UNION OF INDIA versus SAMPAT RAJ DUGAR AND ANR.

B.P. JEEV AN REDDY, J. Leave granted.

p. 274, margin E

This appeal is directed against the Judgment and Order of a Division Bench of the Bombay High Court dismissing. the Letters Patent Appeal No.807 of 1987 preferred by Union of India and the Collector of Customs. The said appeal was preferred against the judgment and order of a Learned' Single Judge allowing the Writ Petition (85 of 1987) filed by the first respondent herein. The learned Single Judge had, by his judgment, quashed the order dated 15.9.1986 passed by the Collector of Customs, Bombay confiscating .the goods in question under Section 111 ( d) of the Customs Act, 1962, and directed the Collector of Customs and the Union of India to hand over the said goods (four consignments of raw silk yarn) to the first respondent or his clearing agent, for reshipment to Hong Kong in terms solicited by him. The learned Judge granted a further direction to the effect that for the period the goods were detained, rendering the first respondent liable to pay demurragti to Bombay Port Trust, the Collector of Customs and the Union of India shall issue a detention certificate in his favour.

pp. 274–275, margin F

The second respondent Ms. Renu Pahilaj is doing business at Delhi in the name and style of "Acquarius." The first respondent is an Indian national resident abroad doing bnsiness at Hong Kong in the name and style o( UNISILK. The second respondent obtained an advance import Hcence on 20.5.1985 for importing raw silk vaild for a period of 18 months from .the date of its issue. The import licence was granted subject to the condition that raw .silk imported should be utilised for 111anufacttiring garments which ought to be exported by the second respondenh Some time prior to October 1985, the se9ond respondent received three consignments but she did not fulfii the ·aforesaid condition. During October- November 1985, the first respondent exported certain quantities of raw silk in four lots, deliverable to the second respondent. The requisite documents were sent to the first respondent's bankers with instructions to deliver the same to the second respondent on receiving the payment. When the said four consignments arrived at Bombay, ihe second respondent appeared before the customs authorities and claimed the right to take delivery of the goods. By this time, however, the customs authorities had coine to know of the non-compliance of the aforesaid condition with respe~t to the three earlier consignments and also of the alleged misr~pre­ sentation made by her while obtaining the Advance import licence. Proceedings were accordingly initiated against her and two other persons by the Collector of Customs, Bombay. The first respondent appeared .. in the said proceedings on his own and was heard. Probably in view of the proceedings taken against her - or otherwise. - the second respondent failed to make the payment and receive the documents: She. took no steps whatever to clear the goods. In effect, she abandoned them:

p. 275, margin A

The first respondent submitted before the Collector that title to the goods has not passed to the second respondent, that he is still the owner of the goods and that therefore the said goods cannot be confiscated or proceeded against for the violations, if any, committed by the second respondent. He submitted that he was not a party to the misuse of the earlier imports nor was he .aware of the alleged fraud practiced by the second respondent in obtaining the advance import licence. He requested that he may be permitted to re-export the said goods to Hong-Kong.

p. 275, margin F

While the said proceedings were pending before the Collector of Customs, the advance import licence· granted to second respondent was cancelled by the Competent Authority on May passed with respect to the said goods.

pp. 275–276, margin G

The Collector of Customs, Bombay passed 1986, whereunder he imposed a penalty of rupees respondent. Penalties were also levied upon two associates of the second respondent. So far as the were concerned, they were rejected on the following import licence against which the said four consignments has since been cancelled by the appropriate authority there is no valid import licence for clearance re-exporting the said goods, a valid import licence cause it is not there - and also because the second doned the goods-pennission for re-export cannot

p. 276, margin A

The first respondent did not prefer an appeal He directly challenged the same in the Bombay Writ Petition. He reiterated his contention viz., ent has failed to pay and receive the documents consigmnents, he himself continues to be the owner goods cannot be confiscated or proceeded against act or default of the second respondent. He claimed export the same to Hong Kong. The case of the .the Union of India was that the second respondent the owner of the said four consignments by 'importer' in Section 2 (26) of the Customs Act of the Imports (Control) Order 1955. Reliance 26 (iv) of the Import and Export Policy issued accordingly submitted that the said goods are the acts and defaults of the second respondent. by virtue of the non-compliance with the condition gannents manufactured out of the imported respondent has rendered all the goods covered to confiscation.

