Full Judgment Text
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PETITIONER:
CHANDRAKANT KRISHNARAO PRADHANAND ANOTHER
Vs.
RESPONDENT:
THE COLLECTOR OF CUSTOMS, BOMBAYAND OTHERS
DATE OF JUDGMENT:
11/08/1961
BENCH:
HIDAYATULLAH, M.
BENCH:
HIDAYATULLAH, M.
GAJENDRAGADKAR, P.B.
SUBBARAO, K.
SHAH, J.C.
DAYAL, RAGHUBAR
CITATION:
1962 AIR 204 1962 SCR (3) 108
CITATOR INFO :
RF 1985 SC 613 (5)
ACT:
Custom House Agents-Licence-Rules governing grants thereof-
Validity-Agent’s liability for short collection of custom
duties-Custom House Agents Licensing Rules, 1960, rr.
4,6(a), 6(b), 6(c), 8,9(2) (p), 10 (1) (c), 11, 16 (g),
15(k), 12,17,19, 22 Forms C. D.-Sea Customs Act, 1878 (8 of
1878), as amended by Act 21 of 1955, ss.4, 9,39 (1), 202-
Constitution of India, Arts.19 (1)(g) 19 (6).
HEADNOTE:
The petitioners were working as Dalals at New Customs
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House, Bombay, under licences issued under s.-202 of the Sea
Customs Act, 1 878. In 1955 by an amending Act, s. 202 was
substituted by another section and, by sub-s.(1) of s. 202
it was enacted : "no person shall act as an agent for the
transaction of any business relating to the entrance or
clearance of vessel or the import or export of goods or
baggage in any custom house unless such person hold’$ a
licence granted in this behalf in accordance with the rules
made under sub-section (2) ". By sub-s. (2) the Chief
Customs-authority was empowered to make rules for the
purpose of carrying out the provisions of the section.
Section 4 provided that "when any person was .... authorised
by the owner of the goods to be his agent in respect of such
goods for all or any of the purpose, of thisAct....such
person shall for such purposes be deemed to be the owner of
such goods". The petitioners who, after the enactment of
the news.202, had to apply for licences to be granted in
accordance with ’the rules framed under sub-s(2), challenged
the validity of certain of the rules on the ground that they
contravened Arts. 14 and 19 of the Constitution of India and
also that they were in excess of the rule-making power
conferred by s.202 (2). In particular, they questioned
power validity or r. 12 under which inter alia the agent was
required to enter into a bond in Form C by which he was made
liable for short collection of customs duty under s. 39 and
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also to furnish security which might be increased or
decreased by the Customs-collector.
Held : (1) that the rules in question though they were
headed as framed under s. 202 of the Sea Customs Act, 1878,
cannot be impugned on the ground that some of them go beyond
the special purposes of that section and seek to further
some of the general purposes of other parts of the Act,
since the Chief Customs authority is also empowered under s.
9 of the Act to make. rules consistent with the Act
"generally to carry out the provisions of the Act."
(2) that rr. 4 and 8 under which the Customs-collector
could limit the number of licences to be granted at the
Customs House and applications could only be made if the
Customscollector published a notice inviting applications,
do not contravene Art. 19 of the Constitution, as they are
only designed to advance public interest.
(3) that rr. 6(a) and 6(b) which require the applicant, to
furnish to the Custom’s collector satisfactory evidence as
to his respectability, reliability and financial status and
that he would be in a position to muster sufficient
clientel,
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and business in the event of his being granted the licencee,
are reasonable restrictions within the meaning of Art. 19(6)
and are valid.
(4) that cl. (p) of r. 9(2) whicn requires the licensee to
have a working knowledge of the procedure in the matter of
refund of claims, appeals and revision petitions under the
Sea Customs Act, is valid, since it is necessary where an,
agent handles goods of the principal.
(5) that r. 10 (1)(c) which gives the Customs-collector a
wide discretion to reject an application for the grant of a
licence, if he considers the applicant to be not suitable,
is an unreasonable restriction upon the right of the
successful candidate to carry on his avocation, and is
invalid. If a candidate is found fit under the other rules
and has successfully passed the examination, he should only
be rejected under a rule which requires the Customs-
collector to state his reasons for the rejection, and the
rules must provide for an appeal against the order.
(6) that r. 11, in so far as it prescribes a renewal fee of
Rs. 50,is invalid inasmuch as it has thereby provided not
for a fee but for a tax to raise revenue. It would be open
to the Government to frame a rule in which the renewal fee
to be charged is reasonable in the circumstances.
(7) that rr. 15(g), 15(k), 17 and 19, are designed to have
a control over agents, including firms which act as agents,
who stand in a fiduciary capacity both in regard to their
own clients and the Government, and are valid.
(8) that r, 22 which enables the Customs-collector to cance
a licence for non-compliance by the agent with the other
rules or for misconduct on the part of the agent, which in
the opinion of the Customs-collector, renders him unfit to
transact business in the Custom House, is within the rule.
making power of the Customs-authorities and is valid.
(9) that the words "the person chargeable with the duty or
charge" in s. 39(1) of the. Act are wide enough. in their
ambit to take in, not only the, real owner but also a
"deemed owner" within the meaning of s.4 of the Act.
(10) that on its true construction of s.39(1) it is only the
goods of the defaulting owner in respect of Which, the agent
is also the deemed owner that would suffer the penalty of
detention, but not the goods of a different owner,
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even though the agent may be authorised to deal on his
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behalf.
(11) that r. 12 read with Form C, which makes an agent
liable for short collection of customs duties under s. 39,
is valid and the rule is not invalid on the ground that it
enables the Customs-authorities to make a proper adjustment
of the security to be obtained from each individual agent
commensurate with the volume and type of business which he
might transact.
