Case: Union of India Vs. Mackinnon Mackenzie and Company Limited

M. L. PENDSE, J. ( 1 ) MESSRS. Indian Sugar Industries Export Corporation had filed four drawback shipping bills for export of 11500 metric tons of Indian sugar. The sugar bags were to be transported by a vessel from Bombay to Indonesia. Mackinnon Mackenzie and Company Limited are the owners of vessel known as MV Teesta and the said vessel was berthed in Indira Docks on March 7, 1977 and had been engaged to carry a cargo of 11500 metric tons of sugar. The loading operation commenced on March 7, 1977. On March 8, 1977, fire was reported in Hatch No. 4 of the vessel. The fire was brought under control but the fire caused heavy damage to most of the bags in the hatch. A survey of the damage was carried out and surveyors advised the shipping company to mitigate their losses and avoid further damage by unloading the bags forthwith. The bags were then unloaded and stored at the wharf. On March 11, 1977, the shipping company requested for removal of the bags to Bombay Port Trust Warehouse. The surveyors report indicated that the cargo was damaged and sugar had lost its colour and crystals had turned into lumps and cakes. The shipping company then obtained licence from Director of Sugar and Vanaspati for sale of Cargo and entrusted the work to Lloyds Surveyors and Tata Finlay Limited to dispose of the bags. Tenders were invited and the highest tender received was from Bombay Hotels Association and the rate quoted was Rs. 2. 80 per kilogram. The highest tender was accepted and the sugar was sold for a price of Rs. 19,69,550/ -. ( 2 ) ON May 25, 1977, the shipping company filed bill of entry for home consumption by clearance of damaged sugar and the value shown in the bill of entry was Rs. 19,69,550/ -. The customs authorities demanded payment of Rs. 8,86,297. 50 as counter vailing duty prior to the clearance and, accordingly, the shipping company made the payment on June 13, 1977 and the damaged sugar bags were handed over to the highest tenderer. On December 12, 1977, the shipping company filed an application seeking refund of excess duty paid of Rs. 2,98,162. 30. The shipping company claimed that duty was paid under the mistake of law as there was a difference between the value declared and price recovered. The refund application was rejected by Assistant Collector of Customs but the order was set aside and the matter remanded back in appeal. On remand, the Assistant Collector directed payment of refund of excess duty of Rs. 2,98,162. 30 on July 3, 1980. ( 3 ) ON November 20, 1980, the Assistant Collector of Customs addressed a letter to the shipping company demanding back the amount of excess duty of Rs. 2,98,162. 30 refunded under the refund order dated July 3, 1980. The Assistant Collector claimed that the refund was made erroneously. The shipping company filed a reply and, thereafter, on March 20, 1981, addressed a letter claiming that the appellants were not entitled to levy any duty in respect of damaged sugar cleared for home consumption and, consequently, the entire amount of duty recovered of Rs. 8,86,297. 50 should be refunded. The Assistant Collector of Customs, by order dated October 19, 1983, held that the claim of refund of entire duty of Rs. 8,86,297. 50 made by the shipping company is not tenable. The Assistant Collector further held that the refund of Rs. 2,98,162. 30 granted earlier in favour of the shipping company was erroneous and the shipping company should refund the same forthwith. The order passed by the Assistant Collector was challenged by the shipping company by filing Writ Petition No. 2718 of 1983 under Article 226 of the Constitution of India before the learned Single Judge sitting on the Original Side of this Court. The learned Judge, by the impugned judgment dated September 27, 1990, held that recovery of duty in respect of damaged sugar was without any authority of law and, consequently, the claims of the shipping company for refund of the entire duty was justified. The learned Single Judge further held that the order of refund of part of the duty was not erroneous. As a result of these findings, the department was directed to refund the balance amount of Rs. 5,88,135. 20 with interest at the rate of 6% per annum from the date of the petition till payment. The order of the learned Single Judge is under challenge. ( 4 ) ON November 20, 1980, the Assistant Collector of Customs addressed a letter to the shipping company demanding back the amount of excess duty of Rs. 2,98,162. 30 refunded under the refund order dated July 3, 1980. The Assistant Collector claimed that the refund was made erroneously. The shipping company filed a reply and, thereafter, on March 20, 1981, addressed a letter claiming that the appellants were not entitled to levy any duty in respect of damaged sugar cleared for home consumption and, consequently, the entire amount of duty recovered of Rs. 8,86,297. 50 should be refunded. The Assistant Collector of Customs, by order dated October 19, 1983, held that the claim of refund of entire duty of Rs. 8,86,297. 50 made by the shipping company is not tenable. The Assistant Collector further held that the refund of Rs. 2,98,162. 