ivil Appeal No 4407NM of 1989
From the Judgment and Order dated 2871989 of the Maharashtra High Court in Appeal No 360 of 1984
Anil B Divan AJ Rana section Ganesh Ravinder Narain PK Ram Ms Amrita Mittar MP Bakshi and DN Mishra for the Appellant
VC Mahajan Hemant Sharma and P Parmeshwaran for the Respondents
The Judgment of the Court was delivered by DUTT J
This special leave petition has been heard at length and both parties have made elaborate submissions on the merits of their respective cases and accordingly we proceed to dispose of the special leave petition after granting leave
The appellant Roche Products Limited a public limited company has by this appeal challenged the propriety of the decision of the Division Bench of the Bombay High Court dismissing the appeal preferred by the appellant against the judgment of a learned Single Judge dismissing the writ petition of the appellant
In the writ petition the appel lant challenged the order of the Collector of Customs passed in exercise of his revisional jurisdiction under section 1302 of the  hereinafter referred to as the Act  directing confiscation of the goods imported by the appellant but giving to the appellant an option to pay in lieu of such confiscation
a fine of Rs 1900000 and further imposing on the appellant a penalty of Rs500000
The appellant is engaged in the business of manufacture of various pharmaceutical products including sulphamethoxa zole which is also known as SMX 
One of the important ingredients or raw materials for the manufacture of SMX is a chemical known as isoxamine  which is also known as 3 amino 5 mithyl isoxazole 
On April 23 1974 the Ministry of Industrial Develop ment of the Government of India issued to the appellant an industrial licence enabling it to manufacture 18 tomes of SMX per year
Clause 4 of the industrial licence enjoins that the manufacture of new articles shall 499 be completed and commercial production established within a period of two years from the date of issue of the industrial licence
The industrial licence also contains some addition al conditions of which the condition contained in clause 5iv is relevant for our purpose
Clause 5iv provides as follows 5
The industrial licence will also be sub ject to the conditions stipulated in Annexure I
It will be further subject to the following additional conditions i       ii       iii      iv The undertaking should base the manufacture of sulphamethaxazole on MAI 5 methyl 3 Amino in sale
From the third year onwards the manufacture of drugs will be based on T Butyl alcohol hydroxylamine acid T Butyl alcohol hydrexylamine said sulphates and methyl formulate
The manufacture of formulations should be based on their own production of sulphamethaxazole and import of Tricathopria will be considered only for one year
There after it should be based on locally produced materials
 Clause 10 provides that the industrial licence will be valid only for a period of two years within which commercial production is to be established
It is apparent from the conditions of the industrial licence that the appellant was permitted to import the material isoxamine for a period of two years only from the date of the licence that is to say up to April 23 1976 and that thereafter the product SMX was to be manufactured from indigenous materials
On October 13 1967 the Import Control Authority issued to the appellant an import licence for the import of various raw materials up to an aggregate value of Rs5331000 including isoxamine
The licence was valid for a period of 24 months from the date of issue of the same
It however contained a condition that all the goods that would be imported under it should only be used in the factory of the appellant
500 By its letter dated September 20 1978 addressed to the Under Secretary Government of India Ministry of Petroleum Chemicals and Fertilisers the appellant stated their diffi culties in manufacturing SMX from indigenous materials and made a request that it might be allowed to import isoxamine until the middle of 1979
The appellant also wrote another letter dated September 29 1978 to the said Under Secretary again pointing out to him inter alia the difficulties which the appellant had to face in developing the manufac ture of isoxamine from locally produced materials indige nous articles and ingredients and the delays which has occurred as a consequence
Although the appellant did not get any reply to its representation from the Government permitting it to import isoxamine until the middle of 1979 yet it placed an order on Hoffmann La Roche Limited Basle Switzerland for supply of isoxamine and opened an irrevocable letter of credit in favour of the said Hoffmann La Roche Limited
Before the goods ordered by the appellant had reached India from Switz erland the Under Secretary to the Government of India Ministry of Petroleum Chemicals and Fertilisers by his letter dated January 20 1979 informed the appellant that its request for permission to import isoxamine till the middle of 1979 could not be acceded to and the appellant was asked to manufacture SMX from indigenous materials
Between March and June 1979 consignments of isoxamine reached the Bombay Port pursuant to the order placed by the appellant to the said Hoffmann La Roche Limited
