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PETITIONER: SIEMENS ENGINEERING & MANUFACTURING CO. OF INDIA LIMITED

       Vs.

RESPONDENT: UNION OF INDIA & ANR.

DATE OF JUDGMENT30/04/1976

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. GUPTA, A.C. FAZALALI, SYED MURTAZA

CITATION:  1976 AIR 1785            1976 SCR  489  1976 SCC  (2) 981  CITATOR INFO :  D          1977 SC 567  (23)  E          1979 SC1803  (7,8)  R          1984 SC 130  (2)  D          1984 SC 273  (42)  R          1986 SC2105  (17)  R          1988 SC1340  (6)  D          1988 SC1459  (15)  RF         1990 SC1984  (7,31,33,36)

ACT:      Customs Traiff-Items 72(3)-Scope of.      Inferpretation-"Not otherwise  specified" occurring  in ’’machinery and not otherwise specified"-Meaning of.      Administrative   law-Reasoned    order   by   Tribunals essential.

HEADNOTE:      Under item  72(3) of  the First  Schedule to the Indian Customs Tariff,  component parts  of machinery as defined in item nos.  72, 72(1)  and 72(2) aand not otherwise specified are chargeable  to customs  duty. Item  73(21) comprises  of "electric motors,  all sorts,  and parts  thereof".  On  the strength of  a licence  for importing  "complete  continuous filament Rayon  Plant-with spares  and accessories"  certain spinning frames  excluding pot  motors  were  imported  from Japan but  not motors  were imported  from  Germany  by  the appellants. The  customs authorities  accepted the  claim of the appellants  that the  consignment  of  pot  motors  fell within item  72(3)  and  charged  import  duty  accordingly. Sometime later, the Assistant Collector of Customs, claiming that customs  duty on  pot motors  was short  levied as they fell within  item 73(21)  called upon  the appellants to pay the  difference,   against  which   the  appellants  made  a representation to the Assistant Collector. But the Assistant Collector held  against the  appellants without  giving  any reasons. The appellants thereafter filed a representation to the Collector but he held that since the spinning frames and the pot  motors were  imported under separate contracts from separate countries the two consignments could not be treated as one  article and  hence rejected  the representation. The appellants thereupon  applied to  the Government of India in

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revision but the revision application was also rejected.      Allowing the appeal to this Court. ^      HELD: (1)  (i) Item  72(3) is  a specific item covering pot motors  as against  item 73(21) which is a general item. Pot motors  were, therefore, assessable under the former and not  under  the  latter.  The  original  assessment  of  the Assistant Collector was correct and the subsequent demand of differential duty  which was  confirmed by the Collector and the Government of India was unjustified (ii) Pot motors fell within the  description  given  in  item  72(3).  They  were specially  designed   for  use   in  spinning  machines  for manufacturing  rayon   thread.  and  they  were  indubitably essential for the working of the rayon spinning machines and were incapable  of being  used for  any other  purpose. They were,  therefore,  clearly  component  parts  of  the  rayon spinning machines. [495-D, 494A]      (2 )  The argument  of  the  respondents  that  if  any component parts of machinery were specifically dealt with in any other  item, they  would go  out of item 72(3) and since pot motors were electric motors within item 72(21) they were not covered  by item  72(3) was  clearly unsustainable. As a matter of both grammar and language the words "not otherwise specified" cannot  be read  as qualifying "component parts". They qualify  "machinery". Otherwise  the conjunction  "and" would  have   no  meaning.   The   sentence   would   become ungrammatical if  the words  "not otherwise  specified" were read to  govern "component  parts". The  description of  the component parts  which  follows  the  words  "not  otherwise specified" starts  with the  words "namely" which shows that it is intended to be a complete description of the component parts covered 490 by this  item and  that would  also not actually fit in with component parts-"not  otherwise specified".  Therefore,  pot motors could  not be  held to fall outside that item because they were otherwise specified in item 73(21). [494H]      (3)(a) Where an authority makes an order in exercise of a quasi-judicial  function it  must record  its  reasons  in support of  the order  it makes.  Every quasi-judicial order must be supported by reasons. [495G]      M. M. Desai v. The Testeels Ltd. & Anr. CA 245 of 1976, decided on 17th Dec. 1975, referred to.      (b)  If   courts  of   law  were   to  be  replaced  by administrative  authorities   and  tribunals  and  with  the proliferation of  administrative law, they may have to be so replaced, it  is essential  that administrative  authorities and tribunals  should accord  fair and proper hearing to the persons sought  to be  affected by  their  orders  and  give sufficiently clear  and explicit  reasons in  support of the orders made  by them. The rule requiring reasons to be given in support of an order is like the principal of audi alteram partem, a  basic principle  of natural  justice  which  must inform every  quasi-judicial process  and this  rule must be observed  in   its  proper   spirit  and  mere  pretence  of compliance with it would not satisfy the requirement of law. [496B-D]      In the  instant case  the Assistant  Collector did  not give any  reasons in support of his order which was in plain disregard of the requirement of law. The reason given by the Collector was hardly satisfactory. His order could have been a  little  more  explicit  and  articulate  so  as  to  lend assurance that the case had been properly considered by him. The Government  of India  too failed  to give any reasons in support of  its order  rejecting the  revision  application.