30 granted earlier in favour of the shipping company was erroneous and the shipping company should refund the same forthwith. The order passed by the Assistant Collector was challenged by the shipping company by filing Writ Petition No. 2718 of 1983 under Article 226 of the Constitution of India before the learned Single Judge sitting on the Original Side of this Court. The learned Judge, by the impugned judgment dated September 27, 1990, held that recovery of duty in respect of damaged sugar was without any authority of law and, consequently, the claims of the shipping company for refund of the entire duty was justified. The learned Single Judge further held that the order of refund of part of the duty was not erroneous. As a result of these findings, the department was directed to refund the balance amount of Rs. 5,88,135. 20 with interest at the rate of 6% per annum from the date of the petition till payment. The order of the learned Single Judge is under challenge. ( 5 ) ON November 20, 1980, the Assistant Collector of Customs addressed a letter to the shipping company demanding back the amount of excess duty of Rs. 2,98,162. 30 refunded under the refund order dated July 3, 1980. The Assistant Collector claimed that the refund was made erroneously. The shipping company filed a reply and, thereafter, on March 20, 1981, addressed a letter claiming that the appellants were not entitled to levy any duty in respect of damaged sugar cleared for home consumption and, consequently, the entire amount of duty recovered of Rs. 8,86,297. 50 should be refunded. The Assistant Collector of Customs, by order dated October 19, 1983, held that the claim of refund of entire duty of Rs. 8,86,297. 50 made by the shipping company is not tenable. The Assistant Collector further held that the refund of Rs. 2,98,162. 30 granted earlier in favour of the shipping company was erroneous and the shipping company should refund the same forthwith. The order passed by the Assistant Collector was challenged by the shipping company by filing Writ Petition No. 2718 of 1983 under Article 226 of the Constitution of India before the learned Single Judge sitting on the Original Side of this Court. The learned Judge, by the impugned judgment dated September 27, 1990, held that recovery of duty in respect of damaged sugar was without any authority of law and, consequently, the claims of the shipping company for refund of the entire duty was justified. The learned Single Judge further held that the order of refund of part of the duty was not erroneous. As a result of these findings, the department was directed to refund the balance amount of Rs. 5,88,135. 20 with interest at the rate of 6% per annum from the date of the petition till payment. The order of the learned Single Judge is under challenge. ( 6 ) ON November 20, 1980, the Assistant Collector of Customs addressed a letter to the shipping company demanding back the amount of excess duty of Rs. 2,98,162. 30 refunded under the refund order dated July 3, 1980. The Assistant Collector claimed that the refund was made erroneously. The shipping company filed a reply and, thereafter, on March 20, 1981, addressed a letter claiming that the appellants were not entitled to levy any duty in respect of damaged sugar cleared for home consumption and, consequently, the entire amount of duty recovered of Rs. 8,86,297. 50 should be refunded. The Assistant Collector of Customs, by order dated October 19, 1983, held that the claim of refund of entire duty of Rs. 8,86,297. 50 made by the shipping company is not tenable. The Assistant Collector further held that the refund of Rs. 2,98,162. 30 granted earlier in favour of the shipping company was erroneous and the shipping company should refund the same forthwith. The order passed by the Assistant Collector was challenged by the shipping company by filing Writ Petition No. 2718 of 1983 under Article 226 of the Constitution of India before the learned Single Judge sitting on the Original Side of this Court. The learned Judge, by the impugned judgment dated September 27, 1990, held that recovery of duty in respect of damaged sugar was without any authority of law and, consequently, the claims of the shipping company for refund of the entire duty was justified. The learned Single Judge further held that the order of refund of part of the duty was not erroneous. As a result of these findings, the department was directed to refund the balance amount of Rs. 5,88,135. 20 with interest at the rate of 6% per annum from the date of the petition till payment. The order of the learned Single Judge is under challenge. ( 7 ) ON November 20, 1980, the Assistant Collector of Customs addressed a letter to the shipping company demanding back the amount of excess duty of Rs. 2,98,162. 30 refunded under the refund order dated July 3, 1980. The Assistant Collector claimed that the refund was made erroneously. The shipping company filed a reply and, thereafter, on March 20, 1981, addressed a letter claiming that the appellants were not entitled to levy any duty in respect of damaged sugar cleared for home consumption and, consequently, the entire amount of duty recovered of Rs. 8,86,297. 50 should be refunded. The Assistant Collector of Customs, by order dated October 19, 1983, held that the claim of refund of entire duty of Rs. 8,86,297. 50 made by the shipping company is not tenable. The Assistant Collector further held that the refund of Rs. 2,98,162. 