The Collector of Customs, Baroda vs Digvijaysinhji Spinning and Weaving Mills Ltd

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

Court: Supreme Court of India

Case Number: Criminal Appeal No. 74 of 1960

Decision Date: 12 April, 1961

Coram: Subba Rao, K. Dayal, Raghubar Dayal

The appeal concerned a dispute between the Collector of Customs at Baroda and Digvijaysinhji Spinning & Weaving Mills Ltd. The judgment was delivered on 12 April 1961 by a Bench consisting of Justice Raghubar Dayal and Justice Subbarao K. Dayal. The case is reported in 1961 AIR 1549 and 1962 SCR (1) 896, and it is cited in later reports such as RF 1973 SC1461 and R 1982 SC 149. The statutory framework involved sections 167(8) and 193 of the Sea Customs Act, 1878 (VIII of 1878). According to the headnote, the respondent had imported goods whose declared value exceeded the amount authorized under the licence it held. The Collector of Customs, invoking section 167(8), ordered that the goods be confiscated and, in place of confiscation, offered the respondent the option of paying a fine. The Central Board of Revenue subsequently set aside the Collector’s order and substituted a penalty. When the respondent failed to pay the penalty, the Collector proceeded under section 193 to recover the amount, leading the First Class Magistrate to issue warrants of attachment. The Sessions Judge dismissed the respondent’s revision application, but the Bombay High Court held that because the penalty had been imposed by the Central Board of Revenue, the Collector of Customs was not empowered to enforce it under section 193, and further declared that the Board’s order commuted the confiscation to a penalty without jurisdiction.

On special leave, the matter reached the Supreme Court. The Court held that the Central Board of Revenue, being the “Chief Customs Authority,” could not be classified as an “officer of Customs” within the meaning of section 193 of the Sea Customs Act, 1878. Consequently, an order issued by the Chief Customs Authority that imposed a penalty for the first time could not be treated as an order of the Collector of Customs, and therefore the Collector was not authorized to realise the penalty imposed by the Board. The Court also examined earlier authorities—including Rangaswamy v. Alagayammal (AIR 1915 Mad 1133), Kristnamachariar v. Mangammal (1902 ILR 26 Mad 91), and Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri (1940 FCR 84)—and concluded that those decisions were not applicable to the present facts. The final judgment affirmed that the penalty could not be recovered by the Collector of Customs under section 193, thereby upholding the High Court’s view that the Board’s order exceeded its jurisdiction.

The appeal by special leave contested the order of the Bombay High Court at Rajkot that set aside the warrants of attachment issued by the First Class Magistrate in Jamnagar for the purpose of enforcing the penalty imposed on the respondent under section 193 of the Sea Customs Act, 1878 (hereinafter referred to as the Act). The material facts may be briefly stated. The respondent was Digvijavasinhji Spinning & Weaving Mills Limited, a company based in Jamnagar. It imported two separate consignments from Pondicherry: the first consignment comprised 275 cases of second‑hand looms and the second consisted of 175 cases of second‑hand textile waste intended for plant machinery. The licences held by the respondent authorised the import of goods whose aggregate value was lower than the total value of the two consignments. Consequently, the Collector of Customs at Baroda ordered that the goods be confiscated pursuant to section 167(8) of the Act. In lieu of confiscation, the Collector gave the respondent an option to pay a fine of Rs 22,918 for the first consignment and Rs 16,000 for the second consignment. Additionally, on the ground that the respondent had understated the value of the goods in the first consignment, the appellant imposed an extra penalty of Rs 500 under section 167(37)(c) of the Act. The respondent challenged these orders by filing two appeals before the Central Board of Revenue. By an order dated 15 January 1954, the Board set aside the appellant’s orders and substituted a penalty of Rs 22,918 for the first consignment and Rs 16,000 for the second, both under section 167(8) of the Act, while retaining the Rs 500 penalty. In a subsequent revision, the Government of India modified the Board’s order by cancelling the Rs 500 penalty and otherwise confirming the Board’s decision. The respondent subsequently cleared the goods by executing a bond in favour of the appellant. Because the respondent failed to pay the assessed penalty, the appellant, acting under section 193 of the Act, issued a written notice of default to the First Class Magistrate at Jamnagar, seeking recovery of the penalty as if it were a fine imposed directly by the magistrate. Acting on this requisition, the magistrate issued warrants of attachment against the respondent. The respondent then filed a petition before the magistrate requesting cancellation of the warrants, arguing that the Central Board of Revenue’s order was illegal and that the appellant lacked jurisdiction to act under section 193 of the Act. By an order dated 8 May 1956, the magistrate held that the appellant could validly realise the amounts using the machinery provided in section 193 of the Act. The respondent appealed this magistrate’s order to the Sessions Judge, Halar, Jamnagar; the appeal was later converted into a revision and was dismissed. On further revision before the High Court, the High Court held that, as the penalty had been imposed by the

