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PETITIONER: M/S INDIA STEAMSHIP COMPANY LTD.

       Vs.

RESPONDENT: UNION OF INDIA & ANR.

DATE OF JUDGMENT:       21/04/1998

BENCH: S.C. AGRAWAL, S. RAJENDRA BABU, A.P. MISRA

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.C. AGRAWAL, J. :-      This   appeal    raises   a    question   relating   to interpretation of  clause (e)  of sub-section (1) of Section 115 of  the Customs  Act, 1962  [hereinafter referred  to as ’the Customs  Act’] which  provides for confiscation of "any conveyance carrying  imported goods  which has entered India and is  afterwards  found  with  the  whole  or  substantial portion of  such goods  missing unless  the  master  of  the vessel or  aircraft is  able to  account for the loss of, or deficiency, in the goods".      M/s India  Steamship Company  Limited, the  appellant [ herein, thereinafter referred to as ’the appellant-company’] was the  owner of the sea-going vessel known as ’M.V. Indian Resolve’. On  its voyage  from  United  Kingdom  Continental ports to  Calcutta Port  it touched  the  ports  at  Bombay, Colombo, Madras  and Visakhapatnam.  The ship  was  carrying cargo  imported  for  delivery  at  different  Indian  Ports including the  Port of  Calcutta. When the vessel arrived at the Port  of Calcutta  Peter Sherazee,  the  Purser  of  the vessel, handed  over the Bonded Stores List of the vessel to the customs  officer. The  said list  mentioned the items of bonded Stores  and their  respective  quantities.  The  said Bonded Stores  List stated  that there was on  board 1,22400 pieces of  cigarettes which were contained in unopened large cartons containing  5,000 cigarettes  and  also  in  smaller cartons and open cartons. On checking by the customs officer the unopened  large cartons  appeared to  be intact  and the customs officer  locked up  and sealed  the Bond-Room of the vessel. On  two  occasion  thereafter,  on  October  12  and October 16,  1974, Peter  Sherazee took  out some cigarettes from the  Bond-Room in  the presence  of the customs officer and on  both these  occasions the customs’ seal on the Bond- Room was  found to  be intact.  On October 28, 1974 one S.K. Mukherji took  over charge  as Purser  of the  vessel and on that day  the customs  officer accompanied S.K. Mukherji and Peter Sherazee   for  verification of the stock in the Bond- Room. Some  cigarettes were taken out for consumption of the crew on  the  vessel.  The  large  cigarette  cartons  still appeared to  be intact.  Thereafter the  Bond-Room was  duly