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[496-H]      [The  Court   expressed  the  view  that  it  would  be desirable that  in cases  arising under  customs and  excise laws an  independent quasi-judicial tribunal is set up which would  finally   dispose  of   the  appeals   and   revision applications  under   these  laws  instead  of  leaving  the determination of such appeals to the Government of India. An independent quasi-judicial  tribunal would  inspire  greater confidence in the public mind.] [496F]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION:  Civil  Appeal  1277  of 1968.      (Appeal by  special leave  from the  order No.  2674 of 1967 of the Ministry of Finance, Government of India)      Hardev Singh,  Ishwar Chand  Jain and  R. S. Sodhi; for the Appellant.      S. N. Prasad and S. P. Nayar, for respondents.      The Judgment of the Court was delivered by      BHAGWATI, J.  This appeal  by special  leave  raises  a short question  as to  what is  the correct amount of import duty chargeable  on pot motors when imported separately from Rayon Spinning  frames: do  they fall  within Item  72(3) or Item 73(21)  of the  First Schedule  to the  Indian  Customs Tariff? The  facts giving rise to the appeal are few and may be briefly stated as follows:      Some time  in 1956 a licence for setting up a plant for manufacture of Rayon was granted to one Kesoram Industries & Cotton Mills  Ltd.  under  the  Industries  Development  and Regulation Act,  1951. Since  the  machinery  and  equipment required for  setting up  the plant  were not  available  in India, Kesoram  Industries and Cotton Mills Ltd. applied for an import  licence and  on the  basis of  this  application, import licence  was granted  to them for importing "complete continuous filament Rayon plant-with spares and accessories" of the  CIF value  of Rs.  5.50 crores from general currency area excluding South Africa. 491 It appears  that Kesoram  Industries  &  Cotton  Mills  Ltd. imported, on  the strength  of this  import  licence,  Rayon Spinning frames,  excluding pot  motors, from  Japan, but so far as  pot  motors  were  concerned,  they  authorised  the appellants to  import from  Germany 4000 of these motors for initial installation of the Spinning frames. Pursuant to the authority so  given, the  appellants placed  orders for 4000 pot motors  with manufacturers  in Germany  and imported the same  in  seven  different  consignments  under  the  Import licence of  Kesoram Industries  & Cotton  Mills  Ltd.  These seven  consignments   arrived  at   Calcutta  port   between September and  December 1961.  The appellants claimed before the Customs  authorities at the time of assessment of import duty on these seven consignments that pot motors imported by them fall  within Item  72(3) of  the First  Schedule to the Indian Customs  Tariff and  were chargeable  to import  duty under that  item at the rate of 15 percent of their accepted value. This  claim was  accepted by  the Customs authorities and these  seven consignments  were allowed to be cleared on payment of  import duty  under Item 72(3). However, within a short time  thereafter, the  Assistant Collector  of Customs issued seven  separate notices of demand in respect of these seven consignments claiming that customs duty at the rate of 15 per  cent had  been short levied, because pot motors were assessable at  the rate  of 20  per cent  and requiring  the

