- Bookmark
- Share
- CaseIQ
Union Of India And Others v. R.C Fabrics (P) Ltd. And Another
Factual and Procedural Background
The case concerns a consignment of 100% polyester fabric imported duty-free under a Duty Exemption Entitlement Certificate (DEEC) and an advance import licence that required a corresponding export obligation. 10% of the goods were examined on 3-9-1990 and discrepancies in length and weight were found. After the importer agreed to waive further examination, the Assistant Collector, on 21-9-1990, ordered release of the excess goods on payment of a redemption fine of Rs 25,000, a personal penalty of Rs 5,000 and customs duty of Rs 43,657, all of which were deposited on 22-9-1990.
On the same day, officers of the Directorate of Revenue Intelligence (DRI) detained the goods and formally seized them on 15-11-1990, alleging fraudulent export and duty evasion of over Rs 16 lakh. Pursuant to directions of the Delhi High Court dated 11-2-1991 permitting further investigation, a show-cause notice dated 18-2-1991 proposed confiscation and penalties. An order of confiscation dated 25-2-1991 was later quashed by the High Court for violation of natural justice and the matter was remanded.
On remand, the Collector of Customs, by order dated 22-10-1993, discharged the show-cause notice applying the doctrine of constructive res judicata, holding that the earlier order of 10-1-1991/15-1-1991 (formalising the 21-9-1990 note-sheet order) barred fresh adjudication. The Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) dismissed the Government’s appeal on 13-9-1999. Separately, the Delhi High Court, in a writ petition by the importer, ordered release of the goods and directed that warehousing charges from 16-1-1991 be borne by the Customs authorities.
Four matters reached the Supreme Court: (i) Civil Appeals Nos. 767-68 of 1995 (Union of India challenging the High Court’s release order), (ii) appeal arising out of SLP(C) No. 1663 of 2000 (Union of India challenging CEGAT’s dismissal), and (iii) Civil Appeal No. 7931 of 1995 (importer challenging liability for demurrage up to 15-1-1991). The judgment disposes of all four appeals.
Legal Issues Presented
- Whether the principles of res judicata or constructive res judicata barred the Collector from adjudicating the show-cause notice dated 18-2-1991 after the earlier order dated 10-1-1991/15-1-1991.
- Whether the Delhi High Court was correct in directing unconditional release of the goods and ordering the Customs Department to bear warehousing and related charges from 16-1-1991 onward.
- Whether warehousing, demurrage, container charges and ground rent are payable by the importer or the Customs Department during the period of detention.
Arguments of the Parties
Union of India’s Arguments
- The Collector and the Tribunal erred in applying res judicata; the test report dated 26-11-1990/4-12-1990, which formed the basis of the later show-cause notice, post-dated the 21-9-1990 note-sheet order and therefore could not have been “deemed” considered earlier.
- The High Court’s observation that the Collector lacked jurisdiction was only prima facie and could not preclude a merits-based adjudication.
- Investigation authorised by the High Court on 11-2-1991 had to be pursued to its logical conclusion to determine alleged fraud.
- Under Supreme Court precedent, warehousing and related charges are recoverable from the importer, not the Customs authorities.
Importer’s Arguments
The opinion does not contain a detailed account of the importer’s legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| International Airports Authority of India v. Grand Slam International (1995) 3 SCC 151 | Liability for demurrage and warehousing charges rests on the importer, not the Customs Department. | Used to set aside the High Court’s direction that Customs pay charges from 16-1-1991; the Court affirmed that the Corporation can recover its charges from the importer. |
Court's Reasoning and Analysis
The Supreme Court agreed with the Attorney-General that res judicata principles had no application. The crucial test report emerged only on 26-11-1990/4-12-1990—after the 21-9-1990 order and even before formalisation on 15-1-1991—so it could never have been considered in the earlier adjudication. Consequently, the Collector’s reliance on constructive res judicata was “manifestly erroneous.”
The Court observed that the Delhi High Court’s order of 11-2-1991 expressly allowed investigation into possible fraud; therefore, a merits-based determination was necessary. By discharging the show-cause notice without examining merits, the Collector, and in turn the Tribunal, failed to carry out that mandate.
Because the Collector’s order (22-10-1993), the Tribunal’s dismissal (13-9-1999) and the High Court’s release order were all premised on the flawed res judicata reasoning, they could not stand. The Court therefore set them aside and remanded the matter to the Collector for fresh adjudication on merits after providing the importer reasonable opportunity to be heard. A prior Supreme Court status-quo order on the goods’ custody was directed to continue pending such adjudication.
