Holding

The Supreme Court held that the appellant’s pre‑export undervaluation violated s.12(1) FERA and s.167(8) Sea Customs Act read with s.23A, 23B FERA, and that the Additional Collector’s confiscation and penalty orders were valid.

Summary

Toolsidass Jewraj, a jute exporter, entered into contracts for shipment in early 1962 but delayed the shipment to June after prices rose. Before the goods were shipped, it filed shipping bills and G.R. forms that undervalued the FOB price, intending to discount the buyers' profit and remit it covertly. The Additional Collector of Customs held that this constituted a violation of Section 12(1) of the Foreign Exchange Regulation Act, 1947 and offences under Section 167(8) of the Sea Customs Act read with Sections 23A and 23B of the FERA, and ordered confiscation, a fine and a personal penalty. The High Court Single Judge quashed the order, relying on earlier Supreme Court decisions, but the Division Bench reversed that view, distinguishing those cases. The Supreme Court affirmed the Division Bench, observing that the undervaluation was detected before export and therefore fell within the prohibitions of the statutes, and that the earlier cases dealt with post‑export situations. Consequently, the appeal was dismissed with costs.

Issues considered

Whether filing an undervalued export declaration before shipment violates Section 12(1) of the Foreign Exchange Regulation Act, 1947.
Whether such undervaluation attracts offences under Section 167(8) of the Sea Customs Act read with Sections 23A and 23B of the Foreign Exchange Regulation Act.
Whether the Additional Collector of Customs had jurisdiction to confiscate the goods and impose penalties.
Whether the precedents set in Union of India v. M/s. Rai Bahadur Shree Ram Durga Prasad and Becker Gray & Co. are applicable to the present facts.

Legislation cited

Foreign Exchange Regulation Act, 1947s. 12(1), s. 23A, s. 23B
Sea Customs Act, 1878s. 167(37), s. 167(8)

Subjects

export undervaluationforeign exchange regulationcustoms lawSea Customs Actpenaltyshow cause waiverphatka businessspecial leave petition

Judgment

TOOLSIDASS. JEWRAJ
A
v.
~ ADDITIONAL COLLECTOR OF CUSTOMS AND OTHERS

MARCH 13, 1991

[N.M. KASLIWAL AND K. RAMASWAMY, JJ.] B

Sea Customs Act, 1878/Foreign Exchange Regulation, Act, 1947:
>ls. 167(8), 167(37)/ss. 12(1), 23A, 23B-Export Declaration of incor-
rect F.O.B. values in shipping bills and G.R.l forms-Object being
unethical and objectionable-Undervaluation detected before goods
actually shipped-Order of confiscation, fine and penalty-Validity of.
c
The appellant firm, a jute goods exporter, entered into contracts
on December 19, 1961 for shipment of goods to a foreign company in
January 1962. Due to appreciation in price in Jan. 1962, the firm
~- arranged to ship the consignment in June, 1962, and before actually
shipping the goods, on 1.6.1962 submitted to the Customs authorities D
the shipping bills and G.R. forms wherein F .O.B. was found to be
undervalued. The firm waived show cause memo and agreed to abide by
the decision of the Customs authorities. The ship left without taking
the consignment.

~ The Additional Collector of Customs held that a "phatka' busi- E
-ness was being carried on by the consigness abroad in which the ship-
pers had, as brokers, undertaken to remit to them invisibly the profits

-- so earned, by harnessing into service the medium of the said export
business, and the firm in attempting to ship the goods without making
proper declaration of (1) the amount representing full export value, and
(2) the period and manner of payment, violated s. 12(1) of Foreign

- Exchange Regulation Act, 1947 and committed offences under s. 167(8)
Q_f Sea Customs Act, 1878 read with s. 23A and 23B of Foreign
-....:-' Exchange Regulation Act, 1947. He confiscated the goods and imposed
F

-, fine and personal penalty on the appellant firm.

On appeal, the central Board of Revenue atTmned the order of G
confiscation and penalty but reduced the fme. The firm filed writ peti-
tion before the High Court.