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appellants to  pay up the difference within 15 days from the date of demand under s. 39 of the Sea Customs Act, 1878. The appellants  sent   representations  against   these  notices pointing  out   that-and  we   are  quoting  here  from  the representation dated 8th December, 1961 which is:-      "These pot motors are vital component part of the Rayon      Spinning machines  already  imported  and  are  not  in      excess  of   the  quantity   required  for   the  first      installation of  the said  plant. The  pot  motors  are      required for 24 Spinning frames having 2 sides each. On      each side  of these  frames, 66  motors are  connected.      Hence total  initial  requirement  of  pot  motors  for      running  24   frames  is   3168.  In  view  of  general      experience with  this type  of plant  approximately 25%      additional motors  are  required  for  trial  runs  and      commissioning 4000  Nos. Of  not motors  should,  there      fore, be  supplied for  first installation of the Rayon      plant.           These pot  motors are  of very  high speed and are      specially designed  for  use  in  spinning  frames  for      manufacturing rayon  thread. They  run at  7700 RPM and      are designed  for a  rated voltage  of 130  V.  at  130      cycles per  second for  use in circuits of less than 10      amps. As  such, these motors can in no circumstances be      used for any other purpose excepting as stated above.           The accessories  of  these  motors  are  specially      designed to  suit particular  size of  spinning pots as      well as  spinning chambers. The smooth running of these      motors is  achieved after  a great  research  by  using      flexible  elastic  and  hollow  shaft,  special  rubber      bushings for  support as  well  as  specially  designed      bearings, to take care of severe stresses, 492      which are  normally encountered  by these motors during      operation.           Hence, it  is inevitable that any deviation in the      design  of   the  above   component  parts  would  mean      defeating the purpose for which these motors are meant.           In view  of the  above,  these  motors  cannot  be      classified other  than an  integral part  of the  Rayon      Spinning plant.           We, therefore, claimed as assessment of duty under      proviso 72(3) at the time of clearing." The appellants  did not receive any reply from the Assistant Collector in regard to these representations for a period of about  three   years  and  hence  they  thought  that  their representations  had   been  accepted  and  the  demand  for differential duty  had been  dropped. This,  however, turned out to  be a  vain hope, for seven communications dated 19th January, 1965  were received  by  the  appellants  from  the Assistant Collector stating that the demand for differential duty in  respect of  each  of  the  seven  consignments  was confirmed and  would  be  enforced  in  due  course  if  the differential duty  was not  paid by  the appellants. Each of those seven  communications contained an intimation that "an appeal against this decision lies to the Appellate Collector within three  months hereof".  The appellants,  however, did not prefer  an appeal  to the Collector and instead tried to persuade the  Assistant Collector  to change  his opinion by pointing out  the relevant  facts. It  appears that  in  the meantime the  Assistant Collector  recovered  the  aggregate amount of  the differential duty from the deposit account of the  appellants.   The  appellants   once   again   made   a representation to  the Assistant Collector and requested him to refund  the amount  of differential duty collected by him

