Holding

The extension of time under section 110(2) is valid only with notice, which was given in this case; the petitioner failed to meet the burden of proof under section 123, and the imposed penalty was not arbitrary.

Summary

In 1973 the Customs authorities seized 565 foreign wrist watches from the petitioner’s residence and issued a show‑cause notice under section 124 of the Customs Act. The Collector later extended the statutory six‑month period for issuing the notice under the proviso to section 110(2) and imposed a penalty of Rs.2,00,000 under section 112. The petitioner challenged the extension, the valuation of the watches, and the quantum of the penalty, arguing that the extension was made ex‑parte without notice, that the value of the goods was not proved, and that the penalty was excessive. The Supreme Court held that an extension of the period under s.110(2) is a quasi‑judicial act that must be preceded by notice, but found that notice had indeed been given and was not contested, that the petitioner failed to discharge the burden of proof under s.123, and that the penalty (up to five times the value of Rs.87,455) was not arbitrary. Consequently, the Court dismissed the Special Leave Petition, upholding the High Court’s order.

Issues considered

The validity of extending the six‑month period under section 110(2) of the Customs Act without notice
Whether notice under section 124 was actually served within the prescribed time
The burden of proof on the accused under section 123 of the Customs Act
The adequacy of evidence to determine the value of the seized watches
Whether the penalty of Rs.2,00,000 was arbitrary or excessive

Legislation cited

Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
Customs Act, 1962s. 110(2), s. 111, s. 112, s. 123, s. 124

Subjects

Customs Actseizure of goodsextension of timenoticenatural justiceburden of proofpenalty quantificationsmuggled goods

Judgment

CHUHARMAL
A
v.
UNION OF INDIA & ORS.

MAY 2, 1988

[SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ.] B

Customs Act, 1962: Sections 110(2), 111(2), 111, 112, 123 and
- !
124-Goods seized under the Act-Extension of period of six months ·
from date of seizure~Cannot be ordered ex parte by Collector~ To be
""'
' preceded by notice to affected party-Value of goods seized-
) Determination of for purposes of levy of penalty-Quantum of
penalty-Not to be arbitrary or excessive.
c
On or about 12th May, 1973 the Superintendent of Central Excise
issued search warrant under s. 105 of the Customs Act, 1962 authoris-
ing an Inspector of Central Excise to search the residential premises of
the petitioner. A search was made and 565 foreign wrist watches were D
recovered from the premises. The petitioner was given a notice to show-
cause why the period of six months fixed by s. 110(2) should not be
extended.

On December 26, 1975 the Collector of Central Excise passed an
order directing confiscation of 565 wrist watches ·Seized from the E
petitioner's possession on May 12, 1973 under Sectiiln lll, and the

-- imposition of penalty of Rs.2 lacs under section ll2 of the Act.

The petitioner's appeal to the Central Board of Excise and
Customs, and revision to the Government of India having been dismis-
sed, the petitioner challenged the order of the Collector in a writ peti- F
lion to the High Court.

The High Court dismissed the writ petition, on the ground that
the Collector was justified in passing the order of confiscation of the
watChes and imposing a penalty of Rs.2 lacs, as the petitioner had not
refuted the facts alleged .in the show•cause notice by availing of the G
opportunity given to him at the enquiry.

In the Special Leave Petition to this Court it was contended that:
(1) the notice dated May 4, 1974 issued under section 124 of the Act was
issued beyond the period of six months of the seizure of the goods and as
such the entire proceedings were invalid for this reason; and that the H
797
798 SUPREME COURT REPORTS [1988] 3 S.C.R.

extension of the period of six months by another period of six months in
A
accordance with the proviso to section 110(2) could not he made
ex-parte without notice to the petitioner, (2) there was no evidence to
determine the value of watches, so the quantum of penalty could not be
determined for want of such evidence, and (3) the quantification of the
penalty was very high.

