Full Judgment Text
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PETITIONER:
MOTIBHAI FULABHAI PATEL & CO.
Vs.
RESPONDENT:
M/S. R. PRASAD AND ORS.
DATE OF JUDGMENT:
30/10/1968
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
SIKRI, S.M.
BACHAWAT, R.S.
CITATION:
1970 AIR 829 1969 SCR (2) 580
CITATOR INFO :
D 1974 SC 175 (11)
ACT:
Central Excise Rules, 1944, r. 40-Appellants guilty of
violating r. 40 for mixing duty-paid tobacco with quantity
of tobacco on which no duty had been paid-Collector
confiscating entire mixture and levying fine on its value-
Whether collector could confiscate only so much of the
mixture on which no duty paid.
HEADNOTE:
The appellants were tobacco merchants in Baroda in
Gujarat State and were holding Central Excise licence in
Forms L-2 and L-5 for the purpose of storing, selling and
processing duty paid and non-duty paid tobacco. On December
23, 1958 while the process of mixing some tobacco was going
on in a godown where duty-paid tobacco was. kept, the
Superintendent of Central Excise., Preventive Headquarters,
Baroda and his party raided the premises of the appellants
and seized a mixture of tobacco weighing 1,64,834.50 lbs.
tobacco This mixture included 60,770 lbs. of tobacco on
which duty had not been paid. After the ’appellants were
issued a show-cause notice why action should not be taken
against them under rule 40 of the Central Excise Rules,
1944, and after they had filed their reply, the Collector,
Central Excise, by his order dated April 13, 1959 held the
appellants guilty of contravening rule 40 levied on them a
penalty of Rs. 2,000 as well as the duty payable under the
law, and also ordered the confiscation of the entire
quantity of the tobacco seized. As he gave the appellants
the option of redeeming the same on payment of a fine of Rs.
1 lakh, they paid the fine under protest and secured
release of the tobacco. The appellant’s appeal as well as
revision against the Collector’s order under the provisions
of the Central Excise and Salt Act, 1944, were both
dismissed. The appellants then filed a writ petition under
Art. 226 of the Constitution challenging the legality of the
Collector’s order but this was dismissed by the High Court.
In appeal to this Court the only challenge was to the
Collector’s order of confiscation. It was contended,
relying on the decision in Messrs. Valimahomed Gulamhusain
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Sonavala & Co. v.C.T.A. Pillai, (1960) 42, B.L.R., p. 634,
that the Collector could not have confiscated the tobacco
mixture as it consisted of both duty-paid tobacco as well as
tobacco on which duty had not been paid, the alternative
contention was that the Collector could not in any extent
have. confiscated more than 60,770 lbs. of mixture which
could be said to represent tobacco on which duty had not
been paid.
HELD: Rule 40 permits the Central Excise. authorities
to confiscate only those goods on which duty had not been
paid. It does not permit them either specifically or by
necessary implication to confiscate other goods. Therefore
it was not permissible for the Collector to confiscate the
entire tobacco mixture. At the same time no person can be
permitted to benefit by his wrongful act. No rule of law
should be so interpreted as to permit or encourage its
circumvention. If by the wrongful act of a party he renders
it impossible for the authorities to confiscate under
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rule 40 the non-duty paid goods, it is open to those
authorities to confiscate from out of the goods seized,
goods of the ’value reasonably representing the value of
the non-duty paid goods mixed in the goods seized. Applying
that rule to the facts of the present case it follows that
although the appellants were guilty under Rule 40 of an
unlawful act in mixing duty-paid tobacco with non-duty paid
tobacco, the Collector could have confiscated out of the
tobacco seized so much of it as can be held to reasonably
represent the value of the tobacco on which the duty had not
been paid. [586 G--581 B]
As the parties were agreed that the value of the tobacco
used in the mixture for which no duty had been paid could be
fixed at Rs. 35,000,. the fine to be levied on the appellant
in lieu of the confiscation that could have been ordered had
to. be fixed at Rs. 35,000. The Collector therefore had to
refund to the appellant a sum of Rs. 65,000.
Institutes of Justinian, p. 104; Williams on Personal
Property (18th edition) p. 50; Spence and Ant. v. The Union
Marine Insurance Co. Ltd., Law Reports (Common Pleas) 3,
1867-68 and Smurthwaite and Ors. v. Hannay and Ors., [1894]
A.C.p. 494; referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 13 of
1966.
Appeal from the judgment and order dated January 13,
1964 of the Punjab High Court, Circuit Bench at Delhi in
Civil Writ No. 557-D of 1961.
M.P. Vashi, Dalip K. Kapur,, S.V. Tambwekar and A. G.
