Full Judgment Text
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PETITIONER:
SIEMENS ENGINEERING & MANUFACTURING CO. OF INDIA LIMITED
Vs.
RESPONDENT:
UNION OF INDIA & ANR.
DATE OF JUDGMENT30/04/1976
BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
GUPTA, A.C.
FAZALALI, SYED MURTAZA
CITATION:
1976 AIR 1785 1976 SCR 489
1976 SCC (2) 981
CITATOR INFO :
D 1977 SC 567 (23)
E 1979 SC1803 (7,8)
R 1984 SC 130 (2)
D 1984 SC 273 (42)
R 1986 SC2105 (17)
R 1988 SC1340 (6)
D 1988 SC1459 (15)
RF 1990 SC1984 (7,31,33,36)
ACT:
Customs Traiff-Items 72(3)-Scope of.
Inferpretation-"Not otherwise specified" occurring in
’’machinery and not otherwise specified"-Meaning of.
Administrative law-Reasoned order by Tribunals
essential.
HEADNOTE:
Under item 72(3) of the First Schedule to the Indian
Customs Tariff, component parts of machinery as defined in
item nos. 72, 72(1) and 72(2) aand not otherwise specified
are chargeable to customs duty. Item 73(21) comprises of
"electric motors, all sorts, and parts thereof". On the
strength of a licence for importing "complete continuous
filament Rayon Plant-with spares and accessories" certain
spinning frames excluding pot motors were imported from
Japan but not motors were imported from Germany by the
appellants. The customs authorities accepted the claim of
the appellants that the consignment of pot motors fell
within item 72(3) and charged import duty accordingly.
Sometime later, the Assistant Collector of Customs, claiming
that customs duty on pot motors was short levied as they
fell within item 73(21) called upon the appellants to pay
the difference, against which the appellants made a
representation to the Assistant Collector. But the Assistant
Collector held against the appellants without giving any
reasons. The appellants thereafter filed a representation to
the Collector but he held that since the spinning frames and
the pot motors were imported under separate contracts from
separate countries the two consignments could not be treated
as one article and hence rejected the representation. The
appellants thereupon applied to the Government of India in
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revision but the revision application was also rejected.
Allowing the appeal to this Court.
^
HELD: (1) (i) Item 72(3) is a specific item covering
pot motors as against item 73(21) which is a general item.
Pot motors were, therefore, assessable under the former and
not under the latter. The original assessment of the
Assistant Collector was correct and the subsequent demand of
differential duty which was confirmed by the Collector and
the Government of India was unjustified (ii) Pot motors fell
within the description given in item 72(3). They were
specially designed for use in spinning machines for
manufacturing rayon thread. and they were indubitably
essential for the working of the rayon spinning machines and
were incapable of being used for any other purpose. They
were, therefore, clearly component parts of the rayon
spinning machines. [495-D, 494A]
(2 ) The argument of the respondents that if any
component parts of machinery were specifically dealt with in
any other item, they would go out of item 72(3) and since
pot motors were electric motors within item 72(21) they were
not covered by item 72(3) was clearly unsustainable. As a
matter of both grammar and language the words "not otherwise
specified" cannot be read as qualifying "component parts".
They qualify "machinery". Otherwise the conjunction "and"
would have no meaning. The sentence would become
ungrammatical if the words "not otherwise specified" were
read to govern "component parts". The description of the
component parts which follows the words "not otherwise
specified" starts with the words "namely" which shows that
it is intended to be a complete description of the component
parts covered
490
by this item and that would also not actually fit in with
component parts-"not otherwise specified". Therefore, pot
motors could not be held to fall outside that item because
they were otherwise specified in item 73(21). [494H]
(3)(a) Where an authority makes an order in exercise of
a quasi-judicial function it must record its reasons in
support of the order it makes. Every quasi-judicial order
must be supported by reasons. [495G]
M. M. Desai v. The Testeels Ltd. & Anr. CA 245 of 1976,
decided on 17th Dec. 1975, referred to.
(b) If courts of law were to be replaced by
administrative authorities and tribunals and with the
proliferation of administrative law, they may have to be so
replaced, it is essential that administrative authorities
and tribunals should accord fair and proper hearing to the
persons sought to be affected by their orders and give
sufficiently clear and explicit reasons in support of the
orders made by them. The rule requiring reasons to be given
in support of an order is like the principal of audi alteram
partem, a basic principle of natural justice which must
inform every quasi-judicial process and this rule must be
observed in its proper spirit and mere pretence of
compliance with it would not satisfy the requirement of law.