The appel lant also gave a declaration that it was an Actual User and that its registration had not been cancelled or withdrawn or otherwise made inoperative as required to be given under paragraph 6 of Appendix 10 of the Import Policy 1978 79 and got the goods cleared upon such declaration by the Customs Officers
On September 7 1979 the appellant received from the Collector of Customs Bombay a notice issued under section 1302 of the Act calling upon the appellant to show cause why the goods imported by the appellant should not be con fiscated under section 3 of the Imports and Exports Con trol Act 1947 and why a penalty of Rs700000 should not be imposed on the appellant under section 1121 of Act
In the said notice to show cause it was stated inter alia that the industrial licence granted to the appellant stipulated that after a period of two years the production of SMX should be based on indigenous 501 materials and accordingly the appellant was not allowed to use imported materials in the production of SMX after the expiry of two years that is after April 22 1976
It was also stated that the appellant was not an Actual User of the imported material that is isoxamine after April 22 1976 inasmuch as the industrial licence had ceased to be valid for the manufacture of SMX with imported materials
Further it was stated that the declaration given by the appellant in terms of paragraph 6 of Appendix 10 of the Import Policy 1978 79 contained a false statement namely that the registration of the appellant had not been cancelled with drawn or otherwise made inoperative for the manufacture of SMX and accordingly the goods namely isoxamine had been imported by the appellant in contravention of the Import Trade Control Order issued under section 3 of the Imports and Exports Control Act
In the circumstances the Collec tor of Customs proposed to review the said unauthorised clearance of the goods
The appellant submitted its reply to the show cause notice contending inter alia that the industrial licence dated April 23 1974 granted to it for the manufacture of SMX was still valid and operative
The Collector of Customs after hearing the appellant and after considering the facts and circumstances of the case by his order dated November 14 1979 held that the appellant was not an Actual User Industrial in respect of the said imported raw material isoxamine after April 22 1976 that is to say after the expiry of two years from the date of issue of the industrial licence to the appellant and that since the industrial licence was invalid for manu facture of SMX the importation of the raw material namely isoxamine was impermissible
It was also held by the Col lector of Customs that the appellant had furnished a false declaration on the basis of which it got the goods cleared by the Customs Officers
Accordingly the Collector of Customs ordered as follows In exercise of powers conferred upon me under Section 1301 of the  I therefore review the order of clearance allowing storage in warehouse the goods shall be confiscated under Section 111d of the read with Section 3 of the Imports and Exports Control Act 1947
I however allow under Section 125 of the Cus toms Act 1962 an option to pay in lieu of such confiscation a fine of Rs 1900000 Rupees nineteen lakhs only and clear the goods into town
This option should be exer cised within a month from the date of this 502 order or within such extended period as may be allowed on good and sufficient cause being shown to the satisfaction of the Adjudication authority
I also impose a penalty of Rs500000 Rupee five lakhs only on the importers under Section 112 of which is to be paid forthwith
Being aggrieved by the said order of the Collector of Customs the appellant challenged the same by filing a writ petition before the Bombay High Court
A learned Single Judge of the High Court who heard the writ petition dis missed the same by his judgment dated April 11 1984
The appellant preferred an appeal against the judgment of the learned Single Judge to a Division Bench of the High Court which as stated already dismissed the same
Hence this appeal by special leave
It is not disputed that the industrial licence granted to the appellant clearly stipulated that after the expiry of two years the appellant would not be entitled to manufacture SMX with the imported material isoxamine
Such manufacture of SMX could be made by the appellant from indigenous mate rials
It has been strenuously urged by Mr Anil Divan learned Counsel appearing on behalf of the appellant that the goods namely isoxamine having been imported under a valid Open General Licence OGL the customs authorities have no jurisdiction to confiscate the same
It is submitted that the only thing that can be looked into by the customs authorities is whether the particular goods have been im ported under a valid licence or not
As soon it is found that it has been so imported under a valid licence the customs authorities will have no other alternative than to clear the goods
We are unable to accept this contention of the appel lant
It is true that the goods have been imported under OGL
If that had been the only condition for clearance of the goods then of course the customs authorities could not confiscate the goods
But that was not the only condition to be fulfilled by the appellant
Another conditions that has to be fulfilled by the appellant is that contained in paragraph 6 of Appendix 10 of the Import Policy 1978 79 which is as follows 6