Held, further (Subba Rao, J. dissenting,) that r. 6(c),
which requires the applicant to produce an income-tax
clearance certificate, is connected with the enquiry into
his respectability and financial status to find out if fie
can be trusted with other persons’ money and goods, and is
valid.
K. Raman and Co. v. State of Madras, A. I. R. 1953 Mad.
84, distinguished.
Per Subba Rao, J.-Non-production of an income-tax clearance
certificate is not germane to the issue of a licence under
the Custom House Agents Licensing Rules, 1960, and the
principle in K. Raman and Co. v. State of Madras, A. I.R.
1953 Mad. 84, is applicable. Accordingly, r. 6(c)
constitutes an unreasonable restriction on the right of an
applicant to do business as Custom-house agent, and is
invalid.
JUDGMENT:
ORIGINAL JURISDICTION:Petitions Nos. 80, 80A. 81 and 116 to
213 of 1960.
Petitions under Art. 32 of the Constitution of India for
enforcement of Fundamental Rights.
S. V. Gupta, M. C. Bhandare, S. N. Andley, Rameshwar Nath
and P. L. Vohra, for the petitioners.
H. N. Sanyal, Additional Solicitor-General of India, D. N.
Mukherjee and P. D. Xenon, for the respondents.
Porus A. Mehta, J. R. Gagrat, and G. Gopalakrishnan, for the
interveners.
1961. August 11. The judgment of Gajendragadkar,
Hidayatullah, Shah and Raghubar Dayal, JJ., was delivered by
Hidayatullah, J., Subba Rao,:J., delivered a separate
judgment.
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HIDAYATULLAH, J ’-These writ petitions raise identical
questions, and a common argument was addressed to the Court
in all of them. Petitions Nos. 80 and 80A of 1960 have been
filed by two petitioners. One petitioner holds a permanent’
licence and the other, a temporary licence renewable
triennially, to work as Dalal’s at New. Customs House,
Bombay. In the other petitions also, petitioners Nos. 1 to
50 hold permanent licences, and petitioners Nos. 51 to 99
hold temporary but renewable licences. Some of the
permanent licences were issued in 1936, and some of the
temporary licences were issued as far back as 1944. These
licences, whether permanent or temporary, were issued under
s.202 of the Sea Customs Act, 1878, prior to its amendment
by the Sea Customs ’Amendment) Act, 1955 (Act 21 of 1955).
They were issued after a brief enquiry and subject to the
fulfilment by the applicant of the following conditions :
"(1) He must produce at least 2 certificates
of character each from a Justice of Peace or
other persons of known respectability.
(2) He must certify that he has not been
convicted of any criminal offence.
(3) He must declare that he will have no
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claim to any accommodation in the
Custom House.
(4) He must also give a security of Rs. 2000 in
cash or Government paper having an equivalent
market value and execute a Bond for Rs. 2000
on It fifteen rupees Stamp Paper in the
attached form."
In 1955, by the amending Act, s.202 was substituted by
another section. The section now reads :
"202. (1) With effect from such date as the
Central Government may, by notification in the
Official Gazette specify, no person shall act
as an agent for the transaction of any
business relating to the entrance or
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clearance of any vessel or the import or
export of goods or baggage in any Custom-house
unless such person holds a licence granted in
this behalf in accordance with the rules made
under sub-section: (2).
(2) The Chief Customs authority may make rules
for the purpose of carrying out the
provisions of this section and in
particular such rules may provide for-
(a) the authority by which a licence may be
granted under this section and the period of
validity of any such licence;
(b) the form of the licence and the fees
payable therefor;
(c) the qualifications of persons who may apply
for a licence
(d) the :restrictions and conditions
(including the furnishing of a security by the
licensee) for his faithful behaviour as
regards the custom-house regulations and
officers) subject to which a licence may be
granted ;
(e) the circumstances in which a licence may
be suspended or revoked; and
(f) the appeals, if any, against an order of
suspension or revocation of a licence, and the
period within which- such appeals shall be
filed."
As A result of the enactment of this section, the original
licence, whether permanent or temporary. would have become
ineffective after. the date to be specified by the Central
Government. It became necessary for the petitioners and
others to apply for licences granted in accordance with the
rules framed- under sub-s. (2). These rules were framed,
and public notices were issued. inviting applications ; but
the dates were postponed
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till the rules were published in the Gazette on May 14,
1960. It is not necessary to refer to the prior history of
these rules and to the many representations that were made,
as they are not relevant. On June 18 1960, a public, notice
(No. 87) was issued fixing June 25, 1960 as the last date
for making applications for the new licences, and the
persons affected were informed that the. operation of the
new licences under the rules would commence on July 14,
1960. On June 27, 1960, Writ Petitions Nos. 80 and 80A of
1960 were filed, followed by Writ Petitions Nos. 81 and 116
to 213 of 1960 filed on July 12 1960. An ex-parte ad
interim stay of the revocation of the existing licences was
obtained from this Court, and subsequently, the respondents
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undertook to issue to the petitioners special temporary
licences renewable yearly till the disposal of these
petitions.
Prior to the. Custom House Agents Licensing Rules, 1960,
there were four classes of Agents. They were (1) Clearing
Agents, (2) Dalals., (3) Muccadams and (4) Baggage Clearing
Agents. According to the petitioners, there were, 100
licensed Clearing Agents, 200 licensed Dalals, 270 Muccadams
and about 15 Baggage Clearing Agents. The duties and
functions of these four classes of agents were different.
Whether these distinctions were always maintained and
whether they grew out of regulations or usage is hardly
necessary to enquire. By the Rules of 1960, these classes
were merged into one, and all licensed agents were placed on
an equal footing. In other words, there is to be hereafter
one class of agents’
Though the petitioners holding "permanent’ licences and the
petitioners holding ’temporary" licences with a term to run
out have relied upon the fact that their licences are still
valid, there was no serious attempt to deny that under s.
