Holding

A show‑cause notice under Sections 28 and 124 can be issued even if the Section 47 clearance order was obtained fraudulently; the High Court’s quashing of the notices was erroneous.

Summary

The respondents imported 13,500 metric tonnes of RBD palm oil in stainless‑steel containers, which are a prohibited item, but the containers were painted to appear as mild‑steel. Customs issued show‑cause notices under Section 28 (duty not levied or short‑levied) and Section 124 (confiscation) of the Customs Act. The Delhi High Court quashed the notices, holding that a Section 28 notice could not be issued until the clearance order under Section 47 was revised under Section 130. The Supreme Court held that a fraudulent clearance order under Section 47 does not bar the issuance of show‑cause notices under Sections 28 and 124, and that the High Court erred in interfering with the investigation at the show‑cause stage. Consequently, the appeal was allowed, the High Court’s order set aside, and the proceedings under Sections 28 and 124 were ordered to continue. The seized stainless‑steel containers remain under seizure, supervised by a Customs officer.

Issues considered

Whether a show‑cause notice under Section 28 of the Customs Act can be issued before a Section 47 clearance order is revised under Section 130.
Whether a fraudulent clearance order under Section 47 precludes the issuance of show‑cause notices under Sections 28 and 124.
Whether the High Court may intervene at the show‑cause stage under Article 226 of the Constitution.

Legislation cited

Constitution of Indias. 226
Customs Act, 1962s. 124, s. 130, s. 13(1), s. 28, s. 47

Subjects

Customs ActSection 28Section 124Section 47Section 130fraudulent clearanceshow‑cause noticeconfiscationArticle 226writ jurisdictionimport of prohibited items

Judgment

'
A UNION OF INDIA AND ORS.
v.
JAIN SHUDH VANASPATI LTD. AND ANR.

AUGUST 8, 1996

B [S.P. BHARUCHA AND S.B. MAJMUDAR, JJ.]

Customs Act, 1962 :

, Ss. 28, 47, 124 and 13(}-Proceedings for confiscation-Respondents
C in1pa1ting RBD Pabnoil, a pennissible iten1, in containers 111ade of stainless
steel, a banned iten1, said to have been painted over to give an inzpression
tlzat tlzey were made of mild steel-Respondents seived witlz show cause
notices u/s. 28 and u/s. 124-Wiit petition clzallenging the notices allowed by
High Cowt--Held, High Cowt e1red in holding that no show cause notices
u/s. 28 .could have been issued until and unless order u/s. 47 lzad been first
D revised u/s. 13()-It was stated that stainless steel containers were painted over
to suppress their tnte nature in order to slip the111 through custo111-An order
u/s. 47 obtained fraudulently does not have to be set aside by e.-,,:ercise of
revisional powers u/s. 130 before the ill-effects of the fraud can be set right by
initiation of the process of confiscation of tlze fraudulently cleared goods u/s.
E 124-Higlz Cowt should not lzave allowed the wlit petition without reserving
liberty to tlze appellants to proceed against tlze respondents u/s. 130--Judg-
ment and order of Hig/1 Cowt set aside-Proceedings pumwnt to slzow cause
notices u/ss.28 and 124 slza/l continue.

Constitution of India, 1950 :
F
A1tic/e 226-Writ jurisdiction-Scope of-Respondents impo1ting RBD
Paln1oil, a pennissible ite111, in containers 111ade of stainless steel, a banned
'
Item-Notices u/ss. 28 and 124 of Customs Act served on respondents--High
Court quaslzing the notices-Held Court ouglzt not to have entered into the
G tlzicket of evidence-It is for the authorities hearing tlze parties u/ss.28 and 124
to accept and weigh the evidence-High Court in exerci.re of powers under
Article 226 slzould not slllltify, an investigation, still at the show cause stage
by going into facts.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2360 of
H 1980.
418
U.0.1. v. JAIN SHUDH VANASPATI LID. 419

From the Judgment and Order dated 22.8.80 of the Delhi High Court A
in C.M. No. 282/80 in C.W.P. No. 158 of 1980.

AK. Ganguli, A. Subba Rao and C.V. Subba' Rao for the Appellants.

