Babulal Amthalal Mehta vs The Collector Of Customs, Calcutta

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Petition No. 98 of 1956

Decision Date: 8 May 1954

Coram: Govinda Menon

In the matter styled Babulal Amthalal Mehta versus The Collector of Customs, Calcutta, the Supreme Court of India rendered its judgment on 8 May 1954. The petitioner was Babulal Amthalal Mehta and the respondent was the Collector of Customs, Calcutta. The case concerned the interpretation of the Sea Customs Act (VIII of 1878) as amended by the Amending Act (XXI of 1955), specifically section 178‑A, and its relationship to the guarantee of equal protection of the law under Article 14 of the Constitution of India. The headnote of the decision explained that section 178‑A places upon the person whose possession is seized the burden of proving that goods, which authorities reasonably believe to be smuggled, are in fact not smuggled. The Court held that this statutory burden does not constitute discrimination and therefore does not violate Article 14. The Court relied on the decision in Budhan Chaudhury and Others v. The State of Bihar, (1955) I S.C.R. 1045, and also referred to the authorities Purshottam Govindji Halai v. Shri B. M. Desai, (1955) 2 S.C.R. 889 and A. Thangal Kunju Musaliar v. M. Venkitachalam Potti and another, (1955) 2 S.C.R. ii96. It observed that the American cases William N. McFeyland v. American Sugar Refining Co., (1916) 241 U.S. 79, W. D. Manley v. State of Georgia, (1929) 279 U.S. I and Tot v. United States, (1943) 319 U.S. 463 were inapplicable to the present question. Consequently, where the Collector of Customs, after a failure by the person whose diamonds had been seized to demonstrate that the diamonds were not smuggled but lawfully imported, confiscated the diamonds under sections 167(8) and 167(39) of the Sea Customs Act, the Court concluded that no infringement of the fundamental right guaranteed by Article 14 occurred.

The original jurisdiction for the dispute arose from Petition No. 98 of 1956, filed under Article 32 of the Constitution for the enforcement of fundamental rights. Counsel for the petitioner included N. C. Chatterjee and S. C. Majumdar, while counsel for the respondents—identified as respondents Nos. 1, 2, 3 and 5—were P. A. Mehta, R. Ganapathy Iyer and R. H. Dhebar. The judgment was delivered on 8 May 1957 by Justice Govinda Menon. The petition challenged the constitutionality of section 178‑A, inserted into the Sea Customs Act by section 14 of the Amending Act XXI of 1955, on the ground that it violated Article 14. Affidavits filed by both parties, attached as annexures, revealed that the petitioner was engaged in the business of brokering diamonds and precious stones in Calcutta and claimed to enjoy credit and reputation as a well‑known and respectable broker. On 4 May 1955, the Rummaging Inspector (Intelligence) of the Customs House in Calcutta, identified as Respondent No. 3, executed a search of the petitioner’s residential room at No. 32, Sir Hariram Goenka Street, Calcutta, under a warrant issued by the Chief Presidency Magistrate, Respondent No. 4. After a brief search of a steel almirah containing the petitioner’s trade stock yielded nothing, the inspector questioned the petitioner about the location of any concealed diamonds, to which the petitioner replied in the negative. The inspector then examined a wall almirah that stored washed clothes and other items, discovering 475 pieces of diamonds and one synthetic stone hidden in an old jacket. A signed statement from the petitioner indicated that he had received diamonds worth Rs. 10,000 from M/s. Ratilal Amritlal of 89 Zaveri Bazar, Bombay, and that the remaining diamonds were purchased locally in Calcutta, though he could not recall the names or addresses of the local sellers and possessed no purchase documents. Following this discovery, the Rummaging Inspector escorted the petitioner to the Customs House.