~- The Single Judge, relying on two decisions** of this Court,
held that once a declaration incorrect or untrue was filed, s. 12(1) of
Foreign Exchange Regulation Act was complied with, and the Addi- H

821
822 SUPREME COURT REPORTS {1991] 1 S.C.R.

tional Collector, Customs bad no .iurisdiction to pass the order; and ;;iik_
A allowed the writ petition. Revenue appealed before the Division Bench
of the High Court, which distinguished the decisions relied on by the
Single Judge, and allowed the appeal. Hence the present appeal by the
shippers.

B Dismissing the appeal, this Court,

HELD: The appellant firm had made an attempt to. remit profitS----4...
to the consignees abroad by discounting it from the sale price and
declaring the export value of the goods at a lower rate. It was a case
where undervaluation in respect of full export value of goods was ~
detected even before the goods were actually shipped or exported. The ...
C Additional Collector, Customs was right in holding that there was Vio-
lation of s. 12(1) of Foreign Exchange Regulation Act, 1947 and the
appellant firm thus committed offences under s. 167(8) of the Sea y
Customs Act, 1878 read with ss; 23A and 238 of the Foreign Exchange
ReglationAct, 1947. [828E-F; 826C-FJ ...
D
The Division Bench rightly distinguished the two decisions relied
on by Single Judge, and rightly reversed his order and maintained the
order of the centrol Board of Revenue. [ 828F-G]

**Union of India & Ors. v. Mis Rai Balzadur Shree Ram Durga ~
E Prasad (P) Ltd. & Ors., [1969] 2 SCR 727 and Becker Gray & Co. Ltd.
and Ors. v. Union of India & Anr., [1970] 3 SCR 445, distinguished.

The shipping bills and G.R.1 forms filed on behalf of the appel-
lant firm showed that the value mentioned therein was less than the foll
export value of the goods in the market at the relevant time. The F.O.B.
values declared by the shippers in the G.R. forms were, on their own_
F
admission, incorrect and the object of these incorrect declarations was
unethical and otherwise highly objectionable on more than one ground
->
of economics. [8260-E; 827A-B]

CIVIL APPELIATE JURISDICTION Civil Appeal No. 893 of
G 1976.

From the Judgment and Order dated 6.2.1975 of the Calcutta~
High Court in Appeal from Original Order No. 200 of 1972.

A.K. Oanguly,. 8. Sukumaran-, Ms. Amrita Misra and D.N.
H Misra for the Appellants.
T.D. TEWRAJ v. ADDL. COLLECTOR !KASLIWAL, J.] 8'°' (

~· Kapil Sibbal, Additional Solicitor General, A. Subba Rao,
A
P. Parmeshwaran and C. V. Subba Rao for the Respondents.

The fodgment of the Court was delevered by

KASLIWAL, J. This Appeal by Special Leave is directed against
the judgment of Calcutta High Court dated 6th February, 1975 seiting B
;...-,aside the order of the learned Single Judge of the High Court dated 9th
June, 1972.

Brief facts of the case are that M/s. Toolsidass Jewraj (herein-
~ _,_. - after referred to as the 'petitioner firm') had been carrying on the
.-. b.ttsiness of export of Jute goods from India to froeign countries includ-
ing United States. The petitioner firm entered into contracts on c
December 19, 1961 for shipment in January; 1962 of Jute goods to
·.._,- M/s. Franc Samuel and Co. of New York, ·through their agents M/s.
C.J. Dammann Inc. of New York, U.S.A. According to the petitioner
firm in January, 1962 the price of Jute goods appreciated conisderably
and to avoid severe losses the petitioner firm through the said agent D
arranged for switching the shipment over to April/June, 1962. The
petitioner firm thereafter made arrangements for shipment of a con-
signment of 435 bales of Hession Cloth by s.s. "City of Singapore" and
~ubmitted shipping bills allongwith G.R.-I Forms with the Customs
authorities on June 1, 1962. The gain resulting from the sale of goods
was allowed to the buyers and their profit was discounted from the sale E

- price for subsequent shipment and shown accordingly in the shipment
bills and G.R.-1 forms which was thus not the full export value of the
goods. On June 5, 1962 shantimoy Mukherjee Customs Sarkar of the
petitioner firm and M. V. Ashar appeared before the Custun1~
Appraiser and supplied to him all information regarding the consign-
_gient. The j\ppraiser apparently satisfied dictated to them a letter to F
v· be written by the petitioner firm to the Customs authorities on the
basis whereof the consignment could be permitted to be exported. In
the letter of June 5, 1962 the adjustment of price as aforesaid was
admitted on behalf of the petitioner firm and it was further stated that
there was no ma/a fide in the account and the firm did not want any
showcause memo and would agree to abide by the decision of Customs G
>-authorities. Thereafter, they appeared before the Additional Collector
of Customs, Calcutta where few questions were put to them. In the
meantime s.s. "City of Singapore" left ·without taking the con-
signment.

