JUDGMENT Under Section 66(1) of the Indian Income-tax Act, <ORG>, Bombay, referred the following question :-

"Whether on the facts of the case the share of loss of Rs. 7,226 arising from the Jaipur firm can be set off against the profits accruing to the assessee in British India, under Section 24(1) of the Indian Income-tax Act ?"

By an order dated January 31, 1950, it was held by us that on the statement of the case the question referred should have been :-

"Whether on the facts of the case the share loss of Rs. 7,226 arising from the Jaipur firm could be set off against his share income from the several businesses in British India in computing income of the assessee the head business ?"

In view of the emphatic statement of their Lordships of <ORG> in <CITATION> we did not accept the argument of the assessee that we could resettle the question and give our opinion thereon. Acting under Section 66(4) of the Act, we therefore referred the case back to <ORG> to state such additional facts as may be necessary and refer to us for opinion the question which we held arose from the facts of the case. Accordingly <ORG> referred that question to us but did not add to the facts already stated. <ORG>, however, went beyond its powers in referring the case in the manner it did. We will advert to that in some detail later on.

2. The question now referred to us is :-

"Whether on the facts of the case the share loss of Rs. 7,226 arising from the Jaipur firm could be set off against his share income from the several businesses in British India in computing income of the assessee under the head business ?"

3. The assessee, an individual, who is resident and an ordinary resident of British India, was a partner in various registered firms in British India in the year ending Divali 1944 which is the "previous year" of the assessment year 1945-46. Setting off losses of his share income in some firms against the share income in the others, his total income from the business of the several registered firms in British India, of which he was a partner, was Rs. 44,074. His income from property was computed at Rs. 5,398. The assessee was a partner in the relevant year in a firm at Jaipur, in an Indian State, where he suffered a share loss of Rs. 7,226. His claim for deduction of this loss was negatived by <ORG> authorities and <ORG>.

4. At the instance of the assessee the <ORG> referred to this Court under Section 66(1) of the Act the question which according to it arose out of its order. By our order dated January 31, 1950, we held that the assessee was not entitled to set off this loss against the income from property.

5. Under Section 4(1)(a) and (b)(i) and (ii) of the Act, subject to the provisions of the Act, the total income of any previous year of any person who is a resident and an ordinary resident of British India during such year includes all income, profits and gains from what ever source derived which are received or deemed to be received in British India in such year or which accrued or arisen to him in British India during such year or which accrued or arose to him without British India during such year. When the assessee is a partner in a firm, his share income or share loss has to be computed in the manner provided by Section 16(1)(b) and included in his total income; and under the proviso to that section, if the share so computed is a loss such loss may be set off or carried forward and set off in accordance with the provision of Section 24 . Under Section 14(2)(a) tax is not payable by an assessee if he is a partner of an unregistered firm in respect of his income computed in the manner laid down in Section 16(1)(b) on which tax has already been paid by the firm. But if such income is from an unregistered firm carrying on business wholly out of British India, it would not be so exempt from taxation in the hands of the partner under this provision. To such income Section 14(2)(c) will apply and the tax shall not be payable in respect of such income unless it is received or deemed to be received in or brought into British India in the previous year by or on behalf of the assessee or is assessable under Section 42 ; but the income so exempt has to be included in the total income of the assessee under Section 16(1)(a) . It is thus clear that the share income from British India and out of British India are both liable to tax subject to certain exemptions.

6. It was held in <CITATION> , that loss of profits or gains from business done out of British India has to be deducted from the profits and gains of a business in British India to arrive at the income taxable under the head "business". This case entirely in favour of the assessee.

7. It is difficult to appreciate the submission of the learned counsel for the Commissioner, who pressed the argument which is to be found in the second reference of <ORG>, that the share income from a firm carrying on trade is not income from business. Under Section 4 of the Indian Partnership Act, partnership is a relation between persons who have agreed to share profits of a business carried on by them or by any of them acting for all; persons who have entered into partnership with one another are called individually "partners" and collectively "a firm" and the name under which their business is carried on is called the "firm name". A firm is not a juristic person, distinct from partners. The crucial test of partnership is the carrying on of business with a view to profit by all the partners or any of them acting for all. Every partner is under law an agent of the other partners. Common interest, mutual agency and division of profits are thus the essential conditions for the existence of a partnership. It is not clear from the statement of the case that the assessee was taking any active part in the conduct of the business. Nor is it to be found that the assessee received any salary, interest, commission or other remuneration from the Jaipur firm. We will therefore assume for the purpose of this case that the partners residing at Jaipur were carrying on the business acting for the assessee. It follows that the assessee was carrying on the business at Jaipur in the firm name through his agents and that the income he would have received from that business would be the profits of that business earned out of British India.

8. The learned counsel for the Commissioner next submitted that the several businesses are distinct businesses though they have a common partner and the loss in one cannot be set off against the profits in the other. It was also argued that the share loss of an unregistered firm cannot be set off against the individual income of a partner. Either submission is devoid of substance. As already observe, the share income from the different partnerships in income under one common head "business". In the assessment order for the year in question, the share losses have been deducted from the share income of he firms in British India to arrive at the profits from business. As held by their Lordships of <ORG> in <CITATION> a firm is registered or unregistered partnership does not obstruct or defeat the right of a partner to an adjustment on account of his share of loss in the firm, whether the set-off be against other profits under the same head of income within the meaning of Section 6 of he Act or under a different head (in which case only need recourse be had to Section 24(1) )."

Their Lordships approved of the decision in <CITATION> and affirmed the decision in <CITATION> . That assessee was carrying on money-lending business and other businesses. He was a partner with one <NAME> in cotton business. There was no contribution of capital as such, but the assessee was the financing partner and these finances carried interest. The cotton business was running at a loss and in the first year the assessee claimed to deduct his share of loss from his profits of money-lending and other businesses. This deduction was not allowed by the Income-tax authorities on the ground that the share loss of an unregistered firm cannot be set off against the individual income under the same head. This view was not accepted in <CITATION> . In a subsequent year the amount of loss due by the other partner <NAME> to the firm was transferred to the account of the assessees money-lending business and debited against the personal account of <NAME>. Subsequent interest was added to this account on September 29, 1930, bringing the total debit to Rs. 36,638. On this date <NAME> gave the appellant a promissory note for this amount. The previous debit account in the books of the money-lending business was closed and a fresh folio was opened in those books and was styled "<NAME> promissory note account". On March 28, 1931, the appellant took from <NAME> a mortgage of certain house property for Rs. 500 and at the close of the account year on March, 31, 1931, the assessee wrote off Rs. 36,138 as a bad debt. The question was whether the assessee was entitled to claim this as a bad debt. In affirming the decision of <ORG> <ORG> held that he could not as <NAME> never become a debtor of the money-lending business at all.

9. The learned counsel for the Commissioner has drawn our attention to the second proviso to Section 24 , sub-section (1), which say :-

"Provided further that where the assessee is an unregistered firm .......any such loss shall be set off only against the income, profits and gains of the firm and not against the income, profits and gains of any of the partners of the firm;..."

In our view, this proviso has no application as it is an exception to the general provision for set-off in Section 24(1) which refers to a set-off of losses under one head against the income under any other head mentioned in Section 6 of the Act. This is what has been recognized by their Lordship of <ORG> in the case cited supra.

10. We are unable to accept the argument of the learned counsel that the second proviso should be read as an independent provision. According to him the proviso is applicable to a set-off of the loss of an unregistered firm against the income, profits and gains of any of its partners, whether that firm in British India or outside and whether the set-off is claimed against another head of income or against the same head. As observed by <NAME> in his Interpretation of Statutes, 9th edition, page 165 :-

"The true principle undoubtedly is, that the sound interpretation and meaning of the statute, on a view of the enacting clause, saving clause and proviso, taken and construed together, is to prevail."

"There is no rule that the first or enacting part is be construed without reference to the proviso. The proper course is to apply the broad general rule of construction, which is that a section or enactment must be construed as whole each portion throwing light if need be, on the rest. There is no other rule even in the case of a proviso in the strictest or narrowest sense" : (<NAME> v. <NAME>).

As stated by their Lordships of <ORG> in <CITATION> :-

"The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case."

Section 24(1) of the Act refers to the set-off of loss under one head against the income of the assessee under another head under Section 6 . To this general rule the second proviso provides an exception that in the case of an unregistered firm any loss of that firm under one head must be set off against its income, profits and gains under another head and not against the income, profits and gains of any of its partners. If the unregistered firm still returns a loss, that loss can be carried forward under sub-section (2).

11. It was also argued that a partner cannot be an assessee with respect to the income of the firm of which he is a partner. Reliance was placed on <CITATION> . That case is distinguishable on facts. This contention may be correct when an unregistered firm is a unit of assessment. The Jaipur firm is not a unit of assessment under the Indian Act . The assessee, and not the Jaipur firm of which he is a partner, was treated as a unit of assessment.

12. It is next contended that there is no provision in the Act for bringing any loss incurred out of British India into British India as the assessee seeks to do. This contention is fallacious. As already observe, the assessee is not seeking to bring any loss into British India, but the Income-tax authorities have to determine his total income having regard to the several provisions of the Act to which reference has been made by us; and in doing so the Income-tax Officer is bound to take into account the share loss suffered by the assessee out of British India.