202(1) they would be rendered ineffective after the date to
be fixed by Government. The "permanent’ licences
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also are not in a favourable position in this regard. If
the first sub-section requires that fresh licences to work
as Custom House Agents be obtained, the distinction between
permanent and temporary licences ceases to be material. No
part of s.202 was challenged as being void or ultra vires.
In these petitions, only the Rules &ire challenged as in
breach of the fundamental rights under Arts. 14 and 19 of
the Constitution and Also as being in excess of the rule-
making power conferred by sub- s. (2) of s. 202. Form
prescribed under the Rules for taking security from the
approved agents is also questioned as being in excess of the
power to make rules and contrary, in certain respects, to
the Sea Customs Act itself. It may be mentioned that the
petitioners in all the Writ Petitions are Dalals; but at the
hearing, certain Clearing Agents obtained permission to
intervene, and were also heard.
Since the Sea Customs Act,’ in general and s. 202, in
particular were. not challenged in the petitions, we must
start with the premise that the authority to insist , on
fresh licences under the Rules in the case of all the
operators was properly exercised. The first question to
consider is whether the Rules, speaking generally, were
validly framed and the next question to consider is whether
any of the. Rules individually challenged goes beyond the
Sea Customs Act, or offends against the Constitution.
In questioning the Rules generally, the petitioners submit
that these Rules could only be framed for the purpose of
carrying out the purposes of s.202 [ provide sub-s. (1) ],
or, to provide for the, matters ’mentioned in cls. (a) to
(f) of s. 202(2). Some of the Rules. it is submitted, go
beyond the general purpose of the section, which is to
license agents and the special ’topics mentioned there, and
seek to further some of the purposes of other parts of the
Act. Mention in this connection
116
is-made specially of Form ’O’ prescribed by the Rules, under
which the agents personally and the security furnished by
them have been made liable for short collection of Customs
duty, etc. The question whether the agents are liable, in
any event,. for such short collection under s. 39 is a
question, which will have to be examined on merits
separately, but for repelling the argument in its present
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from, it is sufficient to say that it is robbed of all its
force by a. 9 of the Sea Customs Act. under s. 202(2), the
Chief Customs-authority is empowered to make rules for the purposes of t
hat section. That purpose is the licensing of
agents and the regulation of their conduct and functions.
But the Chief Customs-authority is also empowered by s. 9 to
make rules consistent with the Sea Customs Act "’generally
to carry out the provisions of this Act". The power to make
rules under s. 202 is not the only power which the Chief
Customs-authority can exercise, and it is only too clear
that power can also be derived from S. 9, if there be need.
Thus, if it is necessary that the agents must carry out
certain provisions of the Act, a rule can be made in the
exercise of the two powers together. Though the impugned
Rules are headed as framed under s.202 of the Sea Customs
Act., they cannot be questioned, if they carry out not only
the special purposes of s.202 but also certain other
purposes of the Act, because the two powers will concur to
sustain them. It is only when a rule or rules are pointed
out, which subserve neither the special purpose of the
section nor the general purposes of the Act that they can be
successfully questioned. In short, therefore, the
petitioners’ case on the individual Rules alone remains to
consider.
The first contention is that under the impugned Rules, the
number of licences to be granted at the Customs House can
be limited by the Customs. collector, and that applications
can only be made, if the Customs-collector publishes a
notice inviting
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applications. This restriction, it is contended, is
unconstitutional, as it interferes with the right of all the
petitioners to carry on their profession or a vocation
freely as contemplated, by Art, 19. The Rules bearing upon
these matters are rr.4 and 8. The latter Rule says that the
number of licences to be granted would be fixed by the
Customs collector, having regard to the volume of import and
export business transacted through the Customs House, and
the number is capable of being revised from time to time.
The former empowers the Customs-collector to invite
applications, as and when he considers it necessary. It
cannot be said that the Rules are not designed to advance
public interest, because even a processions or trade has
sometimes to be limited in the public interest, When we
pointed out to Mr. Gupta that this kind of limitation on the
number of persons allowed to hold licences is common, as,
for example, porters in a railway station, taxicab drivers
and so on, he stated that at least during the transitional
period, the old operators might have been given licences on
production of proof that they held licences previously. The
argument is really not one based upon the interests of the
public but upon the interests of the present holders of the
licences. Public interests in the context must override
private interests. It cannot be said that all the present
operators are equally desirable, and if their number exceeds
the requirement of the Customs House, it is obvious that
some retrenchment in their numbers may legitimately be made,
Every one has an equal chance of applying for the. existing
vacancies, but he must stand in. competition with the
others. There is no limitation on the number of
applications that can- be made, and thus, every operator
will get’ a chance to have his case examined. It is to be
expected that the most exprienced and the most efficient
will get preference, and. no claim can be made on behalf of
the incompetant and the inefficient that they should
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receive equal treatment. Once the number is limited to the
requirements of the business, it is manifest that the
Customs collector will invite applications only, as and when
occasion demands. These Rules, in our opinion, cannot be
said to’ offend against the Constitution.
The next contention is about rr.6(a), (b) and (c), which
require the applicant to furnish to the Customs-collector
satisfactory evidence as to his respectability, reliability
and financial status, and that he would be in a position to
muster sufficient clientele and business in the event of his
being granted the licence. The applicant has also to
furnish an income-tax clearance certificate. These
conditions are challenged as being unreasonable restrictions
upon the right to carry on a profession or avocation.
Serious attempt was not made to establish that the condition
about respectability and reliability was unconstitutional.
