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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.7439-7440 OF 2004

M/S. TATA CHEMICALS LTD.           …APPELLANT               

VERSUS

COMMISSIONER OF CUSTOMS  (PREVENTIVE) JAMNAGAR                ...RESPONDENT

WITH

CIVIL APPEAL NOS.7628-7629 OF 2004

J U D G M E N T

R.F. Nariman, J.

1. The appellants were engaged in the manufacture of soda

ash  and  Coke.   For  the  manufacture  of  Coke,  they  require

coking coal which was imported by them. Notification No.35/90

exempted coking coal having an ash content below 12% from

basic  customs  duty  that  was  in  excess  of  5%.   In  addition,

notifications 36/90 and 23/91 exempted coking coal  with ash

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content of less than 12% from the whole of auxiliary duty and

additional duty of customs.  

2. On  4.2.1991,  the  appellants  had  entered  into  an

agreement with Philbro Energy Company (situated in the USA)

for  supply  of  30500  metric  tons,  CIF,  Okha  of  Low  Ash

Metallurgical  Coal  produced by M/s  Kembla Coal  and Coke,

Australia.   The  contract  specifically  provided  that  the  ash

content was not to exceed 10.3% and that the sampling and

analysis was to be done by an independent inspection agency

of  international  repute,  namely,  M/s  Cargo  Superintendents

Company (Asia) Pty. Limited (CASCO), at the loading port and

that CASCO should give a certificate regarding analysis of the

coking coal. In accordance with the aforesaid agreement, the

appellants in Civil Appeal Nos.7439-7440 of 2004, namely, M/s.

Tata  Chemicals  Limited  imported  33462  metric  tons  and

appellants in Civil Appeal Nos.7628-7629 of 2004, namely, M/s.

B.L.A.  Coke  Private  Limited  imported  5000  metric  tons  of

coking coal.  Detailed sampling was done by CASCO while the

coal  was  being  loaded  on  to  the  ship  and  CASCO  had

meticulously  followed  British  Standards  equivalent  to  IS

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standards 436 and 1350.  The two consignments were divided

into samples of 3000 metric tons each and from each sample

CASCO  took  samples  weighing  470  kilograms  each.   The

primary  samples  were  passed  through  secondary  sampling,

crushing  and  tertiary  treatment.   13  sample  units  were

separately  tested,  their  analysis  report  obtained  and  the

average  furnished  in  the  form of  a  consolidated  test  report.

This report stated that the moisture content was 7.2% and the

ash content of the said coking coal was 9.8%.  

3. When  the  aforesaid  consignment  arrived  at  Okha,  the

appellants in both the appeals filed bill of entry dated 15.3.1991

and claimed exemption under the aforesaid notifications. Along

with the bill of entry, the appellants also submitted the certificate

of CASCO.  It is important to note that the Department at no

stage stated that they have not accepted the CASCO report or

that the CASCO report was defective in any manner.  However,

the Customs Inspector at Okha apparently drew samples of 20

kilograms each – one from the vessel and one from the shore

on 18.3.2001 and beat them with stones to crush them. The

samples were then made into powder form.  

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4. The  samples  were  not  drawn  in  the  presence  of  any

employee of the appellants.  It was alleged by the Department

that the Inspector had drawn the samples in the presence of

Shri K.M. Jani who was allegedly an employee of Bhagwati and

Company, clearing agents appointed by the appellants.   It  is

common ground that the sample so drawn had not been drawn

in accordance with IS 436.  

5. The samples so drawn, however, were sent to the Central

Fuel  Research  Institute,  Dhanbad,  to  be  analysed.   On

13.1.1992, the appellants were informed by the Superintendent

of Customs that the test agency stated that the ash content in

the samples was more than 12%.  A copy of the report was

subsequently furnished to the appellants which indicated that

the ash content of the coal belonging to Tata Chemicals was

13.8% and that belonging to M/s. B.L.A. Coke Private Limited

was 12.6%.  On objection being made to the said report, the

Superintendent Okha sent two samples to the Chief Chemist,

Central  Revenue  Control  Laboratory  (CRCL)  on  15.2.1992.

CRCL in  turn  submitted  its  report  after  another  delay  of  10

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months  and  reported  that  Tata  Chemicals  coal  had  an  ash

content of 12.21% and that of B.L.A. 12.33%.  

6. As a result of the ash content being more than 12%, show

cause notices dated 4.1.1993 was issued to both the appellants

and differential duty was demanded from both of them.  