30 granted earlier in favour of the shipping company was erroneous and the shipping company should refund the same forthwith. The order passed by the Assistant Collector was challenged by the shipping company by filing Writ Petition No. 2718 of 1983 under Article 226 of the Constitution of India before the learned Single Judge sitting on the Original Side of this Court. The learned Judge, by the impugned judgment dated September 27, 1990, held that recovery of duty in respect of damaged sugar was without any authority of law and, consequently, the claims of the shipping company for refund of the entire duty was justified. The learned Single Judge further held that the order of refund of part of the duty was not erroneous. As a result of these findings, the department was directed to refund the balance amount of Rs. 5,88,135. 20 with interest at the rate of 6% per annum from the date of the petition till payment. The order of the learned Single Judge is under challenge. ( 8 ) ON November 20, 1980, the Assistant Collector of Customs addressed a letter to the shipping company demanding back the amount of excess duty of Rs. 2,98,162. 30 refunded under the refund order dated July 3, 1980. The Assistant Collector claimed that the refund was made erroneously. The shipping company filed a reply and, thereafter, on March 20, 1981, addressed a letter claiming that the appellants were not entitled to levy any duty in respect of damaged sugar cleared for home consumption and, consequently, the entire amount of duty recovered of Rs. 8,86,297. 50 should be refunded. The Assistant Collector of Customs, by order dated October 19, 1983, held that the claim of refund of entire duty of Rs. 8,86,297. 50 made by the shipping company is not tenable. The Assistant Collector further held that the refund of Rs. 2,98,162. 30 granted earlier in favour of the shipping company was erroneous and the shipping company should refund the same forthwith. The order passed by the Assistant Collector was challenged by the shipping company by filing Writ Petition No. 2718 of 1983 under Article 226 of the Constitution of India before the learned Single Judge sitting on the Original Side of this Court. The learned Judge, by the impugned judgment dated September 27, 1990, held that recovery of duty in respect of damaged sugar was without any authority of law and, consequently, the claims of the shipping company for refund of the entire duty was justified. The learned Single Judge further held that the order of refund of part of the duty was not erroneous. As a result of these findings, the department was directed to refund the balance amount of Rs. 5,88,135. 20 with interest at the rate of 6% per annum from the date of the petition till payment. The order of the learned Single Judge is under challenge. ( 9 ) ON November 20, 1980, the Assistant Collector of Customs addressed a letter to the shipping company demanding back the amount of excess duty of Rs. 2,98,162. 30 refunded under the refund order dated July 3, 1980. The Assistant Collector claimed that the refund was made erroneously. The shipping company filed a reply and, thereafter, on March 20, 1981, addressed a letter claiming that the appellants were not entitled to levy any duty in respect of damaged sugar cleared for home consumption and, consequently, the entire amount of duty recovered of Rs. 8,86,297. 50 should be refunded. The Assistant Collector of Customs, by order dated October 19, 1983, held that the claim of refund of entire duty of Rs. 8,86,297. 50 made by the shipping company is not tenable. The Assistant Collector further held that the refund of Rs. 2,98,162. 30 granted earlier in favour of the shipping company was erroneous and the shipping company should refund the same forthwith. The order passed by the Assistant Collector was challenged by the shipping company by filing Writ Petition No. 2718 of 1983 under Article 226 of the Constitution of India before the learned Single Judge sitting on the Original Side of this Court. The learned Judge, by the impugned judgment dated September 27, 1990, held that recovery of duty in respect of damaged sugar was without any authority of law and, consequently, the claims of the shipping company for refund of the entire duty was justified. The learned Single Judge further held that the order of refund of part of the duty was not erroneous. As a result of these findings, the department was directed to refund the balance amount of Rs. 5,88,135. 20 with interest at the rate of 6% per annum from the date of the petition till payment. The order of the learned Single Judge is under challenge. ( 10 ) ON November 20, 1980, the Assistant Collector of Customs addressed a letter to the shipping company demanding back the amount of excess duty of Rs. 2,98,162. 30 refunded under the refund order dated July 3, 1980. The Assistant Collector claimed that the refund was made erroneously. The shipping company filed a reply and, thereafter, on March 20, 1981, addressed a letter claiming that the appellants were not entitled to levy any duty in respect of damaged sugar cleared for home consumption and, consequently, the entire amount of duty recovered of Rs. 8,86,297. 50 should be refunded. The Assistant Collector of Customs, by order dated October 19, 1983, held that the claim of refund of entire duty of Rs. 8,86,297. 50 made by the shipping company is not tenable. The Assistant Collector further held that the refund of Rs. 2,98,162. 