It was, however, pointed out that evidence about financial
status created a class barrier between the rich and the poor
and only the rich were to be preferred. By the words
financial status" is not meant that the applicant must be a
wealthy person; what is required is that he should not be
financially embarrassed, and proof that he is in easy
circumstances. It is obvious that the agents under the Act
deal with vast sums of money and valuable articles, and it
may be necessary to scrutinise the financial position the
applicant to find out whether or not he would be exposed to
temptations. A person heavily indebted or insolvent cannot
be trusted in the same way as a person who is not so
embarrassed, and an enquiry into financial status is so much
in the public interest, that we cannot say that the
condition must necessarily be unreasonable. Similarly, the
argument. that new entrants would find it difficult to
assure that they would have sufficient clientele and
business and would thus be discriminated against, is not
correct. The Customs House is not a place where persons can
allowed to learn a
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profession or to take a chance. The movement of goods, the
due performance, of the duties and functions under the Sea
Customs Act and observance of the regulations are not easy
matters for a person, who is not sufficiently experienced
and who has not got the backing of a certain amount of
business and the experience which such business affords. It
may be necessary for a person to apprentice himself for some
time to get to know the importers and exporters, and to
prove to the Customsauthority that by reason of his
apprenticeship and his business connections lie would be in
a position to handle the work in the Customs House from the
moment he is licensed. The Rule is designed to avoid entry
into the Customs House premises of persons who, being there,
are unable to do business, and merely add to the number of
persons present.
The last condition is the production of an income-tax
clearance certificate. The petitioners rely upon a decision
of the Madras High Court reported in K. Raman and Co. v.
State of Madras (1). In that case, it was hold that the
fact that a person was in arrears of income-tax was not
germane to the issue of a licence under the Yarn Dealers
Control Order, and that the insistence on the production of
an income-tax clearance certificate was extraneous to the
carrying on of the business. The position of an agent who
handles other persons’ moneys and goods is different from
that of a dealer who deals with goods on his own behalf. As
part of an enquiry into an applicant’s respectability,
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reliability and financial status, an enquiry can also be
made to see whether he has discharged his debts to the
State. If a person is liable to income-tax and pays it
punctually, he would have no difficulty in proving it. If,
however, for some good reason the payment has been delayed,
there would be nothing to prevent. him from proving it.
(1) A.I.R. 1953 Mad’. 8A.
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insistence upon the production of the certificate is, in our
opinion, connected with the enquiry into his respectability
and financial status. to find out if he can be trusted with
other persons’ money and goods.
The next Rule which is questioned is r. 9, which provides
for an examination of the applicant. This examination
follows a scrutiny of the application under the other Rules,
and embraces questions on various subjects. The duties of
the agents require them to handle goods, and the examination
is designed to find out whether a candidate knows the
elements of the law relating to the arrival, entry and
clearance of vessels and goods. Objection is not raised to
the examination as a whole but only to cl. (p) of r. 9 (2)
under which a candidate is supposed to know the procedure in
the matter of refund of claims, appeals and revision
petitions under the Sea Customs Act. It is contended that
these are matters in which an agent is not interested as an
agent, but are matters for the owner and the Castoms-
authorities to know. It is true that the curriculum for the
examination is somewhat extensive ; but it is also, clear
that what is expected of the candidate is knowledge, not
necessarily exhaustive but sufficient, of the laws relating
to the arrival, entry and clearance of vessels and goods.
We do not think that it is wrong for the. authorities to
insist upon at least a working knowledge of the laws
applicable to the kind of work the agents are required to
do. When licences are issued under other laws, a candidate
is sometimes required to answer questions relating to the
law under which the licence is issued. One well-known
example is the questioning of a candidate about the rules of
the road when he is issued a licence to drive a mechanically
propelled vehicle. These Rules advance efficiency, and the
additional know, ledge about refunds, appeals and revisions
under the Act may be necessary where an agent handles
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goods of a principal, who is himself not present to file
appeals or revisions or to claim refunds. The Rule, in our
opinion, is perfectly valid.
Rule 10 is the next subject of attack. It provides that the
Customs-collector shall reject an application, for the grant
of a licence (a) if the candidate fails to pass the
examination, or (b) the number of vacancies do not justify
the grant of such licence, or (c) the applicant is not
otherwise considered suitable. Objection is taken to cl.
(c). It is said to confer a very wide discretion on the
Customs-collector, and reference is made to sub-r.(2), in
which it is provided that no appeal shall lie from the
order. of the Customs-collector rejecting an application.
It is further pointed out that in July, 1960, the Rules were
amended by the addition of r. 25, under which an appeal is
to lie to the Chief Customs-authority against every order of
the Customs-collector-(i) rejecting an application for the
renewal of a licence granted under these Rules; (ii) rejecting
a fresh application made in accordance with r. 17 ; and
(iii) refusing the grant or renewal of a special temporary
licence under r. 24. It is argued that even though an
appeal has been provided for these matters., no appeal has
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been provided for the rejection under r. 10(1)(c). No
doubt, other reasons may exist for rejecting the application
of a candidate, as for example, when he is found to be a
leper or an epileptic ; but one would expect that an order
of this kind would’ be backed by reasons to be recorded in
writing. It must be remembered that there is first a
scrutiny of the application and an enquiry into the
respectability, reliability and financial status of the
candidate. Then. follows an examination, If a’ candidate
satisfies ’all the above condition’s, there would hardly be
any ground left. for rejecting his application, except
probably his physical unfitness to. do. the work, The Rule
which: is framed is so gel general that it leaves to
discretion of the
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Customs-collector to reject a. candidate for a trumpery
reason (which he need not state), even though the candidate
may be otherwise suitable. In out opinion, if a candidate
is found fit under the other Rules and has successfully
passed the examination, he should only be rejected under a
rule which requires the Customs-collector to state his.
reasons for the rejection, and the rules must provide for an
appeal against that order, as they do in the other cases.
As the Rule stands, it cannot be considered to be a
reasonable restriction upon the right of the successful
candidate to carry on his avocation.