p. 276, margin C

The learned Single Judge allowed the Writ findings: On the date the goods were imported, valid import licence. The subsequent cancellation thereof quence inasmuch as Section 111 (d) of the confiscation of the imported goods only where to law. Even ifthe second respondent was guilty compliance with any of the conditions of licence, ground for cancellation/suspension of licence: not suspended or cancelled. it was valid and effective. The importing of the goods was thus under a valid licence and was not contrary to law. Since the second respondent has failed to pay and receive the documents of title, the title to the goods did not pass to her. The provision in Clause 5(31 (iii of the Imports (Control) Order. is offonited effect. Where the clearance of goods through customs is not even attempted but abandoned, such importer cannot be treated as the owner. The definition of 'importer' in Section 2(26) of the Customs Act also does not avail the authorities. Since the first respo11de11t continued to be the owner of the goods. he is entitled to re-export the same.

pp. 276–277, margin E

The Letters Patent Appeal preferred by the Collector of Customs and the Union of India was dismissed by the Division Bench affirming the reasoning of the Learned Single Judge in its entirety.

p. 277, margin B

In this' appeal, it is contended by the learned counsel appearing for the Union of India that the learned Judges of the Bombay High Court have not correctly appreciated the meaning and effect of the provisions contained in Clause 5(31 (ii) of the Imports (Control) Order and Section 111 of the Customs Act. He submitted that by virtue of the defi11ition of the expression "importer" contained ·in Section 2(26) of the Customs Act read with Clause 5(3,1 (iii of the lmpo11s (Control'i Order, the second respondent must be deemed to be the owner of the goods and the first respo11dent ca11not be heard to say that he is the owner of the goods, Whatever may be the positio11 under the Sale of Goods Act and/or the Co11tract Act, so far as the authorities under the Customs Act and Imports (Co11trol) Order are concerned, the second respondent is the owner of the said goods and no 011e else. For the acts and defaults of the second respo11dent, therefore, the said goods are liable to be confiscated. The first respo11de11t'> remedy is to sue the second respondent for damages and/or such other reliefs as he may be entitled to in law but he· cannot claim title to said goods once they are imported into this country. lt is also submitted that because of of earlit~r co11sign1nents by the second respondent. the authorities were entitled to confiscate the said four consign1nents~ covered as they were by the sa1ne hnport Licence. In any event, once the i111port licence was cancelled. the goods could not have bee11 cleared by anyone fro111 the customs. On the other hand. Sri Salve. learned counsel for the first respondent sub1nitted that confiscation of the said consignments has been ordered by the Collector of Customs only under the provisions of the Customs Act, i.e .. under Section 111 (di thereof. The said confiscation is wholly unsustainable for the reason that on the date of i1nport, there \Vas a valid licence. The subsequent cancellation of the import licence does not render the said import illegal. The provisions contained in Clause 5(3) (ii) of the Imports (Control) Order are of limited application. They are designed only to prevent the licencee from trading in the said licence in any manner whatsoever, but it cannot have the effect of conferring title to the said goods upon the importer even before he makes the payment and obtains the documents of title. Similarly, the definition of the importer under Section 2 (26) of Customs Act is for a limited 'purpose. Since the title to tlfe goods continues to vest in the first respondent, he is entitled to re-export the same. The learned counsel emphasised the fact that the first respondent is not a party nor was he aware of the alleged misuse of earlier consignments or of the alleged fraud practised by the second respondent in obtaining the import licence.

pp. 277–278, margin C

For a proper appreciation of the controversy arising herein, it is necessary to notice certain provisions of the Customs Act as well as of the Imports and Exports (Control)Act, 1947 and the Imports (Control) Order, 1955.

p. 278, margin C

The definition of 'Importer' in Clause 26 of Section 2 of the _Customs Act reads as follows:

p. 278, margin C

" 'importer', in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner or any person holding himself

p. 278, margin D

out to be the importer."

p. 278, margin D

Section 111 which provides for confiscation of improperly imported goods, in so far as it is relevant reads thus:

p. 278, margin E

"Section 111. Confiscation of improperly imported goods, etc.- The following goods brought from a place outside India shall be lial:Jle to confiscation- (d) any goods which are imported or attempted to be imported or are brought within the Indian customs waters for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law for

p. 278, margin E

the time being in force; (o) any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observ ance of the condition was sanctioned by the

pp. 278–279, margin F

proper officer:"

p. 279, margin A

Section 112 provides for levy of penalty for improper importation of goods. For the purpose of this case, it is not necessary to set out Section 112. Section 120 provides that the smuggled goods may be confiscated notwithstanding any change in their form. Section 124 provides for the issuance of a Show Cause Notice before the goods are confiscated and for affording a reasonable opportunity of being heard in the matter to the person affected.

