REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.    7307        OF 2008 (Arising out of SLP (C) No.5092 of 2007)

Kothari Filaments & Anr. ... Appellant

Versus

Commissioner of Customs (Port) Kolkata & Ors. … Respondents

J U D G M E N T

S.B. Sinha, J.

1. Leave granted.

2. Appellant No.2 is a proprietory concern of the First Appellant which

is importer of various items of goods including Lithopone.  Appellant No.1

placed an order for import of 21.5 MT of Lithopone 28-30% (pigment), with

Texpo International, Hong Kong.  The said item is used in manufacture of

paint. It is a freely importable item.  When the goods arrived at the port, a

bill of entry for 21.5 MT of Lithopone was filed.  The requisite custom duty

after assessment was paid.  However,  on physical verification, out of the

imported  items 400 bags  of  25  kg.  each  contained  in  a  yellow coloured

substance suspected to be ‘Tetracycline HCL BP 93’, a chemical used for

making medicines was found wherefor an import licence was required to

obtained.

3. A search  and  seizure  was  carried  out  and  on  examination,  it  was

found that 189 poly bags out of 860 poly bags contained a white coloured

chemical  and  the  remaining  671  poly  bags  contained  a  yellow  coloured

chemical.  The estimated value of the mis-declared item was estimated at

Rs.1,02,97,166/-.   

4. A notice under Section 124 of the Customs Act, 1962 (for short, ‘the

Act’) was issued on appellants on 8.3.2000 asking them to show cause as to

why the consignment said to be valued at Rs.63,32,018.60 CIF should not

be confiscated under Section 111(d) and 111(m) of the Act, 1962 and as to

why the  importers  and  their  agents  should  not  be  punished  in  terms  of

Section 112(a) and (b) thereof.  Cause was further directed to be shown as

to  why  the  appellants  attempted  evasion  of  custom  duty  amounting  to

Rs.38,16,729.40  resulting  from  mis-declaration  of  the  imported  goods

2

should not be directed to be paid and as to why the said amount shall not be

recovered along with interest.

5. Appellants in their cause shown pursuant thereto contended that their

foreign supplier had sent 10 MT of Tetracycline by mistake.  The mistake

was  accepted  by  the  exporter  M/s  Texpo  International  in  a  letter  dated

25.10.2000.  The correspondences between the parties were placed before

the authority to show that no penal action, as was proposed, should be taken

against them.

6. By reason of an order dated 29.12.2000, however, the goods were not

only  directed  to  be  confiscated  but  also  a  penalty  of  Rs.5,00,000/-  was

imposed on the company.  A personal penalty of Rs.1,00,000/- was imposed

on Appellant No.2.

7. An  appeal  preferred  thereagainst  before  the  Customs,  Excise  and

Gold Control Appellate Tribunal, Calcutta was dismissed by an order dated

19.4.2002.  A writ petition was filed thereagainst which by reason of the

impugned judgment has been dismissed.

8. Mr.  J.K.  Srivastava,  learned  counsel  appearing  on  behalf  of  the

appellant,  submitted  that  before  the  impugned  order  was  passed  by  the

authorities  of  the  Customs  Department,  admittedly  an  enquiry  was

3

conducted at various places.  However, the documents collected during the

said  enquiry  were  not  supplied  to  them  although  reliance  was  placed

thereupon and, thus, the principles of natural justice have been violated.

9. Mr. P.V. Shetty, learned senior  counsel  appearing on behalf  of the

respondent,  on  the  other  hand,  urged  that  in  the  peculiar  facts  and

circumstances  of  this  case,  it  was  not  necessary  to  comply  with  the

principles of natural justice as the mistake on the part of the exporter was

accepted.

10. Indisputably  declaration  was  made  in  regard  to  the  import  of

Lithopone.  It is also not disputed that a part of the imported items contained

Tetracycline HCL.

11. We may furthermore place on record that the consignment has since

been sent back to the exporter.  Despite the same, as noticed hereinbefore,

redemption fine as also other penalties have been imposed.  The show cause

notice  is  a  detailed  one.   It  is  stated  therein  that  through  departmental

source, overseas enquiries had been carried out.   