7. By  an  order  dated  31.3.1995,  the  Assistant  Collector

demanded an amount of Rs.3,95,77,324/- from Tata Chemicals

and  an  amount  of  Rs.59,136,771/-  from  M/s.  B.L.A.  Coke

Private Limited.  

8. On  an  appeal  filed  to  the  Commissioner  (Appeals)

Ahmedabad, the Commissioner by an order dated 30.12.1997,

set aside the order of the Assistant Collector in the following

terms:-

“10.  In  view of  the  above  discussion  and  after going  through  the  comments  of  the  Assistant Commissioner, Customs, Jamnagar as discussed in para 5.3 supra, wherein he was asked to give his  comments  on  the  submission  made  by  the appellants during the course of personal hearing. It  is  seen that  the  Assistant  Commissioner  has accepted all  the points raised by the appellants and he has not  been able to controvert  any of their submissions. I come to the conclusion that

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the  appellants  have  substantial  force  in  their arguments and therefore I held that nothing can be  added  into  the  notification  and  when notification  does  not  prescribe  the  method  of analysis  for  ascertaining the ash content  in  the coal,  it  should  be  ascertained  on  as  received basis. I rely upon the ratio of the decisions cited by the appellants in  this  regard.  The CFRI and CRCL have conducted analysis to ascertain the ash content on gross air dried basis, in spite of clear  instruction  of  the  Asttt.  Commissioner, Customs,  Jamnagar  to  give  the  report  on  as received  basis,  therefore,  these  reports  should have been given on as received basis. I accept the plea of the appellants that these results can be converted into as received basis,  which fact has  also  been  accepted  by  the  Assistant Commissioner as discussed in para 5.3 above, by applying the formula followed internationally. By applying the formula which is  accepted all  over the world and has been given by the appellants during the course of  their  submissions,  the ash content on as received basis would be 11.8% and 11.6%  in  the  case  of  M/s.  BLA Industries  and 13.9%  and  11.4%  in  the  case  of  M/s.  Tata Chemicals Ltd. The formula for working out these results is as under:

100 – Mar     Mar: Moisture as received

100 – Mad    Mad: Moisture as dried.

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It  is  seen  that  in  case  of  M/s  BLA  Industries results  of  both  laboratories  converted  into  as received basis gives ash content below 12% and in the case of  M/s Tata Chemicals Ltd.  Though the first result even after such conversion crossed 12%  marginally,  but  the  result  of  subsequent analysis  conducted  by  CRCL  after  such conversion  gives  content  of  ash  content  below 12%. Therefore, after conversion on as received basis, which is the requirement of the law, the ash content  in  both  the  cases  is  below  12%  and therefore  both  the  appellants  are  entitled  for partial  concessional  rate  of  Customs  duty  in excess  of  5%  as  prescribed  by  Notification No.35/90”

9. Revenue  appealed  to  CESTAT who  by  the  impugned

judgment and order dated 24.9.2004 allowed Revenue’s appeal

and  set  aside  the  order  of  the  Commissioner  (Appeals)

basically on the ground that even though the samples drawn by

the  Inspector  were  contrary  to  IS  436,  yet  since  a

representative of the appellants was present, the appellants are

estopped from turning around at a later stage inasmuch as they

did not immediately object to the drawing of samples contrary to

law.   

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10. Shri S.K. Bagaria, learned senior advocate on behalf of

the appellants argued before us that the Australian Company

from whose mines the coking coal was sent, generally mined

coal with an ash content of less than 12%.  He referred to and

relied  upon  a  great  deal  of  material  to  establish  this  fact.

Further, he went on to state that CASCO, the test agency, was

internationally renowned and had given a test report/certificate

of  quality  which described how meticulously they have taken

samples in accordance with law and how ultimately the samples

were found to contain ash at only 9.8% following the gross air

dried  method.   He  also  referred  us  to  Section  18  of  the

Customs Act and stated that since no fault had been found with

CASCO’s certificate, the entire sampling done by the customs

authorities was invalid in law.  He further went on to refer to the

cross-examination of the Inspector who drew the samples and

stated  that  the  samples  were  drawn  in  the  afternoon  of

18.3.1991, the entire operation being completed by 1730 hours.

No panchnama was drawn.  20 kilograms was taken from the

shore and 20 kilograms from the vessel contrary to a minimum

of 75 kilograms for six lots to be taken under IS 436.  When

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cross-examined,  the  Inspector  stated  that  he  did  not  know

about IS 436 and he further admitted that he put the samples in

a plastic bucket which did not have any lid.  He further went on

to state that he had broken up the sampled lumps with stones

and  then  put  the  resultant  powder  in  containers.  He  further

referred  to  the  cross-examination  of  the  Superintendent  who

had deputed the Inspector to carry out the samples who was

equally in the dark about IS 436.  Above all, he characterized as

perverse  the  Tribunal’s  findings  that  the  appellants  were

estopped because their  representative was present when the

sampling was done.  He stated that no representative of either

appellant was present.  One K.M. Jani alone was present who

admitted in his cross-examination that he did not work for the

appellants Clearing Agent, namely, M/s Bhagwati & Company.

