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PETITIONER: MOTIBHAI FULABHAI PATEL & CO.

       Vs.

RESPONDENT: M/S. R. PRASAD AND ORS.

DATE OF JUDGMENT: 30/10/1968

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SIKRI, S.M. BACHAWAT, R.S.

CITATION:  1970 AIR  829            1969 SCR  (2) 580  CITATOR INFO :  D          1974 SC 175  (11)

ACT:     Central  Excise Rules, 1944, r. 40-Appellants guilty  of violating  r. 40 for mixing duty-paid tobacco with  quantity of  tobacco  on  which  no  duty  had  been   paid-Collector confiscating  entire mixture and levying fine on its  value- Whether  collector  could  confiscate only so  much  of  the mixture on which no duty paid.

HEADNOTE:     The  appellants  were  tobacco merchants  in  Baroda  in Gujarat  State  and were holding Central Excise  licence  in Forms  L-2 and L-5 for the purpose of storing,  selling  and processing duty paid and non-duty paid tobacco. On  December 23, 1958 while the process of mixing some tobacco  was going on  in  a  godown where duty-paid  tobacco  was.  kept,  the Superintendent of Central Excise., Preventive  Headquarters, Baroda  and his party raided the premises of the  appellants and  seized a mixture of tobacco weighing  1,64,834.50  lbs. tobacco   This  mixture included 60,770 lbs. of  tobacco  on which  duty had not been paid.  After the  ’appellants  were issued  a show-cause notice why action should not  be  taken against  them  under rule 40 of the  Central  Excise  Rules, 1944,  and after they had filed their reply, the  Collector, Central  Excise, by his order dated April 13, 1959 held  the appellants  guilty of contravening rule 40 levied on them  a penalty  of Rs. 2,000 as well as the duty payable under  the law,  and  also  ordered  the  confiscation  of  the  entire quantity  of the tobacco seized. As he gave  the  appellants the option of redeeming the same on payment of a fine of Rs. 1  lakh,  they  paid the fine  under  protest   and  secured release  of the tobacco. The appellant’s  appeal as well  as revision against the Collector’s order under the  provisions of  the  Central  Excise  and  Salt  Act,  1944,  were  both dismissed.  The appellants then filed a writ petition  under Art. 226 of the Constitution challenging the legality of the Collector’s order but this was dismissed by the High Court.     In appeal to this Court the only  challenge was to   the Collector’s  order  of  confiscation.   It  was   contended, relying  on the decision in Messrs. Valimahomed  Gulamhusain

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Sonavala  & Co. v.C.T.A. Pillai, (1960) 42, B.L.R., p.  634, that  the Collector could not have confiscated  the  tobacco mixture as it consisted of both duty-paid tobacco as well as tobacco  on  which duty had not been paid,  the  alternative contention  was that the Collector could not in  any  extent have.  confiscated  more than 60,770 lbs. of  mixture  which could  be  said to represent tobacco on which duty  had  not been paid.     HELD:   Rule 40 permits the Central Excise.  authorities to  confiscate only those goods on which duty had  not  been paid.   It  does not permit them either specifically  or  by necessary implication to confiscate  other goods.  Therefore it  was not permissible for the Collector to confiscate  the entire  tobacco mixture.  At the same time no person can  be permitted  to benefit by his wrongful act.  No rule  of  law should  be  so  interpreted as to permit  or  encourage  its circumvention.  If by the wrongful act of a party he renders it impossible for the authorities to confiscate under 581 rule  40  the  non-duty  paid goods, it  is  open  to  those authorities  to  confiscate from out of  the  goods  seized, goods  of the ’value  reasonably  representing the value  of the non-duty paid goods mixed in the goods seized.  Applying that  rule to the facts of the present case it follows  that although  the  appellants were guilty under Rule  40  of  an unlawful act in mixing duty-paid tobacco with non-duty  paid tobacco,  the  Collector could have confiscated out  of  the tobacco seized so much of it  as can be  held  to reasonably represent the value of the tobacco on which the duty had not been paid. [586 G--581 B]     As the parties were agreed that the value of the tobacco used in the mixture for which no duty had been paid could be fixed at Rs. 35,000,. the fine to be levied on the appellant in lieu of the confiscation that could have been ordered had to. be fixed at Rs. 35,000.  The Collector therefore had  to refund to the appellant a sum of Rs. 65,000.     Institutes  of Justinian, p. 104; Williams  on  Personal Property (18th edition) p. 50; Spence and Ant. v. The  Union Marine  Insurance  Co. Ltd., Law Reports (Common  Pleas)  3, 1867-68 and Smurthwaite and Ors. v. Hannay and Ors.,  [1894] A.C.p. 494; referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION:  Civil Appeal No.  13  of 1966.     Appeal  from  the judgment and order dated  January  13, 1964  of  the Punjab High Court, Circuit Bench at  Delhi  in Civil Writ No. 557-D of 1961.     M.P.  Vashi, Dalip K. Kapur,, S.V. Tambwekar and  A.  G. Ramaparkhi, ,for the appellant.     D.  Narsaraju,  R.M.  Mehta  and  S.P.  Nayar,  for  the respondents. The Judgment of the Court was delivered by     Hegde, J. In this appeal by certificate though.  several contentions  were raised in the memo of appeal only  two  of them  were  pressed at the time of hearing.  They  are:  (1) under the circumstances of the case the confiscation ordered by  the Collector, Central Excise is illegal and  (2)  under any  circumstance  he could not have confiscated the  entire quantity of tobacco used in the mixture.     The   appellants  are  tobacco  merchants  in   Dashrath village near Baroda in Gujarat State.  At the relevant  time they were holding Central Excise licence in form L-2 and L-5