The Additional Collector of Customs took the view that a sort of H
824 SUPREME COURT REPORTS [1991] 1 S.C.R.

"phatka" business was being carried on by the so called consignees ~
A
abroad and in the said business the so called shippers in India were
playing the role of brokers. The shippers appeared to be conscious that
they could not remit the aforesaid profits legally, and hence they had
chosen to harness into service the medium of export business in this
connection. The F.O.B. values declared by the shippers in the G.R.
B forms were on their own admission incorrect and the object of making
these incorrect declarations was unethical and otherwise highly objec- ~
tionable. The Additional Collector thus held that an attempt had been
made by M/s. Toolsidass Jewraj to ship the goods covered by the
shipping bills and the G.R. forms mentioned in the appendix, without
making a declaraion that the amount representing the full export ·~
Value of the goods had been or will, within the prescribed period, bo
c paid in the prescribed manner. The shippers as such had committed
affences attracting the provisions of Sec. 167(8) of the Sea Customs
Act read with Section 23A and 23B of rhe Foreign Exchange Regula- y
tion Act, 1947 (as amended). The goods were therefore liable to con-
fiscation and the shippers were liable to personal penalty under the
D aforesaid Sections and also under Sec. 167(37) of the Customs Act.
The Additional Collector of Customs by his order dated June 6, 1962
gave the following directions:

"In view of the foregoing, I confiscate the goods in ques- J
tion under Section 167(8) of the Sea Customs Act, read~
E with Section 23A of Foreign E~change Regulation Act. In
lieu of confiscation, I impose fine of Rs.3,00,000 (Rupees
three lakhs only). the fine sho,uld be paitl within a week
hereof. A personal penalty of Rs.50,000 (Rupees fifty
thousand only) is also imposed on the shippers under
Section 167(8) the Sea Customs Act. The personal penalty
-
F should be paid within three days of the receipt of this
order." ~
The petitioner firm preferred an appeal against the said order to
the Central Board of Revenue which by its order of December 10,
1963 affirmed the findings and order of the Additional Collector. The
G Board, however, felt that the fine of Rs.3,00,000 in lieu of confiscation
was rather excessive and accordingly redu~ed the fine to Rs.1,85,000 -J..
and directed the refund of Rs.1,15,000 which the petitoner has re:- ·
ceived without prejudice. The petitioner firm then filed a writ petition
under Article 226 of the Constitution and prayed for quashing the
impugned orders dated JUne 6, 1962 and December 10, 1963 and to
H refund the aforementioned amounts of Rs.1,85,000 as well as the sum
T.D. TEWRAJ v. ADDL. COLLECTOR [KASLIWAL, J.] 825

X of Rs.50,000 imposed as personal penalty. Sabyasachi Mukherji, J.
A
learned single Judge of the Calcutta High Court, (as he then was)
proceeded to consider the case on the assumption that the facts stated
in the order of the Additional collector to the effect that the petitioner
firm waived its right to receive show cause notice and M.V. Ashar ·
repeated the request for disposal of the case without issung any show
cause notice. Learned single Judge held that even according to the B
Customs authorities a declaration was filed under Section 12( 1) of the
~Foreign Exchange Regulation Act, 1947 which was incorrect and
untrue. Learned single Judge placed reliance on the decisions of this
Court in Union of India & Ors: v. M/s. Rai Bahadur Shree Ram Durga
____ Prasad (P.) Ltd. & Ors., [1969] 2 SCR, 727 and Becker Gray & Co.
( 1930) Ltd. & Ors. v. Union of India & Anr., [ 1970] 3 SCR, 445 and
held that once a declaration incorrect or untrue was filed there was c
compliance w'ith the provisions of Section 12(1) of Foreign Exchange
Regulation Act and the Additional Collector of Customs as also the
-~ Board had no jurisdiction to pass the impugned orders. The above
orders of the Additional Collector and the Board or Revenue were
quashed and the authorities were directed to refund the amount. D

The Union of India assailed the above order of the learned single
Judge by filing an appeal before the Division Bench of the High Court.
-~The Division Bench of the High Court distinguished the aformentioned
, cases of this Court on which reliance was placed by the learned single
Judge. In the result, the Division Bench allowed the appeal, set aside E
the order of the learned single Judge by order dated 6th February,
1975. The petitioner firm aggrieved against the order of the Division
Bench of the High Court have come in appeal by grant of special leave.