The next Rule which is questioned is r. 11, which enjoins
the payment of a fee of Rs. 50 both for a fresh application
as well as renewal of the licence. In so far as the fee for
the grant of a licence in the first instance is concerned,
it cannot be said that the charge is exorbitant. It is not
disputed that a fee is an amount collected to reimburse the
Government for the expenses of licensing. It must
reasonably be measured against the cost which may be
entailed in the process of granting licences. In the
initial stage, the Customs-authorities have to scrutinise
applications, subject the candidates to an examination, and
provide them with licences to carry on their work. A fee of
Rs. 50 initially may not be considered unreasonable, regard
being had to the services involved. The same, however,
cannot be said in the case of renewals. It is pointed out
in the petition that formerly the charge was only 50 nP. It
is averred in the petition that all that the licensing
authority does, is to make an endorsement on the licence
that it is renewed for a further period. It has been ruled
in this Court that under the guise of a fee there must not
be an attempt to raise revenue for the general funds of the
State. In our opinion, a renewal fee of Rs. 50 does not
entail services which can be reasonably said to measure
against the charge. It may be pointed out that, though this
averment was made in the petition,
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no. attempt was made by the answering respondents to
traverse it.. In our judgment the renewal fee of Rs. 50
ceases to be a fee, and is, in its nature, a tax to raise
revenue. Such an impost cannot be justified’ as a fee, and
we accordingly, hold that this charge is improper. It
would, however, be open to the Government to frame a rule in
which the renewal fee to be charged is reasonable in the
circumstances.
The next objection is to sub-r.(g) and sub-r.(k) of Rs. 15.
Sub-rule (g) requires a Custom House Agent to pay over to
Government all sums received for payment and to account to
his client for monies in his hands. Sub-rule (k) requires
him to maintain accounts in such form and manner as may be
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directed from time to time by the Castoms-collector, and
submit them for inspection to the Customs--collector or an
officer authorised by him. No exception can be taken to
sub-r.(g) which only states what must be regarded as an
inevitable obligation on the part of the Agent. Sub-rule
(k) is said to be excessive control on the part of the
Customs-authorities of the way in which the agent may keep
his own account. :The licensing of an agent creates an
assurance,, in the minds of the prospective clients, and the
Rule is designed to ensure that the monies which the agents
handle are properly accounted for. In our opinion, these
Rules are salutary, and further the control over the agents,
who stand in a fiduciary capacity both in regard to their
own clients and the Government.
Rule, 17, which enjoins upon a firm which acts as a licensee
to report to the Customs collector as early as possible and,
in any event, within a period of three days of a change in
the constitution of the firm, is next challenged. It is
said that the period of three days is too short ; but it"
must be remembered that ’a large number of transactions may
go through without the licensing authority being aware that
the constitution of a firm has changed. The Rule is
designed to bring promptly to the notice
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of the Customs-collector the change in the constitution of
the firm, so that he may be in a position to decide for
himself whether the licence in the changed circumstances
should be allowed to operate or be suspended or revoked. In
our judgment, this Rule, cannot be questioned.
Mr. Porus Mehta who argued the case on behalf of the
Clearing Agents, stated that the newly constituted firm is
required to make a fresh application which is to be dealt
with in accordance with the provisions of rr. 6 to 13.
According to him, every change in the, constitution of the
firm requires the firm to go through the entire process of
scrutiny and examination, which he’ terms unnecessary. The
rule is designed to ensure that the new members of firm
answer the requirements which have been laid down is Rules 6
to 13, and these requirements may be necessary, if
new,entrants come in. It is to be noticed that pending the
disposal of the application, the Customs-collector is
authorised by the rule in his discretion to allow the
existing firm to carry on the business of Custom’ House
Agents. This softens the rigorous of the rule, because the
work of the agents in proper cases would not be hampered,
and the application would stand over for disposal to a later
date.
Rule 19 which also enjoins the maintenance and inspection of
accounts by a firm was criticised in the same manner as was
r. 15, and for the reasons which we have given, we hold it
to be conducive to the proper control of the financial
activities of a firm as licensee.
Rule 22 deals with the cancellation of the licence for
failure of the agent to comply with Any conditions of the
bond executed by him, under "the Rules, for failure to
comply with any of the, provisions of the Rules and for
misconduct on.. his part which, in the opinion of the
Customs-colloctor renders him unfit, to transact business
in the
125
Customs House. It is contended that,the rules are so
exhaustive and numerous thatno agent would ever -be
able to keep out of theoperation of that-Rule, and that he
would be’ perpetually exposed to the penalty of suspension
or revocation of his licence. Rules are made for
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compliance and not for breach, and even though strict, they
are all designed to ensure efficient and proper working on
the part of the agents. A rule insisting upon such
compliance with the other rules on pain of penalty _cannot
be said to be outside the rulemaking power of the Customs-
authorities. Every order of suspension or revocation is
subject to appeal, and there is thus room for interference
if the Customs-collector acts arbitrarily or perversely. In
our: opinion, with the existence of an appeal, the rigour of
the rule, if any, is taken away except in those flagrant
cases, where suspension or revocation of the licence would
be merited.
Lastly, it is contended that the Rules control a licensed
agent in a manner which makes him an unpaid servant’ of the
Customs-authorities. This is one way of looking at the
matter. The right way to look at it is that a profession is
being regulated, and the profession is one in which an agent
deals with the property of another and by the law is deemed
to be owner of the property. A person in such a high
fiduciary position must, of necessity, be subjected to
strict control, and the licensing authority in holding him
forth to the prospective principals as a reliable and
trustworthy person must see that persons acting on the faith
of the assurance of the licence are in no way damning. The
Rules, therefore, subserve a very salutary and necessary
principle, and, in our judgment, are designed to advance
public interest and cannot be questioned, unless a person
wishes to act, dishonestly and wants to avoid control. It
is wellknown that many underhand practices are common at
Customs Houses, and ’the Customs-authorities
126
have to be vigilant in preventing them. They must,
therefore, see that they do not license the wrong type of
person is and in the interests of the Revenue and more so, in the inte
rests of persons who employ licensed agents,
these Rules have, been framed. Looking at the Rules
generally, we are of opinion that though they, are strict,
they axe Absolutely necessary, and their strictness would be
felt only by persons, who, are not otherwise honest.