p. 279, margin A

The Imports and Exports (Control) Act, 194 7 empowers the Central Government to prohibit, restrict or otherwise control import and export of goods, by an order published in the Official Gazette Act (Section 3). Section 4G provides. for confiscation of goods in certain situations. The Section reads thus:

p. 279, margin B

"Section 40. Confiscation-Any imported goods or materials in respect of which- (a) any condition of the licence or letter of authority under which they were imported, relating to the utilisation or

p. 279, margin C

distribution of such goods or materials, or (b) any condition relating to the utilisation or distribution of such goods or materials subject to which they were re-

p. 279, margin D

ceived from, or through, a recognised agency, or (c) any direction given under a control-order with regard to

p. 279, margin E

the sale of such goods or material, ' has been, is being, or is attempted to be, contravened, shall together with any package, covering or receptacle in which such goods are found, be liable to confiscation, and, where such goods or materials are so mixed with any other goods or mat.erials that they cannot be readily separated such other goods· or materials shall also be liable to confiscation: Provided that where it is established to the satisfaction of the adjudicating authority that any goods or materials, which are liable to confiscation under this Act, had been imported for personal use, and not for any trade or industry, and that they belong to a person other than the person who has, by any act or omission, rendered them liable to confiscation; and such act or omission was without the knowledge or connivance of the person to whom they belong such goods or materials shall not be ordered to be confiscated; but such other action a5 authorised

p. 279, margin E

SlJPREME COIJRT Kl'l'ORTS ll<J921 l by this Act may be taken against the person who has by act of 0111ission, rendered such goods or 1naterials liable

p. 280

confiscation."

p. 280, margin A

The Imports (Control) Order 1955 has been issued by the Central Government under the I 947 Act. Clause 3 (I) provides that:

p. 280, margin A

"Save as otherwise provided in this Order, no person shall import any goods of the description specified in Schedule except under and in accordance, with a licence or a custon1s clearance perm it granted by the Central Government or by

p. 280, margin B

Officer specified in Schedule JI."

p. 280, margin B

Clause 5 which is crucial for our purposes may be set out entirety. It reads thus:

p. 280, margin C

"5. Conditions of Licences.-( I) The licensing authority issuing a licence under this Order may issue the same subject to more of the conditions stated below:- (i) that the goods covered by the licence shall not be disposed of except in the n1anner prescribed by the licensing authority or otherwise. dealt with. without the written permission licensing authority or any person duly authorised by it: (ii) that the goods covered by the licence on importation shall not be sold or distributed at a price exceeding that which be specified in any direction attached to the licence: (iii) that the applicant for a licence shall execute a bond co1nplying \vith the tenns subject to \vhich a licence granted. (2) A licence granted under this Order shall also be subject

p. 280, margin C

the conditions contained in Schedule V. (3) It shall be deemed to be a condition of every such licence (i) no person shall transfer and no person shall acquire transfer any lict'nce issued by the licensing authority under and in accordance \vith the \vritten pennission authority which granted the licence or of any other

p. 280, margin F

in this behalf by such authority. (ii) that the goods for the import of which a licence is granted shall be the property of the licencee at the time of import and thereafter upto the tiine of clearance through Customs:

pp. 280–281, margin G

Provided that the conditions under items (i) and (ii) of this sub-clause shall not apply in relation to licences issued to the State Trading Corporation of India, the Minerals and Metals Trading Corporation of India and other similar institutions or agencies owned or controlled by the Central Government and which are entrnsted with canalisation of imports: Provided further that the conditions under items (i) and (ii) of this sub-clause shall also not apply in relation to (a) licenses issued to eligible export houses or trading houses for import of goods meant for disposal to actual users under the import policy for registered exporters, and (b) licences issued to Public Sector agencies owned or controlled by Government, Central or State for disposal

p. 281, margin A

of goods to Actual Users under the import policy in force. (iii) the goods for the import of which a licence is granted shall be new goods, other than disposal goods unless

p. 281, margin C

otherwise stated in the licence. (4) A licence !!ranted under this Order may contain such other conditions, not inconsistent \vith the Act or this Order, as

p. 281, margin D

the licensing authority dee1n fit. (5) The licensee shall comply with all conditions imposed or

p. 281, margin E

deemed to be imposed under this clause."