It was contended on behalf of the appellant that the case was
fully covered by the decision of this Court in Union of India & Ors. v. F
.,_,.. ,,,-M/s. Rai Bahadur Shree Ram Durga Prasad (P) Ltd. & Ors., (supra).
which was further followed in Becker Gray & Co. ( 1930) Ltd. & Ors.
v. Union of India & Anr., (supra). We have thoroughly considered the
record and have perused the cases on which reliance is placed by the
learned counsel for the appellant. In our view the facts of the case
before us are totally distinguishable and as such the abovementioned G
\ cases do not help the appellant. The facts of the case as found by the
>Additional Collector of Customs are that the petitioner firm had
initially entered into four contracts dated December 19, 1961 for sup-
ply of Jute goods to M/s. Franc Samuel and Co. of New York for
shipment in January, 1962. In January, 1962 the price of Jute goods
appreciated and the petitioner firm arranged for switching the ship- H
826 SUPREME COURT REPORTS [1991] 1 S.C.R.

A ment over to April/June, 1962. The petitioner thereafter made arrange- 'Ji._
ments for shipment of a consignment of 435 bales of Hessian Cloth by
s.s. "City of Singapore" and submitted s~ipping bills alongwith G.R.-1
forms with the Customs authorities on June 1, 1962. The full export
value of goods was not correctly stated in the above documents. On
June 5, 1962 M. V. Ashar appeared on behalf of the petitioner firm and
B submitted a letter mentioning therein that the firm did not want any
show cause memo and would agree to abide by the decision of
Customs authorities. The petitioner firm subsequently took the stand ~~
that M.V. Ashar had no authority on its behalf to waive the issue of
show cauce memo or to agree to abide by the decision of the Customs
authorities. However, the said stand had.not been believed by any of ~
(' the Customs authorities or even by the High Court. It may be noted
that in the meantime s.s. "City of Singapore" left without taking the
...
' consignment. The Additional Collector of Customs in these circums-
y.
tances passed an order on June 6, 1962. It is, therefore, important to
note that it is a case where undervaluation in respect of full export
value of goods was detected even before goods were actually shipped
D or exported. In view of the fact that the representative of the
petitioner firm was in a hurry and pressing hard for exporting the
goods, it was clearly stated in the letter dated 5th June, 1962 waiving
the issuance of any show cause notice and agreed to abide by the
decision of the Customs author:ities. A perusal of the shipping bills and
G.R.-I forms filed on behalf of the petitioner firm goes to show that ~
E the value mentioned was 802d. (per 100 yards) when in fact the full
export value of the goods in the market at the relevant time was 867d.
In the face of these admitted facts the Additional Collector of
Customs correctly held that there was violation of Section 12( 1) of the
Foreign Exchange Regulation Act, 1947 (hereinafter referred to as the
'Act') and thus committed offences attracting the provisions of Section
F 167(8) of the Sea Customs Act readwith Section 23A and 23B of the
Act. It may be noted that according to the petitioner firm's own show-~-
ing the rate fixed was 955d. in December, 1961 which had appreciated1

to 1034d. In January, 1962 when the goods were to be exported. Thus
gain was allowed to the buyers and by an agreement the shipment was
switched over to April/June, 1962. In June, 1962 the market value was
G 867d. but the profit of 79d. was discounted from the sale price bringing
it dow:n to [867-79]=788d. by adding brokerage, commission the value j
was fixed at 802d. The Additional Collector of Customs, in these--'\
circumstances, held that the explanations revealed that a sort of
"phatka" business was being carried on by the socalled consignees
abroad and the shippers in India were playing the role of brokers and
H in that role they had undertaken to remit to them invisibly the profits
T.D. TEWRAJ v. ADDL. COLLECTOR [KASLIWAL. J.] 827

x earned out of the "phatka'' business. The Additional Collector further A
held that the shippers appeared to be conscious that they could not
remit the profits legally and hence they had to harness into service the
medium of export business in this connection. The F.O.B. values
declared by the shippers in the G.R. forms were, on their own admis-
. sion, incorr~ct and the object of these incorrect declaraions was
unethical and otherwise highly objectionable on more than one ground B
1.. of economics. It was not assailed at any stage of proceedings, not even
/'""before us that the actual market price of the goods in question in June,
1962 was 867d. and the value mentioned in the shipping bills and G.R.
forms was shown as 802d.