13. We therefore answer the question referred to us in the affirmative. The assessee is entitled to set off his share loss of the Jaipur firm against the share income of the several firms in British India. The Commissioner will pay the costs of the reference including the costs of the paper book. Counsels fee Rs. 100. A copy of this judgment be sent to <ORG> under Section 66(5) of the Act.

14. We now advert to the observations of the <ORG> on the powers of <ORG> in dealing with references made to it under Section 66(1) of the Act. We have already set out the question of law referred to us under that section and the question of law that ought to have been referred as arising on the same facts. The Appellate <ORG> seems to think that it is not bound to decide an appeal before it by applying the appropriate law to the facts found by it simply because the assessee has erroneously railed on wrong provisions in support of his relief; and that it is not bound to refer to <ORG> the question of law that really arises on the facts found by it if the assessee does not raise the question of law in a particular form at the hearing of the appeal before the tribunal or in his application under Section 66(1) of the Act. In the view of the <ORG>, <ORG> has no jurisdiction to allow the assessee to present the case back to the Appellate <ORG> under sub-section (4) to re-submit the case with appropriate question for decision by <ORG>; and that to pursue this course would be to permit the assessee to set up an entirely new case which he had not set up before the Income-tax authorities. In this view to Appellate <ORG> pointed out that this Court had no jurisdiction to refer back the case to re-submit it with the question of law that this Court thought arose on the facts of the case.

15. This is a serious misconception about the duties of <ORG> in deciding appeals and the applications under Section 66(1) of the Act. It is a fundamental principle of administration of justice that a litigant has a right to present at any stage any question of law arising on the facts found by a <ORG>. He has to plead facts an not law, and the <ORG> is always under the obligation to apply the appropriate law to the facts found by it. There is no provision either in the Indian Income-tax Act or in the rules framed by the <ORG> to warrant a contrary view.

16. Under Section 66(1) the assessee can require <ORG> to refer to <ORG> any question of law arising out of such order, and <ORG> shall, if it finds that a question of law does arise, draw up a statement of the case and refer it to <ORG>. If the <ORG> is of the opinion that a question of law does not arise out of the order, the assessee can move <ORG> to require <ORG> to state the case and refer it and if <ORG> is not satisfied of the correctness of the decision of <ORG>, it shall require the <ORG> to state the case. In interpreting the expression "the question of law arising out of such order" <NAME>, C.J., summed up the correct legal position very tersely thus;

"........looking at the plain language of the section apart from any authority, I should have stated that a question of law arose out of the order of the <ORG> if such a question was apparent on the order itself or it could be raised on the facts found by there <ORG> and which were stated in the order. I see no reason to confine the jurisdiction of this <ORG> to such questions of law as have been argued before the <ORG> or are dealt with by <ORG>. The section does not say so and there is no reason why we should construe the expression arising out of such order in a manner unwarranted by the ordinary grammatical construction of that expression" : <CITATION> .

There cannot thus be any reasonable doubt that this <ORG> had jurisdiction to refer the case back to the <ORG> to make such additions to or alterations in the statement of the case as it may direct.

17. The statement of a case which <ORG> is required to submit to <ORG> should not be coloured by the expression of opinion of the <ORG>. We have noticed in this case and several other cases that the <ORG> does not state all the facts found by it which are necessary for answering the question that it referred to this Court, but it proceeds as if it is required to decide that question of law. In our view, this is outside the jurisdiction of <ORG>. Prior to the amendment of Section 66 in 1939, the Commissioner in referring the case was required to submit his opinion on the case that he referred to <ORG>. The section as now stands does not require <ORG> to express its opinion. That opinion can be found in the order under Section 33(4) of the Act. It is unfair to the assessee that <ORG>, which may not have given full consideration to his case in the appellate order, should supplement that order by giving additional reasons, and sometimes additional facts, to the prejudice of the assessee. In our view, the <ORG> should state all the facts which were considered by it in coming to the conclusion it did under Section 33(4) , whether those facts are referred to in its order or in the orders of the Income-tax authorities and to refer to any document which may have been used in deciding the case.

It is also necessary to state the case in restrained language even though the <ORG> considers an order of <ORG> under Section 66(4) erroneous. The <ORG> is not called upon by the Act to express its opinion on the correctness or otherwise of the order which under law it is bound to carry out.

Reference answered accordingly.


JUDGMENT <NAME>, J.

1. This was a second appeal from a decision of the District Judge of Shahabad dated the 7th March, 1923 modifying a judgment of the Subordinate Judge of the same place dated the 18th February, 1922. The facts in this case were somewhat complicated; but it is unnecessary to refer to them in any great detail as there has been argued before us but one point at the hearing of this appeal. It is sufficient to state that the plaintiffs (who are here the appellants) were the mortgagees of certain property from defendants Nos. I and 4. These mortgages were effected by five deeds. In addition to these five mortgages there were also three other mortgages of which the plaintiffs were not the direct mortgagees but assignees from those who were the original mortgagees. It is only with the five transactions in which the plaintiffs, were the direct mortgagees that we are in this appeal at all concerned. The plaintiffs brought their suit to enforce the mortgages and in addition to joining the mortgagors they also joined certain persons, who were defendants Nos. 8 to 13 who had bought from the mortgagors the equities of redemption of the properties hypothecated by virtue of the five mortgage-deeds referred to above. In the trial Court the plaintiffs succeeded in obtaining a personal decree not only against the mortgagors but also against the purchasers of the equities of redemption. But on appeal the learned District Judge came to the conclusion that the decree, so far as it related to relief against these purchasers of the equities of redemption, could not be in law upheld. He, therefore, set aside that portion of the judgment of the Subordinate Judge and it is from that part of the decision of the District Judge that this appeal has now been brought before us.

2. The simple point therefore, for consideration is whether the plaintiffs could obtain a money-decree against the purchasers of the equities of redemption. It must first be pointed out that in the instruments under which the purchasers of the equities of redemption so purchased, they (the purchasers), stipulated that they would pay off the debts due under the mortgages. It is common ground that they did not do so. It is also common ground that the plaintiffs had no notice of what had taken place between the mortgagors and the purchasers of the equities of redemption and were not privy to the contract. It if important to observe that some support was lent to the argument which was put forward before us by the learned Advocate who has appeared for the plaintiffs by the rulings in the case of <CITATION> 36 Ind. Cas. 792 : 22 C.W.N. 279 : 27 C.L.J. 483. In that case the facts were certainly very similar to those which obtain in this appeal now before us. The defendants had borrowed a sum of money from the plaintiff for which they had given a promissory note; they subsequently transferred their property to another party who executed an agreement in their favour expressly undertaking to pay to the lender of the money under the promissory note his dues thereunder. The lender of the money under the promissory note was no party to this contract and had no notice thereof; but, having ascertained the circumstances, he proceeded to sue the borrowers as well as the individual who had purchased the borrowers' property. He claimed that, in view of the agreement entered into between the borrowers and the purchasers of the borrowers' property, he (the lender) was entitled to take advantage of that agreement. <NAME> and <NAME>, JJ., of <ORG> held that the plaintiff was entitled to enforce his claim against the purchaser of the borrowers' property.

