Prakash Narain, C.J.
1. Immediately on the the conclusion of the hearing of this petition under Article 226 of the Constitution we had orally announced our decision making the rule absolute with the directions regarding the claim for refund of Rs. 3,74,144.78.
2. The first petitioner is, inter alia, manufacturer of Data Processing Machines and Computers and has a factory at Pune. The second petitioner is a shareholder of the first petitioner, company. For the purpose of its business the first petitioner had imported machines and the components and parts thereof necessary for Data Processing Machines. These imports had been effected from time to time from 1969. The goods imported were classified under item I.C.T. No. 72(B) and 72(3) respectively in terms of the Tariff Ruling C.B.R. No. 36(283)56-Cus III, dated February 28, 1957, issued by the Central Board of Revenue. According to the first petitioner the practice it followed from 1969 onwards with regard to the machines and the components and parts thereof was that after the components were off loaded from the vessels, if the same were not immediately required for home consumption in the petitioner's factory, the same were warehoused in the petitioner's bonded warehouse at Pune. Thereafter, as and when the said components were required for being fitted into the machine being manufactured by the petitioner, with the permission of the Assistant Collector of Customs, the said components were transferred in Bond under Section 67 of the Customs Act, 1962 to be warehoused at petitioner's factory at Pune. As and when each consignment was permitted to be transferred in Bond, the Assistant Collector of Customs, Bond Department, sent instructions to the Excise Authorities stipulating the classification and duty liability in respect of the goods covered by each bond keeping in view the classifications I.T.C. No. 72(B) and 72(3). When the component were actually required to be exbonded, the petitioner filed ex-bond Bills of Entry for home consumption for assessment and on payment of the proper customs duty, the same were cleared for home consumption on the basis of the classification stated in the original Bills of Entry, namely, I.C.T. Nos. 72(B) and 72(3). The details of the consignments which were thus put in bonded warehouse on the diverse dated between August 1969 and August 1971 are mentioned in Exhibit 'A'. Some consignments were cleared between February 1972 and April 1972 on payment of the proper duty assessed by the Competent Officer on the basis of the aforesaid classifications. It is contended that as a result of a decision arrived at by the Central Board of Revenue, the Collector of Customs announced in the Public Notice, Tariff Ruling No. 12 dated February 22, 1972, that the classification of Data Processing Machines and Parts thereof was to be revised to Item No. 73 I.C.T. and that the same were no longer classifiable under Item No. 72 I.C.T. As a follow up action the petitioner received a letter dated May 3, 1972 from the Superintendent of Central Excise, inter alias advising the petitioner that as per the Public Notice dated February 22, 1972, all sorts of 'As Is' Machine imported and warehoused by the petitioners at their factory in Pune, under bond, would have to be reclassified under I.C.T. No. 73 and not under the original classification No. 72(3) I.C.T. Copy of this communication is Exhibit 'D' to the petition. As the bonded goods were required during the course of manufacture, the petitioners had no option but to pay the duty as per the reclassification under protest for all clearances effected from May 3, 1972 onwards. It is said that this enhanced duty was paid by the petitioners under protest in respect of parts and components which were warehoused prior to February 22, 1972. By a notice dated December 5, 1972, purported to have been issued under Section 28 of the Customs Act, issued by the Bond Officer (Inspector of Central Excise) a demand for Rs. 3,74,144,18 was made on the petitioner contending, inter alia, that the petitioners had cleared 'As Is' Machines, Components and Parts thereof without the correct classification and without the payment of the proper customs duty thereon and, thereforee, the demand of the aforesaid amount was being made as the differential between the Customs duty actually paid and the customs duty payable under I.C.I. No. 73. The petitioner replied to the said demand notice by the letter dated July 20, 1973. A personal hearing was given to the petitioner on August 22, 1973. At the hearing, it is said, the petitioner pointed out that any demand arising out of a subsequent change in the classification could not be enforced as the provisions of Section 28 were not attracted, particularly, where goods had already been cleared for home consumption. In other words, the submission was, that Tariff Ruling could not be applied retrospectively, once duty has been paid on the basis of a proper order of assessment. The petitioner's contention did not find favor with the third respondent the Assistant Collector of Central Excise, Poona. A communication was received from the second respondent conveying an order dated 10/12th September, 1973 upholding the demand notice dated December 5, 1972. It is submitted that the said order does not deal with any of the contentions raised in the communication dated July 20, 1973 addressed by the petitioner or what was submitted at the time of the personal hearing. The said order dated 10/12th September, 1973 in fact states that the petitioners were aware of the revised classification inasmuch as Bond Nos. 1828-30 dated March 28, 1972 and Bond No. 19 dated April 5, 1972 were reware housed under Item 73 of the I.C.T. Against the said order the petitioners preferred an appeal on October 4, 1973. The appeal was dismissed by the fourth respondent Shri D. K. Doshi on November 12, 1975. Revision was then preferred to the Central Government on February 24, 1976. A personal hearing was given on October 18, 1978. The Central Government, respondent No. 1 was of the opinion that the Tariff Advice made public by the notice dated February 22, 1972 only stated the correct position in law and that, as the goods in question were cleared from the Bond between the period February 23, 1972 and April 24, 1972 after the Tariff Advice was issued, the duty for the same should have been paid on the basis of the correct classification, namely, under Item No. 73 I.C.T. In effect, thereforee, the Central Government did not see any reason to interfere with the orders in revision. The result was that the first petitioner had to deposit Rs. 3,74,144.18. It is contended that the deposit was made under threat and under protest. Aggrieved by the aforesaid orders, the petitioners then filed a petition under Article 226 of the Constitution challenging the legality and virus of the said orders and praying for quashing of the same with a direction that the respondents should be ordered to refund the sum of Rs. 3,74,144.18. The petitioners also prayed that the customs advice contained in the Public Notice dated February 22, 1972 for reclassification of the goods be also struck down.