[496B-D]
In the instant case the Assistant Collector did not
give any reasons in support of his order which was in plain
disregard of the requirement of law. The reason given by the
Collector was hardly satisfactory. His order could have been
a little more explicit and articulate so as to lend
assurance that the case had been properly considered by him.
The Government of India too failed to give any reasons in
support of its order rejecting the revision application.
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[496-H]
[The Court expressed the view that it would be
desirable that in cases arising under customs and excise
laws an independent quasi-judicial tribunal is set up which
would finally dispose of the appeals and revision
applications under these laws instead of leaving the
determination of such appeals to the Government of India. An
independent quasi-judicial tribunal would inspire greater
confidence in the public mind.] [496F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal 1277 of
1968.
(Appeal by special leave from the order No. 2674 of
1967 of the Ministry of Finance, Government of India)
Hardev Singh, Ishwar Chand Jain and R. S. Sodhi; for
the Appellant.
S. N. Prasad and S. P. Nayar, for respondents.
The Judgment of the Court was delivered by
BHAGWATI, J. This appeal by special leave raises a
short question as to what is the correct amount of import
duty chargeable on pot motors when imported separately from
Rayon Spinning frames: do they fall within Item 72(3) or
Item 73(21) of the First Schedule to the Indian Customs
Tariff? The facts giving rise to the appeal are few and may
be briefly stated as follows:
Some time in 1956 a licence for setting up a plant for
manufacture of Rayon was granted to one Kesoram Industries &
Cotton Mills Ltd. under the Industries Development and
Regulation Act, 1951. Since the machinery and equipment
required for setting up the plant were not available in
India, Kesoram Industries and Cotton Mills Ltd. applied for
an import licence and on the basis of this application,
import licence was granted to them for importing "complete
continuous filament Rayon plant-with spares and accessories"
of the CIF value of Rs. 5.50 crores from general currency
area excluding South Africa.
491
It appears that Kesoram Industries & Cotton Mills Ltd.
imported, on the strength of this import licence, Rayon
Spinning frames, excluding pot motors, from Japan, but so
far as pot motors were concerned, they authorised the
appellants to import from Germany 4000 of these motors for
initial installation of the Spinning frames. Pursuant to the
authority so given, the appellants placed orders for 4000
pot motors with manufacturers in Germany and imported the
same in seven different consignments under the Import
licence of Kesoram Industries & Cotton Mills Ltd. These
seven consignments arrived at Calcutta port between
September and December 1961. The appellants claimed before
the Customs authorities at the time of assessment of import
duty on these seven consignments that pot motors imported by
them fall within Item 72(3) of the First Schedule to the
Indian Customs Tariff and were chargeable to import duty
under that item at the rate of 15 percent of their accepted
value. This claim was accepted by the Customs authorities
and these seven consignments were allowed to be cleared on
payment of import duty under Item 72(3). However, within a
short time thereafter, the Assistant Collector of Customs
issued seven separate notices of demand in respect of these
seven consignments claiming that customs duty at the rate of
15 per cent had been short levied, because pot motors were
assessable at the rate of 20 per cent and requiring the
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appellants to pay up the difference within 15 days from the
date of demand under s. 39 of the Sea Customs Act, 1878. The
appellants sent representations against these notices
pointing out that-and we are quoting here from the
representation dated 8th December, 1961 which is:-
"These pot motors are vital component part of the Rayon
Spinning machines already imported and are not in
excess of the quantity required for the first
installation of the said plant. The pot motors are
required for 24 Spinning frames having 2 sides each. On
each side of these frames, 66 motors are connected.
Hence total initial requirement of pot motors for
running 24 frames is 3168. In view of general
experience with this type of plant approximately 25%
additional motors are required for trial runs and
commissioning 4000 Nos. Of not motors should, there
fore, be supplied for first installation of the Rayon
plant.
These pot motors are of very high speed and are
specially designed for use in spinning frames for
manufacturing rayon thread. They run at 7700 RPM and
are designed for a rated voltage of 130 V. at 130
cycles per second for use in circuits of less than 10
amps. As such, these motors can in no circumstances be
used for any other purpose excepting as stated above.