In this proceeding the searching officer, identified as the Rummaging Inspector (Intelligence) of the Customs House in Calcutta and designated as Respondent No. 3, entered the petitioner’s residence located at No 32, Sir Hariram Goenka Street, Calcutta, armed with a warrant issued by the Chief Presidency Magistrate, Calcutta (Respondent No. 4). The inspector first examined a steel almirah that the petitioner claimed to use for storing his trading stock; after a brief inspection no diamonds were found and the inspector questioned the petitioner about the whereabouts of any concealed diamonds, to which the petitioner answered in the negative. The search then proceeded to a wall almirah containing washed clothing and other items, and in an old jacket within that almirah the inspector discovered four hundred and seventy‑five pieces of diamonds together with one synthetic stone. A signed statement was obtained from the petitioner in which he explained that ten thousand rupees’ worth of the diamonds had been received from M/s Ratilal Amritlal of 89 Zaveri Bazar, Bombay, while the remaining diamonds had been purchased locally in Calcutta. He could not recall the names or addresses of the local sellers and possessed no documentary evidence of those purchases. Following the discovery, the inspector escorted the petitioner to the Customs House where the Assistant Collector, Customs, asked the petitioner to produce proof that the seized articles were not smuggled goods but were lawfully imported on payment of duty. The Assistant Collector then allowed the petitioner to depart and set a deadline of 7 May 1955 for the petitioner to submit any evidence showing that the goods had been imported with the payment of customs duty under a valid import licence. On the same day, 4 May 1955, the Customs authorities served a notice on the petitioner stating that reasonable grounds existed to believe that the seized goods had been illegally imported into India. The notice required the petitioner, before any further action could be taken under sections 167(8) and 167(39) of the Sea Customs Act, to file by 7 May 1955 any documents in his possession demonstrating that the goods were lawfully imported on payment of the appropriate customs duty together with a valid import trade control licence. The notice further instructed that if the petitioner had not imported the goods himself but had purchased them from another party, he should submit by the same date any evidence indicating the purchase. In response, counsel for the petitioner, identified as the firm of S. K. Sawday and Company, Calcutta, wrote to the Assistant Collector on 7 May 1955. That letter set out the circumstances under which the petitioner had come into possession of the seized items and argued that the presumption of an offence under section 86 of the Sea Customs Act, which would attract the penalty in section 167(39) of the same Act, was unfounded. The counsel requested that the reasons for the seizure be communicated as soon as possible and asked for a ten‑day extension in order to obtain and produce certificates and other documents from the Bombay and Calcutta trades concerning the authenticity of the petitioner’s business and the manner in which he acquired the seized goods.

In the course of the proceedings, the Assistant Collector received several letters from the petitioner’s counsel concerning the legitimacy of the petitioner’s trade in Bombay and Calcutta and the manner in which the seized diamonds had come into his possession. A second letter from the same counsel dated 9 May 1955 was also sent, the particulars of which were not repeated. On 16 May 1955 the counsel transmitted a further letter together with two certificates and additional particulars, again requesting that the specific reasons for the seizure be disclosed. The Assistant Collector answered on 23 May 1955, informing the counsel that the diamonds had been seized on reasonable suspicion that they had been imported into India in contravention of the Sea Customs Act and therefore were liable to seizure under that statute. Subsequent correspondence continued, including a letter dated 20 June 1955 and a reply on 25 June 1955 that set out a detailed summary of all events up to that date, notably the petitioner’s earlier denial of possessing any diamonds and the later discovery of the diamonds concealed in a used jacket placed in a wall almirah. The June 25 letter explained the justification for the search officers’ actions and warned that if the petitioner failed to file a written explanation within the prescribed time or failed to appear at the scheduled hearing, the case would be decided solely on the basis of the evidence already on record, without further notice.

On 1 July 1955 the petitioner’s counsel wrote another letter reiterating the objections and arguing why no action should be taken. This was followed by letters dated 4 July and 20 July 1955. A personal hearing was granted on 21 July 1955, after which the counsel submitted a letter on 22 July 1955. The content of these letters and the statement annexed from M/s Ratilal Amritlal of Bombay were not reproduced because they were not essential to the present narration. After considering the complete material, the Collector of Customs issued an order on 12 September 1955, which was dispatched on 5 November 1955. The order contained an extensive discussion of the facts and circumstances and concluded that the petitioner had failed to satisfy the burden imposed by section 178‑A of the Sea Customs Act with respect to the diamonds seized on 4 May 1955. Accordingly, the order confiscated the diamonds under sections 167(8) and 167(39) of the Sea Customs Act and declared the confiscation to be absolute pursuant to sections 3(2) and 4 of the Imports and Exports (Control) Act, 1947. The reasons recorded were that the petitioner’s later statements contradicted his initial statements, that an attempt had been made at the time of the raid to hide the diamonds in a suspicious manner, and that the petitioner’s explanations appeared to be after‑thoughts lacking factual support.