The High Court observed that, since the penalty had been imposed by the Central Board of Revenue, the appellant was not entitled to realise the amount claimed under section 193 of the Act; the Court also expressed the view that the appellate authority’s final order was not devoid of jurisdiction because it had not been demonstrated that the Central Board of Revenue had obtained the consent of the owner of the goods slated for confiscation before the order converting the confiscation into a penalty was issued. Consequently, the High Court set aside and cancelled the warrants of attachment that had been issued by the Magistrate, leading to the present appeal. Counsel for the appellant argued broadly that section 193 of the Act should be interpreted liberally so as to give effect to the legislature’s intended purpose, and that, if read in that manner, an order issued by the Central Board of Revenue in place of an order by a customs officer could be enforced by that customs officer under the same provision. Conversely, counsel for the respondent contended that the Central Board of Revenue did not constitute an “officer of Customs” within the meaning of section 193 and therefore its order could not be enforced by a customs officer; moreover, even assuming that the Board, as the Chief Customs Authority, might be treated as an “officer of Customs,” the Board alone could enforce the order and not the Collector of Customs. In order to appreciate these opposing submissions and to reach a satisfactory solution to the issue raised, it was necessary to examine the relevant provisions of the Act, not merely to grasp the overall scheme of the legislation but also to interpret section 193 in light of that scheme. A well‑established rule of statutory construction states that when the language of a statute is precise and unambiguous, the proper approach is simply to give the words their natural and ordinary meaning, for the words themselves then reveal the legislature’s intention. An equally settled principle holds that where two alternative constructions are equally viable, the construction that promotes the smooth operation of the statutory system should be preferred, while the alternative that would create uncertainty, friction, or confusion should be rejected. Applying these two principles, the Court first examined the structure of the Act. Section 3 defines “Chief Customs‑authority” to mean the Central Board of Revenue. The term “Customs‑collector” is defined to include every customs officer who is at any time in separate charge of a custom‑house or who is duly authorised to perform all or any special duties of an officer so in charge. Section 19 confers on the Central Government the power to prohibit or restrict the importation or exportation of goods by sea.

The statute also covers importation or exportation by land. Section 167 of the Act enumerates the punishments that may be imposed for violations of its provisions. Sub‑section 8 of that section provides that when any article is brought into or taken out of India in contravention of a prohibition or restriction that is in force under Chapter IV, the article is subject to confiscation, and any person who participates in such an offence is liable to a monetary penalty. That penalty may be either up to three times the market value of the confiscated goods or, alternatively, up to one thousand rupees, whichever is lower. Moreover, sub‑section 37(c) deals with the misdeclaration of goods at a customs house. It states that if, at the time of entry or while the goods are being cleared for import or export, a package is discovered to have been falsely described with respect to its kind, quality, quantity or value, that package is also liable to confiscation. In addition, every individual involved in the false declaration is punishable by a penalty not exceeding one thousand rupees. Section 182 confers on the Collector of Customs the authority to determine whether any article should be confiscated, whether an increased rate of duty should be imposed, or whether any person should be assessed a penalty. Section 183 obliges the officer exercising that authority to give the owner of confiscated goods the option to pay a fine in lieu of the confiscation, the amount of which the officer may determine. Section 188 creates a right of appeal from the Collector’s order to the Chief Customs Authority, who may confirm, modify or set aside the original decision. However, the proviso to that provision restricts the appellate authority from imposing a higher confiscation, penalty or duty rate than was originally adjudicated. Orders made under Section 188 are final, subject only to the limited power of revision that the Central Government possesses under Section 191. Section 190 vests in the Chief Customs Authority the power to remit, wholly or partially, any penalty, increased duty rate, or confiscation. That authority may also, with the consent of the goods’ owner, convert a confiscation order into a penalty that does not exceed the value of the goods. Section 190A provides the Chief Customs Authority with a power of revision over any order issued by a customs officer under the Act. The next provision, Section 193, is of particular importance to the matter before the Court. For clarity, the full text of Section 193 is reproduced: “When a penalty or increased rate of duty is adjudged against any person under this Act by any officer of customs, such officer, if such penalty or increased rate be not paid, may levy the same by sale of any goods of the said person which may be in his charge or in the charge of any other officer of Customs. When”