3. Had the matter rested there, one might have thought that this case would constitute an authority in favour of the proposition argued in the present instance. There are also other cases which have been quoted by the learned Advocate for the appellant which, certainly at first sight appear to support to some extent the learned Advocate's argument. In the case of <CITATION> 7 Ind Cas. 237 : 32 A. 410 : 14 C.W.N. 865 : 7 A.L.J. 871 : (1910) : M.W.N. 313 : 8 M.L.T. 147 : 12 C.L.J. 205 : 12 Bom. L.R. 638 : 20 M.L.J. 914 : 37 I.A. 152 (P.C.) their Lordships of <ORG> held that under certain circumstances (to which I shall refer presently) it was possible for a person who was no party to an agreement to take advantage of the provisions of such an agreement which were in fact beneficial to herself. Their Lordships' decision (which was given by the "Right Hon'ble Mr. <NAME> relates the facts at some length. Put very shortly, they were as follows. A minor Muhammadan lady, prior to and in consideration of her marriage with the son of the defend, ant in the suit, was promised by the defendant under an agreement executed between the defendant and the lady's father to be-paid by the defendant the sum of Rs. 500 per mensem from the date of her reception in marriage; the defendant also charged certain specified properties for the purpose of producing the requisite funds. The lady, as I have stated, was a minor; but, eventually, after the marriage, lived with her husband for sometime; owing, however, to disagreement she, at the end of some 12 of 13 years ceased so to do. The defendant then refused to continue to pay the allowance and the lady accordingly brought the suit against him basing her claim upon the document of agreement which had been entered into between the defendant and her (the plaintiff's) father. It was maintained on behalf of the defence on the line of reasoning adopted in the well-known English case Tweddle v. <NAME> (1861) 1 B. & S. 393 : 30 L.J.Q.B. 265 : 8 Jur. (N.S.) 332 : 4 L.T. 468 : 9 W.R. 781 : 121 E.R. 762 : 124 R.R. 610, that as the plaintiff was in no way an actual party to the agreement, made between her father and the defendant, she had no locus standi and was unable to sue thereunder. Mr. <NAME>, however, pointed out that the case of Tweddle v. <NAME> (1861) 1 B. & S. 393 : 30 L.J.Q.B. 265 : 8 Jur. (N.S.) 332 : 4 L.T. 468 : 9 W.R. 781 : 121 E.R. 762 : 124 R.R. 610, was one decided under the Common Law of England and was not in their Lordships' opinion applicable to the facts which were disclosed in the case before their Lordships. Their Lordships were of opinion that although no party to the agreement (and it must be remembered that the lady was then a minor and the document was executed by her father) she was clearly in equity entitled to enforce her claim against the defendant. The case, however, appears to me to be distinguishable from the present case in view of the fact that the benefit which was to accrue to the plaintiff was one for which the consideration was the marriage to take place between herself and the defendant's son. Then there is another case which was cited on behalf of the plaintiffs: <NAME> v. <NAME> 20 Ind. Cas. 630 : 41 C. 137 : 17 C.W.N. 1143 : 18 C.L.J. 603. In that case <NAME>, <NAME>, and <NAME>, J., held that where the transferee of a debtor's liability acknowledged in the provisions of the registered instrument which conveyed to him all the original debtor's properties, his obligation Lo the creditor for the debt to be paid by him and where the acknowledgment was communicated to the creditor and accepted by him, the creditor could sue the transferee on the registered instrument. Here again their Lordships based their decision upon the equitable principle which had operated upon the minds of their Lordships of <ORG> in the case which I have just quoted. Here in this case of <NAME> v. <NAME> 20 Ind. Cas. 630 : 41 C. 137 : 17 C.W.N. 1143 : 18 C.L.J. 603 it may indeed be said that the facts disclosed that the creditor was actually privy to and concerned in the transaction which took place between the transferee and the debtor. In fact in the judgment of <NAME>, <NAME> it is expressly stated that there was an arrangement between the plaintiff and defendant No. 5 by which the liability of defendant No. 5 under the transfer was acknowledged and accepted and it may also be observed that (although under the mistaken idea of their true legal effect) certain title deeds were actually handed over at that time by the purchaser to the plaintiff. Although therefore, the last two cases quoted seem to be based upon considerations some what different from those which have to be regarded in the present appeal, there is no doubt, as I have said before, that the case reported as <CITATION> 36 Ind. Cas. 792 : 22 C.W.N. 279 : 27 C.L.J. 483 does constitute some authority to support the argument which has been addressed to us by the learned Advocate who has appeared for the appellants. There are, however, on the other hand two: cases which appear to be conclusive authority upon the point which has been argued, in this appeal. The first of these, is <CITATION> 13 Ind. Cas 304 : 34 A. 63 : 16 C.W.N. 97 : 11 M.L.T. 6 : 9 A.L.J. 37 : (1912) M.W.N. 32 : 15 C.L.J. 68 : 14 Bom. L.R. 1 : 21 M. L.J. 1151 : 391. A. 7 (P.C.). It is a decision of their Lordships of <ORG> and although the facts are not set out, at any great length in the report they can be found fully reported as <CITATION> 2 Ind. Cas. 460 : 31 A. 352 : 6 A.L.J. 427. It will be seen, from a perusal of the facts as given in that report, that the circumstances, were almost, the same as those which obtain in, the present appeal. The judgment of their Lordships of <ORG> delivered by Lord <NAME> is very short and very much in point here. His Lordship observes: "This is a perfectly plain case. The action is brought by a mortgagee to enforce against purchaser of the mortgaged property, an undertaking that he entered into with his vendor."

4. I may pause here to observe that the undertaking referred to was to the effect that the purchaser would pay off the debt due to the mortgagee by the person from whom the purchaser had-purchased the property. His Lordship continues: "The mortgagee has no right to avail himself of that. He was no party to the sale. The purchaser entered into no contract with him, and the purchaser is not personally bound to pay his mortgage debt."

5. There is still a later case in which the same proposition has been similarly set forth in another decision of their Lordships of <ORG>. In that case, <NAME> v. <NAME> 95 Ind. Cas. 970 : 3 P.L.T. 637 : SS C.W.N. 771 : A.I.R. 1923 P.C. 54 (P.C.) the facts again are in that report but very. shortly set out. We have had the advantage, however, of seeing what, the facts were from the record of this <ORG>, the case having been tried on appeal on the 7th June 1918 before <NAME> and <NAME>, JJ. The facts were substantially identical with those which exists in the present appeal; A mortgagor having executed a mortgage in favour of the plaintiff sold the property to a third party who, in the recitals of this sale-deed agreed to pay off the mortgage with a provision of the purchase-money which, was; for that purpose left in his hands. The mortgagee sued upon his mortgage, not only the mortgagor but also the purchaser; but this <ORG> refused to grant any personal decree against the purchaser, holding that he (the mortgagee) could not avail himself of the stipulation made in the contract between the purchaser and the mortgagor. Their Lordships of <ORG> uphold the decision of this <ORG>, Lord <NAME> in a very short judgment stating. "Their Lordships have considered this case, and they think it is clear that no personal liability was incurred by the purchasers of the equity of redemption. Their Lordships, therefore, think that the decree of the High <ORG> was right and that the point made by the appellant fails." It may be observed that in the judgment given by this <ORG> our the 7th June 1918, the cases to which I have-referred above were mentioned and quoted.

6. It seems, therefore, that we are clearly bound by the authority of these two decisions of <ORG> which are so directly in point.

7. The appeal, therefore, must be dismissed with costs. I should mention that there was a cross-objection which, however, is not pressed and has not been argued and that cross-objection also must be dismissed with costs.

8. It is said by the learned Advocate who has appeared for the appellants (and it may be mentioned that the question is referred to in ground No. 7 of the appellants' grounds of appeal to this Court) that there has been some arithmetical or other mistake with regard to the amount of costs which have been awarded to the defendants Nos. 8 to 13. It was suggested that, as this question had been made a ground of appeal it might be dealt with in this Court. We have, however, no materials whatever before us which would enable us to discuss or consider this point. If there has been any mistake in regard to the quantum of costs, that matter should be referred to and dealt with by the lower <ORG>.

<NAME>, <NAME>

9. I agree. The difference between the case quoted in <NAME> v. <NAME> 20 Ind. Cas. 630 : 41 C. 137 : 17 C.W.N. 1143 : 18 C.L.J. 603 and the last cases quoted by my learned brother from 34 Ali. 63 and 3 Pat. L.T. 637 appears to me to be very important in connection with the facts of the present case. It is to be borne in mind that in the present case there was no notice to the plaintiff at the time of the contract. In the judgment of <ORG>, we see that the promisee that is to say, the plaintiff, had a proposal made to him by the promisor, that is to say, defendant No. 5, and he accepted it. So in that case the promisee was in the position indicated in Section 2 of the Indian Contract Act. He held the benefit of a contract for consideration. In the present case the plaintiff, who claims to be the promisee, has never had a proposal made to him by the defendants against whom he is seeking a money-decree and he certainly never accepted any such proposal. Therefore, Section 2 does not bring him into the position of a person who can sue a promisor upon a contract or for consideration. That is the distinction between the two classes of cases, and I think the present case falls within the class indicated in the <ORG> cases which have been quoted. There may be a third class of cases in the judgments which, we have been studying, namely, the class in which minors or other third parties sue under family or marriage settlements. In such cases as those, the plaintiff can hardly be regarded as a promisee who has accepted any proposal or promise, and such casesare probably decided on the traditional principles governing <ORG> rather than by any application of the terms of Section 2 of the Indian Contract, Act. If I am correct, this third class would, I think, be exemplified by the case of <NAME> v. <NAME> 7 Ind Cas. 237 : 32 A. 410 : 14 C.W.N. 865 : 7 A.L.J. 871 : (1910) : M.W.N. 313 : 8 M.L.T. 147 : 12 C.L.J. 205 : 12 Bom. L.R. 638 : 20 M.L.J. 914 : 37 I.A. 152 (P.C.).


ORDER <NAME>, Member (J)

1. This appeal is directed against the order-in-original dt. 28.1.1994 passed by the Collector of <ORG>, Bombay, in order No. CAC/No. 25/94 CAC. By this order, the Learned Collector held that the 'Haemodialysers' (hereinafter referred to as goods) imported under Bill of Entry No. 6078 dt. 9.10.1988 are not entitled to the benefit of Notification No. 208/81-Cus. dt. 22.9.1981. He held the goods to be prohibited goods within the meaning of Section 2(33) and their export out of India, as not permissible. Since the goods had been exported out of India and not used for home consumption, they had become liable for confiscation under Section 111(o) of the <ORG> Act, 1962. He held that by their actions, the goods are liable for confiscation and also they are liable for penalty under Section 112(a) of the <ORG> Act, 1962. The Learned Collector passed the final orders in these terms.

(a) Benefit of exemption Notification No. 208/81-Cus. dt. 22.9.1981 shall be denied. The goods shall be assesseed on merits and the duty of customs amounting to Rs. 2,94,42,867/- shall be recovered from them under Section 28(1) of the Customs Act, 1962.