The Collector’s order observed that the petitioner was presenting statements that were merely after‑thoughts and that these statements lacked factual support. Because of this observation and several other reasons, the Collector concluded that the statutory presumption created by section 178‑A of the Sea Customs Act had not been overcome. The order further specified that an appeal against the Collector’s decision could be lodged with the Central Board of Revenue within three months from the date the order was dispatched, and it also provided details concerning the court‑fee stamps that would have to be affixed to such an appeal. The petitioner did not pursue this statutory remedy; instead, he approached this Court by filing an application for a writ of certiorari under article 32 of the Constitution. Counsel for the petitioner, identified as Mr Chatterjee, made a tentative argument that the provisions of article 19(1)(f), article 19(1)(g) and article 31 of the Constitution had been infringed, but he did not press those contentions with any seriousness. The principal ground of attack, however, centered on the contention that section 178‑A was inconsistent with the principle of equal protection of the laws guaranteed by article 14 of the Constitution. Before the Court could evaluate the constitutionality of section 178‑A, it deemed it necessary to examine the circumstances that gave rise to that statutory provision, and for that purpose a brief outline of the relevant provisions of the Sea Customs Act was presented. Section 19 of the Sea Customs Act, 1878, empowered the Central Government, by means of a notification in the Official Gazette, to prohibit or restrict the importation or exportation of any goods into or out of India, while section 20 listed the categories of goods that were subject to duty. When any person imported goods into India, the owner of those goods was required, after the vessel’s master had delivered the manifest, to make an entry for home consumption or for warehousing by submitting to the Customs‑collector a bill of entry containing particulars that matched those appearing in the ship’s manifest, as mandated by section 86. This procedure was intended to give the Customs collector an indication of whether the owner’s description of the goods corresponded with that supplied by the master of the vessel. Upon receipt of the bill of entry, if duty was payable on the goods, the duty was to be assessed and could be paid only after such assessment, as provided by section 87; only after the duty had been paid could the owner proceed to clear the goods, a step regulated by section 89, which allowed the owner to take possession of the goods provided that all statutory requirements had been satisfied. Chapter XVI of the Act dealt with offences and penalties, and section 167 of that chapter set out a schedule containing three columns: the first column identified the offence, the second column — which did not have the force of law — indicated the relevant section of the Act, and the third column stipulated the penalty that could be imposed.

In the third column of the schedule a clear distinction must be drawn between the penalty that may be imposed by the customs authorities and the punishment that a court of law may impose for breach of certain provisions. Offences listed in entries numbered 26, 72 and 74 to 76 inclusive are linked to prosecution and conviction before a Magistrate, whereas the majority of the other entries refer only to penalties that are levied by the customs authorities. This differentiation becomes significant when the provisions of section 182 are considered. The present matter concerns entries numbered 8 and 39. Entry number 8 provides for confiscation as a penalty where goods whose import or export is prohibited or restricted are brought in contrary to the prohibition or restriction. In addition to the confiscation, the persons involved become liable to a penalty not exceeding three times the value of the goods or not exceeding one thousand rupees, whichever is lower. The Court has previously held that the lower of the two limits operates as the minimum, as stated in Maqbool Hussain v. The State of Bombay. Entry number 39 also prescribes a penalty not exceeding five hundred rupees together with confiscation of the goods when they are taken or removed from any custom‑house or wharf without a proper entry being made. Goods that are traced and seized after being smuggled fall within this category. Although the Act does not define the term “smuggling,” it must be understood in its ordinary dictionary sense, meaning the clandestine carriage of goods into the country.

Chapter seventeen of the Act deals with searchers, the recovery of smuggled goods, related offences, appeals and other matters. Section 169 empowers any customs officer employed in the prevention of smuggling to search any person on board a vessel anywhere in India or any person who has disembarked from a vessel, provided the officer has reason to believe that the person is concealing dutiable or prohibited goods on his or her person. Section 170 supplies a safeguard whereby a person who is about to be searched may demand that the officer escort him before the nearest Magistrate or customs collector prior to the search. The essential requirement in this context is that the officer who conducts or attempts the search must possess a reasonable belief that the individual is carrying dutiable or prohibited articles. While sections 169 and 170 address the moment when dutiable goods are brought into India, the later provisions of the Chapter outline the procedure to be followed when goods have been smuggled without detection at the port or wharf. Under section 172, any Magistrate may issue a search warrant on application by a customs collector who states a belief that dutiable or prohibited goods, or any documents relating to such goods, are concealed within the local limits of the Magistrate’s jurisdiction. The warrant issued under this provision has the same effect and is executed in the same manner as a search warrant issued under the criminal procedure law.