When an officer of Customs adjudged a penalty or an increased rate of duty against any person under the Customs Act and subsequently was unable to recover the unpaid amount from the goods, the officer was empowered to issue a written notice to any Magistrate who sat within the local limits of the jurisdiction where either the person or any of his goods might be found. The notice had to contain the name and residence of the person concerned and the exact amount of the penalty or increased rate of duty that remained unrecovered. Upon receipt of such a notice, the Magistrate was required to proceed to enforce payment of the amount in the same manner as if the penalty or the increased rate of duty had been imposed as a fine by the Magistrate himself. The Court paused at this point to recapitulate the essential features of the statutory scheme. It observed that, under the Act, any goods whose importation or exportation is prohibited or restricted are liable to be confiscated, and the person responsible for such goods is also liable to a penalty. Moreover, even a misstatement regarding the sort, quality, quantity, or value of the imported or exported goods constitutes an offence; in such cases the packages and their contents are subject to confiscation and the offender is likewise liable to a penalty. The Collector of Customs is authorised to issue an order that both confiscates the offending goods and imposes a penalty on the person concerned. When an appeal is filed against the Collector’s order, the Chief Customs Authority has the power to modify the order but does not have the authority to increase the liability imposed. The Authority may remit the penalty or the confiscation, either wholly or partially, and it may also commute a confiscation order into a monetary penalty that does not exceed the value of the confiscated goods. A person who wishes to appeal an order of penalty passed by a customs officer must, pending the determination of the appeal, deposit with the Customs‑collector at the relevant port the amount demanded by the officer. If the appeal succeeds, either in whole or in part, the deposited amount, or the portion that corresponds to the successful claim, must be returned to the appellant. Consequently, the statutory framework eliminates any situation in which an appellate tribunal would have to enforce the payment of a penalty, because no appeal will be entertained unless the required penalty amount has already been deposited as stipulated. This background formed the basis for the Court’s further analysis of the specific provisions of section 193 of the Act.

The Court then turned to the operative language of section 193, which provides that only an officer of Customs who has adjudged a penalty or an increased rate of duty may realise the said penalty or rate through the assistance of a Magistrate. The pivotal issue before the Court was whether the expression “an officer of Customs” within section 193 could be read to include the Chief Customs Authority, who also has the power to adjudicate penalties in certain circumstances. To resolve this query, the Court examined section 182 of the Act, which enumerates the categories of officers of Customs empowered to adjudge questions of penalty. Section 182 lists several classes of customs officers but does not mention the Chief Customs Authority among them. Accordingly, the Court concluded that the Chief Customs Authority does not fall within the definition of “an officer of Customs” for the purpose of section 193, because the statutory list of authorised officers expressly excludes the Authority. This interpretation aligns with the scheme of the Act, which confines the power to realise penalties through a Magistrate to those officers who are expressly designated by section 182 to adjudge penalties at the first instance.