Ramaparkhi, ,for the appellant.
D. Narsaraju, R.M. Mehta and S.P. Nayar, for the
respondents.
The Judgment of the Court was delivered by
Hegde, J. In this appeal by certificate though. several
contentions were raised in the memo of appeal only two of
them were pressed at the time of hearing. They are: (1)
under the circumstances of the case the confiscation ordered
by the Collector, Central Excise is illegal and (2) under
any circumstance he could not have confiscated the entire
quantity of tobacco used in the mixture.
The appellants are tobacco merchants in Dashrath
village near Baroda in Gujarat State. At the relevant time
they were holding Central Excise licence in form L-2 and L-5
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for the purpose of storing, selling and processing duty paid
and non-duty paid tobacco. They had their own duty paid
and non-duty paid godowns. In about December 1958 according
to their books they possessed the following lots of
different varieties of tobacco. variety of tobacco
Quantity Rate of duty
---------------------------------------------------------
Veriety of tobacco Quantity Rate of duty
Bmds. Rs.
Biri Patti " 251.8 1.20 np per Ib
Stems Kandi " 287.20 0.50 Do.
Rava " 1326.14 0.50 Do.
Stalk Kandi " 57.20 0.06 Do.
582
On December 13, 1958 the appellants obtained permission
from the Local Central Excise authorities to mix the above
lots of tobacco. The percentage of different varieties of
tobacco when mixed would have been as under:
Rava 68.97 %
Stems Kandi 14.86 %
Biri Patti 13.07 %
Stalk Kandi 3.00%
On December 23, 1958 when the process of mixing was
still going on the Superintendent of Central Excise,
Preventive Headquarters, Baroda and his party raided the
duty paid premises of the appellants. There he seized the
entire mixture tobacco weighing Mds. 2004.3 srs. i.e.
1,64,834.50 lbs. of tobacco. According to that
Superintendent when experiments were conducted he found in
the above mixture percentage of different varieties as
under:
Rava 44 %
Biri Patti 51.50 %
Stems Kandi 3 .74 %
From this he concluded that ’considerable quantity of non-
duty paid Biri Patti tobacco had been utilised in the
manufacture of the mixture. Hence notice was issued to the
appellants on January 6, 1959 to show cause why action
should not be taken against them under rule 40 of the
Central Excise Rules 1944 inasmuch as they brought into duty
paid premises 60,770 lbs. of Biri Patti tobacco without
payment of duty. It was also alleged in that notice that
the appellants had removed certain quantity of Rava tobacco
from L-2 premises. The appellants submitted their reply
on March 13, 1959. At the hearing before the Collector as
the appellants challenged the correctness of the experiments
conducted by the Superintendent, Central Excise, the
Collector himself in the presence of the appellants
conducted a fresh experiment. On the basis of that
experiment he came to the conclusion that the results
obtained by the experiment conducted by the Superintendent,
Central Excise are by and large correct.
By his order dated April 13, 1959, the Collector,
Central Excise held the appellants guilty of contravening
rule 40 and consequently levied on them a penalty of Rs.
2,000 as well as the duty payable under law. He also
ordered the confiscation of the seized tobacco weighing
1,64,834.50 lbs. But he gave an option to the appellants of
redeeming the same on payment. of a fine of Rs. 1 lac. The
appellants paid the amount of fine. under protest and got
the goods released.
Thereafter they moved the High Court of Bombay under
Art. 226 of the Constitution for quashing the order of the
Collector but that application was withdrawn as the
appellants first
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583
wanted to exhaust their remedy under the Central Excise Act.
The appellants unsuccessfully went up in appeal and
thereafter in revision under the Central Excise and Salt
Act, 1944 against the order of the Collector. After the 3rd
respondent dismissed their revision petition they filed in
the High Court of Punjab at Delhi Civil Writ No. 557-D of
1961 challenging the legality of the order made by the
Collector of Central Excise on April 13, 1959. That
petition was dismissed by a Division Bench of that Court on
January 13, 1964. This appeal is brought against that
decision.
in this Court the finding of the Collector of Central
Excise that the appellants were guilty of mixing the duty
paid tobacco with non-duty paid tobacco and thereby they
contravened rule 40 was not challenged. Nor was there any
dispute about the quantity of non-duty paid tobacco used in
the mixture. The main contention of Mr. M.P. Vaish, learned
Counsel for the appellants was that under rule 40, the
Collector could not have confiscated the tobacco mixture as
it consisted of both duty paid tobacco as well as tobacco on
which duty had not been paid. His alternative contention
was that under any circumstance the Collector could not have
confiscated anything more than 60,770’ lbs. of the mixture
which can be said to represent Biri Patti tobacco on
which duty had not been paid. In support of his first
contention he heavily relied on the decision of K.T. Desai,
J. in Messrs. Valitmahomed Gulamhusain Sonavala & Co. v.
C.T..A. Pillai (1).
