G. Sankaran, Member (T)
1. The present appeal came to be originally filed as a revision application to the Central Government under Section 131 of the Customs Act, 1962 (as it stood then) against Order-in-Appeal No. S/49-313-314-315/77/KANDLA, dated 1-4-1978 passed by the Appellate Collector of Customs, Bombay. By the said order, the Appellate Collector confirmed the orders passed by the Assistant Collector of Customs, Kandla demanding duty on the difference between certain quantities of oil removed from the warehouse at Kandla under Section 67 of the Customs Act, 1962 (hereinafter referred to as 'the Act') and those received at the destination warehouse at Shakur Basti.
2. On the setting up of this Tribunal, the revision application was transferred to it in terms of Section 131-B of the Act to be disposed of as if it were an appeal filed before the Tribunal.
3. The West Regional Bench, Bombay heard the appeal on 20-1-1984 but it did not pass final orders on the appeal. For the reasons set out in its order dated 20-1-1984, the Bench directed that the case be placed before the President for constituting a larger Bench to hear and dispose of the case. In due course, the present Bench of five Members was set up by the President to hear the appeal.
4. The facts of the case, briefly stated, are that M/s. Indian Oil Corporation Ltd., Gandhi-Dham, Kutch (hereinafter referred to as the appellants) were moving petroleum products in bond from their Gandhi-Dham installations to their Shakur Basti installations. It appears that permission for such in-bond removals was granted by the Assistant Collector, Kandla, on the condition that no wastage or evaporation allowance shall be claimed by the appellants in respect of such movements and that duty shall be paid on such transit losses. Accordingly, duty amounting to Rs. 80,596.70p was demanded by the Assistant Collector from the appellants by three separate communications, one dated 3-2-1977 for Rs. 7.797.95p in respect of superior kerosene oil, the second dated 7-2-1977 for Rs. 68,102.63p in respect of high speed diesel oil and the third dated 8-2-1977 for Rs. 4,696.12p in respect of furnace oil. The amounts were paid by the appellants. Thereafter, they preferred three appeals before the Appellate Collector of Customs, Bombay against the demands for duty. It was urged before the Appellate Collector that such transit losses were bound to occur in spite of all precautions due to factors such as volatility of petroleum products, density and volume fluctuations caused by weather conditions, human errors in recording dip-measurement of oil tanks, temperature and density, etc. Considering all these factors, it was apparent that the losses in the present cases had occurred on account of natural causes beyond the appellant's control and there was, therefore, no justification whatsoever for demanding duty on such losses. The appellants further urged that the losses at least up to the limits allowed by the Central Excise authorities in respect of movements of oil under central excise bond should be allowed in respect of the subject despatches of oil in Customs bond. It was further urged that the losses should be condoned in terms of the provisions of Section 23 of the Act. In his order dated 1-4-1978, the Appellate Collector observed that the owner of the warehoused goods was responsible under Section 67 of the Act, for the due arrival of the warehoused goods removed in bond from one warehouse to another warehouse at the destination. The removals in the present cases were, admittedly, subject to the condition that no allowance would be given for losses in transit. In the circumstances, held the Appellate Collector, the demands for payment of duty on the quantities of oil short-received at the destination warehouses were correct in law. Accordingly, he rejected the appeal.
5. We have heard Shri V.R. Ranganathan (Manager, Excise & Customs, IOC) and Shri R. Venkataraman, Deputy Manager (Excise & Customs, Delhi IOC) for the appellants and Shri N. V. Raghavan Iyer, Chief Departmental Representative for the Respondent.
6. At the outset, Shri Ranganathan drew our attention to the judgment of the Delhi High Court in Sialkot Industrial Corporation, Meerut v. Union of India and Anr.-1979 E.L.T. (J 329), wherein the Court held that the expression 'lost or destroyed' in Section 23 of the Act is used in the generic and comprehensive sense and not in a narrow sense. It postulates loss or destruction caused by whatsoever reason, whether theft, fire or accident including pilferage. Shri Ranganathan stated that, as far as he knew, there was no contrary decision. In terms of the said decision, the appellants were entitled to relief from payment of duty in respect of the transit losses.