Section 182(c) authorises the Chief Customs Authority to nominate subordinate customs officers to adjudicate matters that fall within specified monetary limits. However, section 3(a) of the Act defines the term “Chief Customs‑authority” as the Central Board of Revenue. The Central Board of Revenue is a statutory body that can act only through officers appointed to it, and it is therefore improper to describe the Board itself as an officer of Customs. In the present situation, the Act provides no mechanism for the realisation of a penalty that is imposed for the first time by the Chief Customs Authority. Consequently, it is more consistent with the legislative scheme to interpret the phrase “an officer of Customs” as referring to a customs officer who is empowered to adjudicate at the first instance on questions of confiscation, increased rates of duty or penalties under section 182 of the Act. The argument that such an interpretation would create an anomalous situation, whereby the Chief Customs Authority would acquire a procedure to enforce collection of a penalty, is misplaced. As has been pointed out, the statute contains no provision that enables the Chief Customs Authority to impose a penalty exceeding the amount that a customs officer can impose, and therefore no such anomaly can arise. If the Chief Customs Authority were to be treated as “an officer of Customs” within the meaning of section 193, it would be required to commence proceedings under that section; however, in the facts before the Court the Collector of Customs directly issued a written notice to the magistrate for recovery of the penalty. Counsel for the appellant submits that an order issued by the Chief Customs Authority imposing a penalty should, in law, be regarded as an order made by the original authority, namely the Collector of Customs, and that for enforcement purposes the order should be treated as if it were the Collector’s order. The submission relies on the proposition that an appeal constitutes a continuation of a suit, a principle that is well established in cases such as Rangaswamy v. Alagayammal, Kristnamachariar v. Mangammal and Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri. Nevertheless, those decisions and the principles they articulate do not address the specific question of whether a first‑time order issued by an appellate authority can be deemed, by law, to be an order of the original authority. In the absence of any statutory fiction that would produce such a result, it is impermissible to treat an order made by one authority as if it were made by another. Accordingly, the order of the Chief Customs Authority that imposes a penalty for the first time cannot be regarded as an order of the Collector of Customs within the meaning of section 193 of the Act. As previously noted, the Chief Customs Authority lacks any power to impose a penalty for the first time.

The Court observed that the Chief Customs Authority does not possess power to impose a penalty for the first time under section 188 of the Act. However, the Authority does have authority, supported by the case law cited as (1) A.I.R. 1915 Mad. 1133, (2) (1902) I.L.R. 26 Mad. 91, 95‑96, and (3) (1940) F.C.R. 84, 10.3, to exercise the power conferred by section 190 of the Act to commute an order of confiscation into a penalty that may exceed the value of the confiscated goods. Although the order dated 15 January 1954 issued by the Chief Customs Authority did not expressly invoke section 190, the Court held that it cannot be disputed that the Authority possessed jurisdiction to pass such a commutation order, provided the conditions prescribed in the statute were satisfied.

The statutory condition for exercising the power under section 190 requires that the Authority obtain the consent of the party whose goods were confiscated. The High Court, in its judgment, noted that there was no material before it to indicate that the consent of the owner of the confiscated goods had not been obtained prior to the commutation of the confiscation order into a penalty by the Chief Customs Authority. If that observation is treated as a finding, it raises the question of the legal character of a commutation order: whether such an order should be regarded as a substitute for an order of the original authority, and whether the commuted sentence can be treated in law as a sentence imposed by the original tribunal.

The Court determined that it need not dwell on those hypothetical questions because, on the evidence before it, the condition of obtaining consent had not been satisfied in the present case. The High Court had, in effect, drawn a presumption in favour of the regular performance of an official act, but the Court emphasized that such a presumption is optional and not conclusive. When the validity of an order depends on the fulfilment of a statutory condition, a party relying on the presumption must at least demonstrate that the order, on its face, appears regular and complies with the statutory provisions.

In the present matter, the order issued by the Chief Customs Authority did not, on its face, indicate that it was made under section 190 of the Act. Instead, the order was purported to have been made under section 167(8) of the Act. The Court observed that, had the Authority in fact obtained the consent of the owner of the goods, it would have had clear jurisdiction to issue the commutation order under section 190. Although there was no explicit recital of consent, the appellant could have established the existence of such consent by producing the necessary evidence. In the absence of any such evidence, the Court held that it could not be said that the Chief Customs Authority had exercised its power under section 190 with the required consent of the respondent.

The Court further noted that this finding does not prevent the State from later proving, through appropriate evidence in a suitable proceeding, that the penalty was imposed under section 190 with the consent of the owner of the goods. Consequently, the Court upheld the High Court’s order and dismissed the appeal.

In the final analysis, the Court held that the order issued by the High Court was proper and required no alteration. Having examined the record and the arguments presented, the Court determined that the High Court had correctly applied the law to the facts of the case. Consequently, the Court affirmed the correctness of the High Court’s order. In light of this affirmation, the Court concluded that the appeal brought before it could not succeed. Accordingly, the appeal was dismissed in its entirety. The dismissal of the appeal meant that the relief sought by the appellant was denied and the position created by the High Court order remained in force. The Court therefore set aside the petitioner’s request for reversal and ordered that the appeal stand dismissed. No further directions were issued, and the matter was concluded.