Dismissing the Special Leave Petition, this Court,

HELD: I(i) Extension of time takes away a valuable right of a -
party whose goods are proposed to he seized. Such deprivation of the ~
valuable right must be upon notice, otherwise it violates the principles /
C ofnaturaljustice. [802D-E] .\.

(ii) An ex-parte determination by the Collector would expose his
decision to be one sided and perhaps one based on an incorrect state-
ment of facts. [802F]

D (iii) Whether a notice was given or not within a stipulated time
for extension as contemplated under s. 110(2) is a question of fact. The
onus that the order was passed without notice is on the person who
asserts it to be so and this is a question of fact. [802H; 803 Al

In the instant case, a notice has been given. There was an asser-
E lion to this effect in the Collector's order. The assertion remained un-
controverted by any specific evidence and also by failure to urge this
point. In that view of the matter, the inference drawn by the High Court
that such notice was given as contemplated under section 110(2), was
not unwarranted. [803A-B I
-
F 2. The value of the watches was mentioned as one of the particu-
lars in the show-cause notice given to the petitioner and this value was
not refuted by the petitioner in his reply. The petitioner did not avail
himself of the opportunity at any stage to oppose the extension of time
or to refute the allegations made in the show-cause notice given thereaf-
ter. The petitioner thus failed to discharge the burden of proof cast on
G him by section 123oftheAct. [803C-D]

3. The qnantmn of penalty should not be arbitrary or excessive. [804E]

In the instant case, the value of the smuggled goods was
Rs.87,455. The penalty permissible is upto five times the value of the
H goods. The Collector imposed the penalty of Rs.2 lacs by his order in
CHUHARMAL v. U.0.1. [MUKHARJI, J.[ 799
)
1975, Admittedly, for about ten years, the amount of penalty had not
A
been paid by the petitioner, The High Court noted that the benefit
derived by the petitioner by non-payment of the penalty for ten years
indicates that the penalty could not be treated as arbitrary, That by
itself is not always a safe guide. In the facts and circumstances of this
case, the penalty was not heavy, [804C-EJ
B
Asstt. Collector of Customs v, Charan Das Malhotra 19713 SCR
802, referred to.

I CIVIL APPELLATE JURISDICTION:· Special Leave Petition

"'
(Civil) No. 1008 of 1986.

From the Judgment and Order dated 25 .11.1985 of the Madhya c
Pradesh High Court in Misc. Petition No. 551of1981.

Dr. N.M. Ghatate and S.V. Deshpande for the Petitioners.

Kuldip Singh, Additional Solicitor General, B.B. Ahuja and I)
Miss. A Subhashini for the Respondents.

The Judgment of the Court was delivered by
}... SABY ASACHI MUKHARJI, J. This is a petition for leave to
appeal under Article 136 of the Constitution of India directed against E
the judgment and order dated 25th November, 1985 of the High Court
of Madhya Pradesh at Jabalpur. The petitioner herein had challenged
by a petition under Article 226 of the Constitution the order dated
26th December, 1975 passed by the Collector of Central Excise,
( Nagpur, directing confiscation of 565 wrist watches seized from the
petitioner's possession on 12th May, 1973 under Section 111 of the F
Customs Act, 1962 (hereinafter called 'the Act') and the imposition of
penalty of Rs.2,00,000 under section 112 of the Act and as well as the
order dated 10th August, 1979 passed by the Central Board of Excise
and Customs dismissing the petitioner's appeal and thereafter the
order dated 8th January~ 1981 passed by the Government of India
dismissing the petitioner's revision. G

It appears that the petitioner along with his father and brothers
migrated to India from Pakistan. It is stated that the petitioner started
business of cutlery in Indira Market Durg and has got this separate
business from other two brothers. The petitioner further asserted that
he was not also associated in any business with his cousin Hariram or H
800 SUPREME COURT REPORTS [1988] 3 S.C.R.