(b) The Haemodialysers are liable for confiscation under Section 111(o) of the Customs Act, 1962. But the goods have already been exported and are not available for confiscation.

(c) Imposed a penalty of Rs. 1,00,00,000/- (Rupees one Crore only) under Section 112(a) of the Customs Act, 1962.

2. Before the commencement of the proceedings in the present impugned order which was initiated by issue of the order dt. 6.4.1993, the department had proceeded against the importer in respect of the same import against the same Bill of Entry by issue of show cause notice dt. 25.3.1989 issued under Section 124 of the Customs Act, 1962 by the Deputy Collector of Customs, <NAME>. The allegations in that show cause notice were that the appellants had presented for export 53 sets of Haemodialysis Machines with spare parts and accessories to USSR vide S/Bills No. F-7832 to 7839 and F-7843 to 7845 all dt. 2.12.1988 and along with the S/Bills produced documents like Contract, GR Forms, Invoices etc. Total FOB value of the goods being Rs. 3,31,21,600/-. The goods were examined and on such examination it was found that the goods were packed in wooden crates and inside the crates the machines were in polythene packing bearing import marks and nos., make and manufacture, so much so that the spare parts are also in their original packing without further processing/ manufacturing and presented for export in the same condition in which these were imported except that few wooden stands were found in containers for keeping these machines on them. These sets were found to be of West German origin. On the basis of the examination, the concerned Appraising Officer had definite doubts regarding the validity of the export to USSR. Accordingly, he called for the original import documents. The party presented the import documents and submitted a letter dt. 25.12.1988 giving the details of the consignment. From the details of the consignment, the department gathered that the appellants had cleared a consignment declared as 56 units of 'Haemafiltration Instrument/Haemodialysers (Life Saving equipments) and Accessories and Spares for above and Acetate Concentrate and Others' of West German make contained in 6 containers vide Home Consumption B/E. No. 6078/19.10.1988 imported "MV Kathrin SIF (Marine Trans) at Bombay Port. The value of the goods declared in B/E is as follows:

(1) Hemafiltration Instrument/ Rs. 1,17,97,075/- Hemodialysers (2) Accessories and Spares Rs. 1,09,49,048/- (3) Acetate Concentrate & Rs. 40,746/- Others

3. The clearance was effected under OGL 15/88, Appendix 6, Item No. 36, List 2 which provides for importation under OGL by any person for 'Stock and Sale'. Further, the consignments of Hemafiltration Instrument/Haemodialysers were cleared free of duty in terms of Notification No. 208/81. Spares for the above consignments were also cleared free of duty under Notification No. 208/81. The Acetate Concentrate and others were cleared on payment of duty at 30% Basic duty + 45% Auxiliary duty and C.V.D. 15%. After this consignment was cleared for home consumption, the party stated vide their letter dt. 25.12.1988 that they took these goods to their unit at Ankleshwar for moisture proof packing, palletisation, fabrication of necessary/stand etc. Thereafter, the goods were brought to Kandla Port stuffed in 19 containers to be exported to USSR per <CITATION> vide 13 S/bills at dt. 2.12.1988. Therefore, the department alleged that the party had attempted to re-export the consignments without any processing/manufacturing or assembling. Though they cleared the goods for home consumption under Home Consumption B/E after availing themselves of duty exemption benefits and the provisions of 'Stock and Sale' under OGL without declaring at the time of clearance that the imported goods are meant for re-export, they presented the same for re-export. Such type of re-export is not covered under the provisions of Saving Clause 15(g) of the Export Control Order, 1988. Except for the imported ship stores, no re-export of imported goods are covered under the provisions of Saving Clause 11(d) of the Import Trade Control Order, 1955 meaning thereby that such re-export would require the specific approval of <ORG>. The party, however, insisted for re-export of the goods and the Trade Commissioner of USSR also sent one telex stating that these goods were required for the Armenia earthquake victims and accordingly the re-export should be allowed. Keeping in view the urgency of the situation and on account of humanitarian grounds, the re-export of the consignment was allowed on execution of a Bond covering the value of the goods and cash deposit of Rs. 6,00,000/- and Bank Guarantee of Rs. 10,00,000/- safeguarding the <ORG> interests.

4 Thereafter, a reference was made to the <ORG> Ahmedabad and to <ORG> New Delhi, to ascertain the legality of the re-export. A reply received from <ORG>, New Delhi confirmed the stand taken by <ORG> that any re-export of goods imported under OGL/AU Licence/REP Licence/Addl. Licence are entirely meant for use within India and therefore, cannot be allowed for re-export. If any import is made for 'Stock and Sale', it means that it is for home consumption and not for export purposes. Noting all these details the department in the show cause notice alleged that the importer had contravened the provisions of Saving Clause 15(g) of the Export Trade Control Order, 1988 and Saving Clause 11(d) of the Import Trade Control Order, 1955 and the conditions of OGL 15/88 of AM 1988-91 read with Import & Export Control Act, 1947 and Section 11 of the Customs Act, 1962 and accordingly these goods are liable to confiscation under Section 113(d) of the Customs Act, 1962. Since the goods were cleared for home consumption under NIL rate of duty under Custom Notification No. 208/81 but later on re-exported, the customs duty was payable on these goods at the appropriate rate. By suppressing the fact of re-export of the imported goods, the party was wrongly availed themselves of the benefit of Notification No. 208/81. with mala fide intention for the sake of getting windfall benefit. Therefore, the importers were called upon to show cause as to why the short charged customs duty of Rs. 2,94,42,867/- (Basic at 60% + Aux. duty at 40% + CVD at 15%) should not be recovered from them on these 53 sets of Haemodialysis Machines with spare which were cleared by them at nil rate of duty by wrongfully claiming the benefit of Notification No. 208/81.

5. The appellants filed a detailed reply. After hearing the appellants the Collector of <ORG>, Kandla by his order dt. 22.10.1990 in order-in-original No. KCH/COLLR/10/90 held that the goods under export were liable to confiscation under Section 113(d) of the <ORG> Act. Since the goods had already been exported they were not available for confiscation. By rendering the goods liable to confiscation, the importer had rendered themselves liable to a penalty under Section 114 of the <ORG> Act. Therefore, considering the fact that the goods had already been exported, he proceeded to taken action in terms of the bond, Bank Guarantee and cash deposit furnished by the exporter. He imposed a penalty of Rs. 50 lakhs. In the said impugned order, as regards the duty, the Collector agreed with the importer that the Notification No. 208/81 exempted the goods unconditionally from the import duty. Therefore, he held that the goods were not liable to import duty. Therefore, he dropped the demand for duty. He also held that the importer imported the goods in question at the CIF value of Rs. 2.28 crores and exported them at FOB value of Rs. 3.31 crores. While the import price was paid in hard currency, the export realisation was in Indian Rupees. Thus they had made a profit of more than Rs. one crores in this transaction although it caused considerable loss of hard currency to the country. He also held that the transaction was more motivated by the huge profit rather than the desire to held the Armenian earthquake victims which was the ostensible reason given by the exporters. On the other aspect of the allegation pertaining to the ITC value, the Collector upheld the department's allegation and therefore, proceeded to impose the penalty of Rs. 50 lakhs.

6. The appellants agitated the matter before the <ORG>. Before the <ORG>, the matter was heard in great length and thereafter the <ORG> rejected the importer's plea and upheld the imposition of penalty of Rs. 50 lakhs and the said judgment has since been . While the importer had appealed before the <ORG>, the <ORG> did not file any appeal with regard to dropping of demands for duty. After the matter was decided by the <ORG> in favour of the <ORG>, the appellants took the matter to Hon'ble <ORG> of India. The Bench of three judges heard the matter in great length and a landmark judgment was ordered in the facts and circumstances of the case as . The <ORG> after upholding the charges of the <ORG> with regard to the violation of ITC value inasmuch as that the goods imported had not been utilised for home consumption but had diverted to Russia and hence upheld the imposition of fin of Rs. 50 lakhs. While determining the case, the Hon'ble <ORG> in para 25 incidentally also noted that the Hon'ble <ORG> was not concerned with the questions of whether the attempt of the assessee to export the goods (which has, in the event, been successful) would amount to an infringement of the conditions permitting the import so as to render either the import itself vide Section 111(o) of the Act, or the exemption from the import duty or both illegal and invalid and, if so, the consequences thereof. This was said, when the Counsel for the <ORG> emphasised on the circumstances that the importer had obtained the import of the goods free of duty relying on the Notification granting exemption from customs duty. The Hon'ble <ORG> also stated that it is obvious that it could not have been the intention of the legislature to grant exemption from customs duty in respect of vital goods of the nature in question in order that an importer may make profit by selling them abroad. The Hon'ble <ORG> has gone into great details on other aspects of the matter and upheld the order of the <ORG>. This judgment of the <ORG> was rendered on 14.5.1992. When this was the position on facts, the <ORG> suddenly woke up and realised that they ought to have proceeded for recovery of duty and hence issued a belated show cause notice almost after one year of the <ORG>'s judgment on 6.4.1993, which is subject matter of the present proceedings. In the show cause notice dt. 6.4.1993 issued again under Section 124 of the <ORG> Act, 1962, the Collector of <ORG>, Bombay has narrated the facts but unfortunately without bringing in the facts of the previous proceedings, which culminated in the judgments of the <ORG>. After recording the statement of the party in the matter, which had all been recorded at the initial stage, the show cause notice demanded from the importers the duty of Rs. 2,94,42,867/- in terms of proviso to Section 28(1) of the <ORG> Act, 1962 and also demanded as to why the goods concerned should not be held liable to confiscation under Section 111(o) of the <ORG> Act, 1962 and why a penalty should not be imposed under Section 112(a) of the <ORG> Act, 1962. The Managing Directors and the Executives of the importers were also called upon to show cause as to why penal action should not be initiated against them.

