REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8235 OF 2003

Commissioner of Customs (Preventive), Mumbai ………….. Appellant

versus

M/s M. Ambalal & Co. …………..Respondent

J U D G M E N T

H.L. Dattu, J.

1) This  appeal  is  by  the  Revenue  against  the  Order  passed  by  the  

Customs, Excise and Gold (Control) Appellate Tribunal, West Zonal  

Branch at Mumbai [hereinafter  referred to as ‘Tribunal’]  in Appeal  

No.C/138/03 Mum dated 23.06.2003.  By the impugned order,  the  

Tribunal has allowed the appeal filed by the respondent and has set  

aside the original order passed by the adjudicating authority, wherein  

it had directed the respondent to pay a sum of `2,20,50,125/- (Rupees  

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Two Crores Twenty Lakhs Fifty Thousand One Hundred & Twenty  

Five only) by way of duty under the provisions of The Customs Act,  

1962 (hereinafter referred to as, “the Act”) for release of the goods  

seized from the possession of the respondent.   

2) The factual matrix in brief is as follows:  

In a search and seizure in the office premises of the respondent-

firm conducted by the officers of Customs Department, on the basis of  

specific  information,  a  large  quantity  of  rough  diamonds  was  

recovered. The partner of the respondent-firm, Shri Maganbhai Patel  

was neither able to offer any satisfactory explanation nor produce any  

documents  in  relation  to  the  import  of  the  said diamonds,  and the  

diamonds were seized by the officers in the reasonable belief that they  

are  liable  for  confiscation  under  the  provisions  of  the  Act.   After  

investigation, a Show Cause Notice was issued to the respondent and  

others  wherein  confiscation  of  the  seized  diamonds  was  proposed.  

After  adjudication,  the  adjudicating  authority  passed  an  order  

confiscating  the  seized diamonds under  Section 111(d)  of  the  Act.  

However, an option was given to the respondent to redeem the seized  

goods on payment of redemption fine.  The respondent was also asked  

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to pay the appropriate duty on the said confiscated diamonds which  

were  allowed  to  be  released  on  payment  of  redemption  fine.   In  

addition, penalty was also imposed on the respondent under Section  

112  of  the  Act.   Being  aggrieved  by  the  aforesaid  order,  the  

respondent had preferred an appeal before the Tribunal.  The Tribunal,  

by its order dated 29.12.1995, disposed of the appeal and confirmed  

the redemption fine of  `60,00,000/- (Rupees Sixty Lakhs only)  and  

the penalty of `25,00,000/- (Rupees Twenty Five Lakhs only) on the  

respondent  herein.   The  respondent  thereafter  filed  a  Writ  Petition  

before the Bombay High Court and the same was withdrawn to avail  

the benefit under Kar Vivad Samadhan Scheme, 1998 (in short, “KVS  

Scheme”).  Pursuant to the order passed under the KVS Scheme by  

the  designated  authority,  the  respondent  was  directed  to  pay  an  

amount of `42,50,000/- (Rupees Forty Two Lakhs and Fifty Thousand  

only)  towards  redemption  fine  and  penalty  and  the  designated  

authority also gave liberty to the respondent to redeem the goods on  

payment of duty at the appropriate  rate.   The respondent thereafter  

requested the appellants for release of diamonds by placing reliance  

on the Notification No.247/76-Cus dated 02.08.1976.  This  request  

was turned down by the department and the respondent was informed  

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that the seized diamonds would be released only after payment of duty  

in  the  light  of  the  order  (original)  dated  03.12.1992.   Respondent  

thereafter  preferred  a  Writ  Petition  No.1976  of  2000  before  the  

Bombay High Court.  The said Writ Petition was dismissed by the  

High Court, wherein it was specifically observed “that the petitioner  

imported diamonds of foreign origin without a valid licence.”  This  

order was questioned before this Court in S.L.P.(C) No.1495 of 2000.  