The main argument in the case is upon r.12 read with From
It, which is the bond which every applicant has to executive
in favour of the President of India, and its enforcement
against the applicant under certain ’circumstances. Under
r. 12, it is provided that before a licence is granted under
the Rules, the Customs collector shall require the applicant
to enter into a bond in Form ’C’ for the 7 due observance of
these Rules. and the conditions of his licence and also to
furnish a security of Rs. 3,000 in cash or securities and a
solvent surety for a sum of Rs. 2,000. The surety is
required to execute’ a separate bond in, Form ’D’. A
proviso added to the ’Rule says that the security may be:
increased or, decreased by the Customs--collector at any
time, should he, consider it necessary to do so, having
regard to the volume and-type of the business which the
applicant will transact as Custom House Agent. It may be
mentioned here, that the four classes of agents which had
grown in the past have now been fused into one, and an agent
under the Rules may not confine his activities to those of
any one or more of the four classes previously
existing.Objection, however, is taken to the basic figure of
security and particularly, the cash security of Rs 3000,
which are innovations under the present Rules. Reference is
made to the provisions of Form ’C’, in which it is provided
as follows:
127
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"It is also agreed and declared that the
President of India may apply the above sum of
Rs.......... in making good wholly or in part,
any short collection of duty or other charges
in respect of any transactions made by the
said...... on behalf of importers in the event
of such sums remaining unpaid,, even after
issue of demands under section 39 of the Sea
Customs Act."
The petitioners contend. that the increased security,
particularly, in cash, puts an unreasonable restriction upon
the right to carry on the profession or avocation. They
point to the fact that in the, past a security of Rs. 2,000
had been considered adequate, and from 1937 onwards, that
security alone was demanded. They also contend that as
Dalals they are only required, to present the shipping bills
and the assessment or appraisement of the customs duty is
the function of the Customs Officer. If any mistakes are
made, due to an error on the part of the Customs-authority,
or even due to a wrong declaration of the real value of the
goods by the importer, the collection of duty should be made
from the owner of the goods and not from them. They also
contend that this is the meaning and intent of s. 39, which,
in terms, makes the owner of the goods liable to make up for
the short collections and puts no responsibility on the
agents. They further. contend that the last clause of the
bond, quoted earlier, makes the agent liable for payment of
the balance of the duty before any attempt is made to
recover it from the owner or importer.
The last point need not detain us long, because it is raised
on the existence of the’ word "’even" in the clause "even
after issue of demands under section 39 of the Sea Customs
Act". The word "even" does not mean that the agent’s
security can be touched before the notice is given. It
rather indicates that the security would be utilised to make
up the deficit only when a notice
128
is given and if even after notice there is no compliance.
This would indicate that before the ,security is so
utilised, a notice must go to the agent or his principal,
and the bond makes the notice a sine qua non of an action to
recoup the deficit duty from the security amount.
The larger question whether the agent can be made
responsible for the short collection of duty under s.39 may
be deferred for the moment. Previous to the promulgation of
the- Rules, there were, as already stated, four classes of
Agents, and their duties, by custom and usage, were also
different. It is now contemplated to make a single class of
agents and also to restrict the number of such agents. It
is quite clear, therefore, that the amount of business which
would be done by the agents who are licensed, would grow
significantly. Also, each agent would be entitled to do all
kinds of businesses which were handled separately. This
justifies the demand for increased security, and it should
be noticed that there is room for the reduction of the duty
in individual cases, if the amount of business which the
agent would carry on, would be small. Similarly, there is
provision for demanding increased security from a person who
does or is expected to do a much larger amount of business
as an agent. There is thus no room for a proper adjustment
of the amount of security to be obtained from each
individual licensed agent, commensurate with the volume and
type of business which he will transact. We do not,
therefore, consider that r. 12 is defective on this ground.
Before we deal with s. 39, it is necessary to review certain
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other sections of the Sea Customs Act. Under the Sea
Customs Act, it is not obligatory upon a principal to
appoint a licensed agent. An importer or exporter, as the
case may be, can also appoint any person with the approval
of the Customs-collector as
129
his agent, who need not be a licensed agent. (R.3). The Rules are me
ant to control action of agents, particularly
the licensed agents. Under the Act, the position of an
agent, whether licensed or not, is indicated in s. 4, which
reads
"When any person is expressly or impliedly
authorized by the owner of any goods to be his
agent in respect of such goods for all or any
of the purposes of this Act. and such
authorization is approved by the Customs-
collector, such person shall, for such
purposes be deemed to be the owner of such
goods." ,
One of the duties of the’ owner of the goods is to make a
declaration of the real value of the goods in a bill of
entry or shipping bill. Under s. 29, on the importation
into, or exportation from, any customs-port of any goods,
whether liable to duty or not, the owner of such goods must,
in his bill of entry or shipping bill as the case may be,
state the real value, quantity and description of such goods
to the best of his knowledge and belief, and must subscribe
a declaration of the truth of such statement at the foot of
such bill. Under the same section, the Customs-collector
may require the production of invoices, broker’s note,
policy of insurance or other document to satisfy himself
about the real value, quantity or description of such goods.