On warehousing charges, the Court invoked its own precedent in International Airports Authority of India v. Grand Slam International to hold that the Central Warehousing Corporation is entitled to recover demurrage and related charges from the importer; the High Court’s contrary direction against the Customs Department was therefore wrong.
Holding and Implications
Holding: Civil Appeals Nos. 767-68 of 1995 and the appeal arising out of SLP(C) No. 1663 of 2000 filed by the Union of India are allowed; the Collector’s order dated 22-10-1993, the Tribunal’s order dated 13-9-1999 and the Delhi High Court’s release order are all set aside. The case is remanded to the Collector for fresh decision on the show-cause notice. The importer’s Civil Appeal No. 7931 of 1995 is dismissed. Status quo regarding custody of goods shall continue until fresh adjudication.
Implications: The decision re-opens adjudication on alleged fraudulent import, clarifies that res judicata does not preclude further proceedings when new material surfaces post-adjudication, and re-affirms that warehousing charges are borne by importers. No new precedent was set beyond reaffirming existing legal principles.
Y.K Sabharwal, J.— In Civil Appeals Nos. 767-68 of 1995, the challenge of Union of India is to the judgment and order of the High Court whereby allowing the writ petition, the Collector of Customs has been directed to release the imported goods of the writ petitioner (Respondent 1 herein) lying with the Central Warehousing Corporation Limited (for short “the Corporation”). It has been further directed that the first respondent will pay demurrage, container charges and ground rent to the Corporation from the date of storage of the goods till 15-1-1991 whereas the Collector of Customs will pay the said charges on account of storage of these goods from 16-1-1991 till the date of release of the goods.
2. In Special Leave Petition (C) No. 1663 of 2000, the challenge of the Government is to the order of the Customs, Excise and Gold (Control) Appellate Tribunal which upheld the order of the Collector of Customs dated 22-10-1993. By the said order, the Collector of Customs directed the discharge of show-cause notice dated 18-2-1991 and had directed that the proceedings be dropped. We grant leave in the special leave petition.
3. Civil Appeal No. 7931 of 1995 has been filed by the original writ petitioner. The limited challenge therein is to the direction for payment of demurrage, container charges and ground rent by the said petitioner till 15-1-1991. The contention urged in this appeal is that the said charges are payable by the appellant only up to 21-9-1990 and not thereafter.
4. This judgment will dispose of all four appeals.
5. We have heard learned Attorney-General and also learned counsel for the Corporation. None, however, appeared for the importer who is the respondent in Civil Appeals Nos. 767-68 of 1995 and civil appeal arising out of SLP (C) No. 1663 of 2000 and the appellant in Civil Appeal No. 7931 of 1995.
6. The importer filed bill of entry dated 16-9-1990 for clearance of consignment declared as 100% polyester fabric. On 3-9-1990, the Customs Authorities conducted examination of 10% of the goods and found some discrepancies with regard to the declared length and weight of the fabric. The importer by its letter dated 4-9-1990 agreed with that examination and findings and requested the Customs Authorities not to go in for 100% examination of the goods. The Customs Authorities examined another 10% of the goods; on the basis whereof, it calculated average excess in length and weight. It found that total of 843.85 m (weight = 206.30 kg) fabric was excess in length. The CIF value of the excess fabric was found to be Rs 17,003 (assessable value Rs 17,173). The importer requested the Assistant Collector of Customs for waiver of show-cause notice and personal hearing. On 21-9-1990, the Assistant Collector passed an order on note-sheet whereby the importer was allowed the release of the excess goods after payment of fine of Rs 25,000 and personal penalty of Rs 5000. The amounts were deposited on 22-9-1990 as also customs duty amounting to Rs 43,657 on the excess goods. On that day itself i.e 22-9-1990, DRI officers visited CFS, Patparganj and detained the consignment on the basis of information available with them. On 15-11-1990, DRI seized the detained goods.