p. 281, margin E

The Order provides for cancellation/suspension of licences issued thereunder for reasons specifie<1 therein. Schedule I to the Order mentions several goods. It is not disputed that raw silk yarn is one of the goods included in the Schedule.

p. 281, margin E

We 1nay first consider the question of title to the said goods. If keep aside the provisions of Jaw relied upon by the appellants viz., definition of 'importer' in Section 2 (26) of the Ctbtoms . .\ct_ Clause 5 (1 I (ii) of the I1nports (Control) Order \Veil para 26 nfthe hnport-Export Policy, the position is quite sin1ple. Since the second respondent did not pay for and receive the docu1nents of the title did not beco1ne the O\vner of the said goods. \Vhich thnt the first respondent co1Hinued to the do the aforesaid provisions n1ake any difference to thi~ position? 'rhe definition of 'i1nporter' Section 2(26) of the Custon1s Act relevant question of title. It only defines the expression 'importer'. The first respondent does not claim to be the importer. The provision upon which strong reliance is placed by the appellants in this behalf is the one contained in Clause 5 (3) (ii) of the Imports (Control) Order. Sub-clause (1) of Clause 5 specifies conditions which can be attached to an import licence at the time of its grant. Sub-clause (2) says that a Hcence granted under the Order shall be subject to the conditions specified in Fifth Schedule to the Order. Sub-clause (3) sets out three other conditions mentioned as (i); (ii), and (iii) which shall attach to every import licence granted under the Order. First of these conditions says that the import licence shall be non-transferable except under the written permission of the Licensing Authority or other Competent Authority. Condition (ii)-which Is the provision relevant herein--;;ays that the goods for the import of whicli a licence is granted "shall be the property of the licensee. at the time of import and thereafter upto the time of clearance through customs." This condition, however, does not apply to STC, MMTC and other similar institutions entrusted with canalisation of imports. It also does not apply to certain eligible export houses, trading houses and public sector agencies mentioned in the second proviso. Condition (iii) says that the goods for which the import licence is granted shall be new goods unless otherwise mentioned in the licence. Now coming back to Condition (ii), the question is what does it mean and what is the object underlying it when it says that the imported goods shall be the property of the lice11see from the time of import till they are cleared through customs. It is necessary to notice the language of the sub-clause. It says "it shall be deemed to be a condition of every such licence that-the goods for the import of which a licence is granted shall lie the property of the licensee at the time of import aud thereafter upto the time of clearance through Customs." The Rule-making authority (Central Government), which issued the order, must be pre.sumed to be aware of the fact that in many cases, the importer is not the owner of the goods imported at the time of their import and that he becomes their owner only at a later stage, i.e., when he pays for and obtains the relevant documents. Why did the Central Govt. yet declare that such goods shall be the property of the .licensee from the time of itnport? For·appreciating this, one has to ascertain the object underlying the said provision. The interpretation to be placed upon the provision should be consistent with and should be designed to achieve such object. In this context, it should also be remembered that expressions like 'Prop: erty of and 'Vest' do not have a single universal meaning. TI1eir content varies with the context. The aphorism that a word is not a crystal and that it takes its colour from the context is no less true in the .case of these words. In our opinion the object underlying condition (ii) in Clause 5 (3). is to ensure a proper implementation of the Imports (Control) Order and the Imports and Exports (Control) Act, 1947. The idea is to hold the licensee responsible for anything and everything that happens from the time of import till they are cleared through Custom. The exporter is outside the country, while the importer, i.e., the licensee is in India. It is at the instance of the licensee that the goods are imported into this country. Whether or not he is the owner of such goods in law, the Imports (Co11trol) Order creates a fiction that he shall be deemed to be the owner of tbe such good.s from the time of their import till they are cleared through Customs. This fiction is created for the proper and effective implementation of the said order and the Import and Exports (Control) Act. The fiction however cannot be carried beyond that. It cannot be employed to attribute ownership of the imported goods to the importer even in a case where he abandons them, i.e., in a situation where he does not pay for and receive the documents of title: It may be that for such act of abandonment, action may be taken against him for suspension/cancellation of licence. May be, some other proceedings can also be taken against him. But certainly he cannot be treated as the owner of the goods even in such a case. Holding otherwise would place the exporter in a very difficult position; he loses the goods without receiving·¢e payment and his only remedy is to sue the importer for the price of goods and for such damage as he may have suffered. This ·would not be conducive to international trade. We can well imagine situations where for one or other reason, an importer chooses or fails to pay for and take delivery of the imported goods. He just abandons them. (We may reiterate that w.; are speaking of a case where the import is· not contrary to law). It is <Jnly with such a situation that we are concerned in this case and our decision is also confined only to such a situation. Condition (ii) in sub-clause (3) of Clause 5, in our opinion, does not operate to deprive the exporter ~f his title to said goods in such a situation.