The Customs-Collector is also authorized to inspect the
goods for the same purpose. Under ss. 29A and 29B, there
may be an assessment of duty prior to the examination of the
goods and a provisional assessment of duty and its payment
even prior to, the production of the documents above
mentioned or the inspection of the goods. Section 30 of the
Act defines "real value" and that is the value on which the
assessment of the goods takes place. That section is not
dependent upon the ’declaration of the owner, but defines
"real value" in terms of a formula which, on its application
determines of the real value, apart from any declaration.
130
Section 31 provides for the examination of ad valorem goods,
and if the real value such goods is correctly stated in the
bill of entry or shipping bill, the goods are assesssed in
accordance therewith. Section 32 provides for the
procedure, if it appears that such goods are properly
chargeable. with a higher rate or amount of duty than that
to which they were subject according to the value stated in
the bill of entry or shipping bill. The Officer may then
detain the goods and collect the proper duty. Sections 33,
34A and 35 deal with abatement allowed or disallowed under
certain circumstances. Sections 36, 37 and 38 deal with the
alteration of import and export duties or tariff valuations.
When the proper duty has- been paid according to the checks
and inspections, if any, the goods are allowed to be
cleared.
Section 39, as the marginal note, shows correctly, deals
with payment of duties not levied, short-levied or
erroneously refunded., The first subsection, provides as
follows :
"(1) When customs-duties or charges have, not
been levied or have been short-levied through
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inadvertence, error, or collusion or
misconstruction on the part.of the Officers of
Customs, or through misstatement as to real
value, quantity. or description on the part of
the owner
or when any such duty or charge, after having
been levied, or has been, owing to any such
cause, erroneously refunded,
the person chargeable with the duty or charge
which has not been levied or which has been so
short-levied or to whom such refund has
erroneously been made, shall pay the duty or
charge or the deficiency or repay the amount
paid to him- in excess., on a notice of demand
being issued to him within three months from
the relevant date as defined in sub-section
(2);
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and the Customs-collector may refuse to pass
any goods belonging to such person until the
said duties or charges or the said deficiency
or excess be paid or repaid,"’
The second sub-section need not be quoted, because ,it does
not bear upon the controversy.
The contention of the Petitioners is that although in the
first paragraph of s. 39(1) the word "owner" may comprehend
an agent who is deemed to be an_owner, if authorised under
the Act, the, section does not use the word "owner" in the
latter part, and speaks of "the person chargeable with the
duty", meaning thereby a change over to the real owner of
the goods in contradistinction to the agent. They urge that
this is even more apparent from the words of the fourth
paragraph of the first sub,section which authorises the
Customs-collector to refuse to pass any goods belonging to
",such person" which must mean the goods belonging to the
real owner, who is properly chargeable with the duty. It is
contended, therefore, that as the agent is not within the
reach of s.39, the demand of duty from him cannot be made,
and that the provisions of the bond by which the agent and
his security are made liable, are beyond the provisions of
s. 39 and thus invalid.
One, thing is clear that the Customs-authorities may have no
dealing with the real owner of the goods where the agent has
been authorised to deal with them for the purposes of the
Sea Customs Act or any of its provisions. Section, 4
clearly lays down a fiction, that if the agent is authorised
by the real owner in respect of any of the matters in the
Act, the Customs-authorities would deal’ with the agent as
if he were the owner. The effect of the fiction is,
therefore, to make- an agent answerable to the Customs-
authorities within the four corners of his authorisation.
The fiction operates only within those limits. An agent may
be authorised
132
to declare the real value and to pay the customs duty or
other charges. If an agent is authorised in this manner,
under the fiction created by s. 4 he would be regarded as
the owner and would be dealt with as such, by the Customs
authorities.
It bar, already been pointed out that the real value,
quantity and description of the goods have to be declared in
the bill of entry or the shipping bill. A form was shown to
us at the bearing in which the declaration has to be made
either by the real owner or the agent. The form emphasis
also that all responsibility for the declaration and for the
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payment of the proper duty and charges may be taken by an
agent. Once an agent has made a declaration and has also
been authorised to pay the duty etc., it is to him that the
Customs-authorities would look for payment or additional
payment, and it is to him that refunds would be, made. The
Customs-authorities would not deal with the real owner, and
that is the scheme of the Act.
When s. 39 says that where customs duties or charges have
not been levied or have been short-levied through
inadvertence, error collusion or misconstruction on the part
of the officers of Customs, or through misstatement as to
real value, quantity or description on the part of the
owner, it refers not only to the real owner,, but also to an
agent, if the latter can be deemed to be the owner., This is
indeed, conceded by the petitioners. The question then
arises, what does the section mean when it speaks of "’the
person chargeable with the duty or charge which has not been
levied or Which has been so short-levied, or to whom such
refund has erroneously been made"? Obviously enough, the
person to be charged, in so far as the Customs-authorities
are concerned, is not the, real owner but the agent, a
fictional owner of the goods. If a ’fictional owner, can be
read into the first part
133
of the section there is no reason why the words "the person
chargeable with duty" cannot also be applied to him. In the
circumstances in which the agent makes a declaration with
authorisation from the real owner, the agent is the person
chargeable with the duty. Otherwise, for the duty
chargeable in the first instance the agent would be the person charge
able with the duty and ’for any short payment
he would cease to be such a person and the Customs-
authorities would have to deal with the real owner, who made
no declaration or payment. The words "the person chargeable
with the duty...", therefore, have advisedly been used not
to exclude the agent but to describe in a neutral way the
person from whom such a demand can be made. They are wide
enough in their ambit to take in, not only the real owner
but also a "deemed owner" under the Act. So far, there is
no difficulty, and the objection of the learned counsel for
the petitioners that a simpler method would have been to use
the word "’owner" in this part of the section ,is without
substance, because the legislature may express its meaning
and intention in different ways.