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but the  representation did  not meet  with  any  favourable response  from   the  Assistant  Collector.  The  appellants ultimately filed  a representation  to the Collector on 15th July,  1965   setting  out  their  case  in  regard  to  the assessment  of  customs  duty  and  pointing  out  that  the original assessment  of customs  duty made  under Item 72(3) was correct  and that the differential duty had been wrongly recovered from  them. This representation was treated by the Collector as  a revision  application against  the orders of the  Assistant   Collector  and  on  this  application,  the Collector made an order which was conveyed to the appellants by  the   Assistant  Collector  by  his  letter  dated  23rd December, 1965. The Assistant Collector pointed out that the Collector had:           "-examined the  merits of the case in question and      it is  his consideration  that the  duty was  correctly      chargeable because the Spinning Machinery excluding the      pot motors  were being imported under one contract from      Japan and  the pot  motors were  being  imported  under      another contract  from  Germany.  Separate  importation      under a separate contract from a separate country would      not justify  treatment of  the two  consignments as one      article, when the goods are not specified 493      in the  Tariff as  one article.  Therefore, he does not      see any  reason to  revise  the  Assistant  Collector’s      order concerning the demands." The appellants thereupon preferred a revision application to the Government  of India,  but by  a short  and pithy  order dated 23rd September, 1967, the Government of India rejected the revision  application stating  that they  had  carefully considered the  revision application  B but saw no reason to interfere with  the order  passed by the Collector. This led to the filing of the present appeal against the order of the Government of  India with  special leave  obtained from this Court.      Though the  appellants, initially,  when the hearing of the  appeal  commenced,  raised  two  or  three  contentions against the validity of the order of the Government of India confirming the demand for differential duty, they ultimately pressed only one contention and that related to the category in which the pot motors imported by the appellants fell. The Assistant Collector  originally assessed these pot motors to customs duty  at the  rate of  15 per cent of their accepted value under  Item 72(3),  but later,  demanded  differential duty from  the appellants  on the  footing  that  these  pot motors were  really assessable at the rate of 20 per cent of their accepted  value under  Item 73(21)  D. and this demand was confirmed  by the  Collector in  revision and on further revision, by the Government of India. The appellant disputed the correctness  of these  orders  and  contended  that  the original assessment  made by  the  Assistant  Collector  was proper and the demand for differential duty was unjustified, because the  correct item  under which those pot motors were assessable was  Item 72(3), and not Item 73(21). Item 72(3), as it  stood at  the material  time, was  in  the  following terms:      "72(3) Component  parts of machinery as defined in Item      Nos. 72,  72 (  1  )  and  72  (2)  and  not  otherwise      specified, essential  for the working of the machine or      apparatus and  have been  given for  that purpose  some      special shape  or quality  which would not be essential      for their use for any other purpose but excluding small      tools like  twist drills  and reamers,  dies and  taps,      gear cutters and hacksaw blades:

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         provided that  articles which  do not satisfy this      condition shall also be deemed to be component parts of      the machine  to which they belong if they are essential      to its  operation and  are imported  with  it  in  such      quantities as  may appear  to the  Collector of Customs      to. be reasonable.", while Item 73(21) comprised "Electric motors, all sorts, and parts thereof."  The competition was between these two Items and the  question  is  which  of  them  covered  pot  motors imported by the appellant.      Now, pot motors imported by the appellants were clearly component parts  of Rayon Spinning machines and this was not and  indeed   could  not   be  disputed  on  behalf  of  the respondents. Since  Rayon Spinning  machines were admittedly textile machinery as defined in Item 72(1), these pot motors were covered by the opening part of 494 Item 72(3), namely, "component parts of machinery as defined in Item  Nos. -72  ( 1 ) -". Moreover, these pot motors were clearly and  indubitably essential  for the  working of  the Rayon  Spinning   machines  and,   as  pointed  out  by  the appellants in their representation dated 8th December, 1961, they were "specially designed for use in spinning frames for manufacturing rayon  thread" and  for the purpose, they were given special  shape and  quality which  was  not  only  not essential for  their use  for any other purpose but actually rendered them incapable of being used for any other purpose. This position,  as pointed  out by  the appellants  in their representation dated  8th December,  1961, was  not disputed either by the Assistant Collector in his communication dated 19th January,  1965 or  by the  Collector in his order dated 23rd December,  1965 rejecting  the  representation  of  the appellants  and   the  Government  of  India  also  did  not controvert this  position in its order dated 23rd September, 1967. If  the Assistant  Collector or  the Collector  or the Government of  India did not accept the facts set out in the representation of  the appellants  dated 8th December, 1961, we should  have expected a clear statement to that effect in the orders  of these  authorities. The  Assistant  Collector maintained sphinx like silence and preferred not to give any reasons for confirming the demand for differential duty. The Collector was  a little  less reticent.  He briefly  gave  a reason for confirming the orders of the Assistant Collector, but that  reason had  nothing to do with the nature, quality or condition  of the  pot motors.  What it  said  was  this, namely, that  the pot  motors were imported under a separate contract from Germany while the Spinning machinery excluding pot motors  were  imported  from  Japan  and  that  did  not "justify the  treatment of two consignments as one article." The Government  of India also did not articulate its reasons while rejecting  the revision application of the appellants, but since  it confirmed  the order  of the Collector, we may presume that  the  same  reason  which  prevailed  with  the Collector appealed  to the  Government of  India.  It  will, therefore, be seen that at no stage was the factual position in  regard   to  The   pot  motors,   as  set   out  in  the representation of  the appellants  dated 8th December, 1971, disputed by  the  Assistant  Collector  of  Customs  or  the Collector or  the  Government  of  India.  The  pot  motors, therefore, clearly fell within the description given in Item 72(3),      The respondents,  however, leaned  heavily on the words "not otherwise  specified" in  item 72(3) and contended that even if  the  pot  motors  were  component  parts  of  Rayon Spinning machines,  they were  not covered  by  Item  72(3),