All Actual Users at the time of clear ance of goods shall furnish to the customs authorities a declaration giving particulars of their registration as an Actual User with the concerned authorities and affirming that such registration 503 has not been cancelled or withdrawn or other wise made inoperative
In case where separate registration number is not allotted by the sponsoring authority concerned the importers shall produce other evidence to the satisfac tion of the customs authorities that they are registered as industrial units
Actual Users non Industrial shall at the time of clear ance of the goods furnish to the customs authorities the original or a photostat copy of the currently valid Registration Certifi cate held by them under the Shops and Estab lishments Act Cinematographic Actor con cerned local statute
 Thus under paragraph 6 the Actual User has to fur nish a declaration affirming that the registration as an Actual User has not been cancelled or withdrawn or otherwise made inoperative
If there be no separate registration number as in the case of the appellant importers shall produce evidence to the satisfaction of the customs author ities that they are registered as industrial units
The appellant has admittedly been registered as an industrial unit which is evidenced by the grant of the industrial licence
As stated already the appellant furnished a decla ration that its registration had not been cancelled or withdrawn or otherwise made inoperative
The appellant also claimed that it was an Actual User
It is urged on behalf of the appellant that as soon as it is proved that it is an Actual User and that its registration has not been can celled the declaration that has been furnished by the appellant must be held to be a correct one and the customs authorities had rightly allowed the appellant to clear the goods
Clauses 1 and 3 of Paragraph 5 of Chapter 2 of Import Policy 1978 79 define Actual User and Actual User Industrial respectively as follows 1 Actual User means a person who applies for secures a licence for the import of any item or an allotment of a canalised item required for his own use and not for business or trade in it
Thus in the case of an indus trial undertaking the item concerned shall be utilised for the manufacturing processes or operations conducted within its authorised premises or made available to jobbing units outside only as part of such production ef fort
In the nonindustrial category such as hospitals research and development or any other institutions commercial estab 504 lishments and individuals the concerned item shall be utilised for itshis own use ie for the purpose for which the item was sought for import
3 Actual User Industrial shall mean an industrial undertaking be it in the large scale small scale or cottage industries sector engaged in the manufacture of any goods for which it holds a licence or Regis tration Certificate from the appropriate Government authority wherever applicable
 There can be no doubt and it is also conceded to on behalf of the appellant that the definition of Actual User Industrial as contained in clause 3 of paragraph 5 should be read with the definition of Actual User in clause 1 of paragraph 5
So read it is clear that an Actual User Industrial means an industrial undertaking which is entitled to utilise the imported goods in the manufacturing process or operations conducted within its authorised premises
Much emphasis has been laid by the learned Counsel for the appellant on the first sentence of clause 1 of paragraph 5 Actual User means a person who applies forsecures a licence for the import of any item or an allotment of a canalised item required for his own use and not for business or trade in it
It is submitted on behalf of the appellant that the appellant having secured the OGL for the import of isoxamine for its own use and not for business or trade in it the appellant should be held to be an Actual User
We do not find any substance in the contention made on behalf of the appellant
The appellant is not entitled under the industrial licence to utilise the imported goods for its own use for the manufacture of SMX
Even otherwise the latter part of clause 1 makes it very clear that the imported goods have to be utilised for the manufacturing process or operations conducted within the authorised premises of the industrial undertaking which the appellant is debarred from doing under the terms of the industrial licence after the expiry of the period of two years on April 22 1976
The appellant therefore does not satisfy the first condition of paragraph 6 of Appendix 10 of the Import Policy 1978 79 namely the importer has to be an Actual User
In other words the importer must not be debarred from utilising but must be entitled to utilise the imported goods under the terms of the industrial licence
The appellant also does not fulfil the other condition under paragraph 6 that the registration has not been made otherwise invalid
It may be that the industrial licence is operative for the 505 manufacture of SMX with indigenous materials but surely it is inoperative for the manufacture of the said product with imported materials after the expiry of two years from the date of the issuance of the licence