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locked and  sealed. On  November 4,  1974 S.K. Mukherji went with the  customs officer  to the Bond-Room for taking out a further quantity  of Cigarettes.  The seal  of the Bond-Room was found  to be  intact. One  of the  large  cartons,  when opened in  the presence of the customs officer, was found to be empty.  Thereupon all  the large  unopened  cartons  were checked   and it  was found that nine of them were empty. On the   basis of  the stock statement as submitted there was a shortage  of   45,000  cigarettes.  On  April  9,  1975  the Assistant    Collector    of    Customs    for    Preventive (Adjudication), Calcutta,  issued a notice to the appellant- company wherein  it was  stated that  45,000 cigarettes were found short  in the  Bond-Room of  the vessel on November 4, 1974 and  that no  satisfactory explanation  was forthcoming from the  appellant-company for the alleged shortage. In the said notice  it was  further stated  that it  is  reasonably believed  that   the  said  cigarettes  had    been  removed clandestinely from the vessel while she was in port. But the said notice  the appellant-company  was called  upon to show cause-why the vessel should not be confiscated under Section 115(1)(e) and  why penal  action should  not  be taken under Section  112  of  the  Customs  Act.  The  appellant-company submitted a reply to the said notice wherein the shortage of 45,000 cigarettes was not disputed but it was contended that the shortage  was inconsequential  compared to  the value of the  entire  imported  cargo  carried  by  the  vessel  and, therefore, Section  115(1)(e)  was  not  attracted.  It  was pointed out that the imported goods scheduled to be unloaded at the  Port of  Calcutta consisted  of 847  tonnes iron and steel, 200  tonnes of  carbon blocks and plates, 6 tonnes of milk  powder,   976  tonnes   of  machinery,   spare  parts, equipments and  other general  cargo and  as compared to the cargo to   be  untraded the  missing goods,  namely,  45,000 cigarettes,  were  inconsequential  and  insignificant.  The Additional Collector  of Customs,  by order dated August 23, 1975 held  that the  terms "substantial  portion" in Section 115(1)(e) referred  to the  value of  the missing  goods  in themselves  and   that  45,000  cigarettes  was  substantial portion of  the imported goods carried by the vessel and the amount of   duty  livable on  the   missing quantity is more than Rs.  31,000/- and  he, therefore, held that the loss or the deficiency  amounting to 45,000 pieces of cigarettes has rendered the  vessel liable  to confiscation  under  Section 115(1)(e) of  the  Customs  Act.  The  Additional  Collector imposed a  fine of  Rs. 50,000/- in lieu of confiscation and he also  imposed a penalty of Rs. 10,000/- on Peter Sherazee under Section  112 of  the Customs Act. Feeling aggrieved by the said  order of  the Additional  collector the appellant- company filed  a writ  petition in  the Calcutta  High Court which was  allowed by  the learned  single Judge by judgment dated January  11,1977 and  the order  dated August 23, 1975 passed by  the Additional  Collector of Customs in so far as it related to confiscation of vessel under Section 115(1)(e) of the  Customs Act was set aside. The learned single  judge held that  45,000 cigarettes  which were  found missing were insignificant portion of the imported goods which were being carried in  the vessel  and even  if their loss was not duly accounted for  , Section 115(1)(e) was not attracted for the confiscation of  the vessel. The learned single Judge upheld the penalty  of Rs. 10,000/- imposed on Peter Sherazee under Section 112  of the  Customs Act.  The respondents  filed an appeal before the Division Bench of the High Court assailing the said  judgment of  the learned  single Judge.  The  said appeal was  allowed  by the Division Bench of the High Court by the  impugned judgment dated August 17, 1978. The learned

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Judges on  the Division  Bench rejected the contention urged on  behalf   of  the   appellant-company  that   the   words "substantial portion"  means substantial  portion of all the "imported goods"  on the  view that it leads to a difficulty as to  whether these  two words  are to  be understood  with reference to  the value  of the  imported goods  or with the quantity of the imported goods. The learned Judges have said :-      "For prevention  of  smuggling  the      legislature   has    provided   for      confiscation  of   the   conveyance      itself. In these premises if we say      that   the    words    ’substantial      portion’  of   imported  goods   in      Section 115(1)(e)  have to  be read      in the  context of  the totality of      goods imported,  the very object of      the   Act   embedded   in   Section      11(2)(c) may  be frustrated. Let us      repeat the  example we  gave to Mr.      Roy Mukherjee.  A vessel  may  have      imported 100  tonnes of wheat and 4      gold bars  out of which 3 bars have      been smuggled out. The owner of the      vessel, if  we go  by  quantity  of      imported goods,  cannot be punished      by  confiscation   of  the   vessel      itself even  though smuggling  of 3      gold bars  has taken  place. We  do      not think  that this  was or  could      have  been  the  intention  of  the      legislature.   In our  opinion if a      vessel has imported different items      or varieties of goods and if either      the whole or substantial portion of      one of  the items  or varieties  be      found      missing,   the   Customs      authorities would  be  entitled  to      invoke Section  115(1)(e). If we do      not adopt  this interpretation,  we      shall not  be giving  effect to the      object the legislature had in view,      namely,    the     prevention    of      smuggling." Feeling aggrieved by the said judgment the appellant-company has filed this appeal.      Shri  Dipanker   Gupta,  the   learned  senior  counsel appearing for  the appellant-company,  has  urged  that  the expression "substantial portion" in Section 115(1)(e) of the Customs Act  must be  construed to  mean substantial portion of the  goods which  have been  imported in  the vessel. The submission is  that the  learned single  Judge was  right in proceeding on  that basis and that the Division Bench of the High Court  was in  error in  reversing the said view of the learned Single  Judge. It  has been  contended that it could not  be   the  intention   of  Parliament   to  provide  for confiscation of  the vessel  in a  case where a portion of a particular consignment,  which may be substantial portion of that consignment, is found missing if the said portion which is found  missing is  insignificant as compared to the goods that have  been imported in the vessel.      Section 115(1)(e)  of  the  Customs  Act  provides  for confiscation of conveyances and reads as follows :-      "115. Confiscation of conveyance, -      (1) The  following conveyance shall