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since they  were otherwise  specified in  item  73(21).  The argument of  the respondents was that if any component parts of machinery were specifically dealt with in any other item, they would  go out  of Item  72(3) and since pot motors were electric motors within Item 73(21), they were not covered by Item 72(3). This argument is clearly unsustainable. It seeks to read  the words  "not otherwise  specified" as qualifying "component parts"  but that is plainly incorrect as a matter of both  grammar and language. Structurally, the conjunction ’and’ joins  the two  clauses "as  defined in  Item Nos. 72, 72(1) and 72(2)" and "not otherwise specified" and since the former qualifies  ’machinery’, the  latter also must be read as 495 doing the  same  duty.  What  Item  72(3)  contemplates  are component parts  of that  machinery which is defined in Item Nos. 72,  72(1)  and  72(2)  and  which  is  ‘not  otherwise specified.  The  words  ’not  otherwise  specified’  do  not qualify  "component   parts":   they   qualify   machinery’. Otherwise, the  conjunction ’and’  would have no meaning. In fact, the  sentence would  become ungrammatical if the words "not otherwise  specified" were  read to  govern  "component parts". This  construction also  receives support  from  the description of  the component  parts which follows the words ’not otherwise  specified’. This description starts with the word ‘namely’,  which shows  that it  is intended  to  be  a complete description  of the component parts covered by this item and  that would not contextually fit in with "component parts - not otherwise specified". There can be no doubt that on  a   plain  grammatical   construction,  the  words  "not otherwise specified"  qualify "machinery" and not "component parts" and,  there- fore,  the pot  motors imported  by  the appellants, which  satisfied the  other requirements of Item 72(3) could  not be  held to fall outside that Item, because they were  otherwise specified in Item 73(21). Item 72(3) is a specific  Item which  covers these  pot motors  as against Item 73(21)which is a general item and hence it must be held that these  pot motors  were assessable under Item 72(3) and not under  Item 73(21). The original assessment of these pot motors  made   by  the   Assistant  Collector  was,  in  the circumstances,  correct   and  the   subsequent,  demand  of differential  duty  made  by  the  Assistant  Collector  and confirmed by the Collector in revision and by the Government of India  on further  revision, was  unjustified. The orders made by  the Assistant  Collector,  the  Collector  and  the Government of  India confirming  the demand for differential duty would,  therefore, have to be quashed and set aside and the  amount   of  differential   duty  recovered   from  the appellants  pursuant  to  these  orders  would  have  to  be refunded to the appellants.      Before we  part with  this appeal,  we must express our regret at  the manner  in which the Assistant Collector, the Collector and  the  Government  of  India  disposed  of  the proceedings before  them. It  is incontrovertible  that  the proceedings before  the Assistant Collector arising from the notices demanding  differential  duty  were  quasi  judicial proceedings and  so also  were the  proceedings in  revision before the  Collector and  the Government  of India. Indeed, this was  not disputed  by the  learned counsel appearing on behalf of  the respondents. It is now settled law that where an authority  makes an order in exercise of a quasi-judicial function it  must record its reasons in support of the order it makes.  Every quasi-judicial  order must  be supported by reasons. That has been laid down by a long line of decisions of this Court ending with N. M. Desai v. The Testeels Ltd. &