Further the said Mr. Jani did not go together with the Inspector

and no samples were actually drawn in his presence.  

11. Shri  Radhakrishnan, learned senior advocate appearing

on behalf of the respondent countered the submissions of Shri

Bagaria by reading copiously from the order of  the Assistant

Collector and the order of the Tribunal.  According to him, the

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samples  taken  by  the  Inspector  could  be  taken  because

statutory authority is given for the same by Section 18 of the

Customs Act. He went on to further state that even though the

samples may not have been taken strictly in accordance with IS

436 nonetheless as Shri Jani was present, the rule of estoppel

would apply against the appellants.  

12. Having  heard  learned  counsel  for  the  parties,  it  is

important to first extract Section 18 of the Customs Act. Section

18 of the Customs reads as under:-

“Section 18. Provisional assessment of duty

(1)  Notwithstanding anything contained in  this  Act but without prejudice to the provisions contained in section 46-

(a)  where  the  proper  officer  is  satisfied  that  an importer  or  exporter  is  unable  to  produce  any document or furnish any information necessary for the assessment of duty on the imported goods or the export goods, as tie case may be; or

(b) where the proper officer deems it necessary to subject any imported goods or export goods to any chemical  or  other  test  for  the  purpose  of assessment of duty thereon ; or

(c) where the importer or the exporter has produced all  the  necessary  documents  and  furnished  full information  for  the  assessment  of  duty  but  the

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proper officer  deems it  necessary to make further enquiry  for  assessing  the  duty, the  proper  officer may  direct  that  the  duty  leviable  on  such  goods may, pending the production of such documents or furnishing of such information or completion of such test  or  enquiry,  be  assessed  provisionally  if  the importer  or  the  exporter,  as  the  case  may  be, furnishes such security as the proper officer deems fit for the payment of the deficiency, if any, between the duty finally assessed and the duty provisionally assessed.

(2)  When  the  duty  leviable  on  such  goods  is assessed finally in accordance with the provisions of this Act, then-

(a)  in  the  case  of  goods  cleared  for  home consumption or exportation, the amount paid shall be adjusted against the duty finally assessed and if the amount so paid falls short of, or is in excess of 20[the  duty  finally  assessed,]  the  importer  or  the exporter of the goods shall pay the deficiency or be entitled to a refund, as the case may be;

(b)  in  the case of  warehoused goods,  the proper officer  may, where the duty  finally  assessed is  in excess of the duty provisionally assessed, require the importer to execute a bond, binding himself in a sum equal to twice the amount of the excess duty.”

13. The  Revenue  has  grounded  its  case  in  Section  18(b)

which  provides  that  imported  goods  can  be  subjected  to

chemical or other tests for the purpose of assessment of duty

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thereon  where  the  proper  officer  deems  it  necessary  to  so

subject the imported goods.  

14. In  our  opinion,  the  expression  “deems  it  necessary”

obviously means that the proper officer must have good reason

to subject imported goods to a chemical or other tests. And, on

the facts of the present case, it is clear that where 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 must, when questioned, state that, at

the  very  least,  the  documents  produced  do  not  inspire

confidence for some good  prima facie reason.  In the present

case, as has been noted above, the Revenue has never stated

that CASCO’s certificate of  quality ought to be rejected or is

defective in any manner.  This being the case, it is clear that the

entire  chemical  analysis  of  the  imported  goods  done by  the

Department was ultra vires Section 18(b) of the Customs Act.  

15. Statutes  often  use  expressions  such  as  “deems  it

necessary”, “reason to believe” etc. Suffice it to say that these

expressions  have  been  held  not  to  mean  the  subjective

satisfaction of the officer concerned.  Such power given to the

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concerned  officer  is  not  an  arbitrary  power  and  has  to  be

exercised  in  accordance with  the  restraints  imposed  by  law.

That  this  is  a  well  settled  position  of  law  is  clear  from  the

following  judgments.   See:   Rohtas  Industries  Ltd.  v. S.D.