12. The information which was gathered during the said overseas enquiry

through departmental source, however, was not final and conclusive.  Be

that as it may, concededly, no document pertaining thereto was supplied or

4

was shown to  the appellant.   Commissioner  of  Customs,  however,  in  its

order dated 29.12.2000 made liberal use of the said information, stating :

“In the meantime, through departmental source the overseas  enquiry  was  carried  and  it  was  partly ascertained  that  the  exporting  company  Texpo International of 57 Wyndham St. 5th Floor, Hong Kong  does  exist  which  is  registered  with  the business  register  Hong  Kong.   This  is  a partnership  concern.   However,  the  relationship between Indian Importers M/s. Kothari Filaments and  the  Belgiam company  Lok  Hauk  Food  and Texpo  International  Hong  Kong  could  not  be verified.  Regarding verification of genuineness of documents produced by Texpo International Hong Kong  and  attested  by  Indian  Chambers  of Commerce  revealed  that  the  attestation  of documents  by them was  made  in  normal  course they neither verified the contents of the documents nor  undertake any responsibility for the contents of the documents attested.  Evidences to this effect cannot  be  disclosed  at  this  juncture  since  the enquiry is yet to be completed.”

Inter alia, relying on or on the basis of the result of the said purported

enquiry, it was held :

“On overseas enquiry, as is evident from paras 27 and 28 of the show cause notice that there exists a firm in the name and style of M/s. Lok Hauw Fook in Belgium.  But this firm is not  engaged in the business of Tetracycline.   It  is  only a restaurant. The  proprietor  of  the firm also  stated  that  some mischievious  elements  have  made  use  of  their letter  heads  to  wrongly  implicate  them.   This

5

overseas enquiry at least establishes the fact that the goods were in fact not meant for the Belgium importer.   Moreover,  the  matter  of  stacking  of Tetracycline along with Lithopone also would lead anybody to conclude that Tetracycline was mixed up with Lithopone in such an intermingled fashion that  it  would  be  evident  to  conclude  that Tetracycline is meant for concealment.”

13. The  question  which  arises  for  consideration  is  as  to  whether  the

impugned order was passed in violation of the principles of natural justice.

Before, however, we advert to the said question, we may notice the stand

taken by the respondents herein in their counter affidavit before this Court,

which is in the following terms :

“In the paragraphs 27 and 28 of the Show Cause Notice,  sufficient  indications  have been given as regards  the  outcome  of  the  overseas  enquiry. Although the documents were not given to them, the initial burden was upon the appellants to show their  bona  fide  mistake.   Unless  sufficient materials are placed by the appellants showing that it was a mistake on the part of the foreign exporter to  send  wrong  items  and  the  conclusion  of  the overseas  enquiry  was  wrong,  the  Customs authority  has  no  liability  to  disclose  their materials.  The position would have been different if the initial onus was upon the customs authority to prove mala fide intention of the appellants and in such case, it could be legitimately argued by the appellants  that  in  absence  of  disclosure  of documents  they  were  unable  to  controvert  the veracity of such documents.”

6

14. Does the show cause notice make enough indication in regard to the

nature of enquiry as also the conclusions thereof is the question?   

In our opinion, it does not.  Paragraph 27 of the show cause notice

clearly demonstrates that the contents of the document were not verified.  It

had categorically been stated that as the enquiry was yet to be completed,

disclosure of the evidences was not permissible.  Despite the fact that the

result of such overseas enquiry was not conclusive, as noticed hereinbefore,

liberal use thereof was made by the Commissioner of Customs in his order.

The Commissioner of Customs was conscious of the fact that the result of

the enquiry was not conclusive one way or the other.  It is one thing to say

that  denial  to  supply  the  documents  collected  in  the  said  enquiry  has  a

statutory backing but it is another thing to say that use thereof was to be

made without supplying the copies thereof.   

15. The  statutory  authorities  under  the  Act  exercise  quasi-judicial

function.   By  reason  of  the  impugned  order,  the  properties  could  be

confiscated, redemption fine and personal fine could be imposed and in the

event an importer was found guilty of violation of the provisions of the Act.

In the event, a finding as regards violation of the provisions of the Act is

arrived at, several steps resulting in civil or evil consequences may be taken.

7

The principles  of natural justice, therefore,  were required to be complied

with.   

16. The  Act  does  not  prohibit  application  of  the  principles  of  natural

justice.  The Commissioner of Customs either  could not  have passed the

order on the basis of the materials which were known only to them, copies

whereof were not supplied or inspection thereto had not been given.  He,

thus,  could not  have adverted to the report  of the overseas enquiries.   A

person charged with mis-declaration is entitled to know the ground on the

basis  whereof  he  would  be  penalized.   He  may have  an  answer  to  the

charges or may not have.  But there cannot be any doubt whatsoever that in

law he is entitled to a proper hearing which would include supply of the

documents.   Only  on  knowing  the  contents  of  the  documents,  he  could

furnish an effective reply.

