M/S. TATA CHEMICALS LTD.versusCOMMISSIONER OF CUSTOMS (PREVENTIVE) JAM NAGAR

                        [2015]7S.C.R.132


A                  M/S. TATA CHEMICALS LTD.
                                 v.
         COMMISSIONER OF CUSTOMS (PREVENTIVE)
                      JAM NAGAR
B             (Civil Appeal Nos. 7439- 7440of2004)
                           MAY 14, 2015
              [A. K. SIKRI AND R. F. NARIMAN, JJ.]
c           Customs Act, 1962 - s. 18(b) - Customs duty -
    Exemption - Notification no. 35190, 36190 and 23191 wherein
    coking coal having Ash content below 12% exempted from
    basic customs duty that was in excess of 5% - Assessee
    engaged in the manufacture of soda ash and coke, imported
D   consignment of Low Ash Metallurgical Coal -At the time of
    shipment, inspection agency did detailed sampling following
    the British Standards equivalent to IS standards and as per
    the independent agency report moisture content was 7. 2%
    and Ash content of the coking coal was 9. 8% - On arrival of
E   samples, the Customs Inspector without objecting to the
    aforesaid report, drew its own samples in absence of any
    representative of the assessee and in contravention of IS
    standards - Reports by Department test agency that Ash
    content in the samples was more than 12% - Demand of
F   differential duty by the Department- Denial of exemption of
    customs duty in tenns of the Notification- Tribunal upholding
    the demand of duty on the ground that even though the
    samples were drawn contrary to law, assessee would be
G   estopped because their representative was present when the
    samples were drawn and they did not object immediately -
    On appeal, held: Entire chemical analysis of the imported
    goods done by the Department was ultra vires s.18(b) -
    Expressions "deems it necessary" uls. 1B(b) does not mean
H   the subjective satisfaction or arbitrary power of the officer
                                132
  TATA CHEMICALS LTD. v. COMMNR. OF CUSTOMS               133
            (PREVENTIVE) JAMNAGAR

concerned - 1t has to be exercised in accordance with the A
restraints imposed by law- If the law requires that something
be done in a particular manner, it must be done in that
manner, and if not done in that manner it has no existence in
the eye of law at all - Thus, the Customs Authorities not
absolve from following the law depending upon the acts of a B
particular assessee - Order passed by the tribunal set aside.

      Allowing the appeals, the Court

        HELD: 1.1 The expressions "deems it necessary", c
"reason to believe" u/s. 18 of the Customs Act have been
held not to mean the subjective satisfaction of the officer
concerned. Such power given to the concerned officer
is not an arbitrary power and has to be exercised in
accordance with the restraints imposed by law. The o
expression "deems it necessary" obviously means that
the proper officer must have good reason to subject
imported goods to a chemical or other tests. And, on the
facts of the instant case, it is clear that where the importer
has furnished all the necessary documents to support E
the fact that the ash content in the coking coal imported
is less than 12%, the proper officer must, when
questioned, state that, at the very least, the documents
produced do not inspire confidence for some good prima
facie reason. The Revenue never stated that CASCO's F
certificate of quality ought to be rejected or is defective
in any manner. Thus, the entire chemical analysis of the
imported goods done by the Department was ultra vi res
Section 18(b) of the Customs Act. Further, the samples G
drawn by the Inspector have been drawn contrary to the
express provisions of IS 436. On this count also, test
reports based on the same cannot be looked at. [Paras
14, 16 and 17] [142-G-H; 143-A-B; 144-8; 145-E-F]

      1.2 The tribunal's judgment proceeded on the H
134      SUPREME COURT REPORTS                [2015] 7 S.C.R.

A basis that even though the samples were drawn contrary
  to law, the appellants would be estopped because their
  representative was present when the samples were
  drawn and they did not object immediately. This is a
  completely perverse finding both on fact and law. On
B fact, it has been more than amply proved that no
  representative of the appellant was, in fact, present at
  the time the Customs Inspector took the samples.
  Employee of the Company who was allegedly present
  not only stated that he did not represent the Clearing
C Agent of the appellants in that he was not their employee
  but also stated that he was not present when the samples
  were taken. In fact, therefore, there was no representative
  of the appellants when the samples were taken. In law
  equally the tribunal ought to have realized that there can
0
  be no estoppel against law. If the law requires that
  something be done in a particular manner, it must be
  done in that manner, and if not done in that manner has
  no existence in the eye of law at all. The Customs
E Authorities are not absolved from following the law
  depending upon the acts of a particular assessee.
  Something that is illegal cannot convert itself into
  something legal by the act of a third person. Thus, the
  judgment of the tribunal is set aside. [Paras 17 and 18]
F [145-F-H; 146-A-D]

