Supreme Court of India
KOTHARI FILAMENTS & ANR.versusCOMMISSIONER OF CUSTOMS (PORT) KOLKATA & ORS.
- Citation
- 2008 INSC 1444
- Decided
- 16 December 2008
- Disposal
- Appeal(s) allowed
- Bench
- S B SINHA
Holding
The order was passed in violation of natural justice; the appellant is entitled to a proper hearing including access to the documents, and the order is set aside.
Summary
The appellants, Kothari Filaments, imported lithopone but some bags contained tetracycline HCl, a restricted chemical. Customs issued a show‑cause notice under Sections 111(d), 111(m) and 112(a), (b) of the Customs Act, 1962 alleging mis‑declaration, duty evasion and imposed confiscation and penalties. The appellants claimed the tetracycline was sent by mistake by the exporter, who admitted the error, and contended that the Customs Department relied on documents from an overseas enquiry that were never disclosed to them. The Supreme Court held that the order violated the principles of natural justice because the appellant was denied a proper hearing and the opportunity to inspect the material on which the decision was based. Consequently, the Court set aside the order, remitted the matter to the Commissioner of Customs for fresh consideration with a direction to provide the relevant documents or allow inspection, and allowed the appeal.
Issues considered
- Whether the Customs Department’s order was passed in violation of the principles of natural justice by not disclosing documents relied upon.
- Whether the Customs Act, 1962 precludes the application of natural justice principles in quasi‑judicial proceedings.
- Whether the show‑cause notice gave sufficient indication of the nature and conclusions of the overseas enquiry.
Legislation cited
- Customs Act, 1962s. 111(d), s. 111(m), s. 112(a), s. 112(b), s. 124
Subjects
Natural justiceProcedural fairnessCustoms lawMis‑declarationConfiscationPenaltyShow cause noticeQuasi‑judicialDocument disclosureAppeal
Judgment
[2008] 17 S.C.R. 647
~
KOTHARI FILAMENTS & ANR. A
v.
COMMISSIONER OF CUSTOMS (PORT) KOLKATA &
ORS.
(Civil Appeal No. 7307 of 2008)
B
DECEMBER 16, 2008
'
[S.B. SINHA AND CYRIAC JOSEPH, JJ.]
Administrative Law - Principles of Natural Justice -
Customs Department passing order against importer for c
violation of provisions of Customs Act - Reliance placed on
documents collected during enquiry in the matter - Non-
furnishing of the documents, to the affected persons - Held:
The order was passed in violation of principles of natural
justice - Importer was entitled to proper hearing which would
D
if?cludes supply of the documents - Matter remitted to
Commissioner of Customs - Customs Act, 1962- ss.111(d)
and (m) and 112 (a) and (b).
On verification of the imported goods of the
appellants-importer, it was found that the imported goods
E
included the items, which were not declared by the
appellants. Respondent-Customs Department issued a
show cause notice to the appellant for payment of
customs duty on the misdeclared goods with interest;
for confiscation of the consignment and for initiation of
penal action against the appellants. Appellants stated F
t that the items ·alleged to be misdeclared were sent by
mistake on the part of the exporter. The mistake was also
accepted by the exporter. The Department by its order
confiscated the goods ~nd also imposed penalty on the
appellants. Appeal against the order was dismissed by G
Customs, Excise and Gold· (Control) Appellate Tribunal.
Writ petition against the order of the Tribunal was also
\ dismissed. ..
- \n appeal to this Court, appellant contended that the
647 H
648 SUPREME COURT REPORTS [2008] 17 S.C.R.
e
~
A order passed by the Department was based on the
documents collected during the departmental enquiry in
the said matter, but the appellant was not supplied the
documents. Hence, the order was in violatio~ of
principles of natural justice.
B Allowing the appeal and remitting the matter to
Commissioner of Customs, tHe Court
HELD: 1.1. The show cause notice issued by
Customs Department, does not make enough indication ,...... ..
in regard to the nature of enquiry as also the conclusions
c thereof. 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
D overseas enquiry was not conclusive, liberal use thereof
was made by the Commissioner of Custom~ in his orde_r.
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. [Para 14] [653-D-F]
E
1.2 The statutory authorities under Customs Act,
exercise quasi-judicial function: In the event, a finding as
regards violation of the P..rovisions of the Act is arrived
_at, several steps resulting in civil or evil consequences
may be taken. The principles of natural justice, therefore,
F were ~quired to be complied -With. The Act does not
prohibit application of the principl~s of natural justice. The 1
Commissioner of Customs could not have passed the
order on the basis of the materials; which were known
only to them, copies whereof were not supplied or
G 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. !-
H
He niay have an answer to the charges OJ ~m.ay not have.
-
KOTHARI FILAMENTS & ANR. v. COMMISSIONER OF 649
CUSTOMS (PORT) KOLKATA & ORS.
But th~ere cannot be any doubt whatsoever that in law he A
is enti:fled 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.
[Paras 15 and 16] [653-G-H; 654-A-C]
Rajesh Kumar & Ors. v. Dy. CIT & Ors. (2007) 2 SCC B
181; S.L. Kapoor v. Jagmohan & Ors. (1980) 4 SCC 379 and
Mis. Kishinchand Chellaram v. The Commissioner of Income-
tax, Bombay City II, Bombay AIR (1980) SC 2117, relied on.
2. The matter is remitted to the Commissioner of
Customs for consideration of the matter afresh. The C
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. [Para 19]
[656-D]
Case Law Reference: D
(2007) 2 sec 181 relied on Para 17
(1980) 4 SCC 379 relied on Para 17
AIR (1980) SC 2117 relied on Para 17
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7307 of 2008. E
From the Judgment and final Order dated 20.9.2006 of the
Division Bench of the High Court at Calcutta in Appeal No. 295
of 2003.