So far as the cases of this Court in· Union of India & Ors. v. Mis.
Rai Bahadur Shree Ram Durga Prasad (P) Ltd. & Ors., (supra) and c
Becker Gray & Co. (1930) Ltd. & Ors. v. Union of India & Anr.,
'-'"( (supra) are concerned, were cases wherein the controversy had arisen
after the export of goods. In that context in Union of India & Ors. v.
M/s. Rai Bahadur Shree Ram Durga Prasad (P) Ltd. & Ors., (supra)
the Court observed as under: D

"If we are to hold that every declaration which does not
state accurately the full export value of the goods exported
is a contravention of the restrictions imposed by s. 12( I)
~- then all exports. on consignment basis must be held to con-
travene the restrictions imposed by s. 12(1). Admittedly E

-
s. 12( 1) governs every type of export. Again it is hard to
believe that the legislature intended that any minor mistake
in giving the full export value should be penalised in the
manner provided ins. 23(A). The wording of s. 12(1) does
not support such a conclusion. Such a conclusion does not
accord with the purpos~ of s. 12( 1)." F

The Court further observed as under:

"There are two facts in every export, one relating to the
goods exported and the other relating to the foreign
exchange earned as a result of the export. Broadly speak- G
ing the former aspect is dealt with by the . Customs
authorities and the latter either by the Reserve Bank or by
the Director of Enforcement ......... These provisions
go to indicate that so far as the value of the goods exported
is concerned the matter is left primarily in the hands of the
Reserve Bank, and the Customs authorities are not H
828 SUPREME COURT REPORTS [1991] 1 S.C.R.

burdened with that w,ork. This aspect becomes relevant in ~
A
ascertaining the true scope of s. 12( I). If we bear in mind
the scheme of the Act, it is clear that so far as the Customs
authorities are concerned all that they have to see is that no
goods are exported without furnishing the declaration pre-
scribed under s. 12( 1). Once that stage is passed the rest of
B the matter is left in the hands of the Reserve B~nk and the
Director of Enforcement."

In the ab9ve case the goods had already been exported and the
charge was failure to repatriate a portion of foreign exchange earned
by the shippers as also given declaration which did not comply with
Rule 5 of the Foreign Exchange Regultion Rules. The above decision
c was followed in Becker Gray & Co. ( 1930) Ltd. & Ors. v. Union of
India & Anr., (supra) where the goods which were sent on consign-
ment basis had already left the shores of India. The declaration was
filed in form G.R.-I prescribed by Rules under Section 27. In
interpreting the above decision, the Court followed the earlier deci-
D sion in which it was held that under valuation in a declaration under
Section 12( 1) of the Act does not amount to contravention of the
restrictions imposed by that provision. In the case in hand before us
the Additional Collector of Customs had held that a sortof "phatka"
business was being carried on by the socalled consignees abroad and
the shippers in India were playing the role of brokers and in that role
E they had undertaken to remit to them invisibly the profits earned out
of "phatka" business. It had been further held that ·the shippers
appeared to be conscious that they could not remit profits legally and
hence they had to harness into service the medium of export business
in this connection. The above facts clearly disclose that the petitioner
firm had made an attempt tp remit the profits to the cosignees by
·-
F discounting the profit of 79d. from the sale price and thus declaring the
export value of the goods at a l9wer value. The above device was
detected even before the export of goods. Thus in our view the presnt
case stands on totally different circumstances and the ratio of the
abovementioned cases of this Court cannot be applied to the case in
hand before us. The learned Judges of the Division Bench of the High
G Court had correctly distinguished the above cases and we find no
reason to take a different view .
.-
,"!<' In the result we find no force in this appeal and it is accordingly
dismissed with costs.

H R .. P. Appeal dismissed.