      Rohtas Industries Ltd. v. S.D. Agarwal (1969) 3 S.C.R.
      108; Shea Nath Singh v. Appellate Assistant
      Commissioner of Income Tax, Calcutta (1972) 1 SCR
G     175; Bar Council of Maharashtra v. M. V. Dabholkar
      (1976) 2 S.C.R. 48; N. Nagendra Rao & Co. v. State of
      A.P. 1994 (3) suppl. SCR 144: (1994) 6 sec 20s;
      Bombay Oil Industries (P) Ltd. v. Union of India 1995
      (77) E.L.T. 32 (S.C.); Union of India v. Delhi Cloth &
H     General Mills Co. Ltd. 1963 Suppl. (1) SCR 586 -
      referred to.
  TATA CHEMICALS LTD. v. COMMNR. OF CUSTOMS                    135
            (PREVENTIVE) JAMNAGAR

                   Case Law Reference                           A
(1969) 3 S.C.R. 108        Referred to.              Para 15
(1972) 1 SCR 175           Referred to.              Para 15
                                              .1 -
1[1976) 2 S.C.R. 48        Referred to.              Para 15
                                                                B
1994 (3) Suppl. SCR 144 Referred to.              ·Para 15
1995 (77) E.L.T. 32 (S.C.) Referred to.              Para 16
1963 Suppl. (1) SCR 586 Referred to.                 Para 16
    CIVILAPPELLATE JURISDICTION: Civil Appeal Nos.              c
7439-7440 of 2004.

    From the Judgment and Order dated 24.09.2004 of the
Customs Excise and Service Tax Appellate Tribunal, West
Zonal Bench, Mumbai in Appeal No. C/325, 326/98-Mum.    D

                          WITH

     C. A. Nos. 7628-7629 of 2004

    S. K. Bagaria, Ruby Singh Ahuja, lshaan Gaur, Chahat E
Chawla, Manik Karanjawala, Amit Maharia, K. Ajit Singh,
Tannushree Singh (For Meharia & Company) for the Appellant.

     K. Radhakrishnan, Rupesh Kumar, Arijit Prasad, B.
Krishna Prasad for the Respondent.                              F

     The Judgment of the Court was delivered by

      R. F. NARIMAN, J. 1. The appellants were engaged in
the manufacture of soda ash and Coke. For the manufacture G
of Coke, they require coking coal which was importeq by them.
Notification No.35/90 exempted coking coal having an ash
content below 12% from basic customs duty that Wqs in excess
of 5%. In addition, notifications 36/90 and 23/91 exempted
coking coal with ash content of less than 12% from the whole H
136         SUPREME COURT REPORTS                    [2015] 7 S.C.R.


A of auxiliary duty and additional duty of customs.

            2. On 4.2.1991, the appellants had entered into an
      agreement with Philbro Energy Company (situated in the USA)
      for supply of 30500 metric tons, CIF, Okha of Low Ash
B     Metallurgical Coal produced by M/s Kembla Coal and Coke,
      Australia.'vThe contract specifically provided that the ash
      content was not to exceed 10.3% and that the sampling and
      analysis was to be done by an independent inspection agency
      of international repute, namely, M/s Cargo Superintendents
C     Company (Asia) Pty. Limited (CASCO), at the loading port
                1

