to have the same released filed the bill of entry stating the goods as woollen rags on the basis of the aforesaid documents of the foreign suppliers
The goods however on testing the same drawn from the said consignment by the Customs authorities were found to have wool content only 6 to 10 and acrylic fibre contents in the rags were about 60 to 70 besides other synthetic fibres
It appeared to the Customs authorities that the imported rags were acrylic rags and not woollen rags
A show cause notice was issued to the appellant on 211980 that the goods imported were in contravention of clause 31 of Imports Control order 1955 as amended read with Section 3 of the Imports and Exports Control Act 1947 as amended and calling upon the appellant to show cause why the goods 58 bales of woollen rags be not confiscated under Section 111d and 111m read with Section 11 of the and why penalty be not imposed under Section 112 of the 
The Collector of Customs after 609 considering the reply of the appellant and hearing both the appellant and the STC confiscated the aforesaid goods under Section 111d and 111m of the 
In lieu of confiscation the appellant was given the option under Section 125 to clear the goods on payment of redemption fine of Rs 50000 within one month from the date of receipt of the order or any other period that may be extended on sufficient cause being shown
The Collector further stated in his order I refrain from imposing any penalty under Section 112 of the as there was no force to show the complicity of either the STC or the Appellant in arranging for import of goods which are different from what had been ordered
 Against this order an appeal was made to the Central Board of Excise and Customs
The Central Board of Excise and Customs came to the conclusion that the goods imported could not be described as woollen goods at all as the wool contents were found to be not exceeding 10
The Board however considering the fact that the goods have been imported through the STC and there was no involvement of the importers in the importation of wrong goods took a lenient view and directed that after the goods are mutilated to the satisfaction of the Collector of Customs by the appellant at his cost and under Customs supervision so as to render them unfit for use except rags and after payment of appropriate duty the goods be released on payment of a fine of Rs20000 within three months of the order
Against this order the appellant filed an appeal before the Customs Excise and GoldControl Appellate Tribunal New Delhi
The Appellate Tribunal disposed of the appeal ordering that the goods be released on payment of customs and other related duties under TI 6302 with countervailing duty as leviable under corresponding entry in the Central Excise Tariff
The Tribunal also stated that this is subject to Board s order about payment of redemption fine of Rs20000 and mutilation of the goods to the satisfaction of the Collector at the cost of the appellant and under the supervision of the Customs authorities
It is against this order the instant appeal has been filed before this Court
This Court on hearing the learned counsels for both the parties made an order on 17th December 1986 to the following effect Two questions arise one relating to the demand of duty and the other levy of penalty
On the facts we are satisfied and the learned Addl
Solicitor General having agreed that 610 there is no scope for levying of penalty
The demand of penalty is therefore waived and so far as duty is concerned Mr Salve agrees that the duty as demanded is pay able and will be paid
The only difficulty is about delivery of the goods imported
Notice has been issued to the Port Trust Authorities and it is said to have been served but there is no appearance on behalf of the Port Trust
Mr Salve suggest that steps should be taken first to trace the goods
The Petitioner would pay the duty as demanded and take delivery of the materials
The matter be listed on 23rd January 1987 and the Port Trust may be again notified of this date so that further orders may be passed
The Port Trust will disclose the Court the location of the goods
 In accordance with the directions contained in the said order the Port Trust Authorities in their counter affidavit sworn by one Girindra Bhuson Chakraborty the Commercial Supervisor Calcutta Port Trust on 1831987 specifically averred that out of 58 bales only 45 bales were landed and 13 bales were landed short
It was also further averred in the said affidavit that the appellant did not take steps to remove the goods from the Port areas and according to the notification No GSR 32 F dated 1st February 1975 issued by the Government of India Ministry of Shipping and Transport under Section 126 read with Sections 42 and 43 of the  no responsibility shall attach to the Board after expiry of a period of seven clear working days from the date of taking charge of the goods by the Board in respect of such goods
It has been further stated that the Collector of Customs under his order No S333379AGII dated 211980 confiscated the entire consignment of the said imported goods and removed 6 bales only from 1 KPD to their confiscated godown at Clive Warehouse on 881981 by PTCG Port Trust Covered Rly
Wagon No 1362 and the balance 39 bales have been Iying since its landing at different points of docks in a very deteriorated condition
It was further stated that the entire consignment was confiscated by the Collector of Customs and only 6 bales were removed and the balance 39 bales had been Iying in the Port premises at the sole risk of Customs and the Port Trust had no authority for the disposal of the goods which were confiscated by the Customs authorities
It has been stated that the Port Trust has no liability for loss or damage of these confiscated goods which are in the custody of the Customs authorities
