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M/S. Rajeev Woollen Mills v. Union Of India And Others

Delhi High Court

Jul 24, 1987

Judgment

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Summary of the Opinion (AGGARWAL, J.)

Factual and Procedural Background

The petition under Article 226 contained two challenges. The first challenge attacked Customs Public Notice No. 7/87 (dated 3 March 1987) which prescribed guidelines for import of completely pre-mutilated woollen/synthetic rags and allowed clearance for consignments landed or shipped on or before 30 April 1987, but denied permission to mutilate consignments shipped after that date. The court noted that Public Notice No. 7/87 was later superseded by Public Notice No. 14/87 (17 June 1987), and so the first challenge was treated as no longer surviving.

The second challenge concerned the meaning of the definition of "woollen rags" in Appendix 6 (page 168, Vol. I) of the Import and Export Policy for April 1985–March 1988 (specifically Condition No. 37). The petitioner, M/s. Rajeev Woollen Mills (a manufacturer of blankets and shawls registered as a small-scale unit), imported consignments described in the invoice as "old synthetic rags completely pre-mutilated." The consignments (138 bales, shipped 30 March 1987) arrived and the petitioner filed the bill of entry on 10 June 1987.

The Assistant Collector of Customs refused clearance alleging the mutilation did not comply with Public Notice No. 7/87. The customs authority inspected the goods on 8 and 14 July 1987, and examination reports recorded that the bales contained synthetic pants cut into two or three pieces with parts of the same garment found in the same bale. The examining officer concluded the goods were not "completely pre-mutilated rags" within Condition No. 37 of Appendix 6 of the Import Policy and therefore did not satisfy the import condition.

The respondents stated they would issue a notice to the petitioner for adjudication. The petitioner also sought relief relating to demurrage and requested direction that respondents store the goods in a public warehouse pending resolution.

Legal Issues Presented

Whether Customs Public Notice No. 7/87 (3 March 1987) which amended guidelines for clearance/mutilation of woollen/synthetic rags was invalid as being contrary to the Import Policy and violative of Articles 14, 19(1)(g) and 301 of the Constitution and promissory estoppel (this challenge having been rendered moot by subsequent Public Notice No. 14/87).
What meaning should be given to the definition of "woollen rags" in Appendix 6 (Condition No. 37) of the Import and Export Policy 1985–88, and whether the imported consignments fall within the requirement of being "completely pre-mutilated" and "so worn out, soiled or torn as to be beyond cleaning or repair."
Whether, pending adjudication, the petitioner is entitled to have the goods moved from railway godown to a public warehouse to avoid heavy demurrage (and the procedural route for seeking such storage under Section 49 of the Customs Act, 1962).

Arguments of the Parties

Petitioner's (Appellant's) Arguments

Mr. A.K. Sen for the petitioner argued that the term "rags" should be given the commercial meaning understood by traders dealing in such items rather than a scientific or technical meaning; he relied on the commercial interpretation adopted in earlier authorities (Re: Hind Hosiery Mills and Nagesh Hosiery Mills).
The petitioner relied on the invoice and an inspection certificate from the foreign inspector (General Superintendent Company, Surveyors and Inspectors) stating the container carried "completely pre-mutilated rags" with each piece cut into two or more pieces and "cannot be repaired."
The petitioner also produced a letter from the Assistant Director, Ministry of Industry, Small Industries Service Institute, Ludhiana, stating that garments cut into two or more pieces and beyond repair would be called completely mutilated and used for reprocessing into yarns; the petitioner argued its goods therefore complied with the Import Policy.
The petitioner requested relief to avoid heavy demurrage, asking that respondents be directed to store the goods in a public warehouse pending determination.