7. The appellants by their reply dt. Nov. 19, 1993 replied to the show cause notice and spelt out in their reply various extracts of the judgments in support of their various contentions and ultimately stated that the show cause notice is based on serious misconception of law and prayed for withdrawal and dropping of the proceedings initiated against them.

8. The Learned Collector adjudicated the issue and passed the impugned order. The Learned Collector after dealing with the matter on the liability to pay the duty under Notification somehow has dealt with time bar aspect, without keeping in view the previous proceedings and dropping of duty demand by the Collector, <NAME>. He has only dealt with the matter that the Collector of <ORG> demanding duty again is not barred by res judicata. The Learned Collector has proceeded very strongly against the importers. He has held that the demands are not time barred in view of the fact that the statements recorded by the <ORG> Officials make it clear that the exports were made by clearing the imported goods to USSR and had at no stage, the importers had produced any evidence of selling these goods to hospital etc. in India. Therefore, he has held that wilful suppression of facts and misstatement invoking proviso to Section 28(1) of the <ORG> Act, 1962 to the extent of 5 years is legal, valid and justified.

9. We have heard the Learned Advocate, <NAME> for the appellants and the Learned DR, <NAME> for the Revenue.

10. We have considered the various pleas raised by the Learned Advocate in this matter both on merits as well as on time bar. The said contentions would be dealt in the finding portion of our order, so as to avoid the repetition.

11. The first important aspect of the matter is as to whether the <ORG> can initiate the proceedings by issue of fresh show cause notice dt. 6.4.1993, months after the earlier proceedings having culminated by the judgment of <ORG> rendered on 14.5.1992? As can be seen from the judgment of the Hon'ble <ORG>, the <ORG> had raised the arguments before <ORG> that the importer had obtained import of the goods free of duty by relying on the Notification granting exemption from the customs duty. It was also pleaded that it could not have been the intention of the legislature to grant ex -emption from customs duty in respect of vital goods of the nature in question in order that an importer may make profit by selling them abroad. The Hon'ble <ORG> after noting such arguments of the <ORG> proceeded to say that the intention is therefore, relevant for the issue before the court to the limited extent that it lends support to the construction of List 2 of Appendix 6 in the manner the court interpreted it. Further the Hon'ble <ORG> proceeded to say that they were not concerned with the question whether the attempt of the assessee to export the goods (which is, in the event, been successful) would amount to infringement of the conditions permitting the import so as to render either import itself vide Section 111(o) of the Act, or the exemption from import duty or both illegal and invalid and, if so, the consequences thereof. Therefore, it is seen that the <ORG> did not make any attempt to initiate proceedings forthwith. Even if the <ORG> had to initiate within 6 months of the date of the judgment, even then the matter would have been clearly time barred. It can be very clearly noticed that in the previous proceedings, the Collector dropped the demands for duty both on the ground that he did not have jurisdiction and also that the duty is not demandable as the goods were exempted under the Notification. The <ORG> accepted the Collector's order to this extent and did not file any appeal before the Tribunal and therefore, the <ORG>'s contention before <ORG> were negatived. In the facts and circumstances, is the Collector of <ORG>, Bombay justified in initiating the fresh proceedings by issue of show cause notice dt. 6.4.1993 by invoking proviso to Section 28(1) of the Act? The proviso to Section 28(1) provides for initiating proceedings for recovery of duty nor levied or having been short levied or had been erroneously refunded by reason of collusion or any misstatement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter, and that the proper officer namely, the Collector of <ORG> can initiate the proceedings within 5 years, from the relevant date. The relevant has also been defined in Sub-section 3 of Section 28 means:

(a) in a case where duty is not levied, the date on which the proper officer makes an order for the clearance of the goods;

(b) in a case where duty is provisionally assessed under Section 18 , the date of adjustment of duty after the final assessment thereof;

(c) in a case where duty has been erroneously refunded, the date of refund;

(d) in any other case, the date of payment of duty.

12. In the present case, the show cause notice dt. 25.3.1989 clearly demanded duty and also indicated as to why the goods should not be confiscated under Section 111(o) of the Customs Act, and penalty should not be imposed under Section 112 of the Act. The show cause notice clearly indicated the violation under Notification No. 208/81. As the demands had been dropped by the Collector and the matter had culminated by the judgment of <ORG> vide order dt. 14.5.1992, therefore, commencing fresh proceedigns by issue of show cause notice dt. 6.4.1993 does not arise and such proceedings are totally unsustainable in the eye of the law. As observed by us the remedy available for the <ORG> was to file an appeal against the earlier Collector's order or a Cross Appeal in the importer's appeal before the <ORG>. The <ORG> instead had initiated fresh proceedings through the Jurisdictional Collector. Such proceedings are clearly barred by time as the <ORG> had all the information to initiate proceedings for recovery of duty. However, this question was not dealt by the Learned Collector in his order but merely held that doctrine of res judicata would not apply. The Collector <NAME> had given a findings that duty cannot be recovered as the goods were exempted under Notification. Therefore, the contention of the Learned DR that earlier proceedings had no relevance does not stand to reason. The Collector's finding that there is no res judicata is totally erroneous and unsustainable. The <ORG> in the show cause notice invoked larger period and narrated the facts and circumstances of the case for justifying such invokation but being oblivious of the fact that the department had initiated the proceedings for the recovery of duty and had dropped the same. Therefore, from the facts and circumstances of the case, it appears that on a different opinion being taken by Collector, Bombay in the matter, other than that expressed by the <ORG>, <ORG> and <ORG> in the matter. Therefore, the basis of the proceedings is unsustainable and requires to be quashed.

13. In view of the findings given on the time bar and the unsustainability of the proceedings, the question of entering into the merits would not arise in the present case. However, the counsel had also argued on this aspect and had relied on several rulings and had also pointed out that <ORG> had been granting benefit of the <ORG>, similar circumstances, when goods were exported, without any manufacturing process carried out and the goods having been utilised for home consumption. We notice that on this aspect of the matter, <ORG> has very clearly held in para 22 that although there is no express prohibition, the re-export as such of items of goods specified in List 2 and imported into India is prohibited by necessary implication by the language of, and the scheme underlying, the grant of OGL in regard to them. The court has further held that it is difficult to agree that the import-export policy envisages the re-export of goods belonging to this category. The opinion of the <ORG> is also to the same effect. After analysis the various aspects <ORG> held that the goods in question were prohibited goods within the meaning of Section 2(33) and that their confiscation under Section 113(d) and the penalty under Section 114 were fully justified. <ORG> has held that it is obvious that it could not have been the intention of the legislature to grant exemption from customs duty in respect of vital goods of the nature in question in order that an importer may make profit by selling them abroad.

14. The Learned DR submitted that there is mis-declaration and that the appellants were required to have declared in the Bill of Entry, the purpose for which the imported goods are required, that they would be used in India only or would be sold in India or would be exported outside India without any process of manufacture being carried out. On this point <ORG> in para 16 of the judgment has clearly held that the form of the Bill of Entry prescribed under the Act does not require any declaration from the importer as to the purpose for which the imported goods are required or that they will be used or sold only in India. The expression "home consumption" has also, in the context, no clear or definite meaning and raised a lot of conundrums if literally interpreted to mean that imported goods should always be consumed in India. The court raised question that is it home consumption if the importer does not use the goods himself but sells them? At what point of time should the importer make up his mind whether he proposes to sell the imported goods in India or wishes to export them outside. The Court again raised the question that is the condition infringed if a purchaser of goods from the importer sells it to buyer in a foreign country? Will it be permissible for the importer to use the imported goods in the manufacture of other goods which he proposes to export? <ORG> answered that all these uncertainties in the connotation of the expression 'home consumption' preclude one from giving an interpretation to this expression that the imported goods cannot be at all exported and incline one to hold that, in the context, it is only used in contrast to the expression for warehousing'. <ORG> in para 17 precisely answered that the charges raised in the present show cause notice about the importer making capital of the export and did not accept the <ORG>'s interpretation and also held that it is possible to think of cases where, though economically unremunerative, the re-exports can be justified on considerations of international amity and goodwill such as for example, where the goods are exported to a country which is in dire need of help and assistance. <ORG> also held that the principle is also non-acceptable on the ground of vagueness as to the extent of its application to exports made after an interval or after changing several hands inside the country by way of sale. Therefore, <ORG> did not accept the <ORG>'s contention on this aspect. The findings given in para 17 is relevant for our purposes and the same is noted herein.