This  Court,  by  its  order  dated  06.09.2002,  while  dismissing  the  

Special Leave Petition, directed the Additional Collector of Customs  

(Preventive),  Mumbai  or  other  appropriate  Assessing  Officer  to  

decide the amount of duty payable under the Customs Act in respect  

of  seized  goods.   The  Commissioner  of  Customs  vide  order  in  

Original  No.CCP/KPM/ADJN/M&P/27/2002,  quantified  the  duty  

payable by the respondent for an amount of  `2,20,50,125/- (Rupees  

Two Crores Twenty Lakhs Fifty Thousand One Hundred and Twenty  

Five  only)  before  redemption of  the  confiscated  diamonds.   Being  

aggrieved by the same, the respondent herein filed appeal before the  

Tribunal and the Tribunal, by its order dated 23.06.2003, allowed the  

appeal and held that the exemption would be available to the goods  

imported by the respondent in the light of the Notification No.247/76-

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Cus dated 02.08.1976.  It is this order which is the subject matter in  

this appeal filed by the Revenue under Section 130E(b) of the Act.

3) Shri  R.P.  Bhatt,  learned senior counsel  appearing for the Revenue,  

submitted  that  the  benefit  of  the  exemption  notification  cannot  be  

extended  to  a  person  who/which  had  illegally  imported  rough  

diamonds into the country.  He further argued that the same could not  

be availed by those persons who did not have the licence to import  

diamonds,  or  who had  smuggled  rough diamonds  into  the  country  

clandestinely without payment of duty.  Per contra, Dr. Surat Singh,  

learned counsel for the respondent-firm, would contend that there is  

no infirmity in the order passed by Tribunal since the Tribunal,  by  

placing reliance on the principles laid down by this Court, has granted  

relief to the respondent-firm.    

4) The three issues that falls for our consideration and decision are :-

(a)  Whether  the  benefit  of  the  exemption  notification  has  been  rightly  granted  to  the  respondent-firm by the Tribunal.

(b) Whether the declaration made under the KVS  Scheme  and  the  subsequent  payment  of  amount  quantified  under  the  said  Scheme  by  the  respondent-firm  vis-à-vis  the  release  of  the  diamonds that were confiscated by the department.

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(c)  Whether  the  Baggage  Rules  were  correctly  applied  by  the  Commissioner  of  Customs,  while  deciding the duty payable by the respondent-firm.

5) The Customs Act, 1962 is an Act to consolidate and amend the law  

relating to Customs.  The object of the Act is to regulate the import  

and export of goods, into and from the shores of India, or otherwise,  

and determine the customs duty payable.  It also attempts to fill the  

lacunae of the previous customs legislations,  viz., the Sea Customs  

Act and the Land Customs Act. It also aims to counter the difficulties  

that have emerged over the years due to the changing economic and  

financial conditions; amongst them it proposes to tackle the increasing  

problems of smuggling both in and out of the country. The Act aims  

to sternly and expeditiously deal with smuggled goods, and curb the  

dents on the revenue thus caused. In order to deal with the menace of  

smuggling, the authorities are enabled to detect, conduct search and  

seizure, and if necessary, confiscate such smuggled goods, within the  

territory of India.  

6) We may now briefly notice the scheme of the Act.  The expression  

‘dutiable goods’,  ‘duty’,  ‘import’,  ‘imported goods’, ‘importer’ and  

‘smuggling’ are defined in the following manner :-

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‘Dutiable Goods’ means any goods which are chargeable to   

duty and on which duty has not been paid.   

‘Duty’ means a duty of Customs and leviable under this Act.   

‘Import’,  with  its  grammatical  variations  and  cognate   

expressions, bring into India from a place outside India.   

‘Imported goods’ means any goods brought into India from a  

place  outside  India  but  does  not  include  goods  which  have  been  

cleared for home consumption.  

‘Importer’ means in relation to any goods at any time between  

their  importation  and  the  time  when  they  are  cleared  for  home  

consumption, includes any owner or any person holding himself out to  

be the importer.   