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for the purpose of storing, selling and processing duty paid and   non-duty paid tobacco.  They had their own  duty  paid and non-duty paid godowns.  In about December 1958 according to  their   books  they  possessed  the  following  lots  of different   varieties   of  tobacco.  variety   of   tobacco Quantity   Rate of duty --------------------------------------------------------- Veriety of tobacco       Quantity       Rate of duty                       Bmds.             Rs. Biri Patti            "     251.8      1.20 np per Ib Stems Kandi           "     287.20     0.50  Do. Rava                  "    1326.14     0.50  Do. Stalk Kandi           "      57.20     0.06  Do. 582     On December 13, 1958 the appellants obtained  permission from  the Local Central Excise authorities to mix the  above lots  of tobacco.  The percentage of different varieties  of tobacco when mixed would have been as under:    Rava                              68.97 %    Stems Kandi                       14.86 %    Biri Patti                        13.07 %    Stalk Kandi                        3.00%     On  December  23, 1958 when the process  of  mixing  was still  going  on  the  Superintendent  of  Central   Excise, Preventive  Headquarters,  Baroda and his party  raided  the duty  paid premises of the appellants.  There he seized  the entire   mixture   tobacco weighing Mds.  2004.3  srs.  i.e. 1,64,834.50    lbs.   of   tobacco.   According   to    that Superintendent  when experiments were conducted he found  in the  above  mixture  percentage of  different  varieties  as under:    Rava                              44 %    Biri Patti                        51.50 %    Stems Kandi                       3 .74 % From this he concluded that ’considerable quantity of   non- duty  paid  Biri  Patti tobacco had  been  utilised  in  the manufacture of the mixture.  Hence notice was issued to  the appellants  on  January  6, 1959 to show  cause  why  action should  not  be  taken against them under  rule  40  of  the Central Excise Rules 1944 inasmuch as they brought into duty paid  premises  60,770 lbs.  of Biri Patti  tobacco  without payment  of duty.  It was also alleged in  that notice  that the appellants had removed certain quantity of Rava  tobacco from L-2 premises.  The  appellants  submitted  their  reply on  March 13, 1959.  At the hearing before the Collector  as the appellants challenged the correctness of the experiments conducted   by  the  Superintendent,  Central  Excise,   the Collector   himself  in  the  presence  of  the   appellants conducted  a  fresh  experiment.   On  the  basis  of   that experiment  he  came  to the  conclusion  that  the  results obtained by the experiment conducted by the  Superintendent, Central Excise are by and large  correct.     By  his  order  dated April 13,  1959,  the   Collector, Central  Excise held the appellants guilty  of  contravening rule  40  and consequently levied on them a penalty  of  Rs. 2,000  as  well   as the duty payable under  law.   He  also ordered  the  confiscation of the  seized  tobacco  weighing 1,64,834.50 lbs.  But he gave an option to the appellants of redeeming the same on payment.  of a fine of Rs. 1 lac.  The appellants  paid the amount of fine. under protest  and  got the goods released.     Thereafter  they moved the High Court of  Bombay   under Art. 226  of the Constitution for quashing the order of  the Collector   but  that  application  was  withdrawn  as   the appellants first