business of his father. He stated that he lives separately from his
A
brother and father. In or about April, 1966, the petitioner purchased a
piece of land for Rs.6250 from one Yeshwant Ram under the regis-
tered sale deed in respect of the plot bearing Khasra No. 1167
admeasuring about 182 sq. ft. Similarly his brothers had also pur-
chased plot adjoining the plot of the petitioner. Since 1973, the
B petitioner stated that he was living in two temporary rooms cons-
tructed by his brothers and petitioner's plot was lying vacant. On or
about 12th May, 1973 Superintendent of Central Excise Raipur issued
search warrant under section 105 of the Act authorising one L.B.
Tiwari Inspector, Central Excise to search the residential premises of
the petitioner. They searched the residential premises at Durg and it ....
was alleged that the house belonged to the petitioner. On 1st April,
C 1974, the petitioner was detained under the Conservation of Foreign L-\
Exchange and Prevention of Smuggling Activities Act, 1974 (hereinaf-
ter called 'COFEPOSA'). On or about 22nd March, 1975, the
petitioner while in jail received the letter issued by the Collector for the
purpose of extension of six months' time for the issuance of show cause
D notice under section 110(2) of the Act under which the period was
extended upto 14.11.74. The petitioner alleged that this letter was
never received by him. There was another order on or about 5th
January, 1976 passed by the Collector, Central Excise under which it
was held that the petitioner had acquired the possession of the wrist
watches and these were smuggled goods and imposed a penalty of
E Rs.2,00,000.

The High Court noted the facts as below:
•
"On 12.5.1973 in a search made of the petitioner's bed
room at Durg, a total of 565 wrist watches of foreign mark
F valued at Rs.87,455 were seized from a suit case, a secret
cavity in a locked steel almirah, and behind the almirah
concealed in a bundle of waste-paper from the petitioner's
possession during his presence. A panchnama was pre-
pared at the same time mentioning these facts. The
petitioner found himself unable to make any statement at
G that time on account of which recording of his statement
was deferred. However, the petitioner went out of station
on 14.5.1973. His statement was then recorded on
30.5.1973, as soon as he was available for this purpose. In
his statement Annexure R-IJI duly signed by him, he
admitted these facts and merely denied knowledge of the
H manner in which the watches came to be in his house. the
802 SUPREME COURT REPORTS [1988) 3 S.C.R.
·(
given by the petitioner and the Collector, therefore, extended the
A
period by another six months by his order. This order coupled with the
petitioner's failure to even raise this point at an earlier stage was
sufficient, according to the High Court, to indicate that the order
extended the period by another six months under the proviso to sub-
section (2) of section 110 was made after giving an opportunity to the
B petitioner which he had failed to avail. Sub-section (2) of section 110 ~
stipulates as follows:

"Where any goods are seized under sub-section (1) and no
notice in respect thereof is given under clause (a) of section
124 within six months of the seizure of the goods, the goods .J
shall be returned to the person from whose possession they j
c were seized: ..4

Provided that the aforesaid period of six months may,
on sufficient cause being shown, be extended by the Col-
lector of Customs for a period not exceeding six months."
D
Extension of time takes away a valuable right of a party whose
goods are proposed to be seized. Such deprivation of the valuable right
must be upon notice otherwise it violates the principles of natural
justice. In the aforesaid decision of this Court in Asstt. Collector of
Customs v. Charandas Malhotra, (supra), this Court affirmed the view
E of the Calcutta High Court that the power under the proviso was
quasi-judicial, or at any rate, one requiring a judicial approach. This
Court reiterated that the right to restoration of the seized goods is a
civil right which accrues on the expiry of the initial six months and
which is defeated on an extension being granted, even though such
extension is possible within a year from the date of the seizure. There-
F fore, according to this Court an ex parte determination by the collector
would expose his decision to be one-sided and perhaps one based on
an incorrect statement of facts. How then can it be said that his
determination that a sufficient cause exists is just and fair if he has
done it before by one-sided picture without any means to check it
unless there is an opportunity to the other side to correct or controvert
G it? But in the facts of this case a notice has been given and it has been
so found from the records as well as the inference drawn from in
absence of pleading, which inference drawn by the High Court in the
facts of this case was not an improper inference. In our opinion, the
order was passed not in violation of the principles of natural justice. It
Tl_lust be reiterated whether a notice was given or not within a
H stipulated time for extension as contenplated under section 110(2) is a
CHUHARMAL v. U.0.I. [MUKHARJI, J.] 803