An affidavit has been filed on behalf of the appellant sworn by 611 one Dharam Paul Oswal Managing Director of the appellant mill on 3131987 stating inter alia that their Manager Mr HK Goel visited the Calcutta Port Trust and Collector of Customs as well as its officers on 30th March 1987 for identification of 39 bales of rags out of consignment of 58 bales and for delivery of the said 39 bales on payment of duty
It has been further averred that the concerned officials supervising storagedelivery have failed to showproduce even a single bale against the alleged 39 bales admitted to be in their possession before this Court
It has also been stated that instead of 39 bales the Manager of the appellant mill Mr HK Goel had been directed by CPT and Customs Department to take delivery of 300 kgs
approximately of useless sweep waste of nil market value
It has strenuously been contended on behalf of the appellant that the appellant is prepared to pay the customs duty as demanded by the Customs authorities in due compliance of the order of this Court and to take delivery of the goods imported but as the goods have already been lost and are not traceable from the control and custody of the Customs authorities the Customs authorities are liable to pay the value of 39 bales of woollen rags on CIF basis
It was on the other hand submitted on behalf of the Customs authorities that the value of the imported goods cannot be determined in this appeal by this Court as it requires consideration of facts and the only remedy for the appellant is to bring a suit for determination of such issue
It was also tried to be contended that since the goods imported were kept in the dock it is the responsibility of the Port Trust to indemnify the appellant for the loss of the imported goods
After considering the submissions of the learned counsels and also considering the facts and circumstances of the case there is no manner of doubt that the goods were confiscated by the Collector of Customs under Section 111d and 111m of the and directions were given for collection of redemption fine and for complying with certain directions contained in the order of the Collector before the release of goods
Section 126 of the specifically provides that when any goods are confiscated under the Act such goods shall thereupon vest in the Central Government
It is also evident from the provisions of Section 141 of the said Act that goods in the customs area shall be subject to the control of the officers of Customs
Undoubtedly the imported goods were unloaded from the ship in the Customs area
So these were under the control of the officers of Customs
Moreover after confiscation of the entire consignment of imported goods ie 45 bales out of 58 bales of woollen rags 612 the same vested in the Central Government in accordance with the provisions of Section 126 of the said Act
It is also clear from the averments made on behalf of respondent No 2 the Calcutta Port Trust as stated hereinbefore that the imported goods remained in the Customs area and these were subsequently confiscated by the Collector of Customs
The imported goods were not handed over to the custody of the Port Trust
Therefore it is the Customs authorities who are in possession and control of the said imported bales of woollen rags and they cannot shirk their responsibility for the loss and damage of the said goods and they are liable to pay the value of the goods to the appellant as damages in order to re compensate the appellant
It is pertinent to mention in this connection that under Sections 42 and 43 of the it is only when the goods have been taken charge of and receipt given for them under Section 427 of the said Act liability for any loss or damages which may occur to the person to whom receipt has been given by the Board arises
In other words under the provisions of Sections 42 and 43 Board of Trustees under the said Act will be liable to recompense the loss or damages in respect of goods which have been taken charge of by the Board
In the instant case as not a single document has been produced before this Court by the Customs Authorities showing that the goods were handed over to the custody and possession of the Board of Trustees and that the Board issued any receipt for that as required under Section 42 read with Section 43 of the said Act
Therefore under no circumstances can the Board of Trustees be held responsible for the loss or destruction of the said imported goods
As stated hereinbefore the imported goods were kept unloaded in the customs area and were confiscated and as such the respondent No 1 is liable for the loss or damages that has been caused to the appellant by the destruction of the imported goods from their custody and possession
It is not possible for this Court while hearing the appeal under Section 130 E of the against the order of the Appellate Tribunal to ascertain and determine the money value of the imported goods which have been lost or destroyed from the possession and custody of the Customs authorities
The appellant may take appropriate proceedings for determination of the damages and for recovery of the same in accordance with law
In view of the above findings this appeal is disposed of
There will however be no order as to costs
SL Appeal disposed of


Summary:
The appellant company carrying on business as manufacturer of iron and steel with its factory and works at Jamshedpur in Bihar was assessed to sales tax for two periods prior to the Constitution under the Bihar Sales Tax Act 1947 No XIX Of 1947 enacted by the Bihar Legislature in exercise of its exclusive power under the Government of India Act 1935
The company used to send its goods from Jamshedpur to various parts of India
In the railway receipt the company itself figured as the consignee it paid the freight and the receipt was sent either to its branch offices or bankers to be handed over to the purchaser when he paid the price