Shri Ranganathan further submitted that subsequent to the hearing of the appeal by the West Regional Bench on 20-1-1984, three decisions favourable to the assessee have been passed by the Tribunal. The first was by the West Regional Bench in Appeal No. CD(T)(Bom) 134/81 disposed of by Order dated 22-2-1984 which followed the Delhi High Court decision in the Sialkot Industrial Corporation case. The second was again the order of the West Regional Bench in CD(Bom) Appeal No. 95/1983 in Government Medical Stores Depot v. Collector of Customs, Bombay-1984 (17) E.L.T. 425. The third was order dated 11-1-1985 passed by the West Regional Bench in Indian Oil Corporation v. Collector of Customs, Bombay, Appeal No. CD(T) (Bom) 41/1977.
Shri Ranganathan submitted that the "loss" referred to in Section 23 of the Act was wide enough to cover all losses including theft. The loss in the present case being due to evaporation in inter-warehouse transfer was squarely covered by Section 23. Apart from Section 23, Section 72 would also apply to such losses. The requirement of Section 72 was only that the licence should account for the deficiency to the satisfaction of the proper officer.
7. Replying to the submissions made by Shri Ranganathan, Shri Raghavan Iyer, Chief Departmental Representative, submitted that Section 67 of the Act did not provide for remission of duty on goods moved from one warehouse to another. The Section envisaged situations where the goods, after removal from the first warehouse, are not transported to the destination warehouse but were diverted for home consumption. It did not contemplate losses.
A reading of Sections 2(25), 2(44), and 2(45) of the Act could mean that Section 23(1) applied even to warehoused goods. Transit losses could be said to arise before clearance of the goods for home consumption. But Section 23 was really meant to cover cases where the custody of the goods had not passed To the owner of the goods as in the case of goods landed in the Custody of the Port Trusts. Here, the custody of the goods having passed on to the importer (the appellants), Section 23(1) would not apply. Sections 13 and 23 of the Act were designed to mitigate the duty burden on the importer who had no control over the custody of the goods and who could not, therefore, justifiably be saddled with the duty burden on goods pilfered, lost or destroyed till he got physical custody of the goods. Such was not the case here and, in terms of the bond executed before the Assistant Collector, read with Section 72 of the Act, the demand for duty on the transit losses was justified.
Section 70 of the Act provided an allowance in the case of volatile goods but it applied only to losses while goods were in the warehouse, in other words, storage losses. Shri Raghavan Iyer, submitted that if Section 23 of the Act was so wide as contended by the appellants, there was no need to have a separate Section 70 to cover storage losses.
It was Shri Iyer's further contention that goods in transit en route between the originating warehouse and the destination warehouse were not really warehoused goods and the bond that insisted on securing payment of duty on goods lost en route could not be said to be unreasonable and against public policy.
8. We have considered the submissions made by both sides. In the instant case, certain petroleum products were removed from the appellants' warehouse at Gandhi-Dham to their warehouse at Shakur Basti. Removals were effected in terms of Section 67 of the Customs Act which provides that-
"The owner of any warehoused goods may, with the permission of the proper officer, remove them from one warehouse to another, without payment of duty, subject to such conditions as may be prescribed for the due arrival of the warehoused goods at the warehouse to which removal is permitted."
In exercise of the powers conferred by Section 157 of the Customs Act, the Central Board of Revenue (as it then was) has prescribed the "Warehoused Goods (Removal) Regulations, 1963". The condition stipulated for transport of wharehoused goods to another town is contained in Regulation No. 3 which reads thus :
"Where the goods are to be removed from one warehouse to another in a different town, the proper officer may require the person requesting removal to execute a bond in a sum equal to the amount of import duty leviable on such goods and in such form and manner as the proper officer deems fit."