The seized tobacco mixture weighed 1,64,834.50 lbs.
That included 60,770 lbs. of Biri Patti tobacco on which
duty had not been paid. But on the remaining quantity duty
had been paid. The tobacco seized was found in the godown
licenced to store duty paid tobacco. Hence the appellants
were clearly guilty of contravening rule 40 of the Central
Excise Rules which reads:
"Except as provided in the proviso to
sub-rule (1) of rule 32 and in rule 171 no
wholesale purchaser of unmanufactured tobacco
for the purpose of trade or manufacture and no
wholesale purchaser of other unmanufactured
products from a curer shall receive into any
part of his premises or into his custody or
possession, any unmanufactured tobacco or
other unmanufactured products, other than
tobacco or other unmanufactured products
imported from a foreign country otherwise
than under a valid permit granted by an
officer showing that the proper duty has been
paid; and every such wholesale purchaser who
receives or has in his custody or possession
any such goods, in contravention of this rule
shall, in respect of every such offence, be
liable to pay the duty leviable on such
(1) (1960) 42 B.L.R., p. 634.
584
goods, and to a penalty which may extend to
two thousand rupees, and the goods shall also
be liable to confiscation." .lm0
In view of this rule the legality of the order
made by the Collector in so far as he levied
duty as well as penalty cannot be challenged
and was not challenged before us. But so far
as the confiscation is concerned’ it was urged
that under the rule in question only
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tobacco on which duty had not been paid could
alone have been confiscated. In the instant
case even according ,to the finding of the
Collector only on 66,770 lbs. of Biri Patti
tobacco the duty had not been paid; but on the
remaining tobacco seized duty had been paid,
it was not possible to separate the duty paid
tobacco from the non duty-paid tobacco; hence
it was impermissible for the Collector to
confiscate the said tobacco under Rule 40 as
that rule permitted the confiscation of only
non-duty paid tobacco. In Sonavala’s case(1)
referred to earlier Desai, J. had held that
the right to confiscate smuggled goods under
s. 167(8) of the Sea Customs Act, 1878 does
not carry with it the right to confiscate
unsmuggled goods. The words "such goods’
appearing in s. 167(8) of the Act cannot be
interpreted .to mean similar goods. It is not
open to the Customs authorities to confiscate
similar goods even though they may be of the
same quality, bulk and value. The words
’such goods’ mean the very goods which have
been smuggled. If the smuggled goods lose
their identity, it would not be open to the
Customs officers to confiscate any part of
those goodS. Where, therefore, gold that has
been smuggled has in the melting process got
so mixed up with gold that is unsmuggled that
it is impossible to separate the smuggled gold
from the unsmuggled one, the right to
confiscate smuggled gold ceases when the two
get inextricably mixed up. The broad
proposition laid down by Desai, J. undoubtedly
supports the contention advanced on behalf
of the appellants. We shall presently show
that this statement of the law is not correct
but it is necessary to mention at this
juncture that in the Sonavala’s case(1) an
innocent third party had purchased the
smuggled gold for proper value and mixed the
same with unsmuggled gold, which circumstance
had an important bearing on the decision of
the case.
In Institutes of Justinian at page 104
dealing with the topic commixtio it is
observed:
"If the things mixed, still remaining the
property of their former owners, were easy to
separate again, as for instance, cattle united
in one herd, when one owner brought his claim
by vindicatio ’his property was restored to
him without difficulty but if there was
difficulty in separating the materials from
each other, as in dividing the grains of wheat
in a heap, the obvious
(1960) 42 B.L.R.p. 634.
585
mode would be to distribute the whole heap in
shares proportionate to the quantity of wheat
belonging to the respective owners. But it
might happen that the wheat mixed together was
not all of the same quality, and therefore
the owner of the better kind of wheat would
lose by having a share determined in amount
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only by the quantity of his wheat; and the
judge therefore was permitted to exercise his
judgment how great an addition ought to be
made to his share to compensate for the
superior quality of the wheat originally
belonging to him."
In Williams on Personal Property (18th Edn.) at p. 50, it
is observed:
"The acquisition of ownership by
accession or confusion of substances also
presupposes a previous title. Thus the young
of a domestic animal belong to the owner of
the mother. If any substances, for instance
tallow, belonging to. various owners be mixed
by consent or accidentally, the mass appears
to belong to the owners of its parts in
common. And if the confusion be made wilfully
by one without the other’s leave, the mass
belongs to the latter, whose ownership is thus
unlawfully invaded."