7. A writ petition was filed in the Delhi High Court by the importer seeking directions against the Customs Authorities for release of consignment of polyester fabric imported by it against duty-free advance import licence urging that the consignment had been illegally and unauthorisedly detained by the Customs Authorities. The import was effected by the importer under Duty Exemption Entitlement Certificate (DEEC) and duty-free advance import licence. Under that licence, the importer was allowed to import 80,000 m of 100% polyester fabric of CIF value of Rs 16,16,000. One of the conditions of import was that the importer would export 1,60,000 pieces of shorts made out of the imported 100% polyester fabric of the desired denier of value of Rs 24,48,000. In accordance with the DEEC policy, all imports under export obligation were duty-free. The importer claimed that it had exported the required quantity of 1,60,000 pieces of shorts of the required fabric and the buyer had remitted requisite foreign exchange and, thus, it had fulfilled the export obligation. The importer further claimed that the order imposing penalty and redemption fine as aforesaid was made on 21-9-1990 which amount along with the customs duty was deposited on the very next date and since the goods were not released despite the said deposits, the writ petition was being filed.
8. The formal order on the lines on which the order was made on the note-sheet on 21-9-1990 was passed by the Assistant Collector on 15-1-1991.
9. In the counter-affidavit filed in the writ petition, the Assistant Collector, Directorate of Revenue (Intelligence) averred that the importer had violated the import control order and evaded duty amounting to over Rs 16 lakhs. On receipt of information by DRI that the export effected was fraudulent and no test report regarding the goods was filed, the statement of the “Director of the” writ petitioner-Company was recorded under Section 108 of the Customs Act. The statements of some other persons were also recorded under Section 108. The case of the Directorate of Revenue was that the exports were fraudulent. When the writ petition came up before the Division Bench of the High Court on 11-2-1991, a request was made on behalf of the Department that time be granted to it to further investigate the matter. The High Court allowed the investigation to be completed within one week and also permitted the Department to issue a show-cause notice to the writ petitioner/importer who was given time to file its reply within 48 hours on receipt of the show-cause notice. The adjudication, if any, was required to be completed and concluded within one week after the completion of investigation.
10. On 18-2-1991, a show-cause notice was issued to the importer to explain as to why the goods be not confiscated and the Company and its Directors be not proceeded with for penal action under Section 112 of the Customs Act, 1962. By order dated 25-2-1991, the Additional Collector, Customs ordered confiscation of the goods but allowed the goods to be redeemed on payment of redemption fine of Rs 4,00,000 and appropriate duty amounting to over Rs 16,00,000. Besides it, penalty of Rs 10,00,000 each was imposed on the Directors and Rs 5,00,000 on the Company.
11. The order dated 25-2-1991 was set aside by the High Court as it was found that the principles of natural justice had not been complied with before passing the said order supposedly on account of time-limit for decision fixed by the High Court and without waiting for reply of the importer, the order was passed by the Collector on 25-2-1991. The High Court while setting aside that order directed the matter to be decided afresh after dealing with the points raised by the petitioner in the written submissions including the point of jurisdiction in view of the order dated 10-1-1991/15-1-1991. On remand the matter was dealt with by the Collector of Customs before whom two submissions were made, namely, (1) in view of the order dated 10-1-1991/15-1-1991, another order of adjudication could not be made in respect of the same consignment, and (2) on merits, confiscation of goods was not justified. Accepting the first contention, the Collector of Customs in terms of his order dated 22-10-1993 discharged the show-cause notice dated 18-2-1991 and dropped the proceedings. He was of the opinion that in view of the order of adjudication dated 10-1-1991/15-1-1991, there could not be another adjudication order in respect of the same consignment. In this view, the Collector refrained from going into the second contention which concerned the merits of the case. The order dated 22-10-1993 was upheld in appeal by the Tribunal and the appeal was dismissed on 13-9-1999. That order is the subject-matter of appeal arising out of SLP (C) No. 1663 of 2000. By the impugned judgment and order the High Court allowed the writ petition and directed release of the goods and issued directions for payment of demurrage etc. as noticed hereinbefore.
12. The Tribunal has dismissed the appeal against the order dated 22-10-1993 filed by the Government upholding the order of the Collector principally on the ground that the Collector had no jurisdiction to pass a fresh order of adjudication in view of the earlier order dated 10-1-1991/15-1-1991 covering the consignment in question and also for the reason that the High Court while deciding the writ petition upheld the finding that the Collector had no jurisdiction to pass a fresh adjudication order in view of the earlier order dated 10-1-1991/15-1-1991. Accordingly the Tribunal declined to interfere with the order of the Collector and, thus, the appeal was dismissed. It deserves to be noticed that the Collector was of the view that the principles of constructive res judicata will fairly apply as the test report dated 26-11-1990/4-12-1990 which was the sole basis of the impugned show-cause notice was available with the Department during the adjudication proceedings by the Assistant Collector who passed the order on 15-1-1991 and, therefore, the test report is deemed to have been taken into account by the Assistant Collector before concluding the adjudication proceedings leading to the order dated 10-1-1991/15-1-1991.