Dinesh Kumar Garg and Gagrat & Co. (N~) for the Respondents.
B
The following Order of the Court was delivered :

The 1.,t, respondents imported RBD palm oil during the period
November, 1978, to March 1979, and cleared the same in the quantity of
13,500 metric tonnes. Import of the said oil was permissible. On 11th
October, 1979, the 1sl, respondents were served with show cause notices C
under Section 28 of the Customs Act and, on 21st January, 1980, with show
cause notices under Section 124 thereof. The show cause notices stated that
the said oil had been imported in containers made of stainless steel, which
• was a banned item, but which had been painted over to give the impression
that they were made of mild steel. Thus, Customs duty had not been levied D
and the stainless steel containers were liable to be confiscated. The respon-
dents were required to show cause there against. The respondent filed a
writ petition in the Delhi High Court on 8th February, 1980, impugning the
issuance of the Section 28 and Section 124 show cause notices. On 22nd
August, 1980 the High Court allowed the writ petition.
E
This appeal is d;_rected against the judgment and order of the High
Court. When special leave was granted on 9th October, 1980 this Court
ordered that the stainless steel containers which had been seized by the
appellants would continue to remain under seizure and he kept in the
factory premises of the 1st, respondents under the supervision of a Customs
Officer. We are told that they so remain. F

For completeness, it is necessary to mention that the appeal was
dismissed on 28h November, 1991, but on the review petition of the
appellants, that judgment and order was set aside and the appeal was
directed to be heard afresh, which is how we come to hear it.
G
The High Court based its judgment on material produced by the
respondents before it to show that modern marketing practice required the
movement of refined oil only in stainless steel or epoxy-coated tanks. It
found that the material acceptable, particularly because one o{ the letters
that the respondents produced had been written by the State Trading H
420 SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.
I

A Corporation. The High Court held that the stainless steel containers that
were used by the 1st, respondents to import the said oil could not be
treated as separate or independent items of importation. What had been
imported was only the said oil and not the stainless steel containers. The
High Court looked to the law and stressed Section 47, whereunder
clearance for home consumption had been given. It took the view that not
B
show cause notices under Section 28 or Section 124 ':ould have been issued
and until the order under Section 47 had been revised under the provisions
of Section 130.

Section 47 reads thus :
c "47. Clearance of goods for home consumption. - Where the proper
officer is satisfied that any goods entered for home consumption
are not prohibited goods and the importer has paid the import
duty, if any, assessed thereon and any charges payable under this
Act in respect of the same, the proper officer may make an order
D permitting clearance of the goods for home consumption."

Section 28 reads thus :

"S. 28. - Notice for payment duties 11ot levied, shon levied or er-
ro11eously refimded. - (1) When any duty has not been levied or
E
has been short levied or erroneously refunded, the proper officer
may, within six months from the relevant date, serve notice on the
person chargeable with the duty which has not been levied or which
has been so short levied or to whom the refund has erroneously
been made, requiring him to show cause why he should not pay
F the amount specified in the notice;

Provided that where any duty has not been l1~vied or has been short
levied or has been erroneously refunded by-reason of collusion or
any wilful mis-statement or suppression of facts by the importer
or the exporter or the agent or employee of the importer or
G exporter, the provisions of this· sub-section shall have effect as if
for the words "six months" the words "five years" were substituted.

(2) The Assistant Collector of Customs after considering the
representation, if any, made by the the person on whom notice is
H served under sub-section (1) shall determi:ne the amount of duty •
U.0.1. v.JAIN SHUDH VANASPATI LTD. 421

due from such person (not being in excess of the amount specified A
in the notice) and thereupon such person shall pay the amount so
determined.

(3) For the purposes of sub-section (1), the· expression "relevant
date" means -
B
(a) in a case were duty is nor levied, rhe dare on which the proper
officer makes an order for t)le clearance of the goods;

(b) in a case where duty is provisionally assessed under section 18,
the date of adjustment of duty after the final assessment thereof;
c
(c) in ·a case where duty has been erroneously refunded, the date
of refund;

(d) in any other case, the date of payment of duty."