Dealing with the same topic it is observed in Halsbury’s
Laws of England 3rd Edn. (Vol. 29) at p. 378.
"Ownership of goods may be acquired by
confusion or intermixture, if the goods, when
mixed, are indistinguishable. If the goods
are mixed by agreement or consent the
proprietors have an interest in common in
proportion to their respective shares; if
mixed by accident or the act of a third
party, or which neither owner is responsible,
the proprietors become owners in common of
the mixed property in proportion to the
amounts contributed. Where, however, one man
wilfully mixes his goods with those of another
without the approbation or knowledge of the
other, the whole be longs to the latter."
The law on this topic was stated by Bovill, C.J. as early as
1868’ in Spence and Anr. v. The Union Marine Insurance Co.
Ltd.(1) thus:
"In our own law there are not many
authorities to be found upon this subject
but, as far as they go, they are in favour
of the view, that, when goods of diffe-
(1) Law Reports (Common Pleas) 3, 1867-68.
586
rent owners become by accident so mixed
together as to be undistinguishable, the
owners of the goods so mixed become tenants
in common of the whole, in the proportions
which they have severally contributed to it.
The passage cited from the judgment of
Blackburn, J., in the case of the tallow
which was melted and flowed into the sewers,
is to that effect: Buckley v. Gross. And a
similar view was adopted by Lord Abinger in
the case of the mixture of oil by leakage on
board ship in Jones v. Moore. ’
"It has been long settled in our law,
that where goods are mixed so as to become
undistinguishable, by the wrongful act or
default of one owner, he cannot recover, and
will not be entitled to his proportion, or any
part of the property, from the other owner,
but no authority has been cited to shew that
any such principle has ever been applied, nor
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indeed could it be applied, to the case of an
accidental mixing of the goods of the two
owners; and there is no authority nor sound
reason for saying that the goods of several
persons be the property of their several
owners, and become bona-vacantia."
The same principle was again reiterated by the House
of Lords in Smurthwaite and Ors. v. Hannay and Ors.(1)
The rules enunciated above are of assistance in finding
out a solution to the problem before us though they do not
govern the same. In the instant case there is no doubt that
the appellants were guilty of an unlawful act in mixing duty
paid tobacco with the non-duty paid tobacco but the fact
remains that they were the owners of both those lots at the
time they mixed them and hence the legal principles set out
earlier do not cover such a case. It must also be
remembered that in dealing with a provision relating to
forfeiture we are dealing with a penal provision. It would
not be proper for us to extent the scope of that provision
by reading into it words which are not there and thereby
widen the scope of the provision relating to confiscation.
Rule 40 permits the Central Excise authorities to confiscate
only those goods on which duty has not been paid. It does
not permit them either specifically or by necessary
implication to confiscate other goods. Therefore it was not
permissible for the Collector to confiscate the entire
tobacco mixture. At the same time no person can be permitted
to benefit by his wrongful act. No rule of law should be
so interpreted as to permit or encourage its circumvention.
If by the wrongful act of a party he renders it impossible
for the authorities to confiscate under rule 40 the non-
(1) [1894] A.C.p. 494.
587
duty paid goods it is in our opinion open to those
authorities to confiscate from out of the goods seized,
goods of the value reasonably representing the value of the
non-duty paid goods mixed in the goods seized. Applying
that rule to the facts of this it follows that the
Collector, Central Excise could have confiscated out of the
tobacco seized,. so. much of it as can be held to reasonably
represent the value of the tobacco on which the duty had not
been paid.
As noticed earlier the tobacco confiscated had been
returned to the appellants after realising from them a sum
of Rs 1 lac as fine. The Counsel for the parties agreed at
the hearing that the’ value of the Biri Patti tobacco used
in the mixture for which no duty had been paid could be
fixed at Rs. 35,000. In view of this agreement it is not
necessary for us to remit the case back to the Collector of
Central Excise for assessing the value of the tobacco on
which duty had not been paid. In view of our earlier
findings the fine to be levied on the appellants in lieu of
the confiscation that could have been ordered has to be
fixed at Rs. 35,000. From this it follows that the
Collector has to refund to the appellants a sum of Rs.
65,000 which he has collected from them in excess of the
aforementioned Rs. 35,000. The appeal is allowed to that
extent. In the circumstances of the case we direct the
parties to bear their own costs both in this Court as well
as before the High Court.
R.K.P.S. Appeal allowed in part.
588