13. Learned Attorney-General contends that the Collector of Customs committed serious illegality in coming to the conclusion that the principles of res judicata or constructive res judicata have any applicability to the facts and circumstances of the present case. Further, the Tribunal erroneously dismissed the appeal, contends the Attorney-General, by holding that the matter stood concluded by the judgment of the High Court directing release of the goods. The test report in respect of which the Collector states in his order dated 22-10-1993 that on application of principles of constructive res judicata, it is deemed to have been considered by the Assistant Collector when he passed the order on 15-1-1991, Mr Sorabjee submits that the conclusion is a result of manifest erroneous approach for the reason that the order dated 10-1-1991/15-1-1991 was only a formal order and in fact as a result of concession of the importer, an order on note-sheet had already been passed on 21-9-1990 pursuant to which, as per the own case of the importer, it had deposited the redemption fine, personal fine and the customs duty on 22-9-1990 and even the writ petition had been filed seeking release of the goods on 7-11-1990. On these admitted facts, contends learned Attorney-General that the question of deemed consideration of report dated 26-11-1990/4-12-1990 can never arise. The contention, therefore, is that the show-cause notice could not be discharged on the ground that the test report dated 26-11-1990/4-12-1990 could not be taken into consideration as the same is deemed to have been taken into consideration while making the order dated 10-1-1991/15-1-1991. We agree. There is substance in the contention of the learned Attorney-General. It is evident from the above facts that the test report was not and could not be taken into consideration by the Assistant Collector when the order was passed on 21-9-1990 followed by a formal order dated 10-1-1991/15-1-1991. On the basis of the order for release passed on 21-9-1990, the importer was claiming release of the goods for which purpose it had even filed the writ petition even prior to 15-1-1991. The principles of res judicata or constructive res judicata have no application whatsoever. Further, it is evident that by order dated 11-2-1991 the High Court had allowed the investigation. In its view, the case had to be examined on merits to find out whether it was a case of fraud or not, as contended by the Department. The merits of the case were not gone into because the Collector accepted the first submission regarding the applicability of principles of constructive res judicata. Further, the High Court in the impugned judgment and order has observed that the order of the Collector dated 22-10-1993 was not the subject-matter of challenge before it. It was in this light that the observations of the High Court that the Collector was right in holding that he had no jurisdiction to pass afresh order of adjudication in view of the earlier order dated 10-1-1991/15-1-1991 covering the consignment in question had to be seen. Those were only prima facie observations as at that stage the appeal against the order of the Collector dated 22-10-1993 was pending before the Tribunal. Under these circumstances, the investigation permitted by the High Court could not be brushed aside and the matter had to be taken to its logical conclusion.
14. For the aforesaid reasons, it is not possible to uphold the impugned order of the Tribunal as also the order of the Collector dated 22-10-1993. For the same reasons, the impugned judgment and order of the High Court directing the release of the goods cannot be sustained till it is finally decided as to whether there is any substance or not in the allegations made against the importer in the show-cause notice dated 18-2-1991 on examination of the merits of the case. As already noticed, the merits were not examined by the Collector in view of his conclusion that the second order of adjudication could not be made.
15. Therefore, setting aside the impugned judgment and order of the High Court, the order dated 22-10-1993 of the Collector and order dated 13-9-1999 of the Tribunal, we remand the matter to the Collector for fresh decision on the show-cause notice after affording to the importer a reasonable opportunity to put forth its viewpoint. While granting the leave, this Court had directed maintenance of status quo. The order of status quo will continue till the matter is examined afresh by the Collector in terms of this judgment.
16. The High Court has directed that the Customs Department would pay the demurrage, container charges and ground rent to the Corporation from 16-1-1991. The said direction is contrary to the decision of this Court in International Airports Authority of India v. Grand Slam International (1995) 3 SCC 151. The Corporation is entitled to recover its charges from the importer. Therefore, the direction in the impugned judgment and order that the Customs Authorities shall pay those charges is set aside. Thus, the appeal filed by the importer (CA No. 7931 of 1995) deserves to be dismissed. In any event, no one has appeared in support of that appeal.
17. For the foregoing reasons, Civil Appeals Nos. 767-68 of 1995 and civil appeal arising out of SLP (C) No. 1663 of 2000 are allowed. The case, as aforestated, is remanded back to the Collector for fresh decision. Civil Appeal No. 7931 of 1995 is dismissed. No order as to costs.
Alert