Agarwal, (1969) 3 S.C.R. 108 at 129.  To similar effect is the

judgment  in  Sheo  Nath  Singh  v.  Appellate  Assistant

Commissioner of Income Tax, Calcutta, (1972) 1 SCR 175 at

182.  In that case it was held as under:

“…There can be no manner of doubt that the words “reason to believe” suggest that the belief must be that  of  an  honest  and  reasonable  person  based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income  Tax  Officer  would  be  acting  without jurisdiction  if  the  reason  for  his  belief  that  the conditions  are  satisfied  does  not  exist  or  is  not material  or  relevant  to  the  belief  required  by  the section. The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court.”

See  also Bar  Council  of  Maharashtra v.  M.V. Dabholkar,

[1976] 2 S.C.R. 48 at 51. N. Nagendra Rao & Co. v. State of

A.P. (1994) 6 SCC 205 at 216.  

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16. The admitted position on record is that the samples drawn

were not drawn in accordance with law and were drawn with no

regard whatsoever to IS 436.  That IS 436 would apply to the

facts  of  the  present  case  is  made  clear  by  our  judgment

reported in Bombay Oil Industries (P) Ltd. v. Union of India,

1995  (77)  E.L.T. 32  (S.C.),  where  this  Court  held  following

Union of India v. Delhi Cloth & General Mills Co. Ltd., 1963

Suppl. (1) SCR 586, that if the method of testing of any item of

Central Excise tariff is not mentioned, then the Indian Standard

Institution’s method should be applied.  That this would apply to

the Customs Act as well.  IS 436 lays down:-

““5.  SAMPLING  FROM  SHIPS  DURING LOADING OR UNLOADING  

5.1 Sub-lots – For the purpose of sampling, the entire quantity of coal in a ship shall be divided into  a  suitable  number  of  sub-lots  of approximately  equal  weight  as  specified  in Table 1.  

5.1.1  A gross sample shall be drawn from each of the sub-lots and shall be kept separately so that there  will  be  as  many  gross  samples  as  the number of  sub-lots  into which the lot  has been divided.

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5.2. Sampling of coal from ships shall be carried out, as far as practicable, when coal is in motion. If it is taken on a conveyer, the gross sample shall be collected as per  the procedure laid down in Table 3. If not, the gross samples may be drawn during loading or unloading of the ship. For this purpose, the number of  increments to be taken shall  be  governed  by  the  weight  of  the  gross sample and the weight of increment as specified in Table 3 for various size groups of coal.”

TABLE 1 NUMBER OF SUB-LOTS/GROSS SAMPLES

( Clauses 0.3.4.1 and 3.1 )

Weight of the Lot            No. of sub-Lots/Gross Samples

(Metric Tonnes)   

Upto 500                                                         2

501 to 1000                                                    3

1001 to 2000                                                  4

2001 to 3000                                                  5

Over 3000                                                       6.”

Then  the  IS  436  goes  on  to  describe  the procedure  to  reduce  a  gross  sample  into  a

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sample  for  a  lab  test  etc.  in  great  detail,  and speaks  about  the  minimum  weight  of  a  gross sample  being  75  Kg  so  far  as  “Coal,  small”  is concerned.  

17. Clearly the samples drawn by the Inspector in the present

case, have been drawn contrary to the express provisions of IS

436.   On  this  count  also,  the  samples  being  drawn  not  in

accordance with law, test reports based on the same cannot be

looked at.  

The Tribunal’s judgment has proceeded on the basis that even

though the samples were drawn contrary to law, the appellants

would be estopped because their  representative was present

when  the  samples  were  drawn  and  they  did  not  object

immediately.  This is a completely perverse finding both on fact

and law.  On fact, it has been more than amply proved that no

representative of the appellant was, in fact, present at the time

the Customs Inspector took the samples.  Shri K.M. Jani who

was allegedly present not only stated that he did not represent

the Clearing Agent of the appellants in that he was not their

employee but  also stated that  he was not  present  when the

samples  were  taken.   In  fact,  therefore,  there  was  no

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representative of the appellants when the samples were taken.

In law equally the Tribunal ought to have realized that there can

be no estoppel against law.  If the law requires that something

be done in a particular manner, it must be done in that manner,

and if not done in that manner has no existence in the eye of

law  at  all.   The  Customs  Authorities  are  not  absolved  from

following  the  law  depending  upon  the  acts  of  a  particular

assessee.  Something that is illegal cannot convert itself into

something legal by the act of a third person.  

18. It is clear therefore that the Tribunal judgment has to be

set  aside  on  all  these  counts.  The  appeals  are,  therefore,

allowed with no order as to costs.  

……………………….J. (A.K. Sikri)

……………………….J. (R.F. Nariman)

New Delhi; May 14, 2015   

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