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Anr. (’) But, unfortunately, the Assistant Collector did not choose to  give any  reasons in support of the order made by him con  firming the  demand for differential duty. This was in plain  disregard of the requirement of law. The Collector in revision  did give  some sort of reason but it was hardly satisfactory.  He  did  not  deal  in  his  order  with  the arguments advanced by the appellants in their representa-      (1) C. A.245 of 1970 decided on 17th December. 1975. 496 tion dated  8th December,  1961 which  were repeated  in the subsequent representation  dated 4th  June, 1965.  It is not suggested that  the Collector  should have made an elaborate order discussing  the arguments  of the  appellants  in  the manner of  a court  of law.  But the  order of the Collector could have  been a little more explicit and articulate so as to lend  assurance that  the case of the appellants has been properly considered  by him.  If courts  of law  are  to  be replaced by  administrative authorities  and  tribunals,  as indeed, in  some kinds  of cases,  with the proliferation of Administrative law,  they may  have to be so replaced, it is essential  that  administrative  authorities  and  tribunals should accord  fair and proper hearing to the persons sought to be  affected by  their orders and give sufficiently clear and explicit  reasons in support of the orders made by them. Then  alone   administrative   authorities   and   tribunals exercising quasi-judicial  function will  be able to justify their existence  and carry  credibility with  the people  by inspiring confidence  in the  adjudicatory process. The rule requiring reasons  to be  given in  support of  an order is, like the principle of audi alteram partem, a basic principle of natural  justice which  must inform  every quasi-judicial process and  this rule must be observed in its proper spirit and mere  pretence of  compliance with  it would not satisfy the requirement  of law. The Government of India also failed to give  any reasons  in support  or its order rejecting the revision application.  But we  may presume that in rejecting the revision  application, it  adopted the same reason which prevailed with  the  Collector.  The  reason  given  by  the Collector was,  as already  pointed out, hardly satisfactory and it  would, therefore, have been better if the Government of India  had given proper and adequate reasons dealing with the arguments  advanced on  behalf of  the appellants  while rejecting the  revision application.  We hope and trust that in future  the Customs  authorities will  be more careful in adjudicating upon the proceedings which come before them and pass  properly  reasoned  orders,  so  that  those  who  are affected by  such orders  are assured  that their  case  has received proper  consideration at  the hands  of the Customs authorities and the validity of the adjudication made by the Customs authorities  can also  be satisfactorily tested in a superior tribunal  or court.  In fact, it would be desirable that in  cases arising  under Customs  and  Excise  laws  an independent quasi-judicial  tribunal,  like  the  Income-tax Appellate  Tribunal   or  the  Foreign  Exchange  Regulation Appellate Board,  is set  up which  would finally dispose of appeals and  revision applications  under these laws instead of leaving  the determination  of such  appeals and revision applications to  the Government  of  India.  An  independent quasi-judicial tribunal  would  definitely  inspire  greater confidence in the public mind.      We accordingly  allow the  appeal, set aside the orders passed by  the Assistant  Collector, the  Collector and  the Government of  India demanding  differential duty  from  the appellants and  direct the  Government of India to refund to the appellants  the amount  of differential  duty  recovered

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from the  appellants in respect of the seven consignments of 4000 pot  motors imported  by them.  The respondent will pay the costs of the appeal to the appellant. P.B.R.                                       Appeal allowed. 497