17. The above general consideration apart, there are other indications in the statute which show that the Act does not prohibit the export of imported goods. The Act provides that goods which are cleared from the customs area for warehousing can be cleared from the warehouse for home consumption (S. 68) or exportation (S. 69). At first blush, this may seem to support the <ORG>'s interpretation that clearance for exportation and clearance for home consumption are two different things. It is indeed suggested by <ORG> counsel that, if an importer intends to export the imported goods, he should clear them for warehousing and then proceed in terms of Section 69 . But a little thought would show this interpretation cannot be correct. In the first place, where an importer, even at the time of the import purchase has decided to sell the goods in another country (as in the present case), he may, as pointed out earlier, easily ask the goods to be transitted or transhipped to the country of sale and thus avoid any necessity for their being at all cleared in India. But where, for one reason or other, he wants to import the goods into India and then sell them to the foreign country or where the importer decides on an export sale only after he has arranged for the import of the goods into India, the Act prescribes no form of a Bill of Entry under which he can clear such goods intended for re-export. It would not be correct to insist that he must clear them for warehousing and then export them by clearing from the warehouse. Whether to deposit the goods in warehouse or not is an option given to the importer. If he is able to pay the import duties and has his own place to stock the goods, he is entitled to take them away. But, where he has either some difficulty in payment of the duties or where he has no ready place to stock the goods before use or sale, he cannot clear the goods from the customs area. The warehouse is only a place which the importer, on payment of prescribed charges, is permitted to utilise for keeping the goods where he is not able to take the goods straightaway outside the customs area. There is nothing in the provisions of the Act to compel an importer even before or when importing the goods, to make up his mind whether he is going to use or sell them in India or whether he proposes to re-export them. Again, there may be cases where he has imported the goods for use or sale in India but subsequently receives an attractive offer which necessitates an export. It would make export trade difficult to say that he cannot accept the export offer as the goods, when imported, had been cleared for home consumption. Section 69 , therefore, should be only read as a provision setting out the procedure for export of warehoused goods and not as a provision which makes warehousing an imperative pre-condition for exporting the imported goods. The second reason for not reading Sections 68 and 69 as supporting the <ORG>'s interpretation is even more weighty. That interpretation would mean that imported goods can be re-exported after being warehoused for sometime (even a day or a few hours) but that they cannot be exported otherwise. Such an interpretation has no basis in logic or sense and makes mincemeat of the broader principle contended for by the <ORG> that imports are intended for use in the country and not for export. Incidentally, we may observe that even this principle contended for by <ORG> may itself be of doubtful validity as it is based on an erroneous assumption that a re-export of imported goods will always be detrimental to the country. It is true that, in the present case, the appellant has been criticised for having utilised valuable hard currency for the purchases and reselling the goods only for rupee consideration. But, conceivably, there may be cases where an importer is able to import goods from soft-currency area and sell them in a hard-currency area earning foreign exchange for the country. It is also possible to think of cases where, though economically unremunerative, the re-exports can be justified on considerations of international amity and goodwill such as for example, where the goods are exported to a country which is in a dire need of help and assistance. The principle is also non-acceptable on the ground of vagueness as to the extent of its application to exports made after an interval or after changing several hands inside the country by way of sale. We are, therefore, unable to read Sections 68 and 69 as supporting the <ORG>'s contention.

15. The question raised by the <ORG> in the present case, are also answered by <ORG> as can be clearly noted. It follows that the charges raised with regard to misdeclaration on the basis of not furnishing the details in the B/E is not sustainable. Therefore, the proceedings is totally unsustainable. The Collector of <ORG>, Bombay ought to have gone through these proceedings carefully before embarking on a fresh proceedings, which does not meet the eye of the law.

16. In the case of <CITATION> as , the case made out against the importer was that they had not carried out necessary manufacturing processes before re-exporting the goods and in that context it was alleged that they were not entitled to the benefit of Notification No. 339/85-Cus. dt. 21.11.1985 and that they were also liable for recovery of duty and penalty under Sections 28 , 74 , 111(d) and 112 of the Customs Act, 1962. The <ORG> upheld all the allegations. However, on the plea that since the goods were exported, the importer were entitled to duty draw-back under Section 74 of the Customs Act, 1962 was upheld by the <ORG>. Therefore, it follows that where in similar circumstances when all the allegations against the importer have been held to be proved yet the <ORG> upheld the importers' contention that when the goods were exported they were entitled to the benefit of drawback. In that view of the matter, it is difficult to even accept the Collector's plea that the duty amount in the present case would be recoverable. Therefore, the contention raised by the Learned DR on this aspect and the findings given by the Collector is required to be set aside and which we do so. The appeal is therefore, allowed.

Separate Order Sd/- (<NAME>) (S.L. Peeran) Member (T) Member (J) <NAME>, Member (T) 17. With respect to Ld. Member (), I am writing my separate order as under: 17.1. Proviso to Section 28 of the <ORG> Act provides that where any duty has not been levied or has not been short levied or erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the exporter, the provisions of Sub-section (1) will have the effect as if for the words 'Proper Officer' the words "Collector of <ORG>" and for the words 'One Year' and "Six Months" the words 'Five Years" were substituted. 17.2. Proper officer is defined under Section 2(34) as "Proper Officer in relation to any functions to be performed under this Act, means the officer of <ORG> who is assigned those functions by the Board or Collector of <ORG>".

18.1. Government have defined the jurisdiction of various <ORG> Officers in the different regions in the country. It is only a few officers like Director General of Revenue Intelligence, Director General of Anti-evasion, etc., who have All India Jurisdiction. Collector of <ORG>, Kandla, has jurisdiction only in regard to Port at Kandla and such other areas as are specified in the Notification issued by the Government. Likewise, Collector of <ORG>, Bombay, has jurisdiction in regard to matters pertaining to specified Bombay region. The jurisdictions are sharply demarcated.

18.2. The question whether Collector of <ORG>, Cochin, had jurisdiction in regard to import made at Madras, came up for consideration before <ORG> in case of <CITATION> 1988 (14) ECR 169. <ORG> held:

<ORG> has issued notifications under Section 4 of the <ORG> Act appointing Collectors of <ORG> and lower officers for different jurisdictions. In terms of these notifications, the respective jurisdictions of the Collectors have been clearly spelt out (see, for example, Notification No. 36-Cus. dated 1.2.1963, as amended). Notification No. 37 dated 1.2.1963, as amended, appoints the Collector of <ORG> and <ORG>, Cochin, as the Collector of <ORG> in his jurisdiction. Evidently, it does not extend to Madras Port for which the Collector is the Collector of <ORG>, Madras, vide Notification No. 36 dated 1.2.1963. There are, of course, a few officers appointed as Collectors with all-India jurisdiction such as the Director of Revenue Intelligence but the Collector of <ORG>, Cochin is not one among them. In these circumstances, we hold that the Collector of <ORG>, Cochin had no jurisdiction to demand duty in the present case and, consequently, we set aside the demand.

It is therefore clear that Proper Officer for the purpose of import in this case was the Collector of <ORG>, Bombay, and he alone was competent to issue a show cause notice demanding duty.

18.3. For instance, under Notification 251/93-Cus. dated 27.8.1993 as amended <ORG> in exercise of powers conferred by Sub-section (1) of Section 4 of <ORG> Act, 1962, have appointed officers mentioned in Column 2 of the Table appended to the Notification to be Collectors of <ORG>. For the areas of <ORG>, Bombay Airport, it is the Collector of <ORG>, Bombay, and, for the Port and Airport of Kandla and the area under the jurisdiction of Gandhi Dam Municipality, it is Collector of <ORG>, Kandla. As against this, under Notification 252/93 dated 2.7.1993 as amended, <ORG> have appointed Director General of Revenue Intelligence, New Delhi, and Director General of Inspections, <ORG> and Excise, New Delhi, to be Collectors of the <ORG> within their respective jurisdictions. The Notification also provides that jurisdiction of these officers shall extend to the whole of India.

18.4. It will be clear therefore that jurisdiction of proper officer is clearly well-defined, and therefore, for the purpose of import through Bombay only Collector of <ORG>, Bombay, was the proper officer to initiate proceedings under Section 28 of <ORG> Act. It may not therefore be possible to hold that proceedings had already been initiated and therefore fresh proceedings could not be initiated.

18.5. It can therefore be seen that it was not fresh proceeding initiated by the proper officer after he had initially initiated the proceedings and dropped the demand of duty. In fact, Collector of <ORG>, <ORG>, while dropping the demand himself admitted that he had no jurisdiction in relation to the matter pertaining to duty. Goods were imported at Bombay and cleared duty free under exemption notification and therefore demand of duty could be issued only by the proper officer, i.e., Collector of <ORG>, Bombay. In this view of the matter, therefore, we cannot say that it was a fresh proceeding initiated by the proper officer after having already dealth with the matter. It is not the case of the appellants that as soon as they were penalised at <ORG> or they were issued a Show Cause Notice by <ORG> <ORG>, they made disclosure of these facts to the proper officer in relation to the imports, i.e., Collector of <ORG>, Bombay. Collector of <ORG>, Bombay, therefore, was competent to initiate proceedings against the appellants as soon as he came to know that a short-levy had indeed taken place since goods had been exported and this fact had not been disclosed to the proper officer.