The declaration of the appellant that it is an Actual User and that its registra tion has not been otherwise made inoperative is a false declaration as rightly held by the Collector of Customs in the impugned order
When the industrial licence granted to the appellant does not permit the user of the imported goods for the manufacture of SMX the importation of the goods under the OGL is illegal and could not be allowed to be cleared by the appellant
There is therefore no substance in the contention made on behalf of the appellant that on a demurer at the highest the appellant can only be said to have infringed a condition of its industrial licence and such infringement does not constitute a prohibition on import which is imposed by any law
This submission com pletely overlooks the provision of paragraph 6 of Appendix 10 of the Import Policy 1978 79
After the expiry of two years from the date of issuance of the industrial licence the appellant had no right to import isoxamine under the OGL
Accordingly the importation of isoxamine after the expiry of two years from the date of the issuance of the industrial licence was illegal
It is next contended on behalf of the appellant that even if the appellant s declaration is considered to be wrong it would not render the importation invalid but the only consequence would be that the clearance of the goods would not be permitted and that in such situation the respondents would only take recourse to clause 10 C1 of the Imports Control Order
Clause 10 C1 provides that where on the importation of any goods or at any time there after the Chief Controller of Imports and Exports is satis fied after giving a reasonable opportunity to the licensee of being heard in the matter that such goods cannot be utilised for the purpose for which they were imported he may by order direct the licensee or any other person having possession or control of such goods to sell such goods to such persons within such time at such price and in such manner as may be specified in the direction
The appellant cannot in our opinion take resort to the provi sion of clause 10 C1
That provision is not meant for granting relief to an importer who on the basis of a false declaration gets his goods cleared nor does it apply to any import which is in violation of the conditions of an indus trial licence
Clause 10 C1 will apply to a case where the goods have been validly imported but cannot be utilised for some reason or the other
The contention of the appellant is unsound and is rejected
506 Next contention of the appellant is that the Collector of Customs cannot in exercise of his revisional jurisdic tion under section 1302 of the Act as it stood then for the first time confiscate the goods and impose penalty on the appellant
It is submitted that a revisional authority as the Collector of Customs is under section 1302 of the Act can set aside the decision or order of an officer of customs subordinate to him but cannot either confiscate the goods or impose penalty
It is contended that in the instant case the Collector of Customs could set aside the decision of the Customs Officer allowing clearance of the goods and direct issuance of a show cause notice under section 124 of the Act for the confiscation of the goods
The grievance of the appellant is that if such a show cause notice was issued and there was an adjudication of confiscation and penalty under section 122 of the Act in that case the appellant could challenge the same by way of an appeal as provided in section 128 of the Act
The Collector of Customs it is urged having himself confiscated the goods and imposed a penalty has deprived the appellant of its right of appeal under section 128 and accordingly the impunged order of the Collector of Customs confiscating the goods and imposing the penalty on the appellant should be quashed
We may first consider whether the Collector of Customs had exceeded his jurisdiction in confiscating the goods and imposing penalty for the first time in exercise of his revisional jurisdiction under section 1302 of the Act
In view of the provisions of section 122 read with section 124 of the Act the Collector of Customs has the jurisdiction to confiscate goods or impose penalty after issuing show cause notice on the person concerned
He has therefore both the original jurisdiction as also revisional jurisdiction
In exercise of his revisional jurisdiction under section 1302 of the Act he set aside the order of the Customs Officer allowing the goods to be cleared by the appellant and thereafter in exercise of his original jurisdiction under section 122 read with section 124 of the Act he issued a show cause notice on the appellant and after hearing the appellant confiscated the goods and imposed penalty on the appellant
It however appears from the impugned order dated November 14 1979 that the confiscation was made and the penalties imposed by the Collector of Customs in exer cise of his revisional power under section 1302 of the Act
This in our opinion is a mere irregularity not af fecting the order
Admittedly the Collector of Customs had the power to confiscate the goods and impose penalty under section 122 read with section 124 of the Act
When an au thority has the power to do a certain act and in exercise of such power he does the same but refers to a wrong provision of the 507 law that would be a mere irregularity and would not vitiate such act
