Case: Collector Of Customs &amp; Ors Vs. M/S. Soorajmull Nagarmull &amp; Anr

2. The respondents M/s. Soorajmull Nagarmull imported spindle oil form Philadelphia. The firm was required to pay Customs Duty under Item 27 (3) of the First Schedule to the Tariff Act, 1934 at 27 per cent ad valorem. The firm filed two suits asking for refund of excess duty claiming that the oil was dutiable only under Item 27 (8) at-/ 2/6 per imperial gallon. The suits were filed against the Collector of Customs, the Assistant Collector of Customs for Appraisement and the Union of India. The suits were successful and decrees were passed against the Union of India for refund of the amount charged in excess. In one suit the decree was for payment of Rs. 43,723 with interest at 6 per cent per annum from 1st day of April, 1952 until realisation. In the second suit the decree was for Rs. 75,925 with similar interest3. Since the firm had not paid a sum of Rs. 18,08,667.72 as tax the Income-tax Officer, Circle II, Calcutta issued a notice under section 46 (5A) of the Indian Income-tax Act, 1922 calling upon the Collector of Customs to pay the amount of the decree to him and stating that his receipt would constitute a good and sufficient discharge of the liability for refund to the firms. The Collector of Customs paid the amount into the Reserve Bank and the Reserve Bank issued receipts crediting the amount against Super-tax due from the firm. The Collector of Customs then applied to the High Court of Calcutta under Or. 21, R. 2 of the Code of Civil Procedure for the adjustment of the decrees by this payment. This was refused by a learned single Judge who gave no reasons while dismissing the petition. On appeal to the Division Bench it was held by the Division Bench on January 22, 1964 that the adjustment of the decree could not be granted. It is against the last order that the present appeals have been filed by special leave of this Court4. This High Court in reaching the conclusion observed that the decrees were against the Union of India and not the Collector of Customs. Further the sums were held by the Collector of Customs on behalf of the Union of India and not on behalf of the firm. The High Court found the notice to be defective inasmuch as it asked for payment towards Income-tax and towards penalty, while the receipts which were granted to the firm, stated that the amount was for Super-tax. On these three grounds, the High Court held that the learned single Judge was right in dismissing the application of the Collector of Customs for the adjustment of the decrees.

Reasoning: In our judgment this plea is highly technical. The amount was recovered by the Collector of Customs from the firm and was being held by the Union of India through the Collector of Customs. The Collector of Customs paid the money not on behalf of himself but on behalf of the Union of India and I must be treated as a proper payment of the amount to the firm The objection of the respondent that it amounts to a payment by one Department of the Government to another does not, in our opinion, hold much substance. It is also extremely technical. The Union of India operates through different Departments and a notice to the Collector of Customs in the circumstances was a proper notice to issue because it was the Collector of Customs who had in the first instance recovered this money and held it from the firm8. Such notices of the Income-tax Officer are no more than a kind of a garnishee order issued to the person holding money which money is due to an assessee.The Collector of Customs had recovered this money and under the decrees of the Court the Union of India was liable to refund it to the firm. A garnishee order is issued to a debtor not to pay to his own creditor but to some third party who has obtained a final judgment against the creditor. By a parity of reasoning this amount which was with the Collector of Customs, could be asked to be deposited with the Income-tax Authorities under S. 46 (5A).The argument is extremely technical for that the firm is entitled to get a double benefit of the decree, first by having the decretal amount paid to the benefit of the firm and then to recover it again from the Union of IndiaThe rulings which have been cited do not, in our opinion, apply here. This point was not considered in the High Court and seems to have been thought of here. Order 21, Rule 2 merely contemplates payment out of Court and says nothing about voluntary payment. A garnishee order can never by its nature lead to a voluntary payment and it is not to be though that a garnishee order does not lead to the adjustment of the decree sufficient for being certified by the Court. Payment by virtue of Section 46(5A), as we have stated before, is in the nature of the a garnishee payment and must, therefore, be subject to the same ruleThis object in our opinion is fully achieved when there is payment under a garnishee order outside the Court. In the case cited the Court knew of the payment and could give protection in other ways. In AIR 1935 All 513   the payment was again without the consent of the judgment-debtor either in fact or in law. Too much emphasis appears to have been placed upon mutual understanding and too little on payment out of court which is the essence of the rule. The case turned on whether there was any understanding between the parties that sums spent by the judgment-debtor on repairs would be set off against the decretal amount and therefore Order 21, Rule 2 of the Code of Civil Procedure was held inapplicable11.In none of the cases the point of a garnishee order was considered. In our opinion, a case of a garnishee payment or one made under Section 46 (5A) of the Income-tax Act of 1922 stands on a different footing and if the payment had been legally made out of the Court in full and final discharge of the liability under a decree, there is no reason why the judgment-debtor cannot move the Court for getting the adjustment or payment certified.The payment was required to be certified under Order 21, Rule 2 of the Code of Civil Procedure and we order that it be so certified.