19.1. <ORG> in the case of appellants themselves in the case of <CITATION> held that the equipment permitted to be imported is only for the purpose of use in the country. <ORG> held that the circumstances that these items are also exempt from customs duty at the time of import also lends support to the conclusion that the goods so permitted are not meant for re-export. <ORG>, therefore, held:

We, are, therefore, of the opinion that, although there is no express prohibition, the re-export as such of items of goods specified in List-2 and imported -into India is prohibited by necessary implication by the language of, and the scheme underlying, the grant of OGL in regard to them. It is difficult to agree that the Import-Export Policy envisages the re-export of the goods belonging to this category. The opinion of <ORG> is also to the same effect. This opinion also derives some binding effect from Para 24(1) of the Import Policy read with Paras 22 and 23 of the Export Policy.

19.2. Taking into account all the considerations, <ORG> held that "the goods in question were "prohibited" goods within the meaning of Section 2(33) and their confiscation under Section 113(d) and penalty under Section 114 were fully justified".

20. Here we have a situation where goods have been contracted for re-export even prior to their import. In the statement dated 20.2.1992 of Shri <NAME>, it is indicated that they had prior orders for exporting these items and they had to check the feasibility of import of these commodities taking into consideration the duty free import under Notification No. 208/81. In the statement of Shri <NAME>, M.D. of <ORG>, he has admitted that they had imported haemeodialysers from West Germany and the purpose of import of these was to meet the export order for export to Russia. It is also admitted by him that they made a gross profit of approximately Rs. 1 Crore. He also admitted to have availed benefit of notification to import goods with no import duty and that the interest was purely business interest. It has also been admitted by him that the goods were imported and cleared form <ORG> with the sole purpose of exporting these to Russia with a business intention and to earn adequate profits.

21. It is, therefore, clear that even prior to import of goods cleared under duty exemption, the appellants had entered into Contract for re-export of these goods as such to earn profits.

22. Hon'ble <ORG> in Para 25(2) of the judgment in case of Mis. M.J. Exports Supra held "the goods were for use in this country, not in another".

In the light of this, it is obvious that the appellants when they imported goods and claimed duty free exemption already knew that they would be exporting the goods and they knew also that they could not export these goods without subjecting them to certain processes and, therefore, as was contended by the <ORG> before <ORG>, they put up a facade of taking the goods to Ankleshwar after their import allegedly for being subjected to some processes.

23. In these circumstances, therefore, considering the intent of the appellants, extended period as provided under Proviso 2 to Section 28(i) of the Customs Act, 1962, is sustainable. <ORG> in case of <NAME> 1991 (33) ECR 225 (SC) held that extended period is applicable where there was wilful mis-statement and suppression of facts by the importer. That was a case where goods imported claiming benefit of Project Import were transferred to another company instead of being used for the purpose for which the import was authorised as Project Import. <ORG> held:

9. In the instant case, the appellant had obtained the import licence dated February 14, 1979 for expansion of its business on the recommendation of the Director of Industries, Kerala State and the said import licence contained specific endorsement of "Project Import", When the goods arrived at the port in India the appellant filed a Bill of Entry on November 12, 1979, with the customs authorities which contained a declaration signal by a partner of the appellant. In addition, the appellant submitted an application form dated November, 21, 1979, before the customs authorities for Registration under Project Import (Registration of Contracts) Regulations, 1965 wherein it was stated that the goods to be imported were for substantial expansion of an existing plant and that the existing installed capacity of the plant of the appellant was 25,000 sq. mtr. per annum and that the capacity after expansion would be 10,98,000 sq. mtr. decorative Veeners per annum. In the said application form, it was also stated that no industrial licence for installation or substantial expansion was required by the appellant, since it is a Small Scale Unit. There is nothing on the record to show that the appellant had informed the customs authorities that the machinery to be imported would be transferred by the appellant to the <ORG> and the <ORG> would install the same. On the other hand, the endorsement on the import licence submitted with the Bill of Entry which contained a declaration by a partner of the appellant and the statements contained in the application from for Registration dated November 21, 1979, indicated that the appellant would be using the imported machinery for substantial expansion of its existing unit and on that basis the appellant was assessed for duty at a concessional rate under Head -ing No. 84.66 of the Customs Tariff. Since the appellant did not install the said machinery for the expansion of its existing unit, but transferred it to the <ORG> after it had been cleared from the customs, the appellant cannot claim the benefit of the concessional rate of duty under Heading No. 84.66 of the Customs Tariff and is liable to pay such duty at the normal rates prescribed in the Customs Tariff. This was, therefore, a case of short levy of customs duty which is dealt with the Section 28 of the Act. In Sub-section (1) of Section 28 it is prescribed that a notice shall be served on the person chargeable with the duty requiring him to show cause why he should not pay the amount specified in the notice. The said notice has to be served within one year of the relevant date in cases when import is made by an individual for his personal use or by <ORG> or by an educational, research or charitable institution or hospital and the period for service of such notice is six months in other cases. The proviso to Sub-section (1) of Section 28 enhances the aforementioned periods for service of the notice to five years in cases where any duty has not been levied or has been short-levied or erroneously refunded by reasons of collusion or any wilful misstatement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter. Here the relevant date was December 7, 1979, the date on which the duty was paid and the enhanced period of five years prescribed under the proviso to Sub-section (1) of Section 28 was invoked by the customs authorities to issue the show cause notice dated June 4, 1982, to the appellant. The present case falls within the ambit of the said proviso because the appellant had cleared the goods from the customs on payment of concessional rate of duty under Heading No. 84.66 of the Customs Tariff by making a misstatement in the application form dated November 21,1979, for registration under the Project Import (Registration of Contracts) Regulations, 1965, that the machinery that had been imported was for substantial expansion of the existing industrial unit of the appellant and by suppressing the fact that under Agreement dated July 31, 1979, the appellant had agreed to transfer the said machinery to the <ORG>. In the circumstances the Collector was justified in directing that the goods in question should be re-assessed to duty on merits under the appropriate heading of the Customs Tariff without giving the benefit of the assessment under Heading 84.66 and to collect the short levy from the appellant. The demand for the additional amount of Rs. 1,26,163.45 paise made on the basis of such re-assessment in pursuance of the aforesaid direction given by the Collector, does not, therefore, suffer from any legal infirmity.

24. Considering goods had been contracted for export even prior to import and yet they claimed exemption when they knew such exemption could not be availed of in case goods were for re-export as such, extended period for demanding duty was sustainable.

25. I, therefore, uphold the impugned order and reject the appeal.

Sd/-

(<NAME>) Member (T)

26. In view of difference of opinion between the Members, the following question arises for determination by Third Member on reference of the matter by Hon'ble President.

Whether the appeal is required to be allowed in terms of findings given by Member (<ORG>) in his order.

or The appeal is required to be rejected in terms of the order recorded by Member (Technical) in his order.

Sd/- Sd/- (<NAME>) (<NAME>) Member (T) Member J) Dt. 26.12.1997 Hon'ble President <NAME>, Member (T) 27.I have heard both sides on difference of opinion. The facts are set out in the first eight paragraphs of the order of the judicial member's order and therefore I do not propose to repeat them.

28. It is first contended by the advocate for the appellant that the demand is barred by limitation. The notice issued in April, 1993 for goods imported in 1988, invokes the extended period provided in Section 28 of the Act on the ground that the importer did not declare on the bill of entry, till investigation commenced that the goods were intended to be exported to the USSR. Advocate for the appellant contends that there has been no wilful misstatement, wilful suppression of facts, fraud or collusion so as to justify invocation of Section 28 of the Act. The Collector, he says, while recording the arguments on limitation, has not dealt with them. He points out that <ORG> has clearly held that the demand is barred by limitation.

29. On merits he contends that when the goods were imported in 1988, the appellant was under the bonafide impression that notification 201/88 would apply and the goods were for stock and sale. Going by the plain meaning of the policy and the notification, the appellant had every reason to believe that the goods were intended to be imported under OGL and were exempt from duty when they were imported. Even if the intention was to export them subsequently, it is only after <ORG> judgment that it has been held that was not permissible. Prior to this, the subsisting law was in <ORG> judgment in <CITATION> reported in 1990 (40) ELT 339 and <CITATION> 1978 (2) ELT 350 : ECR C 274 SC. This view was confirmed by the appellant have not earlier imported the goods under notification exported without their being any objection from the <ORG>.

30. He further contends that once the Collector of <ORG> at Kandla had dropped the proceedings, the only course open to the department was to get his order reviewed. Since this has not been done, the matter has become final and the Collector of <ORG> could not reopen the proceedings once again.

31. It is next contended that the Collector's order denies the exemption benefit only on the ground that the goods had been exported. The appellant's act of export had been found by the Collector in Kandla to be illegal and the appellant has been imposed a penalty. The point if any in export has been wiped out and there is no reason to deny the importation. To do so is to penalise the appellant twice.