In the instant case also the Collector of Customs had admittedly the power to confiscate goods and impose penalty and even though in the impugned order it is stated that the confiscation of the goods was made and the penalty was imposed in the exercise of his power under section 1302 of the Act that would not be fatal and vitiate the order
The decision of the Delhi High Court in Addl
Commis sioner of Income Tax vs JK D Costa  strongly relied upon by the appellant does not apply to the facts and circumstances of the instant case
In that case the Addl
Commissioner of Income Tax came to the conclusion inter alia that the failure of the Income Tax Officer to initiate penalty proceedings for both the assessment years namely 1964 65 and 1965 1966 under section 2711a and for the assessment year 1965 66 under section 273b of the Income Tax Act 1961 was erroneous and prejudicial to the interest of the revenue
In that view of the matter he passed orders setting aside the assessment orders and di rected the Income Tax Officer to make fresh assessments in accordance with law
It has been observed by the Delhi High Court that there is no identity between the assessment proceedings and the penalty proceedings the latter are separate proceedings that may in some cases follow as a consequence of the assessment proceedings
Further it has been observed that the penalty proceedings do not form part of the assessment proceedings and that the failure of the Income Tax Officer to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect
In that case as the Income Tax Officer did not impose a penalty the Addl
Commissioner set aside the assessment order
The omission to initiate penalty proceedings by the Income Tax Officer will not vitiate an assessment order which is otherwise valid and it has been rightly observed by the Delhi High Court that the Addl
Commissioner was not justified in setting aside the assessment order on that ground
In the instant case the facts are completely different
The Collector of Customs set aside the order of the Customs Officer allowing the appellant to clear the goods on a false declaration and also confiscated the goods and imposed penalty
The Collector of Customs had as noticed above the power to confiscate the goods and impose penalty and he did the same after issuing a show cause notice and hearing the appellant
In D Costa s case supra the Addl
Commissioner of Income Tax had no power to initiate penalty proceedings under section 2711a or section 273b of the Income Tax Act 508 1961
Be that as it may that decision has no manner of application to the facts and circumstances of the instant case
The appellant has complained that as the goods have been confiscated and the penalty has been imposed by the Collec tor of Customs in exercise of his revisional jurisdiction the appellant has been deprived of his right to prefer an appeal before the Central Board of Excise and Customs under section 128a of the Act
When the Collector of Customs could confiscate the goods and impose penalties only in exercise of his original jurisdiction under section 122 read with section 124 of the Act surely the appellant had a right of appeal against such confiscation and imposition of penalty
At this stage we may notice a very significant fact that in the impugned order of the Collector dated November 14 1979 it has been specifically stated at the very outset that an appeal against the order lies to the Central Board of Excise and Customs New Delhi within three months from the date of its despatch
It cannot therefore be said that the appellant was misled as the order was purported to have been passed by the Collector of Customs in exercise of his revisional jurisdiction
The appellant however did not avail itself of its right of appeal under section 128a of the Act and accordingly its complaint in that regard is not justified
Before we part with this appeal we may dispose of two other minor contentions of the appellant
Counsel for the appellant submits that as the appellant has been found not entitled to use the imported material in the production of SMX it is curious that by the impugned order the appellant has been given an option to pay in lieu of the confiscation of the imported materials a fine of Rs 1900000 and clear the goods into the town
Counsel submits that this shows that the appellant is entitled to use the imported material for the production of SMX
This contention is devoid of merit and is fit to be rejected on the face of it
The appellant may have been allowed to clear the goods on pay ment of a fine in lieu of confiscation but that does not mean that the appellant would be entitled to use the goods for the manufacture of SMX in violation of the industrial licence
The appellant may sell the goods to some other person but surely it cannot use it in its factory for the manufacture of SMX
The other contention of the appellant is that as the capacity of the appellant to manufacture SMX has been raised from 18 tomes to 45 tonnes per annum there is no sense in confiscating the imported goods
This contention is equally devoid of merit
It may be that the 509 manufacturing capacity of the appellant has been increased but there is nothing to show that the Central Government has permitted the appellant to manufacture SMX with imported isoxamine