Respondents' Position (as recorded)

The Assistant Collector of Customs refused clearance of the goods on the grounds that the mutilation did not conform to Public Notice No. 7/87 (later superseded) and that the consignments did not meet Condition No. 37 of Appendix 6.
Examination reports (8 July and 14 July 1987) recorded that samples showed synthetic pants cut in two or three pieces with parts of the same garment found in the same bale, and concluded the goods were not "completely pre-mutilated rags" within Condition No. 37.
The respondents informed the court they would issue a notice for adjudication and did not oppose the administrative procedure for storage but indicated the petitioner should apply under Section 49 of the Customs Act, 1962.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Re: Hind Hosiery Mills, 1982 ELT 424 (Central Board of Excise and Customs)	The authority applied a commercial/conventional meaning to "woollen rags" where no statutory definition existed, and in that matter the Board set aside absolute confiscation and ordered the goods released on condition they be mutilated so as to render them totally unserviceable.	The court regarded this authority as distinguishable and not applicable because the current Import and Export Policy (Condition No. 37) contains a specific definition of "woollen rags," so the commercial-construction rationale from Hind Hosiery Mills (based on absence of definition) did not govern the present case.
Nagesh Hosiery Mills v. M.R. Ramchandran (decided by Justice R.P. Bhatt, 15 Jan. 1975)	Applied the commercial meaning approach to the term "woollen rags" where there was no statutory definition available in earlier import control instruments.	The court held this authority to be distinguishable and not applicable because the Import and Export Policy now contains an express definitional clause (Condition No. 37), removing the interpretive gap that existed in the earlier decisions.

Court's Reasoning and Analysis

The court proceeded in a stepwise manner:

First challenge: The court observed that Customs Public Notice No. 7/87 had been superseded by Public Notice No. 14/87 (17 June 1987). Because of this supersession, the court concluded the petitioner's first challenge to Public Notice No. 7/87 no longer survived and did not require substantive decision.
Interpretation of Condition No. 37: The court examined Appendix 6 (Condition No. 37) of the Import and Export Policy (Vol. I). Condition No. 37(i) requires that imports of woollen rags/shoddy wool/synthetic rags be allowed only when imported in "completely pre-mutilated condition." Condition No. 37(ii)(b) defines "old" rags to mean rags of woollen textile fabrics (including knitted and crocheted fabrics) "which are required for manufacture of shoddy yarn and may consist of articles of furnishing or clothing or other clothing so worn out, soiled or torn as to be beyond cleaning or repair." The definition applies mutatis mutandis to synthetic rags (37(iii)).
Distinguishing earlier authorities: The court read the earlier decisions cited by the petitioner (Hind Hosiery Mills and Nagesh Hosiery Mills) and found them distinguishable, because those authorities arose at a time when no definition of "woollen rags" existed in the Import Trade (Control) Order or the First Schedule to the Indian Tariff Act, and hence a commercial meaning was applied. By contrast, the Import and Export Policy in force for the relevant period contains an express definition and threshold requirement (completely pre-mutilated; beyond cleaning or repair).
Application to the facts: The court noted the Assistant Collector's examination reports which recorded that bales contained synthetic pants cut into two or three pieces and that portions of the same garment were found in the same bale. The examining officer concluded these goods were not "completely pre-mutilated rags" and did not satisfy Condition No. 37. The court accepted that the goods had already been inspected and that the respondents proposed adjudication on merits.
Procedural directions on storage: Addressing the petitioner's demurrage concern, the court held that the proper procedural route for storing goods in a public warehouse pending determination is an application under Section 49 of the Customs Act, 1962. The court directed that, if the petitioner made such an application, the Assistant Collector should decide it without delay.

