Power of Section 18 of Customs Act cannot be exercised arbitrarily without a good reason to subject goods to any test – Supreme Court
M/s Tata Chemicals Ltd. vs. Commissioner of Customs (Preventive), Jamnagar (Supreme Court), Civil Appeal No. 7439-7440 of 2004, Date of Pronouncement – May 14,2015.
Brief of the case:
- The Hon’ble Supreme Court in the case of Tata Chemicals Ltd. held that the power given to custom authorities u/s 18 of Customs Act,1962 can be exercised only when the proper officer deem it necessary to subject the goods to further tests.
- Thus, such power cannot be exercised in every case and only exercisable when the officer has put forward any material to challenge the validity of assessment made by the assessee.
Facts of the case:
- The assessee imported cooking coal for the manufacture of coke. The cooking coal was taxed at concessional rate of 5% basic duty and full exemption from additional & auxiliary duties provided it contain ash content less than 12% in terms of Notification No. 35/90 .
- It hired M/s Cargo Superintendents Co.(Asia) P. Ltd. (CASCO) to test the ash content of cooking coal and provide a certificate on the basis of its test & analysis.
- The testing done by CASCO was in line with the India Standards (IS 436 & 1350).As per the report of CASCO the ash content of the said coking coal was 9.8%.
- On the arrival of goods at the port of import the proper officer drew sample randomly in the presence of Shri K.M. Jani alleged to be the employee of assessee company.
- The samples were sent to Central Fuel Research inst. and Central Revenue Control Lab wherein the testing conducted revealed that the cooking coal has an ash content more than 12%.
- On the basis of such reports show cause notice was issued demanding differential duty.
Contention of the Assessee:
- The supplier company from whose mines the coking coal was sent, generally mined coal with an ash content of less than 12%.
- CASCO, the test agency, was internationally renowned and have taken and tested samples in accordance with law which ultimately were found to contain ash at only 9.8% following the gross air dried method.
- Since no fault had been found with CASCO’s certificate, the entire sampling done by the customs authorities was invalid in law because the Section 18 can be invoked only if the proper officer has a good reason to order the tests.
- Further, the samples were taken in the absence of any employee of assessee company and that too not in line the sampling method prescribed in IS 436.
Contention of the Revenue:
- Samples were taken by the authorities by invoking powers contained in Section 18 and the non-compliance with IS 436 while sampling shall not make the testing faulty because employee of assessee company Shri Jani was present, the rule of estoppel would apply against and the assessee would be precluded to challenge the validity of sampling.
- Thus, the demand of differential duty is sustainable as the further testing revealed the ash content exceeded 12%.
Held by Hon’ble Supreme Court:
- As per Sec 18(b) of the Customs Act, 1962 imported goods can be subjected to chemical or other tests for the purpose of assessment of duty where the proper officer deems it necessary to get it done so.
- The expression “deem it necessary” indicate that the proper officer must have good reason to subject imported goods to a chemical or other tests.
- In the present case the importer has furnished all the necessary documents to support the fact that the ash content in the coking coal imported is less than 12%. The proper officer has never stated that CASCO’s certificate of quality ought to be rejected or is defective in any manner.
- Thus, it is clear that the entire chemical analysis of the imported goods got done by the Department was contrary to Section 18(b). Such power given to the concerned officer is not an arbitrary power and has to be exercised only when the proper officer is not satisfied about the correctness of assessment by assessee. But mere subjective satisfaction is not sufficient.
- Further, the samples were drawn by the proper officer was not in accordance with the applicable Indian Standards Institution method (IS 436) and the sampling was also not done before in the presence of employee of assessee company.
- Therefore, the samples being drawn not in accordance with law, test reports based on the same cannot be looked at and merely because the allegation that the employee of the assessee company was present during sampling would not make an illegal test as legal because there cannot be any estoppel against law.