The terms of the bond to be executed are provided for in Regulation No. 4 :
"The terms of the bond shall be that if the person executing the bond produces to the proper officer within 3 months or within such extended period as such officer may allow, a certificate issued by the proper officer at the place of destination that the goods have arrived at that place, the bond shall stand discharged, but otherwise an amount equal to the import duty leviable on the goods in respect of which the said certificate is not produced shall stand forefeited."
9. The lower authorities have taken the view and the Chief Departmental Representative has argued that after having obtained permission of the Assistant Collector of Customs, Kandla, to remove petroleum products from the Gandhi-Dham warehouse to the Shakur Basti warehouse and binding themselves to the condition that they shall pay duty on such quantity of the goods as do not arrive at the destination warehouse, the appellants are bound to honour the demand for duty in respect of the short-received goods.
10. The above argument misses the point that the provisions of Section 23(1) are not confined to goods which are cleared direct for home consumption, but extend to goods which, after import, are initially warehoused and then cleared for home consumption. That this is so, would be clear by looking at the provisions of Section 23(1)-
"Where it is shown to the satisfaction of the Assistant Collector of Customs that any imported goods have been lost or destroyed at any time before clearance for home consumption, the Assistant Collector of Customs shall remit the duty on such goods."
Mark the words "at any time before clearance for home consumption". Whereas in the case of goods cleared direct for home consumption, the importer has to comply with the provisions of Chapter VII of the Customs Act, including payment of duty, etc., culminating in the proper officer making an order under Section 47 permitting clearance of the goods for home consumption, warehoused goods may be cleared for home consumption after a Bill of Entry for home consumption in respect of such goods has been presented in the prescribed form, the import duty leviable on such goods and all penalties, rent, interest and other charges payable in respect of such goods have been paid and an order for clearance of such goods for home consumption has been made by the proper officer. (See Section 68). There is nothing in Section 23(1) to suggest that its application is limited to instances of direct clearance of goods for home consumption or that they do not extend to instances of clearances of warehoused goods for home consumption. In this connection, it is useful to refer to the note on Clause 23 of the Customs Bill, 1962 (Bill No. 56 of 1962) which raads thus :
"Clause 23.-Sub-clause (1) replaces existing Section 122. Under the existing section remission of duty is permissible only if goods are lost or destroyed by unavoidable accident or delay. Under the revised provision remission of duty may be allowed in all cases where goods are lost or destroyed whatever may be the reason. Since cases of total loss or destruction cause considerable hardship, a generous approach is being made. Further, the new provision will specifically permit remission of duty not only in respect of warehoused goods as at present but also in respect of other goods which are cleared direct for home consumption. Importers will welcome this relief. Sub-clause (2) replaces the last para of existing Section 100 and lays down that the proper officer may require that the abandoned goods should be surrendered to the Customs Department. Again, the concession in the proposed provision will specifically cover not only warehoused goods which alone enjoy the concession at present but also goods cleared direct for home consumption. This would be an additional relief to importers whose goods have completely deteriorated."
It is, thus, clear that if warehoused goods are lost or destroyed for whatever reason at any time before they are Me cleared for home consumption, As Assistant Collector of Customs is obliged to remit the duty on such goods. The contention of the Chief Departmental Representative that the bond executed by the importer binding himself to pay duty on goods short-received it the destination cannot be said to be unreasonable and against public policy s, no doubt, good as far as it goes but, as we have seen, the bond cannot be C read or implemented as if Section 23(1) did not apply to warehoused goods. Therefore, notwithstanding the execution of the bond, Section 23(1) will have to be given full effect. We do not accept Shri Raghavan Iyer's contention that goods in transit en route from one warehouse to another are not warehoused goods. We do not find any warrant for this proposition. Booking at the scheme of the Act, it is clear beyond doubt that they continue to be warehoused goods till they are cleared out 'of the warehouse for home consumption after compliance with the prescribed procedures. In this view of the matter, it is not material (indeed it is not necessary) that Section 67 his not specifically provided for remission of duty on goods lost or destroyed at any time before clearance for home consumption.