Holding and Implications

Holding:

DISPOSED OF

The court disposed of the petition with the following operative conclusions:

The first challenge to Public Notice No. 7/87 is moot because that notice was superseded by Public Notice No. 14/87 and therefore does not survive for decision.
The correct standard for determining whether imported woollen/synthetic rags qualify for importation under the Policy is the standard expressly laid down in Condition No. 37 of Appendix 6 (i.e., the goods must be "completely pre-mutilated" and, as to "old" rags, "so worn out, soiled or torn as to be beyond cleaning or repair").
The goods in question had been inspected and the examining officers reported they did not meet Condition No. 37; the respondents would proceed to issue a notice to the petitioner for adjudication on the merits.
On the storage/demurrage point, the petitioner must apply under Section 49 of the Customs Act, 1962; if such application is made, the Assistant Collector is to decide it promptly. The court gave no direction to bypass the statutory application route.
The petition was disposed of and there was no order as to costs.

Implications:

Direct effect on the parties: The petitioner's first challenge is moot; the second challenge resulted in the court adopting the express standard in Condition No. 37 as the governing test for imported woollen/synthetic rags. The consignments remain subject to administrative adjudication based on that standard.
Procedural implication: The petitioner may pursue storage relief by application under Section 49 of the Customs Act, and the Assistant Collector must decide without delay.
No broader novel legal precedent was declared by the court beyond affirming that the existing definitional clause in the Import and Export Policy (Condition No. 37) governs the interpretation of "woollen/synthetic rags" for the relevant period; earlier commercial-meaning authorities were distinguished on that basis.

Order accordingly.

Show all summary ...

AGGARWAL, J.:— There is twofold challenge in this petition under Art. 226 of the Constitution of India; the first challenge is to the Customs Public Notice No. 7/87 dated 3rd March, 1987 which fixed certain guidelines in respect of the import of completely pre-mutilated woollen rags/synthetic rags. The said public notice provided that all consignments of woollen rags/synthetic rags which have already landed at ICD or which are shipped on or before 30th April, 1987 will be allowed clearance after proper mutilation, if found necessary, in the manner specified in the notice. Any consignment that may be shipped after 30th April, 1987 should satisfy the conditions detailed in the notice and no mutilation will be permitted for such consignments. The challenge to the above public notice was on the ground that it modified the provisions of the Import Policy which adversely affected the importers like the petitioner and the same is, therefore, violative of Arts. 14, 19(1)(g) and 301 of the Constitution of India and is also against the doctrine of promissory estoppel. We may say that the said public notice has been superseded by the Public notice has been superseded by the Public Notice No. 14/87 dated 17th June, 1987 and, therefore, the said public notice 7/87 is no longer in force and, therefore, the first challenge no longer survives for decision.

2. The second challenge pertains to the meaning to be given to the definition of the woollen rags as given in Appendix 6, page 168 Vol. I of the Import and Export Policy for April, 1985 to March, 1988. The contention of Mr. A.K Sen, the learned counsel for the petitioner, is that the goods in question should be judged by the standard as is understood by a trader who usually deals with such items. Shri Sen in support of his contention relied on Re : Hind Hosiery Mills, 1982 ELT 424 decided by the Central Board of Excise and Customs and Nagesh Hosiery Mills v. M.R Ramchandran decided by Mr. Justice R.P Bhatt on 15th Jan. 1975.

3. The Government gazetted its Import and Export Policy for April, 1985 to March, 1988 in the Gazette of India, Extraordinary, dated 12th April, 1985. Volume I contains Import and Export Promotion Policy and Vol. II contains policy in respect of items under Export Licences. Appendix 6 (Vol. I) contains the items which can be imported by the categories of importers specified therein under Open General Licence. The said appendix also contains the conditions governing importation of the items mentioned therein. We are concerned in this petition with the import of raw materials in the shape of rags. Condition No. 37 at page 168 regarding the importation of rags is important and it reads as follows :

“37.(i) Import of Woollen Rags/Shoddy Woo/Synthetic Rags will be allowed only when these are imported in completely pre-mutilated condition.

(ii) Definition of woollen rags is as follows :

(a) ‘New’ — waste woollen cloth whether woven or knitted which is left after a garment had been cut out including genuine tailor cutting piece ends, discarded pattern bunches and sample bits.