30 granted earlier in favour of the shipping company was erroneous and the shipping company should refund the same forthwith. The order passed by the Assistant Collector was challenged by the shipping company by filing Writ Petition No. 2718 of 1983 under Article 226 of the Constitution of India before the learned Single Judge sitting on the Original Side of this Court. The learned Judge, by the impugned judgment dated September 27, 1990, held that recovery of duty in respect of damaged sugar was without any authority of law and, consequently, the claims of the shipping company for refund of the entire duty was justified. The learned Single Judge further held that the order of refund of part of the duty was not erroneous. As a result of these findings, the department was directed to refund the balance amount of Rs. 5,88,135. 20 with interest at the rate of 6% per annum from the date of the petition till payment. The order of the learned Single Judge is under challenge. ( 11 ) MR. Bulchandani, learned Counsel appearing on behalf of the department, submitted that the learned Single Judge was in error in setting aside the order passed by Assistant Collector in exercise of writ jurisdiction. It was contended that the shipping company had filed bills of entry for home consumption in respect of the damaged sugar and as the sugar bags were cleared earlier for export, the department was justified in holding that the bills of entry were filed in respect of cargo which was imported in the country and, consequently, payment of countervailing duty was necessary. The submission proceeds on the assumption that the sugar bags which were cleared by the shipping company for home consumption were imported goods. The assumption of the department that the sugar bags were imported goods is entirely incorrect and contrary to the statutory provisions. It is necessary to refer to some of the provisions of the Customs Act, 1962 to indicate how fallacious is the claim of the department. The Customs Act was enacted by the Parliament to consolidate and amend the law relating to customs. Section 2 (18) defines the expression export and means taking out of India to a place outside India. The expression export goods is defined under section 2 (19) and means any goods which are to be taken out of India to a place outside India. It would be advantageous at this juncture to refer to the definitions of import and imported goods which are defined under sections 2 (23) and 2 (24) respectively. The expression import means bringing into India from a place outside India while the expression imported goods means any goods brought into India from a place outside India but does not include goods which are cleared for home consumption. Sections 50 and 51 of the Act deals with the subject of clearance of export goods. Section 50, inter alia, provides that the exporter of any goods shall make entry thereof by presenting to the proper officer a shipping bill in the prescribed form. Section 51 provides that where the proper officer is satisfied that any goods entered for export are not prohibited goods and the exporter has paid the duty, then an order can be made permitting clearance and loading of the goods for exportation. It is not in dispute that the requisite entry of goods contained in sugar bags was made for exportation under section 50 of the Act. It is equally not in dispute that while clearing the sugar bags from the factory gate, excise duty which is normally payable was not recoverable in view of the fact that the sugar was to be exported. It hardly requires to be stated that the liability to pay excise duty in respect of manufacture of sugar arises as soon as the goods are cleared from the factory gate and the liability stands differed when the goods are to be exported. The manufacturer, who is liable to pay excise duty, is required to execute a bond assuring that in case the goods are not exported for one reason or other, then the manufacturer will pay the requisite excise duty. It is not in dispute that Indian Sugar Industries Export Corporation Limited had executed such bond in respect of the goods which were to be exported. The officer had permitted clearance and loading of the goods for exportation in accordance with section 51 of the Act.( 12 ) MR. Bulchandani submits that once the permission under section 51 of the Act is granted for loading of the goods for exportation, then the cargo should be deemed to have been exported. It is impossible to accede to the submission. The expression export defined under the Act clearly means taking the goods out of India to a place outside India. It is not in dispute that the territorial water of India extends to limits of 12 nautical miles from Bombay Port. Mr. Bulchandani very correctly did not dispute that the goods had acquired a characteristic of export goods as defined under section 2 (19) because the goods were to be taken out of India, but urged that there is no distinction between the export of the goods and acquisition of character of export goods. The submission is not correct because the expression export goods merely means that the goods are ready for being taken outside India. As long as the goods are not actually taken out of India, it cannot be even suggested that the export is completed. The Assistant Collector, therefore, was perfectly justified in holding that the export had not taken place in respect of damaged sugar bags. Mr. Bulchandani