11. Nor can it be said, as the Chief Departmental Representative has contended, that, in the present case, the custody of the goods had passed to the importer before the goods were cleared for home consumption. Technically, the goods may be in the warehouse owner's custody bat he is not at liberty to deal with the goods or clear them for home consumption except with the permission of the proper officer. It, therefore, follows that the argument that since Section 23 is designed to mitigate the duty burden on importers who have no control over or custody of their goods, it cannot apply to warehoused goods, is not tenable. The notes on Clause 23 amply make it clear that the clause is intended to apply also to warehoused goods.
12. Shri Raghavan Iyer pointed out that if such a broad view is taken, Section 70 would become virtually redundant. Section 70 provides for remission of duty on warehoused goods found to be deficient in quantity on account of natural loss. The provision applies to such warehoused goods as the Central Government, having regard to the volatility of the goods and the manner of their storage may, by notification in the official gazette, specify. A plain reading would indicate that in so far as deficiencies found in storage of volatile warehoused goods are concerned, Section 70 would govern remission of duty. This is not, however, the same thing as saying that Section 23(1) has no application to warehoused goods.
13. The Delhi High Court in the Sialkot case-1977 E.L.T. J-239-has clearly laid down that the expression "lost or destroyed" in Section 23 is used in the generic and comprehensive sense and not in a narrow sense. It postulates loss or destruction caused by whatsoever reason whether theft, fire or accident, including pilferage. The decision was given in respect of the petitioners' claim for remission of duty on goods which were found to be pilfered while the consignment was in the public warehouse. After they had been examined, the duty was paid thereon and an order was made by the proper officer for clearance of the goods for home consumption. The claim was resisted by the Customs authorities on the ground that remission of duty on the ground of pilferage was governed by Section 13 which, however, laid down that the pilferage should have taken place before the order of clearance for home consumption. The Court, after examining the provisions of the Act and referring to case law, held that it was difficult to construe Section 23(1) as covering all kinds of loss or destruction but excluding loss by pilferage. This decision was followed by the West Regional Bench of this Tribunal in its Order dated 22-2-1984 in Appeal No. CD (T) BOM A. 134/81, Order dated 28-2-1984 in 1984 (17) E.L.T. 425 and in Order No. 128/85/WRB dated 31-1-1985, in Appeal No. CD(T) BOM.A. 41/77.
14. The West Regional Bench which heard the present appeal on 20-1-1984 observed in its Order that the facts on record did not lead to an inevitable conclusion that the petroleum products which were short-received at the destination warehouse were lost. What was observed was a shortage between the quantity despatched from Kandla and that received at Delhi. This could be due to various factors including loss in handling, loss by evaporation and the like. If keeping this aspect in view, the Assistant Collector imposed a condition that he would not countenance any shortage at the time of transit from Kandla to Delhi, one could well say that it is not against the specific provision of Section 23 and hence is not a condition against public policy. In directing that the matter should be placed before the President for constituting a larger Bench, the West Regional Bench had, at the back of their mind, the stand taken by them while sitting in the Madras Bench when, in interpreting the provisions of the Section 23 of the Act, they held that pilferage stands excluded, contrary to the view taken by the Delhi High Court in the case of Sialkot Industrial Corporation, 1979 E.L.T. J-239.