(b) ‘Old’ — Rags of woollen textile fabrics (including knitted and crocheted fabrics) which are required for manufacture of shoddy yarn and may consist of articles of furnishing or clothing or other clothing so worn out, soiled or torn as to be beyond cleaning or repair.

(iii) The above definition shall also apply mutatis mutandis to synthetic rags.”

4. The petitioner is a manufacturer of blankets and shawls. It has its factory at Jalandhar and is doing the business under the name and style of M/s. Rajeev Woollen Mills, with its head office at Ludhiana. The case of petitioner is that it imports rags in completely mutilated condition for the purpose of manufacturing blankets and shawls. The manufacturing unit of the petitioner is registered as a small scale unit with the Government of Punjab, Directorate of Industries Jalandhar, for the manufacture of shoddy shawls and blankets under registration No. DSI/16/107/01032.PNL, dated 24-10-1986. On 11th Feb. 1987 the petitioner placed an order on American By-products Incorporated, Philadelphia, U.S.A for the supply of 53640 K.Gs of ‘old synthetic rags in completely pre-mutilated condition’. The said order was duly registered with the Textile Commissioner, Amritsar on 16th Feb. 1987. On 30th March, 1987 the foreign supplier under invoice No. 98402 shipped the goods being 138 bales of ‘old synthetic rags completely pre-mutilated’ to the petitioner firm. The foreign supplier also sent a certificate of inspection by General Superintendent Company, Surveyors and Inspectors. The said firm certified that “the container carries completely pre-mutilated rags. Each piece of rag/clothes is cut into two or more pieces. Therefore, the same is completely mutilated and cannot be repaired.

5. According to the petitioner on arrival of the goods at ICD, Delhi he filed the bill of entry on 10th June, 1987. The Assistant Collector of Customs (respondent No. 3), however, refused to clear the goods as, according to him, the mutilation was not in accordance with the public Notice No. 7/87. We have earlier stated that the said public notice has been superseded by public notice No. 14/87.

6. The goods were inspected by the Assistant Collector of Customs on 8th July, 1987 and 14th July, 1987 and the examination report of the Assistant Collector reads as follows :

“Examination report dated 8-7-87 :—

(Three container Nos. MAEU-2101316, MAEU-2073620 and MAEU-2112938 (138 Bales))

“Opened and examined the goods in the presence of the Superintendent (Cus.) Appr. (Cus.) and Party and opened Bale Nos. 52, 65, 80, 92 and three Bales from other two Containers, were stripped open as the same could not be burst opened due to non-availability of labour. The following type of goods were found inside the Bales.

(a) Syn-Pants cut in two pieces from the middle. Both the legs portions were found inside the same bale;

(b) Pants cut in three portions i.e two leg portions and one upper portion all the three portions were found in the same bales.

In view of above it appears that goods, are other than completely pre-mutilated rags and not satisfying the condition 37 of App. 6 of Import Policy 85-88.

Examination report dt/- 14-7-1987 :—

(Three container Nos. MAEU-2101316, MAEU-2073620 and MAEU-2112938 (138 Bales)).

“Examined the goods 100% bales contained in the abovementioned containers, in the presence of the Importer Shri Rajeev Kumar, and the Superintendent (Cus.) I.C.D and the goods i.e Syn. pants cut in two pieces and three pieces. This is mixed lot of weaving/knitted pants of different size. The detail of goods found further detailed as under:

(i) Pants cut in two pcs. from the middle;

(ii) Pants cut in three portions i.e two leg portions and one upper-portion. The goods found in the same nature as earlier reported in the examination report.

It appears that the goods are other than completely pre-mutilated rags and are not satisfying the condition 37 of App. 6 of Import Policy 85-88. Representative samples from the consignment drawn and sealed in the presence of the Importer over the dated signature of Shri Rajeev Kumar and Inspector I.P Mehta, with seal No. 150.”