17. This  aspect  of  the matter  has been considered in  Rajesh Kumar &

Ors. v. Dy. CIT & Ors. [(2007) 2 SCC 181], wherein this Court held :

“In  any  event,  when  civil  consequences  ensue, there  is  hardly  any  distinction  between  an administrative  order  and  a  quasi  judicial  order. There might  have been difference of  opinions  at one point of time, but it is now well-settled that a thin  demarcated  line  between  an  administrative order  and  quasi-judicial  order  now  stands obliterated {See  A.K. Kraipak and Ors. v.  Union

8

of India and Ors. [(1969) SCC 262] and  Chandra Bhawan  Boarding  and  Lodging,  Bangalore v. State of Mysore and Anr. [AIR 1970 SC 2042] and S.L. Kapoor v. Jagmohan and Ors. [(1980 4 SCC 379]}.

Recently,  in  V.C.  Banaras  Hindu  University v. Shrikant [2006 (6) SCALE 66], this Court stated the law, thus:

‘An order  passed  by  a  statutory authority, particularly  when  by  reason  whereof  a citizen of India would be visited with civil or evil consequences must meet the test of reasonableness’.”

It was observed :

“Justice, as is well known, is not only be done but manifestly seem to be done. If the assessee is put to  notice,  he  could  show  that  the  nature  of accounts  is  not  such  which  would  require appointment of special auditors. He could further show that what the assessing officer considers to be complex is in fact not so. It was also open to him to  show that  the  same would  not  be  in  the interest of the Revenue.  

In  this  case  itself  the  appellants  were  not made  known  as  to  what  led  the  Deputy Commissioner to form an opinion that all relevant factors  including  the  ones  mentioned  in  Section 142(2A)  of  the  Act  are  satisfied.  If  even one  of them was not satisfied, no order could be passed. If  the  attention  of  the  Commissioner  could  be drawn to the fact that the underlined purpose for appointment of the special auditor is not bona fide it might not have approved the same. “

9

In S.L. Kapoor v. Jagmohan & Ors. [(1980 (4) SCC 379], this Court

observed :

“18. In Ridge v. Baldwin and Ors. [1964] AC 40 @ 68, one of the arguments was that even if the appellant had been heard by the watch committee nothing that he could have said could have made any difference. The House of Lords observed (at p. 68) :

‘It  may be convenient  at  this point to deal with an argument that, even if as a general rule  a  watch  committee  must  hear  a constable  in  his  own  defence  before dismissing him, this case was so clear that nothing  that  the appellant  could  have  said could have made any difference. It is at least very  doubtful  whether  that  could  be accepted as an excuse. But, even if it could, the respondents would, in my view, fail on the facts. It may well be that no reasonable body  of  men  could  have  reinstated  the appellant.  But  as  between  the  other  two courses  open  to  the  watch  committee  the case is not so clear. Certainly on the facts, as  we  know  them,  the  watch  committee could reasonably have decided to forfeit the appellant's  pension  rights,  but  I  could  not hold that they would have acted wrongly or wholly  unreasonably  if  they  had  in  the exercise of their discretion decided to take a more lenient course.’”

{See  also  M/s.  Kishinchand  Chellaram v.  The  Commissioner  of

Income-tax, Bombay City II, Bombay [AIR 1980 SC 2117]}

10

18. In view of the aforementioned settled legal principles, there cannot be

any  doubt  whatsoever  that  the  principles  of  natural  justice  have  been

violated in this case.   

19. For  the  views  we  have  taken,  the  impugned  judgment  cannot  be

sustained.   It  is  set  aside  accordingly.   The  matter  is  remitted  to  the

Commissioner  of  Customs  for  consideration  of  the  matter  afresh.   The

Commissioner,  in  the  event,  intends  to  rely on  the said  documents,  may

supply the relevant copies thereof or at least allow the appellant to inspect

the same.   

20. Appeal  is  allowed  with  the  aforementioned  directions  with  costs.

Counsel’s fee assessed to Rs.25,000/-.   

……………………………….J. [S.B. Sinha]

..…………………………..…J. [Cyriac Joseph]

New Delhi;

December 16, 2008

11