32. The departmental representative contends that the appellant did not disclose to the department that the goods could not be used in any hospital in India which is contrary to the terms of the notification. In fact a claim was made to the contrary. There has been a clear misdeclaration. It is not correct to say that the Collector of <ORG>, Bombay came to know about the import from the order of the Collector of <ORG>, Kandla. There is no material to show this and the order itself says that he came to know from intelligence. He contends that Member (Technical) rightly relied upon <ORG> judgment in Jackson and <NAME> 1991 (33) ECR 225 that in the absence of a declaration that the goods were to be exported, the extended period could be rightly invoked. He says that it is not possible to say whether the earlier exports were of goods disclosed to be imported goods and they may have been declared as goods manufactured in India. He contends that, in addition to the goods described in Lists A and B to the table to the notification, List C extends the exemption to goods that may be certified by <ORG> in each individual case to the life saving drugs, medicines or equipments. This emphasis on certification in each individual case" is clearly to establish the use of the goods by the importer and this requirement applies for all goods covered by the notification. <ORG> in the judgment says that the goods are not entitled to be exported and confirmed the penalty imposed for such export. It had also observed in para 25(1) that it would not have been the intention of the legislature to grant exemption from <ORG> duty in respect of vital goods and in order that the importer may make profit by selling them abroad. Reliance by the appellant on the <ORG> judgment in <CITATION> is therefore misplaced.

33. The reason advanced by the Collector for invoking the extended period is that by not indicating in the bill of entry that the goods were not meant for use in India but were imported for export to Russia, the appellant had contravened the conditions of the notification. In that the notification was issued in the public interest, which means the interest of the public in India. Member (Judicial) has found that the proceedings were barred by limitation, because the full facts were known to the Collector of <ORG>, Kandla when he issued the demand for duty and subsequently dropped it. Therefore, he says, "the revenue had all the information to initiate proceedings for recovery of duty." The view of the Member Technical is that there are clear territorial division with which each Collector exercise his jurisdiction and it does not follow that merely because the Collector of <ORG>, Kandla initiated and dropped the proceedings for duty, the Collector of <ORG> at Mumbai was aware of the imported goods sought to be re-exported.

34. The import took place in October, 1988 and the notice was issued in April, 1993 i.e. four years and six months after the importation. The extended period had been invoked on the ground that there has been wilful suppression of facts and mis-statement. The reason for this, the Collector says, is that the importer did not indicate during the importation that the goods were not meant for use in India but for export to Russia. The Collector also says that the appellant took the goods to Ankleshwar ostensibly for processing, although no such processing has been carried out. However, taking the goods to Ankleshwar would have been done after they were cleared from <ORG> charge and <ORG> could not have been influenced in coming to the decision by acts subsequent to the clearance of the goods. What we have to see is whether the failure to declare that the goods were meant to be re-exported amounts to suppression. For that to be held, we would have to see whether the situation required the appellant to specifically declare, while claiming the notification that the goods were to be exported.

35. The notification itself contains no express requirement that the goods imported must be used in India; nor does it require that any importer claiming its benefit must declare that the goods are intended to be used in India.

36. The departmental representative's argument relating to the List C to the table of the notification is not convincing. List A contains a list of life saving drugs or medicine, List B contains a list of life saving equipments and List C the residuary list covers drug, medicine or equipment including accessories or spares of such equipment certified by the specified officials of <ORG> in each individual case to be a life saving drug, medicine, equipment, accessories or spare part. The words "in each individual case" refers, in my opinion, to life saving drug, medicine or equipment which is to be imported. List C obviously has been incorporated so as to provide for exemption to goods which may have been omitted in the Lists A and B and which may be developed or available for use or for sale subsequent to the notification. To prevent duty free import of such goods it is obvious that an expert body certify that the goods are in fact a life saving drug, medicine or equipment. The words of List C do not postulate directly, or by implication, that the goods must be used only in India any more than the goods in Lists A or B. The form in which the certificate by the authority of <ORG> is to be given only requires it to certify that the goods are a life saving drug, medicine or equipment and to recommend grant of exemption from duty. The attribute of the goods being a life saving drug, medicine or equipment would continue, whether the goods are utilised for that purpose in India or elsewhere.

37. <ORG> in its judgment in the proceedings arising out of the order of the Collector of <ORG>, Kandla said that it could not have been the intention of the legislature to grant exemption from <ORG> duty in respect of vital goods in order that the importer may make a profit by selling them abroad. However, this judgment was passed in 1992, after the import. Prior to that the judgment of <ORG> in <CITATION> 1978 (2) ELT (350) (SC) : ECR C 274 SC and <ORG> v. <NAME> the Court itself held in the MJ Exports v. <ORG> that the principle enunciated in these decisions is that the Court should construe the terms of statutory provision or instrument before it and should not supply or introduce words which are not found therein to give effect to possible intention behind the provision or instrument which is not borne out by the language used. It relied on its judgment in <CITATION> to construe the provision of the OGL.

38. The importer, going by the judgments then prevailing could not be in a position to conclude that the public interest leading to issue of notification require that a life saving drug, medicine or equipment etc. must be used in India and that if so not exemption would not be available. The judgment cited above, show that the importer could bonafide take such a view.

39. Going by the plain reading of Section 28 and the notification thereof, it is not possible for me to agree that when the goods were imported, the importer knew or could reasonably be expected to know that the exemption would not be available for the goods, they were to be re-exported.

40. The members of the bench also decided the matter have approached the question of limitation from a different perspective. Member <NAME> finds the notice was barred by limitation "as the revenue had all the information to initiate proceedings for recovery of duty." Member <NAME> says (in para 8) that extended period is applicable because the goods have been contracted for export and the appellant knew that exemption could not be availed in case of goods were to be re-exported.

41. <ORG> in MJ Exports v. CEGAT (in para 17) itself noted that there nothing in the provisions of the <ORG> Act to compel an importer even before or when importing the goods, to make up his mind whether he is going to use or sell them in India or whether he proposes to re-export them. Again, there may be cases where he has imported the goods for use or sale in India but subsequently receives an attractive offer which impels prior to export them. It would make export trade difficult to say that he cannot accept such an offer as the goods, when imported, had been cleared for home consumption. The <ORG>, in making its observation, was interpreting the provisions of Sections 68 and 69 of the Act and answering the contention of the revenue before it that the goods cleared for home consumption are prohibited for export. However, this observation does suggest that it is possible for an importer to import the goods and thereafter export them without contravening the provisions. It could be possible for the appellant to cause genuinely import the goods for stock and sale in India but subsequently on clearance from <ORG> choose to export them. In that situation, obviously the extended period could not be invoked on the ground that there was suppression of facts or mis-statement. The converse is also possible. Even if the appellant knew, when goods, imported were imported, they were to be exported to Russia. It is however possible that he may have changed his mind, and decided to keep the goods in India say, that if the deal with Russia fell through or was cancelled because of it is more profitable to sell the goods in India. These observations indicate that it may not always be possible for an importer to say while importing the goods, whether they will be used in India or exported. It is also to be noted that the Madras High <ORG> in <CITATION> , specifically held that there was no bar to export of goods imported under OGL with the benefit of exemption under notification 208/81. This would also lend support to the plea that there was no bar to export of such goods.

42. For the extended period provided in the proviso to Section 28(1) to apply in the facts of this case, it must be shown that the appellant, while being aware that the benefit of the notification would not be available for the reason that export of goods subsequent to import under and clearance under the notification was not permissible suppressed from the department the fact that the goods were to be exported. The facts, as I have discussed above, do not establish this state of affairs. It cannot be said that, given the state of law at the relevant time the appellant ought to have known that import under OGL and clearance under notification was not permissible for goods which were to be subsequently exported. In any event it has not been shown that the appellant being aware of the illegality of its action suppressed the facts from the department, thus leading to extend the provisions of the notification which it otherwise would not have done. The judgment of <ORG> in <CITATION> and <ORG> v. CCE (SO to the effect that it must be shown, before the extended period under the proviso to Section 11 Ad) of the Central Excises and Salt Act , 1944 to apply that there was wilful suppression or mis-statement, would equally apply to the extended period under Section 28(1) of the Customs Act, 1962. The words of both the provisos relating to suppression, mis-statement, collusion in both are identical. I therefore agree with the Member (Judicial) that the demand is barred by limitation as the extended period will not apply.

43. Both the members also disagreed on whether the proceedings are barred by res judicata, Member Judicial holding that they are and the Member Technical that they are not. Although notice had been issued by <ORG> demanding duty, Collector of <ORG>, <NAME> declined to confirm the demand for duty. He agreed with the submission that he had no jurisdiction to demand on the goods imported through Bombay. He added that even otherwise notification 208/81 exempts the goods unconditionally from import duty. When once the Collector of <ORG>, <NAME> admits that he has no jurisdiction and says so, his subsequent observation that the demand for duty is unsustainable cannot be binding. It would therefore be incorrect to say that the Collector of <ORG>, Bombay was estopped from demanding duty. On this point I agree with the views expressed by the Member Technical.

44. The third reason given by the Judicial Member is that the goods having been exported, the benefit of drawback would be available. The order of Member Technical does not discuss this at all. There is therefore no difference of opinion on this aspect.

45. On the specific question posed therefore I hold that the appeal is to be allowed as found by Member <NAME>.

Sd/-

(<NAME>' Member (T) Dt. 5.5.1999 In view of the majority opinion, the appeal is allowed.