The critical argument, however, is, on the. fourth paragraph
of s. 39(1). There, it is provided that if the excess
charge is not paid, "the Customs-collector may refuse to
Pass any goods belonging to ’such person’ until the said
duties or charges or the said deficiency or excess be paid
or repaid". It is contended that an agent deals with
numerous owners at the same time, and if this paragraph is
applied literally, then the Customs-collector would be
entitled to refuse to pass the goods belonging to other
Owners, handled by the same agent. This argument, in our
opinion, does not represent the true state of the law. An
agent, when he works for different owners with
authorisation, undoubtedly becomes a fictional owner of the
goods belonging to them; but he does not become. a single,
owner in respect of the good belonging to
134
different clients. He becomes an owner quoad each client
and his ownership of the goods is diversified and is not
one. The agent, therefore, stands in the shoes of several
persons at the same time, and is himself a multitude of
owners. It is only when short payment has been made in his
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capacity as one fictional owner, that he can be asked to pay
that which he ought to have paid in the first instance. He
is exposed to the penalty of having his goods detained in
the, same capacity as owner quoad his defaulting client, and
the goods within his control for the same client will be
detained until the duty has been paid. It is only the goods
of the defaulting owner in respect of which he is also the
deemed owner, that would suffer the penalty of detention but
not the goods of a different owner, even though the agent
may be authorised to deal on his behalf. It is in this way
that the section must be read’ without contradiction in its
several parts, because to read it as suggested by the
petitioners, creates a contradiction between the first
paragraph and the other paragraphs that follow. An
authorised agent is an owner for all purposes of the Act
(including payment of duty). If one were to say that in the
other paragraphs of s. 39(1) he is not included, then the
fiction which is created by s. 4 would cease to be worked
out to its logical limits. Once it is held that the words
",’the person chargeable with the duty........... are apt to
describe not only the real owner but also his authorised
agent (and there is no reason why these words should be
restricted), the fourth paragraph falls in line with the
others, and the ownership of the agent is, therefore,
limited to one client at a’ time, and the goods of that
client of which the agent is also the deemed owner, are
exposed to the. penalty of detention. It must be remembered
that the Act makes the ’goods’ liable to duty and the
payment of duty by owners clears the goods. The law goes
further, and says that other goods of the owner are also
liable for an deficit, if the
135
liable to duty are ’cleared.’ before the full duty has been
paid.
The condition in the bond is limited by the operation of
s.39 to the transactions of one constituent at a time, and
the for feature of security is also limited to the
constituent in default. The bond prescribes for recouping
of the deficiency in the customs duty or charges from the
security, even after notice is given. This notice must be
given within three months from the relevant date as demand
in the section. The limit of three months also applies to
the agent as the deemed owner in the same way as it does to
the real owner. If no notice. is given, then the bond, on
its own terms, cannot be enforced. In our opinion, the
contentions of the petitioners are not, sustainable.
In the result, the petitions must fail except to the extent
that we declare r. 10(c) to be an unreasonable restraint
upon the right of the petitioners to carry on their
avocation and r.11 when it prescribes a renewal fee of Rs.
50, invalid inasmuch as it has provided not for a fee but
for a tax. Subject to this, the petitions are dismissed.
The petitioners will pay the costs of the other side (one
set only), as they have lost substantially.
SUBBA RAO, J.-I have, had the advantage of’, perusing the
judgment prepared by my learned brother, Hidayatullah, J. I
agree with him except in regard to r. 6(c) of’ the Custom
House Agents Licensing Rules, 1960 (hereinafter called the
Rules). Rules 6(c) says : "An applicant for a licence shall
furnish an income-tax clearance certificate." The Rules were
made to regulate the conduct of the clearing agents so that
they may discharge their duties to the satisfaction of not
only the Customs Authorities but also the public. In my
view, the production of income-tax clearance certificate is
extraneous to the issue, of a licence to a customs house
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agent. How’ does the ’production of such a certificate
improve the credentials of an applicant
136
for selection as a customs house agent, An applicant may be
financially sound and also otherwise duly qualified; he may
have discharged all his debts, and paid all his taxes except
a small portion of his income-tax: he may not have paid the
income-tax for good reasons. Yet, if he goes. not produce
the income-tax clearance certificate, he is disqualified.
What is. the reasonable nexus between the production of such
a certificate and a person’s right to do business as a
clearing agent ? There is none, except a remote and
fanciful presumption that a man who pays the income-tax. may
also pay the dues payable to the Customs Authorities. In K.
Raman & Co., Tellicherry v. State of Madras (1), in the
context of issue of a licence under the Yarn Dealers Control
Order, as Judge of the Madras High Court,, I have held,
"the fact that a person is in arrears of
income-tax is not germane to the issue of a
licence under the Yarn Dealers Control Order.
It is a, circumstance extraneous to the
petitioner’s right to carry on his business.
The Income-tax Act provides an adequate
machinery for realising the arrears due from
an assessee. I am of the view that the
restriction imposed is unreasonable and is not
in the interests of the general public."
I still adhere to that view. Every taxing Act has a
machinery for collecting the tax imposed by it, but the said
rule, in effect and substance, provides for an additional
machinery for collection of income-tax. I would, therefore,
hold-that the nonproductive of an income-tax clearance
certificate is not germane to the issue of a licence under
the said Rules. I would therefore strike out r.6(c) of the
Rules on the ground that it constitutes an unreasonable
restriction on the right of an applicant to do business as
customs, house agent,
(1) A.I.R. 1953 mad. 84.
137
BY COURT: In accordance ’with the opinion, of the majority,
the petitions must fail except to the extent that we declare
r.10 (c) to be: an unreasonable restraint upon the right of
the, petitioners to carry on their avocation, and r.11, when
it prescribes a renewal fee of Rs. 50, invalid inasmuch as
it has provided not for a fee but for a tax. Subject to
this, the petitions are dismissed. The petitioners will pay
the costs of the other side (one set only), as they have
lost substantially.
Petitions dismissed except for slight modification