7. Shri Sen contended that the expression ‘rag’ has to be given a common sense meaning i.e as would be known to the trader who usually deals with such items not necessarily for the well-to-do, nor for the man of the street, but as usual in his business to cater for all alike. The counsel contended that the certificate of inspection (page 36) records that the ‘container carries completely pre-mutilated rags. Each piece of rag/clothes is cut into two or more pieces, therefore, the same is completely mutilated and cannot be repaired.” The counsel further referred to Annexure 8 (page 39) a letter written by the Assistant Director, Ministry of Industry, Small Industries Service Institute, Ludhiana to M/s. Monika India, wherein it has been written that if the garment/clothes is cut into two or more pieces and it becomes beyond repairs it is called completely mutilated. Such rags are used for reprocessing for manufacture of yarns. The counsel on the basis of the above contended that the goods in question which according to the invoice are old synthetic rags completely pre-mutilated fall within the category of ‘completely pre-mutilated rags’ and would be in conformity with the conditions laid down in the Import and Export Policy.

8. We have carefully read the authorities Re : Hind Hosiery Mills and Nagesh Hosiery Mills (supra) referred to by Mr. Sen and we are of the view that the said authorities are distinguishable and not applicable to the case in hand. A reading of the said authorities shows that when the woollen rags were imported in the authorities referred to above there was no definition for the item woollen rags anywhere either in the Import Trade (Control) Order or in the first schedule to the Indian Tariff Act and, therefore, the view taken was that the expression ‘woollen rags’ will have to be construed not in the scientific or technical or laboratory sense but in the sense in which persons dealing with it or commercial meaning viz. as would be known to the trader who usually deals with such items. We find that the Import Trade (Control) by public notice dated 17th Sept. 1973 had laid down that for the purpose of Import Policy the term ‘woollen rags’ when ‘old’ would mean “old and discarded woollen garments which have been mutilated, otherwise than by reaping at the seams and rendered unserviceable”. This definition was further revised by the Import Trade Control authorities by a public notice dated 8th Aug. 1974. The said notifications were held to be not applicable to the goods already shipped or arrived. We, however, find that in the case Hind Hosiery Mills (para 33) the Board while setting aside the order of absolute confiscation had ordered that the goods as released from the order of absolute confiscation shall be mutilated so as to render them totally unserviceable.

9. We find that condition No. 37 in Appendix 6 (page 168) specifically provides (i) that the import of woollen rags/shoddy wool/synthetic rags will be allowed only when these are imported in completely pre mutilated condition. The definition clause further requires that old rags of woollen textile fabrics (including knitted and crocheted fabrics), which are required for manufacture of shoddy yarn and may consist of articles of furnishing or clothing or other clothing so worn out, soiled or torn as to be beyond clean or repair. (Emphasis supplied). The Import and Export Policy now in force makes it clear that the old woollen rags to be imported are to be in completely pre-mutilated condition and further they should be so worn out, soiled or torn as to be beyond cleaning or repair.

10. There is no doubt that any one importing the old rags under the Import and Export Policy in force during the relevant period knew the conditions for the import of the old woollen rags.

11. In our opinion the standard for the import of the woollen rags would have to be as laid down in condition No. 37 (Appendix 6 at page 168).

12. The goods in question have already been inspected. We were told by the respondents that they shall be issuing notice to the petitioner for adjudication. It shall be wow for the concerned authorities to take a decision on the merits of the case.

13. Shri Sen contended that the goods are lying at the railway godown and they are incurring heavy demurrage and the respondents should be asked to store them in public warehouse. It shall be for the petitioner to make an application under S. 49 of the Customs Act, 1962 and thereafter it will be for the Assistant Collector to order the storage of the goods in question in a public warehouse or a private warehouse pending determination as to whether the goods have been legally imported or whether they are excisable to customs duty. We, however, direct that in case the petitioner makes an application under S. 49 the Assistant Collector shall decide the application without any delay.

14. The petition is disposed of accordingly. No order as to costs.