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583 wanted to exhaust their remedy under the Central Excise Act. The   appellants  unsuccessfully  went  up  in  appeal   and thereafter  in  revision under the Central Excise  and  Salt Act, 1944 against the order of the Collector.  After the 3rd respondent  dismissed their revision petition they filed  in the  High Court of Punjab at Delhi Civil Writ No.  557-D  of 1961  challenging  the  legality of the order  made  by  the Collector  of  Central  Excise  on  April  13,  1959.   That petition was dismissed by a Division Bench of that Court  on January  13,  1964.   This appeal is  brought  against  that decision.     in  this Court the finding of the Collector  of  Central Excise  that the appellants were guilty of mixing  the  duty paid  tobacco  with non-duty paid tobacco and  thereby  they contravened  rule 40 was not challenged.  Nor was there  any dispute about the quantity of non-duty paid tobacco used  in the mixture. The main contention of Mr. M.P. Vaish,  learned Counsel  for  the  appellants was that under  rule  40,  the Collector could not have confiscated the tobacco mixture  as it consisted of both duty paid tobacco as well as tobacco on which  duty had not been  paid. His  alternative  contention was that under any circumstance the Collector could not have confiscated  anything more than 60,770’ lbs. of the  mixture which  can  be  said to  represent  Biri  Patti  tobacco  on which  duty  had not been paid.  In support  of   his  first contention he heavily relied on the decision of K.T.  Desai, J. in Messrs. Valitmahomed Gulamhusain  Sonavala &  Co.   v. C.T..A. Pillai (1).     The  seized  tobacco mixture  weighed  1,64,834.50  lbs. That  included  60,770 lbs. of Biri Patti tobacco  on  which duty had not been paid.  But on the remaining quantity  duty had  been paid. The tobacco seized was found in  the  godown licenced to  store duty paid tobacco.  Hence the  appellants were clearly guilty of contravening rule 40  of the  Central Excise Rules which reads:                     "Except  as provided in the  proviso  to               sub-rule  (1) of rule 32 and in  rule  171  no               wholesale  purchaser of unmanufactured tobacco               for the purpose of trade or manufacture and no               wholesale  purchaser of  other  unmanufactured               products  from a curer shall receive into  any               part  of his premises or into his  custody  or               possession,  any  unmanufactured  tobacco   or               other   unmanufactured  products,  other  than               tobacco   or  other  unmanufactured   products               imported  from a  foreign   country  otherwise               than  under  a valid  permit   granted  by  an               officer showing that the proper  duty has been               paid;  and every such wholesale purchaser  who               receives  or has in his custody or  possession               any such  goods, in contravention of this rule               shall, in  respect of  every such offence,  be               liable to pay the duty leviable on such (1) (1960) 42 B.L.R., p. 634. 584               goods,  and to a penalty which may  extend  to               two thousand rupees, and the goods shall  also               be liable to confiscation." .lm0               In view of this rule the legality of the order               made by the  Collector in so far as he  levied               duty as well as penalty  cannot be  challenged               and was not challenged before us.  But so  far               as the confiscation is concerned’ it was urged               that  under   the   rule   in  question   only