‘Smuggling’,  in  relation  to  any  goods,  means  any  act  or  

omission which will  render such goods liable to confiscation under  

Section 111 or Section 113 of the Act.   

7) Dutiable goods are goods whose import is permitted by the Act or any  

other law in force.  Duty is the tax leviable on the goods occasioned  

by their import into India or their export out of India.  The dutiability  

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of the goods is covered by Section 12 of the Act which is the charging  

section.  Under this Section, all goods imported into or exported from  

India are liable to Customs duty unless the Customs Act itself or any  

other law for the time being in force provides otherwise.  The rate of  

duty  is  fixed  by  the  Customs  Tariff  Act,  1975.   “Import”  and  

“Imported  Goods”  means  that  if  goods  are  brought  into  India,  

meaning  thereby  into  the  territory  of  India  from  outside,  there  is  

import of goods and the goods become imported goods and become  

chargeable  to  duty  upto  the  moment  they  are  cleared  for  home  

consumption.  The word ‘importer’ has been defined in the Act as  

importer  in  relation  to  any  goods  at  any  time  between  their  

importation and the time when they are cleared for home consumption  

includes  any  owner  or  any  person  who holding  himself  out  to  be  

importer.  The word ‘smuggling’, in relation to goods, means any act  

or omission which will render such goods liable to confiscation under  

Section 111 or Section 113 of the Act.   

8) Section  11  of  the  Act  enables  the  Central  Government  to  prohibit  

importation  or  exportation  of  goods  either  absolutely  or  subject  to  

conditions as specified in the notification, the import or export of the  

goods of any specified description.  Section 11A to 11G speaks of  

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detention of illegally imported goods and prevention of the disposal  

thereof.  Section 12 of the Act is the charging Section.  Under this  

Section, the duty is leviable on all imported goods.  Valuation of the  

imported  goods  is  done  as  provided  under  Section  14  of  the  Act.  

Section  25  of  the  Act  empowers  the  Central  Government  to  issue  

notifications exempting generally either absolutely or subject to such  

conditions  as  specified  in  the  notification,  goods  of  any  specified  

description from the whole or any part of the Customs Act leviable  

thereon.  The definition of imported goods has to be read along with  

Section 111 of the Act which deals with goods brought from place  

outside India.   Section 111 of the Act provides for confiscation of  

goods and conveyances and imposition of penalties.  Section 111(d)  

of the Act provides that any goods which are imported or attempted to  

be  imported  or  are  brought  within  Indian  Custom  Waters  for  the  

purpose of being imported, contrary to any prohibition imposed by or  

under this Act or any other law for the time being in force, shall be  

liable for confiscation.  Section 112 of the Act provides for penalties  

for improper importation of goods.  

9) The Central Government, in exercise of its power under Section 25(1)  

of the Act, has issued Notification No.247-Cus. dated              02-08-

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1976 exempting  certain  articles  from payment  of  duty.   For  better  

understanding the lis between the parties, the notification is extracted.  

It reads as under :-

Exemption  to  raw  pearls,  rubies,  emeralds  and  sapphires,  rough  diamonds,  etc.–  In  exercise  of  the  powers conferred by sub-section (1) of section 25 of the  Customs Act, 1962 (52 of 1962), the Central Government,  being satisfied that it is necessary in the public interest so  to  do,  hereby  exempts  each  of  the  articles  specified  in  column (2) of the Table annexed hereto and falling within  Chapter  71 of  the  First  Schedule  to  the  Customs Tariff  Act, 1975 (51 of 1975) when imported into India from the  payment of so much of the duty which is specified in the  said  First  Schedule,  as  is  in  excess  of  the  rate  of  duty  mentioned in the corresponding entry in column (3) of the  said Table.