The Court observed that a search warrant may be issued only after a Customs collector, who is a senior responsible officer, submits an application stating his belief that dutiable or prohibited goods—or any documents relating to such goods—are concealed in a place within the jurisdiction of the Magistrate. Once issued, the warrant must be executed in the same manner and have the same legal effect as a search‑warrant issued under the provisions governing criminal procedure. The Court noted that because the warrant can be issued solely on the application of a Customs collector, this requirement functions as a safeguard against the arbitrary or indiscriminate issuance of search warrants. Section 178, the Court explained, authorises the seizure of goods liable to confiscation at any location, whether on land or water, by any customs officer or by any other person duly employed for the prevention of smuggling. The provision that was under challenge, Section 178‑A, was then quoted in full. Sub‑section (1) provides that when goods falling within the scope of the section are seized under the Act on the reasonable belief that they are smuggled, the burden of proving that they are not smuggled rests on the person from whose possession the goods were seized. Sub‑section (2) states that the provision applies to gold, gold manufactures, diamonds and other precious stones, cigarettes, cosmetics and any other goods that the Central Government may, by notification in the Official Gazette, specify for this purpose. The Court clarified that the presumption created by Section 178‑A operates equally whether the seizure results from a search warrant issued under Section 172 or from a seizure made under Section 178. The manner in which seized items are to be dealt with is set out in Section 179, while Section 181 requires that when a seizure or arrest is made, a written statement of the reasons for the seizure or arrest must be given to the person arrested or to the person from whom the goods were seized. The Court further explained that, except in cases falling within entries 26, 72 and 74 to 76 of Section 167, the confiscation, penalty or duty on an article seized under Sections 172 and 178 may be adjudicated by the officer named in those provisions, meaning that the person from whom the article is seized is entitled to an adjudication regarding confiscation, penalty or duty. This right provides the seized party with the valuable opportunity to have the claim adjudicated by a superior officer. If, after such adjudication, the confiscation is still enforced, Section 188 allows an appeal from the subordinate officer to the Chief Customs authority within three months of the decision. In the present case, the confiscation was ordered by the Collector of Customs, and an appeal lay from that decision to the Central Board of Revenue. Section 191 empowers the Central Government, upon application by any aggrieved person, to reverse or modify any decision or order made under the Act by a Customs officer or the Chief Customs authority when no other appeal lies. The Court thus concluded that the series of provisions outlined above demonstrate that the Act provides successive remedies to any person aggrieved by the seizure and confiscation of articles, establishing that the legislation constitutes a complete code offering redress and relief in cases of illegal or unjustified orders.

In this matter the Court considered the origin of section 178‑A. The Central Government had created a body called the Taxation Enquiry Commission, which in its report recommended that the principles underlying section 178‑A be adopted to reduce smuggling. The report, in Volume II, Chapter VII, dealt with administrative problems concerning customs and excise duties, and at pages 320 and 321 the Committee suggested amending the Sea Customs Act. The first suggestion was to make smuggling a criminal offence; the second was to empower customs officers to search premises and similar places; the third suggestion, which is the focus here, was expressed as follows: “To transfer the onus of proof in respect of offences relating to smuggling to the person in whose possession any dutiable, restricted or prohibited goods are found.” It was for the purpose of implementing this recommendation that section 178‑A was enacted. Section 178‑A was drafted to apply to diamonds and other precious stones, and there was no dispute that this provision was applicable to the present dispute. According to the facts set out, customs authorities seized the articles under the Act because they held a reasonable belief that the items were smuggled. Consequently, the burden of proving that the articles were not smuggled was placed by the section on the persons from whose possession the goods were taken. The Court observed that the scope of the provision was very wide. It extended not only to the actual smuggler whose possession was directly affected but also to anyone who later acquired the goods, even after the articles had passed through several hands or agencies. For instance, when customs officers reasonably believed that goods in the possession of an apparently innocent party were smuggled and seized those goods under the Act, the innocent possessor, however blameless, was required to demonstrate that the items were not smuggled articles. The Court recognized that this placed a heavy and onerous duty on an innocent possessor who might have paid a fair price for the items in good faith, without any knowledge of their illicit origin. The only condition for the operation of the section was the subjective, reasonable belief of the customs officer that the goods were smuggled. Upon a careful examination of the relatively lengthy petition filed under Article 32 of the Constitution, the Court found no indication that the impugned section violated Article 14, nor was a separate ground of unconstitutionality raised. Nevertheless, counsel for the petitioner, Mr Chatterjee, contended that the burden of proof created by the statute contravened fundamental principles of natural justice because it granted customs authorities an unrestricted, arbitrary, and naked power without prescribing any standard or norm for exercising the powers conferred by the section.