question of fact. It is also true that the onus that the order was passed
without notice, was on the person who asserts it to be so and this is a A
question of fact. There was an assertion to this effect in the
collector's order, the assertion remained uncontroverted by any
specific evidence and also by failure to urge this point. In that view of
the matter, the inference drawn by the High Court that such notice was
given as contemplated under section 110(2), in our opinion, was not B
unwarranted.

The next contention that was raised before the High Court was
that there was no evidence to determine the value of the watches so
that the quantum of penalty could not be determined for want of such
evidence. It was contended that determination of quantum was
arbitrary. It appears, :1owever, as the High Court noted that the value c
of the watches was mentioned as one of the particulars in the show
cause notice given to the petitioner and this value was not refuted by
the petitioner in his reply. The petitioner did not avail himself of the
opportunity at any stage to oppose the extention of time or to refute the
allegations made in the show cause notice given thereafter. Further- D
more, these facts must be considered in conjlll!ction with the fact that
there was a statement by the petitioner recorded on 30th May, 1973.
Section 123 of the Act provides as follows:

"123(1) Where any goods to which this section applies are
seized under this Act in the reasonable belief that they are E
smuggled goods, the burden of proving that they are not
smuggled goods shall be

(a) in a case where such seizure is made from the posses-
. sion of any person
F
(i) on the person from whose possession the goods
were seized; and

(ii) if any person, ot.Iier than the person from whose
possession the goods were seized, claims to be the
owner thereof, also on such other person; G

"(b) in any other case; on the person, if any, who claims to
be the owner of the goods so seized.

(2) This section shall apply to gold, diamonds, manufac-
tures of gold or diamonds, watches, and any other class of H
804 SUPREME COURT REPORTS [19881 3 S.C.R.

A goods which the Central Government may by notification
in the Official Gazette specify."

(Emphasis supplied)

This provision had been substituted by the Act 36 of 1973 and
B would be applicable in the instant case. The petitioner failed to dis-
charge the burden of proof of trust on him by the aforesaid section.
The next question which was canvassed before the High Court was that
the quantification of the penalty was very high. The High Court how-
ever, noted that the liability was incurred by the petitioner in 1973 and
the collector made the order in 1975. Admittedly, for about ten years
c even after the collector's order imposing the penalty, the amount of
penalty had not been paid by the petitioner. The value of the smuggled
goods was Rs.87,455 even at that time. On that there is no dispute.
The penalty permissible is upto five times the value of the goods. The
High Court noted that the benefit derived by the petitioner by non-
payment of the amount of Rs.2,00,000 at least for ten years is suffi-
D cient indication that the penalty could not be treated as arbitrary. That
of course, by itself in our opinion is not always a safe guide. But in the
facts and circumstances of this case, the penalty was not heavy and the
High Court was right. It is true that this Court in Malhotra's case
(supra) had laid down that the penalty could not be arbitrary and
excessive. But in the facts of this case, it was not so. As far as the value
E of the wrist watches is Rs.87 ,455 it was not arbitrary because it was not
denied even though it was so stated in the show cause notice.

In that view of the matter, the High Court was right in not
entertaining the petition under Article 226 of the Constitution. We
decline to interfere in this case under Article 136 of the Constitution.
F The special leave petition is rejected.

N.V.K. Petition dismissed.