      and that CASCO should give a certificate regarding analysis
      of the coking coal. In accordance with the aforesaid agreement,
      the appellants in Civil Appeal Nos.7439-7440 of2004, namely,
      M/s. Tata Chemicals Limited imported 33462 metric tons and
D     appellants in Civil Appeal Nos.7628-7629 of 2004, namely,
      M/s. B.L.A. Coke Private Limited imported 5000 metric tons
      of coking coal. Detailed sampling was done by CASCO while
      the coal was being loaded on to the ship and CASCO had
      meticulously followed British Standards equivalent to IS
E     standards 436 and 1350. Tha two consignments were divided
      into samples of 3000 metric tons each and from each sample
      CASCO took samples weighing 470 kilograms each. The
      primary samples were passed through secondary sampling,
F     crushing and tertiary treatment. 13 sample units were
      separately tested, their analysis report obtained and the
      average furnished in the form of a consolidated test report.
      This report stated that the moisture content was 7.2% and the
      ash content of the said coking coal was 9.8%.
G       3. When the aforesaid consignment arrived at Okha, the
  appellants in both the appeals filed bill of entry dated 15.3.1991
  and claimed exemption under the aforesaid notifications. Along
  with the bill of entry, the appellants also submitted the certificate
H of CASQO. It is important to note that the Department at no
   TATA CHEMICALS LTD. v. COMMNR. OF CUSTOMS                137
     (PREVENTIVE) JAMNAGAR [R. F. NARIMAN, J.]

 stage stated that they have not accepted the CASCO report A
 or that the CASCO report was defective in a~y manner.
 However, the Customs Inspector at Okha apparently drew
 samples of 20 kilograms each - one from the ves~~I and one
 from the shore on 18.3.2001 and beat them with stones to
 crush them. The samples were then made into powder form. B

        4. The samples were not drawn in the presence of any
  employee of the appellants. It was alleged by the Department
  that the Inspector had drawn the samples in the' presence of
  Shri K.M. Jani who was allegedly an employee of Bhagwati C
  and Company, clearing agents appointed by the appellants. It
. is common ground that the sample so drawn had not been
  drawn in accordance with IS 436.

      5. The samples so drawn, however, were sent to the o
 Central Fuel Research Institute, Dhanbad, to be analysed. On
 13.1.1992, the appellants were informed by the Superintendent
 of Customs that the test agency stated that the ash content in
 the samples was more than 12%. A copy of the report was
 subsequently furnished to the appellants which indicated that E
 the ash content of the coal belonging to Tata Chemicals was
 13.8% and that belonging to M/s. B.L.A. Coke Private Limited
 was 12.6%. On objection being made to the said report, the
 Superintendent Okha sent two samples to the Chief Chemist,
 Central Revenue Control Laboratory (CRCL) on 15.2.1992. F
 CRCL in turn submitted its report after another delay of 10
 months and reported that Tata Chemicals coal had an ash
 content of 12.21% and that of B.L.A. 12.33%.

      6. As a result of the ash content being more.than 12%, G
 show cause notices dated 4.1.1993 was issued to both the
 appellants and differential duty was demandedjrom both of
 them.
                                              \...'·   .
     7. By an order dated 31.3.1995, the Assistant Collector H
138       SUPREME COURT REPORTS                        [2015)7 S.C.R.


A demanded an amount of Rs.3,95, 77,324/- from Tata Chemicals
  and an amount of Rs.59,136,771/- from Mis. B.L.A. Coke
  Private Limited.
                                                   I
        8. On an appeal filed to the Commissioner (Appeals)
B Ahmedabad, the Commissioner by an order dated
  30 .12 .1997, set aside the order of the Assistant Collector in
  the following terms:-

      "10. In view of the above discussion and after going
c     through the comments of the Assistant Commissioner,
      Customs, Jamnagar as discussed in para 5.3 supra,
      wherein he was asked to give his comments on the
      submission made by the appellants during the course of
      personal hearing. It is seen that the Assistant
D     Commissioner has accepted all the points raised by the
      appellants and he has not been able to controvert any of
      their submissions. I come to the conclusion that the
      appellants have substantial force in their arguments and
      therefore I held that nothing can be added into the
E     notification and when notification does not prescribe the
      method of analysis for ascertaining the ash content in
      the coal, it should be ascertained on as received basis.
      I rely upon the ratio of the decisions cited by the appellants
      in this regard. The CFRI and CRCL have conducted
F     analysis to ascertain the ash content on gross air dried
      basis, in spite of clear instruction of the Asttt.
      Commissioner, Customs, Jamnagar to give the report
      on as received basis, therefore, these reports should
      have been given on as received basis. I accept the plea
G     of the appellants that these results can be converted into
      as received basis, which fact has also been accepted
      by the Assistant Commissioner as discussed in para 5.3
      above, by applying the formula followed internationally.
      By applying the formula which is accepted all over the
 H
  TATA CHEMICALS LTD. v. COMMNR. OF CUSTOMS                    139
    (PREVENTIVE) JAMNAGAR [R. F. NARIMAN, J.)

   world and has been given by the appellants during the        A
   course of their submissions, the ash content on as
   received basis would be 11.8% and 11.6% in the case
   of M/s. BLAlndustriesand 13.9% and 11.4% in the case
   of M/s. Tata Chemicals Ltd. The formula for working out
   these results is as under:                                   B

   100 - Mar    Mar: Moisture as received

   100 - Mad Mad: Moisture as dried.