In this case, the Court observed that under ordinary law the burden of proving a fact ordinarily falls on the party who relies upon that fact, whereas the statute under discussion reverses that position by placing the burden on the possessor of the article to prove that the article was imported into India with a valid bill of entry and that the appropriate customs duty had been paid. The Court noted that this reversal imposes a heavy responsibility on an innocent purchaser, particularly when the purchaser may have acquired the article after it had passed through several intermediate hands. The petitioner contended that this statutory burden creates a discrimination between such a purchaser and other litigants, thereby depriving the purchaser of the equal protection of the law guaranteed by Article 14 of the Constitution. The parties relied upon a large number of judgments to support their respective positions. The Court listed several authorities in which the true nature, scope and effect of Article 14 have been explained by constitutional benches, namely Chiranjit Lal Chowdhury v. The Union of India and Others (1), The State of Bombay and Another v. F.N. Balsara (2), The State of West Bengal v. Anwar Ali Sarkar (3), Kathi Raning Rawat v. The State of Saurashtra (4), Lachmandas‑Kewalram Ahua and another v. The State of Bombay (5), Syed Qasim Razvi v. The State of Hyderabad and Others (6), Habeeb Mohammad v. The State of Hyderabad (6) and V.M. Syed Mohammed and Company v. The State of Andhra (7). The Court indicated that it was unnecessary to discuss each of those decisions at length, because the essential principles underlying Article 14 have been summarised by a Full Bench in Budhan Chaudhury and Others v. The State of Bihar (9). In that judgment the Court explained that while Article 14 prohibits class legislation, it permits reasonable classification for legislative purposes, provided two conditions are satisfied. First, the classification must be based on an intelligible differential that distinguishes the persons or things placed in one group from those left out of the group. Second, the differential must have a rational relation to the purpose that the statute seeks to achieve. The Court further observed that classifications may be based on various criteria such as geography, objects, occupations or similar bases, but there must always be a nexus between the basis of classification and the object of the Act being considered. The Court also reiterated that Article 14 condemns discrimination not only in substantive law but also in procedural law.

The Court observed that decisions of this Court have held that Article 14 prohibits discrimination not only by substantive legislation but also by procedural law. That principle had previously been adopted and applied by this Court in Purshottam Govindji Halai v. Shri B. M. Desai and in A. Thangal Kunju Musaliar v. M. Venkitachalam Potti and another. Counsel for the petitioner, N. C. Chatterjee, referred the Court to several decisions of the United States Supreme Court, namely William N. McFerland v. American Sugar Refining Co., W. D. Manley v. State of Georgia and Tot v. United States. The Court noted that those American decisions turned on the due‑process clause of the United States Federal Constitution and therefore could not be relied upon for construing the equal‑protection clause of the Constitution of India. Consequently, the contentions of counsel that section 178‑A of the Sea Customs Act, 1878 was unconstitutional had to be examined in light of the principles laid down by this Court in Budhan Chowdhury’s case. A brief examination of section 178‑A revealed that it creates a clear classification of goods based on an intelligible differentia. The provision applies only to certain articles described in sub‑section (2) that are, or can be, easily smuggled. Moreover, the section is limited to those specified kinds of goods that have been seized under the Act and are, in the reasonable belief of the customs authorities, smuggled goods, as indicated by the cited authorities. It is solely those articles that satisfy the threefold description which fall within the operation of the provision. The object of the Act is to prevent smuggling, and the differentia on which the goods are classified, together with the statutory presumption, bears a rational relation to that objective. The presumption attaches only to goods described in the section and directly furthers the purpose of preventing smuggling. Accordingly, the impugned provision falls within the principle articulated earlier and is not struck down by Article 14. The Court held that the provision could not be invalidated on grounds of discrimination or illegal classification because it merely confines itself to certain classes of seized goods on a reasonable belief of smuggling, and the presumption it creates is rebuttable. In these circumstances, the Court concluded that section 178‑A does not offend Article 14 of the Constitution. The petition was therefore dismissed with costs, and the order to dismiss the petition was entered.