The accessories of these motors are specially
designed to suit particular size of spinning pots as
well as spinning chambers. The smooth running of these
motors is achieved after a great research by using
flexible elastic and hollow shaft, special rubber
bushings for support as well as specially designed
bearings, to take care of severe stresses,
492
which are normally encountered by these motors during
operation.
Hence, it is inevitable that any deviation in the
design of the above component parts would mean
defeating the purpose for which these motors are meant.
In view of the above, these motors cannot be
classified other than an integral part of the Rayon
Spinning plant.
We, therefore, claimed as assessment of duty under
proviso 72(3) at the time of clearing."
The appellants did not receive any reply from the Assistant
Collector in regard to these representations for a period of
about three years and hence they thought that their
representations had been accepted and the demand for
differential duty had been dropped. This, however, turned
out to be a vain hope, for seven communications dated 19th
January, 1965 were received by the appellants from the
Assistant Collector stating that the demand for differential
duty in respect of each of the seven consignments was
confirmed and would be enforced in due course if the
differential duty was not paid by the appellants. Each of
those seven communications contained an intimation that "an
appeal against this decision lies to the Appellate Collector
within three months hereof". The appellants, however, did
not prefer an appeal to the Collector and instead tried to
persuade the Assistant Collector to change his opinion by
pointing out the relevant facts. It appears that in the
meantime the Assistant Collector recovered the aggregate
amount of the differential duty from the deposit account of
the appellants. The appellants once again made a
representation to the Assistant Collector and requested him
to refund the amount of differential duty collected by him
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but the representation did not meet with any favourable
response from the Assistant Collector. The appellants
ultimately filed a representation to the Collector on 15th
July, 1965 setting out their case in regard to the
assessment of customs duty and pointing out that the
original assessment of customs duty made under Item 72(3)
was correct and that the differential duty had been wrongly
recovered from them. This representation was treated by the
Collector as a revision application against the orders of
the Assistant Collector and on this application, the
Collector made an order which was conveyed to the appellants
by the Assistant Collector by his letter dated 23rd
December, 1965. The Assistant Collector pointed out that the
Collector had:
"-examined the merits of the case in question and
it is his consideration that the duty was correctly
chargeable because the Spinning Machinery excluding the
pot motors were being imported under one contract from
Japan and the pot motors were being imported under
another contract from Germany. Separate importation
under a separate contract from a separate country would
not justify treatment of the two consignments as one
article, when the goods are not specified
493
in the Tariff as one article. Therefore, he does not
see any reason to revise the Assistant Collector’s
order concerning the demands."
The appellants thereupon preferred a revision application to
the Government of India, but by a short and pithy order
dated 23rd September, 1967, the Government of India rejected
the revision application stating that they had carefully
considered the revision application B but saw no reason to
interfere with the order passed by the Collector. This led
to the filing of the present appeal against the order of the
Government of India with special leave obtained from this
Court.
Though the appellants, initially, when the hearing of
the appeal commenced, raised two or three contentions
against the validity of the order of the Government of India
confirming the demand for differential duty, they ultimately
pressed only one contention and that related to the category
in which the pot motors imported by the appellants fell. The
Assistant Collector originally assessed these pot motors to
customs duty at the rate of 15 per cent of their accepted
value under Item 72(3), but later, demanded differential
duty from the appellants on the footing that these pot
motors were really assessable at the rate of 20 per cent of
their accepted value under Item 73(21) D. and this demand
was confirmed by the Collector in revision and on further
revision, by the Government of India. The appellant disputed
the correctness of these orders and contended that the
original assessment made by the Assistant Collector was
proper and the demand for differential duty was unjustified,
because the correct item under which those pot motors were
assessable was Item 72(3), and not Item 73(21). Item 72(3),
as it stood at the material time, was in the following
terms:
"72(3) Component parts of machinery as defined in Item
Nos. 72, 72 ( 1 ) and 72 (2) and not otherwise
specified, essential for the working of the machine or
apparatus and have been given for that purpose some
special shape or quality which would not be essential
for their use for any other purpose but excluding small
tools like twist drills and reamers, dies and taps,
gear cutters and hacksaw blades:
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provided that articles which do not satisfy this
condition shall also be deemed to be component parts of
the machine to which they belong if they are essential
to its operation and are imported with it in such
quantities as may appear to the Collector of Customs
to. be reasonable.",
while Item 73(21) comprised "Electric motors, all sorts, and
parts thereof." The competition was between these two Items
and the question is which of them covered pot motors
imported by the appellant.