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             tobacco on which duty had not been paid  could               alone  have been confiscated.  In the  instant               case  even  according ,to the finding  of  the               Collector  only on 66,770 lbs. of Biri   Patti               tobacco the duty had not been paid; but on the               remaining  tobacco seized duty had been  paid,               it was not possible to separate the duty  paid               tobacco from the non duty-paid tobacco;  hence               it  was  impermissible for  the  Collector  to               confiscate the  said  tobacco under Rule 40 as               that rule permitted the confiscation of   only               non-duty paid tobacco.  In Sonavala’s  case(1)               referred  to earlier Desai, J. had  held  that               the right to confiscate smuggled  goods  under               s.  167(8)  of the Sea Customs Act, 1878  does               not  carry  with it the  right  to  confiscate               unsmuggled  goods.   The  words  "such  goods’               appearing in s. 167(8)  of the Act  cannot  be               interpreted .to mean similar goods.  It is not               open to the Customs authorities to  confiscate               similar  goods even though they may be of  the               same  quality,  bulk  and  value.   The  words               ’such   goods’ mean the very goods which  have               been  smuggled.   If the smuggled  goods  lose               their  identity, it would not be open  to  the               Customs  officers  to confiscate any  part  of               those goodS.  Where, therefore, gold that  has               been  smuggled has in the melting process  got               so mixed up with gold that is unsmuggled  that               it is impossible to separate the smuggled gold               from   the  unsmuggled  one,  the   right   to               confiscate  smuggled gold ceases when the  two               get   inextricably   mixed  up.    The   broad               proposition laid down by Desai, J. undoubtedly               supports  the contention advanced  on   behalf               of   the appellants.  We shall presently  show               that this statement of the law is not  correct               but  it  is  necessary  to  mention  at   this               juncture  that  in the Sonavala’s  case(1)  an               innocent   third  party  had   purchased   the               smuggled  gold for proper value and mixed  the               same with unsmuggled gold, which  circumstance               had  an  important bearing on the decision  of               the case.                   In  Institutes  of Justinian at  page  104               dealing   with  the  topic  commixtio  it   is               observed:                  "If  the things mixed, still remaining  the               property of their former owners, were easy  to               separate again, as for instance, cattle united               in one herd, when one owner brought his  claim               by  vindicatio ’his property was  restored  to               him  without  difficulty  but  if   there  was               difficulty  in separating the  materials  from               each other, as in dividing the grains of wheat               in a heap, the obvious (1960) 42 B.L.R.p. 634. 585               mode would be to distribute the whole heap  in               shares proportionate to the quantity of  wheat               belonging  to the respective owners.   But  it               might happen that the wheat mixed together was               not  all of the same  quality,  and  therefore               the  owner of the better kind of  wheat  would               lose  by having a share determined  in  amount

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             only  by  the quantity of his wheat;  and  the               judge therefore was permitted to exercise  his               judgment  how  great an addition ought  to  be               made  to  his  share  to  compensate  for  the               superior  quality  of  the  wheat   originally               belonging to him." In Williams on Personal Property  (18th  Edn.) at p. 50,  it is observed:                       "The   acquisition  of  ownership   by               accession  or  confusion  of  substances  also               presupposes  a previous title. Thus the  young               of a domestic animal  belong to  the owner  of               the  mother.  If any substances, for  instance               tallow, belonging to. various owners be  mixed               by  consent or accidentally, the mass  appears               to  belong  to  the owners  of  its  parts  in               common.  And if the confusion be made wilfully               by  one  without the other’s leave,  the  mass               belongs to the latter, whose ownership is thus               unlawfully invaded." Dealing  with  the same topic it is observed  in  Halsbury’s Laws of England 3rd Edn. (Vol. 29) at p. 378.               "Ownership   of  goods  may  be  acquired   by               confusion or intermixture, if the goods,  when               mixed,  are  indistinguishable.  If the  goods               are  mixed   by   agreement  or  consent   the               proprietors  have  an interest  in  common  in               proportion  to  their  respective  shares;  if               mixed   by  accident  or the act  of  a  third               party, or which neither owner is  responsible,               the  proprietors become  owners in  common  of               the  mixed  property  in  proportion  to   the               amounts contributed.  Where, however, one  man               wilfully mixes his goods with those of another               without  the  approbation or knowledge of  the               other, the whole be longs to the latter." The law on this topic was stated by Bovill, C.J. as early as 1868’  in Spence and Anr. v. The Union Marine Insurance  Co. Ltd.(1) thus:                    "In  our  own  law  there  are  not  many               authorities to     be found upon this  subject               but, as far as they go, they     are in favour               of the view, that, when goods of  diffe- (1) Law Reports (Common Pleas) 3, 1867-68. 586               rent  owners  become  by  accident  so   mixed               together  as  to  be  undistinguishable,   the               owners of the  goods  so mixed become  tenants               in  common  of the whole, in  the  proportions               which  they have severally contributed to  it.               The  passage  cited  from  the   judgment   of               Blackburn,  J.,  in  the case  of  the  tallow               which was  melted and flowed into the  sewers,               is  to that effect: Buckley  v. Gross.  And  a               similar  view was adopted by Lord  Abinger  in               the  case of the mixture of oil by leakage  on               board ship in Jones  v. Moore.         ’                     "It  has been long settled in  our  law,               that   where goods are mixed so as  to  become               undistinguishable,  by  the  wrongful  act  or               default  of one owner, he cannot recover,  and               will not be entitled to his proportion, or any               part  of the property, from the  other  owner,               but  no authority has been cited to shew  that               any such principle has ever been applied,  nor