It is patent that a show cause notice under the provisions of Section
D
28 for payment of Customs duties not levied or short- levied or erroneously
refunded can be issued only subsequent to the clearance under Section 47
J of the concerned goods. Further, Section 28 provides time limits for the
issuance of the show cause notice thereunder commencing from the
"relevant date"; "relevant date" is defined by sub-section (3) of Section 28 E
for the purpose of Section 28 to be the date on which the order for
clearance of the goods has been made in a case were duty has not been
levied; which is to say that the date upon which the permissible period
begins to run is the date of the order under Section 47. The High Court
was, therefore, in error in coming to the conclusion that no show cause
F
notice under Section 28 could have been issued until and unless the order
under Section 47 had been first revised under Section 130.

Section 124 reads thus :

"S. 124. - Issue of show-cause notice before confiscation of goods, G
etc. - No order confiscation any goods or imposing penalty on any
person shall be made under this Chapter unless the owner of the
goods or such person -

(a) is given a notice in writing informing him of the grounds on
which it is proposed to confiscate the goods or to impose a penalty; H
422 SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.

A

(b) is given an opportunity of making a representation in writing
within such reasonable time as may be specified in the notice
against the grounds of confiscation or imposition of penalty men-
tioned therein, and
B
(c) is given a reasonable opportunity of being heard in the matter:

Provided that the notice referred to in clause (a) and the repre-
sentation referred to in clause (b) may, at the request of the person
concerned be oral. 11
c
The case of the appellants in the show cause notices is that the
stainless steel containers in which the said oil was imported were banned,
that the stainless steel containers were deliberately camouflaged by paint-
ing them to resemble mild steel containers, and that this was done with a
D vie ' to enabling their clearance. A clearance order under Section 47
obtained by fraudulent means such as this (if it, in fact, be so) cannot debar
the issuance of a show-cause notice confiscation of goods under Section
124. Fraud, if established, unravels all. An order unde; Section 47 obtained
by the employment of fraudulent methods does not have to be set. aside by
the exorcise of revisional powers under Section 130 before the ill-effects of
E
the fraud can be set rigbt by initiation of the process of confiscation of the
frau'dulently cleared goods under Section 124.

It is relevant to bear in mind that the issuance of the show-cause
notice under Section 124 conte~plates that the respondents' response shall
F be considered and only thereafter
1
will the matter be decided. The respon-
dents shall, therefore, have full opportunity to satisfy the authorities tc at
there was no importation of banned goods which them liable to confisca-
tion.

The High Court noticed that the appellants' allegation was that the
G stainless steel containers were painted over to suppress their true nature,
but it took the view that the respondents were not required to disclose the
nature or price of containers. We do think that the Higb Court ought to
have taken some note of the significance of painting of stainless steel. If
the stainless steel containers were painted, and so painted as to resemble
H mild steel containers, there can be little doubt that the intention was to slip
U.0.1. v. JAIN SHUDHVANASPATI LID. 423

them through the Customs. A
Certainly, the High Court ought not to have entered into the thicket
of evidence. Evidence was something for the authorities hearing the parties
under Section 28 and 124 to accept and weigh. We do not approve of
stultifying, in exercise of powers under Article 226, an investigation, still at
the show-cause stage, by going into facts. B

We are also of the view that the High Court in any event, ought not
to have allowed the writ petition without reserving liberty to the appellants
to proceed against the respondents under Section 130 which, as the High
Court looked at it, was the appropriate couse of action.
c
We have refrained from expressing ourselves, so far as we could,
upon the merits of the controversy between the parties. In deciding upon ·
the show cause notices under Section 28 and 124, the authorities shall not
take into the account our observation of those. of the High Court in the
order under appeal. D
The appeal is allowed. The judgment and order of the High Court
is set aside. The writ petition filed by the respondents is dismissed.
Proceedings pursuant to the show cause notices under Sections 28 and 124
shall continue. The respondents shall have the opportunity therein to place
such evidence as they may deem appropriate. E
Pending the adjudications, the stainless steel containers shall remain
under seizure, but in the premises of the 1st. respondents under the
supervision of a Customs Officer.

There shall be no order as to costs. F
R.P. Appeal allowed.

,