submitted that even though the export has not taken place, once the shipping company filed bills of entry for home consumption, it must be assumed that the cargo which was sought to be cleared from custom barrier was imported goods. The learned Counsel fairly stated that the expression imported goods as defined in section 2 (25) of the Act, means goods brought into India from a place outside India. Mr. Bulchandani could not submit that the damaged sugar bags were brought from outside India but urged that as the damaged sugar bags had acquired characteristic of export goods, when such goods are brought for home consumption by filing a bill of entry, it must be concluded that such goods had acquired the character of goods imported from outside India. It is not permissible to make violence to the clear language of the statute and accept the contention of the department that the damaged sugar bags were imported goods. ( 13 ) MR. Bulchandani submitted that unless the damaged sugar bags were treated as imported goods, the customs authorities cannot recover countervailing duty. The countervailing duty is payable so as to offset the advantage which the imported goods may earn over the manufacture of local goods due to non-payment of excise duty. Mr. Bulchandani submitted that the sugar bags were permitted to be cleared from factory gate without payment of excise duty in view of the fact that the bags were to be exported outside India. It was urged that as the bags were not exported, the cargo had escaped payment of excise duty and in case the damaged sugar bags are not treated as imported goods, then the liability to pay countervailing duty will not arise. The apprehension of the learned Counsel that the manufacturer of sugar will escape payment of excise duty is ill founded because the liability to pay excise duty on the manufacture of sugar had accrued when the sugar was cleared from the factory gate by Indian Sugar Industry Export Corporation Limited. Mr. Bulchandani had to concede that the corporation had executed the requisite bond in favour of Collector of Excise and had undertaken to pay the excise duty in case the goods are not exported. It is, therefore, obvious that the Collector of Excise can enforce the bond and recover the excise duty and the claim of Mr. Bulchandani that the sugar had escaped duty because of failure to export is not correct. Mr. Bulchandani then submitted that the shipping company had acted as the agent of Indian Sugar Industry Export Corporation Limited and, as such, was liable to pay the amount of duty. Reliance was placed on letter dated June 2, 1980 addressed by the Corporation to the shipping company. The letter, inter alia, mentions that after shipment was effected, the Corporation had submitted proof of export to Maritime Collector of Central Excise, Bombay, and necessary credit in the bond account has been given. Relying on this averment in the letter, it was claimed that the Corporation had secured the advantage of non-payment of excise duty and, consequently, the shipping company must pay the said duty. The submission is devoid of any merit for more than one reason. In the first instance, Mr. Bulchandani could not explain why the Collector of Central Excise, Bombay, had given credit to the Corporation when the sugar was, in fact, not exported. Secondly, Mr. Bulchandani could not vouchsafe about the correctness of the averment made in the letter by the Corporation. The customs authorities had not bothered to ascertain from the Collector of Excise as to whether any credit was in fact given to the Corporation. Next, even assuming that the Collector of Excise had given erroneous credit to the Corporation, that would not transfer the liability to pay the excise duty from the Corporation to the shipping company. Mr. Bulchandani had to concede that the liability to pay the excise duty is solely of the manufacturer, but made a faint attempt to urge that the shipping company had stepped into the shoes of the Corporation. It was contended that the shipping company had taken lien in securing the report from the surveyors and had taken active interest in disposing of the damaged sugar bags. The submission that the shipping company was acting at the behest of the Corporation or as the agent of the Corporation is without any substance. The shipping company was required to take steps to mitigate the damages which the shipping company was required to pay to the Corporation for the damage caused to the sugar bags entrusted to the shipping company for export. The steps taken by the shipping company for mitigating the losses cannot lead to the conclusion that the shipping company was acting as the agent of the Corporation whose duty was to pay the excise duty. In our judgment, the recovery of countervailing duty from the shipping company was not justified as the assumption of the customs department that the cargo cleared for home consumption under bills of entry filed by the shipping company was imported goods was not correct. The customs authorities could not have recovered the excise duty from the shipping company as it was the sole liability of the manufacturers to pay the same. In our judgment, the action of the customs authorities in recovery of duty was without any authority of law and the order of the learned Single Judge directing the refund of the entire duty does not suffer from any infirmity.