pp. 281–283, margin F

At this stage, it may be appropriate to clarify one aspect. There may be cases, where the importer opens a letter of credit and makes some other arrangement ensuring/guaranteeing payment of price of imported goods. In such a case, it will be open to the exporter, in case of non-payment of price or abandonment by the importer, to collect the price by invoking such arrangement. In such a case, it ·is obvious, the exporter will not be allowed to claim title to and/or to re-export the goods. (Indeed, it is unlikely that in such a case, the importer abandons the goods ordinarily speaking.) It is therefore necessary that in all such cases; the authority should issue a notice to the importer and/or his agent before allowing the exporter to deal with or seek to re-export the goods. So far as this case is concerned, both the importer and exporter (RR 2 and I respectively) were present before the Collector (Customs) as well as before the High Court. R2 did not plead any such arrangement.

p. 283, margin E

The next question is whether the import of the said goods was contrary to law in any manner and whether the said goods are liable to be confiscated under the Customs Act. The "only provisions relied upon the appellants are Clauses (d) and (o) in Section 111 of the Customs Act which we have set out hereinabove. In our opinion none of these clauses are attracted in the present case. Clause (d) contemplates an import which is contrary to any prohibition imposed either by the Customs Act or any other law for the time being in force. No such prohibition can be pleaded in this case since.on the date of the import the said goods were covered by a valid import licence. The subsequent cancellation of licence.is of no relevance nor does it retrospectively render the import illegal. (East India Commercial Co. Ltd. v. The Collector of Customs, Calcutta, [1963] 3 S.C.R. 338 at 372.) Clause (o) contemplates confiscation of goods which are exempted from duty subject to a condition, which condition is not observed by the importer. Occasion for taking action under this clause arises only when the condition is not observed within the period prescribed, if any, or where the period is not so prescribed, within a reasonable period. It, therefore, callllot be said that the said goods were liable to be confiscated on the date of their import under Clause (o). Further, merely because the second respondent had not complied With the condition imposed with respect to three earlier consignments, it may not be possible to presume that it would not be observed even with respect to the four consignments in question. Be that as it may, it is sufficient for the present to notice that so far no action has been taken on that account either under the Customs Act or under section 4-G of the Imports-Exports (Control) Act, 1947. Section4-G of 1947 Act is also conceived to ·meei such situation, as a reading thereof would disclose. It says that non-compliance with any condition of licence relating to utilisation of such goods renders· the said goods liable to confiscation notwithstanding that such goods are mixed up with other goods or material. Even though a period of more than five years has passed by, no action has been taken either under the Customs Act or under Section 4-G of Imports-Exports (Control) Act, though the import licence of the second respondent has been cancelled. We must presume in the circumstances that no such action was or is contemplated. In these circumstances the title of the first respondent to.the said goods remains free of any cloud.

p. 284, margin A

Coming to para 26(iv) of the Import-Export Policy for the year 1985-86, it too; in our opinion,"is or no material relevance herein. It reads:

p. 284, margin G

"26. Import is valid if it fulfils, among other things the following conditions:- (iv) The terms and conditions contained in the licence/Open General Licence/Customs Clearance Pennit and the lmpoft' A Export Policy and procedures in regard to the items (s) of the

pp. 284–285, margin G

import and all other connected matters are fulfilled."

p. 285

, This provision, so to speak states the obvious. It says that an import is viitid if it fulfils,.inter alia, all the tenns and condhions contained in the licence and all other connected matters. This para has indeed no relevance B to the question of title to goods in a situation dealt with by us herein.

p. 285

It is also significant to notice that it is not the case of the appellants

p. 285

that the first respondent was a party to any conspiracy or other fraudulent '"";-' plan hatched or sought to be implemented by the second respondent. If that were the case, different considerations would have arisen. C

p. 285

So far as the directions for re-export is concerned, we see no reason to interfere. Jhe same shall be pennitted and allowed in accordance. with law.and subject to payment of such.dues or other charges as may be leviable in that behalf. The other direction with respect to issuance of detention certificate has not been assailed before us and we need express no D opinion thereon.

p. 285

The appeal is accordingly dismissed but in .the circumstances without costs. N.P.V. · Appeal dismissed.

p. 285