Now, pot motors imported by the appellants were clearly
component parts of Rayon Spinning machines and this was not
and indeed could not be disputed on behalf of the
respondents. Since Rayon Spinning machines were admittedly
textile machinery as defined in Item 72(1), these pot motors
were covered by the opening part of
494
Item 72(3), namely, "component parts of machinery as defined
in Item Nos. -72 ( 1 ) -". Moreover, these pot motors were
clearly and indubitably essential for the working of the
Rayon Spinning machines and, as pointed out by the
appellants in their representation dated 8th December, 1961,
they were "specially designed for use in spinning frames for
manufacturing rayon thread" and for the purpose, they were
given special shape and quality which was not only not
essential for their use for any other purpose but actually
rendered them incapable of being used for any other purpose.
This position, as pointed out by the appellants in their
representation dated 8th December, 1961, was not disputed
either by the Assistant Collector in his communication dated
19th January, 1965 or by the Collector in his order dated
23rd December, 1965 rejecting the representation of the
appellants and the Government of India also did not
controvert this position in its order dated 23rd September,
1967. If the Assistant Collector or the Collector or the
Government of India did not accept the facts set out in the
representation of the appellants dated 8th December, 1961,
we should have expected a clear statement to that effect in
the orders of these authorities. The Assistant Collector
maintained sphinx like silence and preferred not to give any
reasons for confirming the demand for differential duty. The
Collector was a little less reticent. He briefly gave a
reason for confirming the orders of the Assistant Collector,
but that reason had nothing to do with the nature, quality
or condition of the pot motors. What it said was this,
namely, that the pot motors were imported under a separate
contract from Germany while the Spinning machinery excluding
pot motors were imported from Japan and that did not
"justify the treatment of two consignments as one article."
The Government of India also did not articulate its reasons
while rejecting the revision application of the appellants,
but since it confirmed the order of the Collector, we may
presume that the same reason which prevailed with the
Collector appealed to the Government of India. It will,
therefore, be seen that at no stage was the factual position
in regard to The pot motors, as set out in the
representation of the appellants dated 8th December, 1971,
disputed by the Assistant Collector of Customs or the
Collector or the Government of India. The pot motors,
therefore, clearly fell within the description given in Item
72(3),
The respondents, however, leaned heavily on the words
"not otherwise specified" in item 72(3) and contended that
even if the pot motors were component parts of Rayon
Spinning machines, they were not covered by Item 72(3),
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since they were otherwise specified in item 73(21). The
argument of the respondents was that if any component parts
of machinery were specifically dealt with in any other item,
they would go out of Item 72(3) and since pot motors were
electric motors within Item 73(21), they were not covered by
Item 72(3). This argument is clearly unsustainable. It seeks
to read the words "not otherwise specified" as qualifying
"component parts" but that is plainly incorrect as a matter
of both grammar and language. Structurally, the conjunction
’and’ joins the two clauses "as defined in Item Nos. 72,
72(1) and 72(2)" and "not otherwise specified" and since the
former qualifies ’machinery’, the latter also must be read
as
495
doing the same duty. What Item 72(3) contemplates are
component parts of that machinery which is defined in Item
Nos. 72, 72(1) and 72(2) and which is ‘not otherwise
specified. The words ’not otherwise specified’ do not
qualify "component parts": they qualify machinery’.
Otherwise, the conjunction ’and’ would have no meaning. In
fact, the sentence would become ungrammatical if the words
"not otherwise specified" were read to govern "component
parts". This construction also receives support from the
description of the component parts which follows the words
’not otherwise specified’. This description starts with the
word ‘namely’, which shows that it is intended to be a
complete description of the component parts covered by this
item and that would not contextually fit in with "component
parts - not otherwise specified". There can be no doubt that
on a plain grammatical construction, the words "not
otherwise specified" qualify "machinery" and not "component
parts" and, there- fore, the pot motors imported by the
appellants, which satisfied the other requirements of Item
72(3) could not be held to fall outside that Item, because
they were otherwise specified in Item 73(21). Item 72(3) is
a specific Item which covers these pot motors as against
Item 73(21)which is a general item and hence it must be held
that these pot motors were assessable under Item 72(3) and
not under Item 73(21). The original assessment of these pot
motors made by the Assistant Collector was, in the
circumstances, correct and the subsequent, demand of
differential duty made by the Assistant Collector and
confirmed by the Collector in revision and by the Government
of India on further revision, was unjustified. The orders
made by the Assistant Collector, the Collector and the
Government of India confirming the demand for differential
duty would, therefore, have to be quashed and set aside and
the amount of differential duty recovered from the
appellants pursuant to these orders would have to be
refunded to the appellants.