Decision:
0[ds]The submission proceeds on the assumption that the sugar bags which were cleared by the shipping company for home consumption were imported goods. The assumption of the department that the sugar bags were imported goods is entirely incorrect and contrary to the statutoryis not in dispute that the requisite entry of goods contained in sugar bags was made for exportation under section 50 of the Act. It is equally not in dispute that while clearing the sugar bags from the factory gate, excise duty which is normally payable was not recoverable in view of the fact that the sugar was to be exported. It hardly requires to be stated that the liability to pay excise duty in respect of manufacture of sugar arises as soon as the goods are cleared from the factory gate and the liability stands differed when the goods are to be exported. The manufacturer, who is liable to pay excise duty, is required to execute a bond assuring that in case the goods are not exported for one reason or other, then the manufacturer will pay the requisite excise duty. It is not in dispute that Indian Sugar Industries Export Corporation Limited had executed such bond in respect of the goods which were to be exported. The officer had permitted clearance and loading of the goods for exportation in accordance with section 51 of the Act.It is impossible to accede to the submission. The expression export defined under the Act clearly means taking the goods out of India to a place outside India. It is not in dispute that the territorial water of India extends to limits of 12 nautical miles from Bombaysubmission is not correct because the expression export goods merely means that the goods are ready for being taken outside India. As long as the goods are not actually taken out of India, it cannot be even suggested that the export is completed. The Assistant Collector, therefore, was perfectly justified in holding that the export had not taken place in respect of damaged sugaris not permissible to make violence to the clear language of the statute and accept the contention of the department that the damaged sugar bags were importedis, therefore, obvious that the Collector of Excise can enforce the bond and recover the excise duty and the claim of Mr. Bulchandani that the sugar had escaped duty because of failure to export is notsubmission is devoid of any merit for more than one reason. In the first instance, Mr. Bulchandani could not explain why the Collector of Central Excise, Bombay, had given credit to the Corporation when the sugar was, in fact, not exported. Secondly, Mr. Bulchandani could not vouchsafe about the correctness of the averment made in the letter by the Corporation. The customs authorities had not bothered to ascertain from the Collector of Excise as to whether any credit was in fact given to the Corporation. Next, even assuming that the Collector of Excise had given erroneous credit to the Corporation, that would not transfer the liability to pay the excise duty from the Corporation to the shippingsubmission that the shipping company was acting at the behest of the Corporation or as the agent of the Corporation is without any substance. The shipping company was required to take steps to mitigate the damages which the shipping company was required to pay to the Corporation for the damage caused to the sugar bags entrusted to the shipping company for export. The steps taken by the shipping company for mitigating the losses cannot lead to the conclusion that the shipping company was acting as the agent of the Corporation whose duty was to pay the excise duty. In our judgment, the recovery of countervailing duty from the shipping company was not justified as the assumption of the customs department that the cargo cleared for home consumption under bills of entry filed by the shipping company was imported goods was not correct. The customs authorities could not have recovered the excise duty from the shipping company as it was the sole liability of the manufacturers to pay the same. In our judgment, the action of the customs authorities in recovery of duty was without any authority of law and the order of the learned Single Judge directing the refund of the entire duty does not suffer from any infirmity.