J.K. Srivastava and S.R. Seita for the Appellants.
F
. t P.V. Shetty, Vikas Sharma, S.N. Terdal and B.V. Balaram
Das for the Respondents. ·
The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Leave granted.
2. Appellant" No.2 is a proprietary conc~rn of the First G
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 H
' .
650 SUPREME COURT REPORTS £?908] 1?1l1.:~·C.R.
,.,.. . . ~ .. . ? .,.
A bill of entry for 21.5 MT of Lithopone was filed.-The.)r~quisite
custom duty after assessment was.paid. However, ori..PfiysicaJ·
verification, out of the imported items 400 bags of 25.,kg. each
contained in a yellow coloured substance SUSP.~cted to be
'Tetracycline HCL BP 93', a chemical use{ for making
8 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 chemicaLand the remaining
c 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
0 asking them to show cause as to why the consignment said to
be valued at Rs.63,32,018.60 CIF srould ·no.t 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) the~eof. Cause was further
directed to be shown as to why the appellants attempted
E evasion of custom duty amounting to Rs.38, 16,729.40 resulting
from mis-declaration of the imported goods 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
F contended that their foreign supplier had sent 1O MT of
Tetracycline by mistake. The mistake was accepted by the t -
exporter Mis 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,
G 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
H No.2.
KOTHARI FILAMENTS & ANR. v. COMMISSIONER OF 651
CUSTOMS (PORT) KOLKATA &:dRS. [S.B. SINHA, J.]
7. An appeal preferred thereag~ix1st before the Customs, A
Excise ·and Gold Contror:Appellat~~Iribunal, Calcutta was
1 dismissed by an order datecf 19.4:2'092. A writ petition was
filed thereagainst which by re8_$on of the impugned judgment
has been dismissed. ..
' . '
8. Mr. J.K. Srivastava, learned counsel appearing on behalf B
of the appellant, submitted. that before the impugned order was
passed by the authprities of the Customs Department,
admittedly an enquiry was conducted at various places.
However, the documents collected during the said enquiry were
not supplied to them although reliance was placed thereupon c
and, thus, the principles bf 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 D
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 E
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. F
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 was shown to the
appellant. Commissioner of Customs, however, in its order G
dated 29.12.2000 made liberal use of the said information,
stating :
"In the meantime, through departmental source the
ove'rseas enquiry was carried and it was partly ascertained
that the exporting company Texpo International of 57 H
652 SUPREME COU~T; REPORTS
' '
[2008] 17 S.C.R. e
"
A Wyndham St. 5th Fl~bt,-~Hong Kong does exist which is
registered with the business register Hong Kong. This is
a partnership concerrt·However, the relationship between ~
Indian Importers M/s. Kothari Filaments and the Belgiam
company Lok Hauk Food and Texpo)nternational Hong
Kong could not be verified. Regarding verification of
B
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
c 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 :
D
"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 Mis. Lo.k Hc;tuw Fook in Belgium. But
this firm is not engaged in the business
I
of Tetracycline. It
is only a restaurant. The proprietor of the firm also stated
E that some mischievious elements have made use of their
letter heads to wrongly implicate them. This 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
F 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 attses for consideration is as to
G 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 :
H "In the paragraphs 27 and 28 of the Show Cause Notice,
KOTHARI FILAMENTS & ANR. v. COMMISSIONER OF 653
~
CUSTOMS (PORT) KOLKATA & ORS. [S.B. SINHA, J.]
sufficient indications have been given as regards the A
1 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 B
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 ma/a fide intention of the appellants and in such
G
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."
14. Does the show cause notice make enough indication
in regard to the nature of enquiry as also the conclusions
thereof is the question? D
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 E
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 F
i 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 G
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 H
654 SUPREME COURT REPORTS [2008) 17 S.C.R.
A taken. 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
B 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
c 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.
0 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
E 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 of India and Ors. [(~ 969)
SCC 262] and Chandra Bhawan Boarding and Lodging,
F Bangalore v. State of Mysore and Anr. [AIR 1970 SC ·
2042] and S.L Kapoor v. Jagmohan and Ors. [(1980 4
sec 379]}.
Recently, in V. C. Banaras Hindu University v. Shrikant
[2006 (6) SCALE 66], this Court stated the law, thus:
G
'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'."
H It was observed :
KOTHARI FILAMENTS & ANR. v. COMMISSIONER OF 655
.._,
CUSTOMS (PORT) KOl:.KATA & ORS. [S.B. SINHA, J.]
"Justice, as Js well known, is not only be done but A
1 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 B
to him to show that the same would not be in the interest
of the Re.venue.
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 c
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. " D
"
... 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 E
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~i:ieraJ~-r-ule~a·watch F
-i 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, G
..•
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 H
656 SUPREME COURT REPORTS (2008) 17 S.C.R
A ·watch committee could reasonably have decided to
forfeit the appellant's pension rights, but I could not
hold that they would have aeted wrongly or wholly ,_
unreasonably if they had in the exercise of their
discretion decided to take a more lenient course."'
B {See also Mis.· Kishinchand Che/laram v. The
Commissioner of Income-tax, Bombay City II, Bombay [AIR
1980 SC 2117]}
18. lnJliew of the aforementioned settled legal principles,
there cannot be any doubt whatsoever that the principles of 1~
c natural justice have been vi~lated 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
o 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/-.
K.K.T. Appeal allowed.
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