Before we part with this appeal, we must express our
regret at the manner in which the Assistant Collector, the
Collector and the Government of India disposed of the
proceedings before them. It is incontrovertible that the
proceedings before the Assistant Collector arising from the
notices demanding differential duty were quasi judicial
proceedings and so also were the proceedings in revision
before the Collector and the Government of India. Indeed,
this was not disputed by the learned counsel appearing on
behalf of the respondents. It is now settled law that where
an authority makes an order in exercise of a quasi-judicial
function it must record its reasons in support of the order
it makes. Every quasi-judicial order must be supported by
reasons. That has been laid down by a long line of decisions
of this Court ending with N. M. Desai v. The Testeels Ltd. &
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Anr. (’) But, unfortunately, the Assistant Collector did not
choose to give any reasons in support of the order made by
him con firming the demand for differential duty. This was
in plain disregard of the requirement of law. The Collector
in revision did give some sort of reason but it was hardly
satisfactory. He did not deal in his order with the
arguments advanced by the appellants in their representa-
(1) C. A.245 of 1970 decided on 17th December. 1975.
496
tion dated 8th December, 1961 which were repeated in the
subsequent representation dated 4th June, 1965. It is not
suggested that the Collector should have made an elaborate
order discussing the arguments of the appellants in the
manner of a court of law. But the order of the Collector
could have been a little more explicit and articulate so as
to lend assurance that the case of the appellants has been
properly considered by him. If courts of law are to be
replaced by administrative authorities and tribunals, as
indeed, in some kinds of cases, with the proliferation of
Administrative law, they may have to be so replaced, it is
essential that administrative authorities and tribunals
should accord fair and proper hearing to the persons sought
to be affected by their orders and give sufficiently clear
and explicit reasons in support of the orders made by them.
Then alone administrative authorities and tribunals
exercising quasi-judicial function will be able to justify
their existence and carry credibility with the people by
inspiring confidence in the adjudicatory process. The rule
requiring reasons to be given in support of an order is,
like the principle of audi alteram partem, a basic principle
of natural justice which must inform every quasi-judicial
process and this rule must be observed in its proper spirit
and mere pretence of compliance with it would not satisfy
the requirement of law. The Government of India also failed
to give any reasons in support or its order rejecting the
revision application. But we may presume that in rejecting
the revision application, it adopted the same reason which
prevailed with the Collector. The reason given by the
Collector was, as already pointed out, hardly satisfactory
and it would, therefore, have been better if the Government
of India had given proper and adequate reasons dealing with
the arguments advanced on behalf of the appellants while
rejecting the revision application. We hope and trust that
in future the Customs authorities will be more careful in
adjudicating upon the proceedings which come before them and
pass properly reasoned orders, so that those who are
affected by such orders are assured that their case has
received proper consideration at the hands of the Customs
authorities and the validity of the adjudication made by the
Customs authorities can also be satisfactorily tested in a
superior tribunal or court. In fact, it would be desirable
that in cases arising under Customs and Excise laws an
independent quasi-judicial tribunal, like the Income-tax
Appellate Tribunal or the Foreign Exchange Regulation
Appellate Board, is set up which would finally dispose of
appeals and revision applications under these laws instead
of leaving the determination of such appeals and revision
applications to the Government of India. An independent
quasi-judicial tribunal would definitely inspire greater
confidence in the public mind.
We accordingly allow the appeal, set aside the orders
passed by the Assistant Collector, the Collector and the
Government of India demanding differential duty from the
appellants and direct the Government of India to refund to
the appellants the amount of differential duty recovered
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from the appellants in respect of the seven consignments of
4000 pot motors imported by them. The respondent will pay
the costs of the appeal to the appellant.
P.B.R. Appeal allowed.
497