  It is seen that in case of M/s BLA Industries results of      c
  both laboratories converted into as received basis gives
  ash content below 12% and in the case of Mis Tata
  Chemicals Ltd. Though the first result even after such
  conversion crossed 12% marginally, but the result of
                                                               D
  subsequent analysis conducted by CRCL after such
  conversion gives content of ash content below 12%.
  Therefore, after conversion on as received basis, which
  is the requirement of the law, the ash content in both the
  cases is below 12% and therefore both the appellants          E
  are entitled for partial concessional rate of Customs duty
  in excess of 5% as prescribed by Notification No.35/90"

     9. Revenue appealed to CESTATwho by the impugned
judgment and order dated 24.9.2004 allowed Revenue's F
appeal and set aside the order of the Commissioner (Appeals)
basically on the ground that even though the samples drawn
by the Inspector were contrary to IS 436, yet since a
representative of the appellants was present, the appellants
are estopped from turning around at a later stage inasmu<?h G
as they did not immediately object to the drawing of•samples
contrary to law.
                                                  ··I<!;
      10. Shri S. K. Bagaria, learned senior advocate on behalf
of the appellants argued before us that the Australian Company H
140       SUPREME COURT REPORTS                   [2015] 7 S.C.R.


A from whose mines the r.oking coal was sent, generally mined
   coal with an ash content of less than 12%. He referred to and
   relied upon a great deal of material to establish this fact.
   Further, he went on to state that CASCO, the test agency, was
   internationally renowned and had given a test report/certificate·
B of quality which described how meticulously they have taken
  samples in accordance with law and how ultimately the samples
  were found to contain ash at only 9.8% following the gross air
  dried method. He also referred us to Section 18 of the
  Customs Act and stated that since no fault had been found
C with CASCO's certificate, the entire sampling done by the
  customs authorities was invalid in law. He further went on to
   refer to the cross-examination of the Inspector who drew the
  samples and stated that the samples were drawn in the
  afternoon of 18.3.1991, the entire operation being completed
0
  by 1730 hours. No panchnama was drawn. 20 kilograms
  was taken from the shore and 20 kilograms from the vessel
  contrary to a minimum of 75 kilograms for six lots to be taken
  under IS 436. When cross-examined, the Inspector stated that
E he did not know about IS 436 and he further admitted that he
  put the samples in a plastic bucket which did not have any lid.
  He further went on to state that he had broken up the sampled
  lumps with stones and then put the resultant powder in
  containers. He further referred to the cross-examination of the
F Superintendent who had deputed the Inspector to carry out
  the samples who was equally in the dark about IS 436. Above
  all, he characterized as perverse the Tribunal's findings that
  the appellants were estopped because their representative
  was present when the sampling was done. He stated that no
G representative of either appellant was present. One K.M. Jani
  alone was present who admitted in his cross-examination that
  he did not work for the appellants Clearing Agent, namely, M/s
  Bhagwati & Company. Further the said Mr. Jani did not go
  together with the Inspector and no samples were actually drawn
H in his presence.
  TATA CHEMICALS LTD. v. COMMNR. OF CUSTOMS                    141
    (PREVENTIVE) JAMNAGAR [R. F. NARIMAN, J.]