From the amounts shown as gross turn over in the two returns for the two periods the company claimed deduction of certain amounts being the valuable consideration for the goods manufactured in Bihar but sold delivered and consumed outside on the ground that in none of the transactions in respect of the said sums did property in the goods pass to the purchasers in Bihar
The appellant claimed further deductions on account of the railway freight paid by it
The Sales Tax Officer disallowed both the claims and added the amounts of sales tax realised by the appellant from its purchasers to the taxable turnover
The company appealed against the orders of assessment but the Commissioner of Sales Tax dismissed its appeals
The Board of Revenue in revision confirmed the orders of the Commissioner with certain modifications and remanded the matters to the Sales Tax Officer
On the appellant s application for reference of certain questions of law the Board referred them to the High Court
One of them related to the legality of adding the Sales Tax to the turn over and was answered in favour of the appellant and the respondent did not appeal
The other questions decided by the High Court against the appellant related to the vires of the Act and the validity of retrospective levy of sales tax under section 41 of the Act
The appellant s contentions in the appeals were that the tax levied under section 41 read with section 2g second proviso cl
II of the Act was not a sales tax within the meaning of Entry 48 in List II of the Seventh Schedule to the Govern ment of India Act 1935 but was in the nature of excise duty 172 1356 which a provincial legislature had no power to impose that the theory of territorial nexus was inapplicable to sales tax and in any case there was no real or sufficient nexus in the present cases and that retrospective levy of the sales tax under section 41 Of the Act destroyed the indirect nature of the tax thus making it a direct tax on the dealer which could not be passed on to the consumer Held per Das C J Venkatarama Aiyar section K Das and AK Sarkar jj Bose J dissenting that the contentions raised on behalf of the appellant must be negatived
The provisions of section 41 read with section 2g second proviso of the Bihar Sales Tax Act as amended by the Bihar Sales Tax Amendment Act 1948 VI Of 1949 were within the legislative competence of the Legislature of the Province of Bihar
Both before and after the amendment the word sale  as used in section 41 and as defined by section 2g of the Act meant the transfer of property in the goods sold
The second proviso added by the amending Act did not extend that meaning so as to include a contract of sale
What it actually did was to lay down certain circumstances in which a sale although completed elsewhere was to be deemed to have taken place in Bihar
Those circumstances did not constitute the sale but only located the situs of the sale
Sales Tax Officer Pilibhit vs Messrs Budh Prakash jai Prakash   distinguished
Nor was it correct to contend that the tax levied under section 41 read with section 2g Of the Act was in the nature of excise duty
Under cl
ii of the second proviso to section 2g of the Act the producer or manufacturer became liable to pay the tax not because he produced or manufactured the goods but because he sold them
Province of Madras vs Boddu Paidanna and Sons 1942 FCR go and Governor General vs Province of Madras 1945 LR 72 IA 91 referred to
There can be no doubt that the theory of territorial nexus does apply to sales tax legislation
Although sales tax can be levied only on a completed sale this theory has its use in indicating the circumstances in which the tax may be enforced in a particular case
One or more of the several ingredients of a sale may furnish the connection between the taxing State and the sale
State of Bombay vs United Motors India Ltd 1953 SCR 1069 Poppatlal Shah vs The State of Madras 1953 SCR 677 and The State of Bombay vs RMD Chamarbaugwala   relied on
Bengal Immunity Co Ltd vs The State of Bihar  considered
Case law reviewed
1357 As in a sale of goods the goods must necessarily play an important part the circumstances mentioned in the proviso to section 2g of the Act namely the presence of the goods in Bihar at the date of the agreement of sale or their production or manufacture there must be held to constitute a sufficient nexus between the taxing province and the sale wherever that might take place
Governor General vs Raleigh Investment  relied on
Province of Madras vs Boddu Paidanna and Sons 1942 FCR go distinguished
It would not be correct to contend that the theory of nexus might lead to multiple taxation or obstruct inter State trade
Article 2862 of the Constitution and the relevant entries in the Legislative List are a complete safeguard to any such contingency
Although as a matter of economic theory sales tax maybe an indirect tax realisable from the consumer it need not be legally so and is not so under the Bihar Sales Tax Act 1947 which imposes the primary liability on the seller
A buyer moreover is not bound to pay sales tax over and above the agreed sale price unless he is by contract bound to do so
There can therefore be no scope for the argument that the retrospective enforcement of the tax under section 41 of the Act could destroy the character of the tax or that it was beyond the legislative competence of the Bihar Legislature
Love vs Norman Wright Builders Ltd LR 1944 1 KB 484 referred to
Per Bose J Sales tax can be imposed only on the sale
It is therefore wrong to look to the goods or the agreement to sell or any other elements that constitute a sale in order to impose the tax
A State can tax a sale of goods that takes place within its boundary
It has no power to tax extra territorially and since a completed sale can have only one situs no State Legislature can be allowed to break up a sale into its component parts which are separate and distinct from the sale itself and by an application of the theory of nexus claim that he sale wholly took place within it
The nexus can only be in respect of the entire sale wherever it may take place and not of its several parts