The appellant may go on manufacturing SMX from indigenous materials and the manufacturing capacity of the appellant may have been increased from 18 tonnes to 45 tonnes for the manufacture of SMX from indigenous materials but these facts are quite irrelevant and have no bearing on the question with which we are concerned
The contention is rejected
No other points have been urged on behalf of the appellant
For the reasons aforesaid the appeal is dismissed
There will however be no order as to costs in this appeal
RSS Appeal dismissed


Summary:
The Respondent assessee used to manufacture talcum powder and face powder and were clearing the same on payment of excise duty
The assessee claimed deduction of cost of packing for transportation in respect of small packings of powder ranging from 027 paise to 076 paise per dozen packings and the same was first approved by the Department but later the Department having noticed that the small packs were first packed in dozen and thereafter packed in second ary packings for easy transportation to the wholesale deal er disallowed the claim of deduction
The Assistant Collector in view of this Court s decision in postmanufacturing expenses cases took the view that the amount claimed by the Respondent was not deductible and accordingly issued a show cause notice to the Respondent raising a demand on the respondent to pay the differential duty on the cost of secondary packings which was stated to be Rs34615192 P for the period from 21285 to 3151986
The Asstt Collector by his order dated 27287 disallowed the Respondent s claim for exclusion of the cost of packing for transportation and thus rejected the claim
The Respondent preferred an appeal to the Collector of Customs but did not succeed and thus appealed to the Cus toms Excise and old Control Tribunal
The Respondent relied on the decision of this Court in Union of India vs Godfrey Philips India Ltd  and contended that in view of the decision of this Court the cost of third stage packing the outer cartons intended for transport could be included in the assessable value only if packing was necessary for the sale of goods in the wholesale market
The Tribunal however relying on the decision of this Court in Union of India  Ors
vs Bombay Tyre International Ltd  held that the Cost of outer or bigger cartons in which the smaller cartons containing powder tins are 480 packed is not includible in the assessable value as the delivery of the goods can be taken in smaller cartons at the factory gate by a buyer in the course of wholesale trade
Being aggrieved by that decision the Revenue came up in appeal to this Court under Section 35Lb of the Act
Allowing the appeal and remanding the case to the Tribu nal with directions this Court HELD Per Sabyasachi Mukharji J  What is to be included in the value has to be determined in terms of Section 44di of the Act
485F The question is not for what purpose a particular kind of packing is done but the test is whether a particular packing is one in order to put the goods in the condition in which they are generally sold in the wholesale market at the factory gate and if they are generally sold in the wholesale market at the factory gate in a certain packed condition whatever may be the reason for such packing the cost of such packing would be includible in the value of the goods for assessment to excise duty
490B C In the present case it has been factually found by the Collector that the talcum powder and face powder are packed either in metal containers or in plastic containers and thereafter they are put in dozen packing also of cardboard packings which are inner cartons and contain one dozen
The same are then put in the master carton for purpose of delivery to wholesale dealers
490C D The correct position seems to be that the cost of that much of packings be they primary or secondary which are required to make the articles marketable would be includible in the value
How much packing is necessary to make the goods marketable is a question of fact to be determined by application of the correct approach
Packing which is pri marily done or mainly done for protecting the goods and not for making the goods marketable should not be included
491H 492A The Tribunal was in error in approaching the problem before it by looking at the question whether the goods packed in the smaller cartons could be sold in a wholesale market in the course of wholesale trade at the factory gate without the outer cartons in which the smaller 481 cartons are packed
The question is not whether these goods could be so sold but the question is whether these goods are so sold usually and as such used to become marketable in such manner
492B C Per section Ranganathan J Section 44di of the Act lays down that where goods are delivered by the factory gate in a packed condition the cost of the packing should be included in the assessable value
The clause makes no distinction between primary and secondary packing or further subsequent packing
492G There is therefore much to be said for the view that in judging the condition of packing whose cost is to be included in the assessable value one should go by the conduct of the parties and the nature of the packing in which the goods generally are not can be placed in the wholesale market
493H 494A Ms Hindustan Polymers vs The Collector of Central Excise case referred to