     '11. Shri Radhakrishnan, learned senior advocate A
appearing on behalf of the respondent countered the
submissions of Shri Bagaria by reading copiously from the
order of the Assistant Collector and the order of the Tribunal.
According to him, the samples taken by the Inspector could
be taken because statutory authority is given for the same by B
Section 18 of the Customs Act. He went on to further state that
even though the samples may not have been taken strictly in
accordance with IS 436 nonetheless as Shri Jani was present,
the rule of estoppel would apply against the appellants.
                                                                    c
     12. Having heard learned counsel for the parties, it is •
important to first extract Section 18 of the Customs Act. Section
18 of the Customs reads as under:-

  "Section 18. Provisional assessment of duty                       o
  (1) Notwithstanding anything contained in this Act but
  without prejudice to the provisions contained in section
  46-

  (a) where the proper officer is satisfied that an importer        E
  or exporter is unable to produce any document or f1.4rnish
  any information necessary for the assessment of duty on
  the imported goods or the export goods, as tie case may
  be; or
                                                                    F
  (b) where the proper officer deems it necessary to subject
  any imported goods or export goods to any chemical or
  other test for the purpose of assessment of duty thereon
  ; or
                                                                    G
  (c) where the importer or the exporter has produced all
  the necessary documents and furnished full information
  for the assessment of duty butthe proper officer deems
  it necessary to make further enquiry for assessing the
  duty, the proper officer may direct that the duty leviable        H
142        SUPREME COURT REPORTS                     [2015] 7 S.C.R.


 A     on such goods may, pending the production of such
       documents orfumishing of such information or completion
       of such test or enquiry, be assessed provisionally if the
       importer or the exporter, as the case may be, furnishes
       such security as the proper officer deems fit for the
 B     payment of the deficiency, if any, between the duty finally
       assessed and the duty provisionally assessed.

        (2) When the duty leviable on such goods is assessed
        finally in accordance with the provisions of this Act, then-
 c
       (a) in the case of goods cleared for home consumption
       or exportation, the amount paid shall be adjusted against
       the duty finally assessed and if the amount so paid falls
       short of, or is in excess of 20[the duty finally assessed,]
.o     the importer or the exporter of the goods shall pay the
       deficiency or be entitled to a refund, as the case may be;

       (b) in the case of warehoused goods, the proper officer
       may, where the duty finally assessed is in excess of the
 E     duty provisionally assessed, require the importer to
       execute a bond, binding himself in a sum equal to twice
       the amount of the excess duty."

        13. The Revenue has grounded its case in Section 1B(b)
 F which provides that imported goods can be subjected to
   chemical or other tests for the purpose of assessment of duty
   thereon where the proper officer deems it necessary to so
   subject the imported goods.

         14. In our opinion, the expression "deems it necessary"
 G obviously means that the proper officer must have good reason
   to subject imported goods to a chemical or other tests. And,
   on the facts of the present case, it is clear that where the
   importer has furnished all the necessary documents to support
 H the fact that the ash content in the coking coal imported is less
   than 12%, the proper officer must, when questioned, state that,
  TATA CHEMICALS LTD. v. COMMNR. OF CUSTOMS                     143
    (PREVENTIVE) JAMNAGAR [R. F. NARIMAN, J.]

at the very least, the documents produced do not inspire A
confidence for some good prima facie reason. In the present
case, as has been noted above, the Revenue has never stated
that CASCO's certificate of quality ought to be rejected or is
defective in any manner. This being the case, it is clear that
the entire chemical analysis of the imported goods done by B
the Department was ultra vires Section 18(b) of the Customs
Act.

      15. Statutes often use expressions such as "deems it
 necessary", "reason to believe" etc. Suffice it to say that these C
expressions have been held not to mean the subjective
satisfaction of the officer concerned. Such power given to the
concerned officer is not an arbitrary power and has to be
exercised in accordance with the restraints imposed by law.
That this is a well settled position, of law is clear from the D
following judgments. See: Rohtas Industries Ltd. v. S.D.
Agarwal, (1969) 3 S.C.R. 108at129. To similar effect is the
judgment in Sheo Nath Singh v. Appellate Assistant
Commissioner of Income Tax, Calcutta, (1972) 1 SCR 175
at 182. In that case it was held as under:                         E

   " ... There can be no manner of doubt that the words
   "reason to believe" suggest that the belief must be that
 . of an honest and reasonable person base'd upon
   reasonable grounds and that the Income Tax Officer may         F
   act on direct or circumstantial evidence but not on mere
   suspicion, -gossip or rumour. The Income Tax Officer
   would be acting without jurisdiction ifthe reason for his
   belief that the conditions are satisfied does not exist or
   is not material or relevant to the belief required by the     G
   section. The Court can always examine this aspect
   though the declaration or sufficiency of the reasons for
   the belief cannot be investigated by the Court."