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    be liable to confiscation-           (a)   X   X   X     X      X           (b)   X   X   X     X      X           (c)   X   X   X     X      X           (d)   X   X   X     X      X      e) any conveyance carrying imported      goods which  has entered  India and      is afterwards  found with the whole      or  substantial   portion  of  such      goods missing,  unless the   master      of the  vessel or  aircraft able to      account  for   the  loss   of,   or      deficiency in, the goods."      The said  provision in  Section 115(1)(e)  differs from the earlier  provision contained   in  clause (4) of Section 167 of  the Sea  Customs Act,  1878 which  provided for  the penalty  of   confiscation  of  the  vessel  in  respect  of following offences :-      "4. If  any vessel   which has been      within the  limits of  any port  in      India or  within the Indian customs      waters, with  cargo  on  board,  be      afterwards found  elsewhere in such      waters or  in any port, bay, river,      creek or arm  of the sea in India.      (i) light or in ballast, or      (ii) with  any part  of such  cargo      missing,             and the master of the vessel      is unable  to give  due account  of      how the  vessel came to be light or      in ballast,  or    of  the  missing      cargo."      Under the  said provision in Section 167 the vessel was liable to  be confiscated  if any  part  of  the  cargo  was missing and the  master of the vessel was unable to give due account of  the missing cargo. Section 115(1)(e) reduces the rigour of  the said provision by introducing the requirement that substantial portion of the goods  must be found missing to attract the liability of confiscation of the vessel.      Section  115(1)(e)   contains   the   expression   "any conveyance carrying  imported goods".  These words  refer to the goods  which are  being imported  by the  vessel in  the country, i.e., the imported goods which are contained in the vessel. The  words "such  goods" in the expression "whole or substantial portion  of such goods" refer to the goods which have   been imported  in the vessel and, therefore, the said expression must   be  construed as referring to the whole or substantial portion of the goods which have been imported in the vessel.  This means that what should be found missing is the whole or substantial portion of the goods that have been imported in  the vessel.  The learned Judges on the Division Bench of  the High  Court have pointed out that a difficulty may arise in ascertaining whether the substantial portion of goods is  missing by giving an illustration where 100 tonnes of wheat  and 4  gold bars were imported in a vessel and out of the  4 gold  bars 3 gold bars were found missing and have observed that in such a case if we go by the quantity of the imported goods  the owner  of the vessel can not be punished by confiscation  of the  vessel itself even though smuggling of 3  gold bars has taken place and that this could not have been the   intention of the legislature. In out opinion, the said illustration  does not  pose any difficulty because the expression "substantial  portion of  such goods"  in Section 115(1)(e) has  been used  to mean substantial portion of the

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goods that  have been  imported keeping in view the quantity as well  as the  value of the goods that have been imported. If  it  is  found  that  the  goods  found  missing  were  a substantial portion  of the  goods that  have been  imported having regard  to the  quantity of goods or the value of the goods imported, the provisions of Section 115(1)(e) would be attracted. The  object underlying  the  said  provision  for confiscation of  the vessel  is to  check evasion of customs duty. It seeks to achieve this object by ensuring that after the vessel  has entered  India  the  master  of  the  vessel accounts for  the goods  which have  been  imported  and  by providing that  if the  whole or  substantial portion of the imported goods is found missing and the master of the vessel is not  able to  account for  the loss  or deficiency in the goods, the vessel would be liable to be confiscated. But, at the same time, it cannot be ignored that the confiscation of the vessel would result in imposing a heavy financial burden on the owner of the vessel. In providing for confiscation of the vessel  in Section  115(1)(e) it could not have been the intention of  Parliament to penalise the owner of the vessel in a  case where  a portion,  even though  substantial, of a particular consignment  of goods  is  found  to  be  missing although the  said consignment is only an insignificant part both in the matter of quantity as well as value of the goods that have been imported in the vessel.      Applying the  aforesaid test,  45,000  cigarettes  that were found  missing cannot  be  held  to  be  a  substantial portion of the goods that were imported either in the matter of quantity or in the matter of value of the goods that were imported in the vessel.       We  are, therefore,  unable  to  uphold  the  impugned judgment of  the  High  Court.  The  appeal  is  accordingly allowed, the  impugned judgment of the Division Bench of the High Court  is set  aside and  the judgment  of the  learned Single Judge is restored. No order as to costs.