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             indeed could it be applied, to the case of  an               accidental  mixing  of the goods  of  the  two               owners;  and there is no authority  nor  sound               reason  for saying that the goods of   several               persons   be  the property of  their   several               owners,  and  become bona-vacantia."    The  same principle was again  reiterated by  the   House of Lords in Smurthwaite and Ors. v. Hannay and Ors.(1)     The rules enunciated above are of assistance in  finding out  a solution to the problem before us though they do  not govern the same.  In the instant case there is no doubt that the appellants were guilty of an unlawful act in mixing duty paid  tobacco  with the non-duty paid tobacco but  the  fact remains that they were the owners of both those lots at  the time they mixed them and hence the legal principles set  out earlier  do  not  cover  such  a  case.   It  must  also  be remembered  that  in dealing with a  provision  relating  to forfeiture we are dealing with a penal provision.  It  would not  be proper for us to extent the scope of that  provision by  reading  into it words which are not there  and  thereby widen  the scope of the provision relating to  confiscation. Rule 40 permits the Central Excise authorities to confiscate only  those goods on which duty has not been paid.  It  does not   permit  them  either  specifically  or  by   necessary implication to confiscate other goods. Therefore it was  not permissible  for  the  Collector to  confiscate  the  entire tobacco mixture. At the same time no person can be permitted to benefit by his wrongful  act.  No  rule  of law should be so interpreted as to permit or encourage its  circumvention. If  by the wrongful act of a party he renders it  impossible for the authorities to confiscate under rule 40 the non- (1) [1894] A.C.p. 494. 587 duty  paid  goods  it  is  in  our  opinion  open  to  those authorities  to  confiscate from out of  the  goods  seized, goods of the value reasonably representing the value of  the non-duty  paid  goods mixed in the goods  seized.   Applying that  rule  to  the  facts  of  this  it  follows  that  the Collector, Central Excise could have  confiscated out of the tobacco seized,. so. much of it as can be held to reasonably represent the value of the tobacco on which the duty had not been paid.     As  noticed  earlier the tobacco  confiscated  had  been returned  to the appellants after realising from them a  sum of Rs 1 lac as fine.  The Counsel for the parties agreed  at the hearing that  the’ value of the Biri Patti tobacco  used in  the  mixture for which no duty had been  paid  could  be fixed  at Rs. 35,000.  In view of this agreement it  is  not necessary for us to remit the case back to the Collector  of Central  Excise  for assessing the value of the  tobacco  on which  duty  had  not been paid.  In  view  of  our  earlier findings the fine to be levied on the appellants in lieu  of the  confiscation  that could have been ordered  has  to  be fixed   at  Rs.  35,000.   From this  it  follows  that  the Collector  has  to  refund to the appellants a  sum  of  Rs. 65,000  which he  has  collected from them in excess of  the aforementioned  Rs.  35,000. The appeal is allowed  to  that extent.   In the  circumstances of  the case we  direct  the parties to bear their own costs  both in  this Court as well as before the High Court. R.K.P.S.       Appeal allowed in part. 588