15. The decision of the Madras Bench to which a reference has been made appears to be in the case of Bharat Electronics Ltd. v. Collector of Customs, Madras, 1983 E.L.T. 653. That case pertained to a claim for refund of duty on the contents of a package which, on survey held after the order for clearance for home consumption was made but before physical clearance of the goods from the Port Trust premises, was found empty. The claim was rejected by the lower authorities on the ground that Section 13 did not apply. The Bench in its order held that the object behind Section 23 would appropriately refer to cases of complete loss or destruction and not mere deprivation by way of theft or pilferage. Since this aspect did not seem to have been brought to the notice of the Delhi High Court in the Sialkot Industrial Corporation case, the Bench construed Sections 13 and 23 and held that if the view adopted by Delhi High Court was taken, Section 13 would become redundant. The harmonious way to read Sections 13 and 23, said the Bench, would be by restricting Section 23 to situations other than pilferage and referring to Section 13 where there is a specific provision in cases of pilferage. The Bench held that in a situation where the goods are not available at the time of delivery and the non-delivery is not due to physical destruction or loss, but due to theft, pilferage and the like, the provisions of Section 13 should prevail. But where, as in the case before the Bench, the discovery of shortage or non-availability of goods was after the date of order allowing clearance of the goods for home consumption, the claim for refund of duty would be hit by the bar under Section 13.
16. We have carefully perused the Order of the South Regional Bench but, with respect, we find ourselves unable to agree with it. As pointed out in the decision of the West Regional Bench reported in 1984 (17) E.L.T. 425, to which reference has been made earlier, the distinction between Sections 13 and 23 would appear to lie in the fact that the former provides that the importer shall not be liable to pay duty on goods pilfered before the order for clearance for home consumption or deposit in a warehouse is made, and the latter provides for remission of duty on goods which are shown to have been lost or destroyed at any time before clearance for home consumption. We are inclined to agree with the reasoning and conclusions in the said Order, particularly because the note on clause 23 of the Customs Bill makes it clear that unlike Section 122(1) of the Sea Customs Act, 1878 under which remission of duty was permissible only if goods were lost or destroyed by unavoidable accident or delay, under Section 23 which replaced the previous Section, remission of duty may be allowed in all cases where goods are lost or destroyed whatever may be the reason. This is also the view taken by the Delhi High Court in the Sialkot Industrial Corporation case.
17. The question whether Section 23(1) would be attracted in cases of pilferage of goods occurring before their physical clearance from Customs control was considered at length by the West Regional Bench in Hindustan Petroleum Corporation Ltd. v. Collector of Customs, Bombay-1984 ECR 2119 (not cited before us). Amongst the reasons given in support of the conclusion that Section 23(1) applied in such cases was one concerning the effect of the amendment made by the Finance Bill, 1983 to the wording of Section 23(1) of the Act. Section 23(1) of the Act was amended by clause 48 of the Finance Bill, 1983, which read as follows :
"48. In Section 23 of the Customs Act, in Sub-section (1),-
(a) for the words "Where it is shown", the words and figures "Without prejudice to the provisions of Section 13, where it is shown" shall be substituted ;
(b) after the words "have been lost", the brackets and words "(otherwise than as a result of pilferage)" shall be inserted."
The amended provision reads thus :
"Without prejudice to the provisions of Section 13, where it is shown to the satisfaction of the Assistant Collector of Customs that any imported goods have been lost (otherwise than as a result of pilferage) or destroyed, at any time before clearance for home consumption, the Assistant Collector of Customs shall remit the duty on such goods."
The note on Clause 48 of the Finance Bill, 1983 read as follows :
"Clause 48 seeks to amend Section 23 of the Customs Act, 1962, to exclude from its purview goods pilfered before their clearance for home consumption."
It is thus clear that only with the amendment effected by the Finance Bill, 1983, Section 23(1) of the Act excluded from its purview, goods pilfered before their clearance for home consumption, the implication being that in respect of pilferage of imported goods, Section 13 alone, and not Section 23, is applicable. It would be reasonable to infer that, prior to the amendment, Section 23(1) did not exclude from its purview goods pilfered before their clearance for home consumption as in the present case.
18. There is no allegation in the proceedings before us that the goods which were despatched from the Gandhi Dham warehouse but were not received at the Shakur Basti warehouse were not lost or destroyed but were clandestinely removed by the appellants. In the circumstances, we hold that the appellants are entitled to the remission of duty demanded from them in respect of such goods. We allow the appeal and direct the concerned Collector to grant consequential relief to the appellants within 4 months from the date of communication of this order.