See also Bar Council of Maharashtra v. M.V. Dabholkar,           H
144       SUPREME COURT REPORTS                     [2015] 7 S.C.R.


A [1976] 2 S.C.R. 48 at 51. N. Nagendra Rao & Co. v. State of
  A.P. (1994) 6 sec 205 at 216.

        16. The admitted position on record is that the samples
  drawn were not drawn in accordance with law and were drawn
B with no regard whatsoever to IS436. That IS436would apply
  to the facts of the present case is made clear by our judgment
  reported in Bombay Oil Industries (P) Ltd. v. Union of India,
  1995 (77) E.L.T. 32 (S.C.), where this Court held following
  Union of India v. Delhi Cloth & General Mills Co. Ltd., 1963
C Suppl. (1) SCR 586, that if the method of testing of any item of
  Central Excise tariff is not mentioned, then the Indian Standard
  Institution's method should be applied. That this would apply
  to the Customs Act as well. IS 436 lays down:-

D     ""5. SAMPLING FROM SHIPS DURING LOADING OR
      UNLOADING

      5.1 Sub-lots - For the purpose of sampling, the entire
      quantity of coal in a ship shall be divided into a suitable
E     number of sub-lots of approximately equal weight as
      specified in    Table 1.

      5.1.1 A gross sample shall be drawn from each of the
      sub-lots and shall be kept separately so that there will be
      as many gross samples as the number of sub-lots into
F
      which the lot has been divided.

      5.2. Sampling of coal frc?m ships shall be carried out, as
      far as practicable, when coal is in motion. If it is taken on
      a conveyer, the gross s&imple shall be collected as per
G     the procedure laid down in Table 3. If not, the gross
      samples may be drawn during loading or unloading of
      the ship. For this purpose, the number of increments to
      be taken shall be governed by the weight of the gross
      sample and the weight of increment as specified in Table
H
      3 for various size groups of coal."
    TATA CHEMICALS LTD. v. COMMNR. OF CUSTOMS                    145
      (PREVENTIVE) JAMNAGAR [R. F. NARIMAN, J.]

   TABLE 1 NUMBER OF SUB-LOTS/GROSS SAMPLES                       A
              (Clauses 0.3.4.1 and 3.1 )


    Weight of the Lot       No. of sub-Lots/Gross Samples
    (Metric Tonnes)                                               B
    Upto 500                                    2
    501to1000                                   3
    1001to2000                                  4                 c
    2001to3000                                  5
    Over3000                                    6."

    Then the IS 436 goes on to describe the procedure to          D
    reduce a gross sample into a sample for a lab test etc. in
    great detail, and speaks about the minimum weight of a
    gross sample being 75 Kg so far as "Coal, small" is
    concerned.
                                                             E
      17. Clearly the samples drawn by the Inspector in t~e.
 present case, have been drawn contrary to the express
 provisions of IS 436. On this count also, the samples being
 drawn not in accordance with law, test reports based on the
 same cannot be looked at.                                   F

        The Tribunal's judgment has proceeded on the basis that
  even though the samples were drawn contrary to law, the
  appellants would be estopped because their representative
  was present when the samples were drawn and they did not G
  object immediately. This is a completely perverse finding both
  on fact and law. On fact, it has been more than amply proved .
· that no representative of the appellant was, in fact, present at
  the time the Customs Inspector took the samples. Shri K.M.
  Jani who was allegedly present not only stated that he did not H
146          SUPREME COURT REPORTS               [2015) 7 S.C.R.

A represent the Clearing Agent of the appellants in that he was
  not their employee but also stated that he was not present when
  the samples were taken, In fact, therefore, there was no
  representative of the appellants when the samples were taken.
  In law equally the Tribunal oughtto have realized that there can
B be no estoppel against law. If the law requires that something
  be done in a particular manner, it must be done in that manner,
  and if not done in that manner has no existence in the eye of
  law at all. The Customs Authorities are not absolved from
  following the law depending upon the acts of a particular
C assessee. Something that is illegal cannot convert itself into
  something legal by the act of a third person.

       18. It is clear therefore that the Tribunal judgment has to
  be set aside on all these counts. The appeals are, therefore,
D allowed with no order as to costs.

      Nidhi Jain                                   Appeals allowed.