TABLE

Sl. No Description of article Rate of  duty

(1) (2) (3)

1. Raw pearls, other than cultured pearls Nil

2. Rubies, emeralds and sapphires, unset  and imported uncut

Nil

3. Rough diamonds Nil

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10) It is settled law that the notification has to be read as a whole.  If any  

of the conditions laid down in the notification is not fulfilled, the party  

is not entitled to the benefit of that notification.  The rule regarding  

exemptions is that exemptions should generally be strictly interpreted  

but beneficial exemptions having their purpose as encouragement or  

promotion of certain activities should be liberally interpreted.  This  

composite rule is not stated in any particular judgment in so many  

words.  In fact, majority of judgements emphasize that exemptions are  

to be strictly interpreted while some of them insist that exemptions in  

fiscal  Statutes  are  to  be  liberally  interpreted  giving  an  apparent  

impression that they are contradictory to each other.  But this is only  

apparent.   A  close  scrutiny  will  reveal  that  there  is  no  real  

contradiction  amongst  the  judgements  at  all.   The synthesis  of  the  

views is quite clearly that the general rule is strict interpretation while  

special  rule in the case of beneficial  and promotional exemption is  

liberal interpretation.  The two go very well with each other because  

they relate to two different sets of circumstances.   

11) The notification issued by the Central Government in exercise of the  

powers  conferred by Section 25(1)  of  the Act  exempts  the  articles  

enumerated  in  the  table  annexed  when  imported  into  India  from  

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payment of duty under the Act.  The language used in the notification  

is plain and unambiguous.  Therefore, we are required to consider the  

same in their ordinary sense.  A construction which permits  one to  

take advantage of one’s own wrong or to impair one’s own objections  

under a Statute should be disregarded.  The interpretation should as  

far as possible be beneficial in the sense that it should suppress the  

mischief  and  advance  the  remedy  without  doing  violence  to  the  

language.   

12) From the wording of the above exemption notification, it is clear that  

the  benefit  of  the  exemption  envisaged is  for  those  goods that  are  

imported.  According  to  Section  2(25)  ‘imported  goods’  has  been  

defined  to  mean  “…any  goods  brought  into  India  from  a  place  

outside India but does not include goods which have been cleared for  

home consumption.” It is necessary that the above definition is read  

along with Section 11, Section 111 and Section 112 of the Act, which  

provide for detection of illegally imported goods and prevention of the  

disposal  thereof,  confiscation  of  the  goods  and  conveyances  and  

imposition of penalties respectively.  Under Section 111(d) of the Act,  

any goods which are imported contrary to any prohibition imposed by  

or under this Act or any other law for the time being in force shall be  

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liable for confiscation.  The goods which have been seized in this case  

cannot  be  imported  into  India  without  a  licence  under  the  Import  

Control Act and there is, therefore, a prohibition in law for the import  

of goods except in compliance with the Import Control Act.  It is not  

the case of the respondent-firm that the goods were imported with a  

valid licence and, therefore any import of goods of which importation  

is prohibited by law, cannot be valid import under the Act.  Goods so  

imported cannot therefore, be treated to be lawfully “imported goods”  

within  the  definition  of  that  term  in  Section  2(25)  of  the  Act.  

Therefore,  the  respondent  was  not  entitled  to  the  benefit  of  the  

notification.   The learned counsel for the respondent would contend  

that by virtue of the Notification No.247-Cus dated 02.08.1976, rough  

diamonds  are  exempted  from payment  of  duty  under  the  Act  and,  

therefore,  adjudicating  authority  was  not  justified  in  directing  the  

respondent  for  payment  of  duty  under  the  Act  for  release  of  the  

confiscated goods.  We find no merit in the contention.  The goods  

become exempted goods provided all the conditions of the notification  

are fulfilled.  If any condition of the notification is not fulfilled, goods  

are  not  exempted  goods.   [See  Union  of  India  Vs.  Ganesh  Metal  

Processors Industries – 2003 (151) ELT 21]

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13) In short, question before us is whether goods that are smuggled into  

the  country  can  be  read  within  the  meaning  of  the  expression  

‘imported  goods’  for  the  purpose  of  benefit  of  the  exemption  

notification.  We are of the view that ‘smuggled goods’ will not come  

within  the  definition  of  ‘imported  goods’  for  the  purpose  of  the  

exemption  notification,  for  the  reason,  the  Act  defines  both  the  

expressions  looking  at  the  different  definitions  given  to  the  two  

classes of goods: imported and smuggled, and we are of the view that  

if the two were to be treated as the same, then there would be no need  

to have two different definitions.  

14) In order to understand the true meaning of the term ‘imported goods’  

in the exemption notification, the entire scheme of the Act requires to  

be taken note of.  As noted above, ‘imported goods’ for the purpose of  

this Act is explained by a conjoint reading of Section 2(25), Section  

11, Section 111 and Section 112.  Reading these Sections together, it  

can  be  found  that  one  of  the  primary  purposes  for  prohibition  of  

import  referred  to  the  latter  is  the  prevention  of  smuggling  [See  

section 11(2)(c)]. Further, in the light of the objects of the Act and the  

basic skeletal framework that has been enumerated above, it is clear  

that  one of  the principal  functions of the Act is  to curb the ills  of  

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smuggling on the economy. In the light of these findings, it would be  

antithetic to consider that ‘smuggled goods’ could be read within the  

definition of ‘imported goods’ for the purpose of the Act. In the same  

light, it would be contrary to the purpose of exemption notifications to  

accord the benefit meant for imported goods on smuggled goods.  

15) The Tribunal has relied on the decision of this Court in the case of  

Associated Cement  Companies v.  Commissioner  of  Customs,  [2001  

(128)  ELT  21  (SC)]  to  extend  the  benefit  of  the  exemption  

notification on the respondent-firm, despite the fact that the goods that  

were in question were not smuggled goods.  In the case of Associated  

Cement  Companies  Ltd.  (supra),  the  question  that  fell  for  

consideration  was whether  customs duty  was  leviable  on  technical  

material supplied in the form of drawings, manuals and computer disc.  

etc.  The further question was that if customs duty was leviable, how  

it  was  to  be  valued.   While  answering  the  issue,  this  Court  has  

observed that Section 12 of the Act provides that the duties of customs  

shall be levied at such rates as may be specified under the Customs  

Tariff  Act.   When  the  Customs  Tariff  Act  itself  provides  that  the  

import of drawings and designs under Heading No.49.06 is `free’, it  

must follow that these drawings and designs, though goods were not  

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chargeable to duty.  In our considered view, this decision would not  

assist the respondent herein.  In the present case, as we  have already  

stated that the notification exempts certain articles when imported into  

India from payment of duty under the Act.  The import must be valid  

and in accordance with the provisions of the Act.  In the present case,  

it is the finding of the Bombay High Court that the respondent-firm  

had imported diamonds of foreign origin without a valid licence and  

that finding has become final. Therefore, we agree with the learned  

senior  counsel  Sri  R.P.  Bhatt  on  this  aspect.  The  Tribunal,  in  our  

view,  erred in holding that the situation was covered by the case of  

Associated Cements Company (supra.) decided by this Court.  

16) The other two issues which were argued by the respondent and the  

revenue before  the  Tribunal  and same was not  answered since  the  

Tribunal allowed the assessee’s appeal by extending the benefit of the  

exemption notification to the respondent-firm. We are of the view that  

these  issues  now  require  to  be  considered  by  the  Tribunal.  

Accordingly, while setting aside the order passed by the Tribunal, we  

remand  the  matter  to  the  Tribunal  to  consider  those  issues  after  

affording personal hearing to both the parties.  The appeal is disposed  

of accordingly.  No order as to costs.  

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………………………J.     [D.K. JAIN]

………………………J. [H.L. DATTU]

New Delhi, December 09, 2010.

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