3. In the petition there are various grounds taken to support the contention that the impugned advice and orders are invalid, illegal, ultra virus and even nullity. It is not necessary to set out all the grounds at any great length as in our view the orders are liable to be quashed on limited grounds. These limited grounds will be discussed by us as we take up consideration of the validity of each of the impugned orders.
4. It is neither necessary nor relevant for us to comment upon the administrative advice that is said to have been given. It is the validity of the action based on such advice, which really needs to be examined. We, thereforee, refrain from making any comment, except so far as it may be necessary, on the validity of the Tariff Advice contained in the Public Notice dated February 22, 1972. The problem for the petitioners really commenced from the demand notice dated December 5, 1972 issued to them irrespective of whether it was based on advice or not. thereforee, we will proceed to examine the validity of this notice.
5. Exhibit 'E' is a copy of the impugned demand notice. It reads as under :-
'Office of the Bond Officer (Inspector of Central Excise) = Incharge International Computers Indian . Poona-14----------------------------------------------------------------------Notice of Demand for Duty under Section 28 of the CustomsAct, 1962.* * * *
Take notice that on behalf of the Central Government, I hereby demand payment by you of the sum of Rs. 3,74,144.18 (Rupees three lac, seventy four thousand, one hundred forty four and paise eighteen only) towards Customs duty within Ten days hereof.
Particulars of Demand. - After the issue of the Public Notice No. 12 dated 22-2-1972 issued by the Collector of Customs Bombay, you have filed Green Bills of Entry for Home Consumption for clearance of 'As Is' Machines, Components and Parts thereof under I.C.T. No. 72(B)/72(3) and have paid customs duties accordingly during the period from 23-2-1972 to 20-4-1972 under Bill of Entry No. 218/71-72 dated 23-2-1972 to B.E. No. 7/72-73 dated 20-4-1972. As per the above public notice dated 22-2-1972 you were required to classify the 'As Is' Machines, Components and parts thereof correctly under I.C.T. No. 73 and Customs duties paid accordingly during the above said period. But you have not done so. Thus you have cleared the 'As Is' Machines, Components and parts thereof without correct classification and without payment of proper customs duties. And hence you are required to pay the differential duties of customs as under :-
-----------------------------------------------------------------------'Differential Diff. Reg. Duty Diff. CVD Diff.20% TotalImport duty. ProvisionalRD-----------------------------------------------------------------------Rs. Ps. Rs. Ps. Rs. Ps. Rs. Ps.3,32,287.60 2,265.09 28,080,00 16,511.49 3,74,144.18-----------------------------------------------------------------------(A Copy of the detailed worksheet is enclosed).Sd/-(B.K. SHINDE)BOND OFFICER (Inspector ofC.Ex.) I/Ch I.C.I.M. Ltd. Poona-INo. 8/189/72 Poona, Dated 5th Dec. 1972.'
6. It is clear on a reading of the impugned notice of demand that power is sought to be exercised under section 28 of the Customs Act. This Section reads as under :-
'28. Notice for payment of duties not levied, short-levied or erroneously refunded. - (1) When any duty has not been levied or has been short-levied or erroneously refunded, the proper officer may, within six months from the relevant date, serve a notice on the person chargeable with the duty which has not been levied or which has been so short levied or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :
Provided that where any duty has not been levied or has been short levied or has been erroneously refunded by reason of collusion or any willful misstatement or suppression of facts by the importer or the exporter, or the agent or employee of the importer or exporter, the provisions of this sub-section shall have effect as if for the word 'six months' the words 'five years' were substituted.
(2) The Assistant Collector of Customs, after considering the representation, if any, made by the person on whom notice is served under sub-section (1) shall determine the amount of duty due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.
(3) For the purposes of sub-section (1), the expression 'relevant date' 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 were duty has been erroneously refunded, the date of refund;
(d) in any other case, the date of payment of duty'.
7. The three objections raised with regard to the impugned notice/demand are :
(a) that no show cause notice has preceded the demand;
(b) that it is barred by time; and
(c) being based on a Tariff Advice/Ruling it has to be construed prospectively as no Tariff Ruling can have retrospective operation.
8. Sub-section (1) of Section 18 postulates that when any duty has not been levied or has been short-levied or erroneously refunded, a show cause notice must first be issued to the person chargeable with the duty requiring him to show cause why he should not pay the amount specified in the notice. Statutorily provided, this principle of natural justice is a condition precedent to raising a demand for further payment. Petitioners assert that no show cause notice having been served prior to the demand contained in the impugned notice dated December 5, 1972, the same is liable to be quashed on this short ground. Learned counsel for the respondents, Mr. Chandrasekharan, relies on a communication dated April 28, 1972 issued by the Superintendent of Central Excise and submits that the show cause notice was given. This communication is Exhibit 'D' to the petition and reads as under :-
Poona, dated 28th April, 72
M/s. International Computers Indian ., Poona-14.
Sub : 'As Is' Machines and Components for use in the Manufacture of Data Processing Machines - Computer Systems - Classification of.
I enclose herewith a copy of the Public Notice/Tariff dated 22nd Feb., 1972 issued by the Collector of Customs Bombay for your information and necessary action.
It may please be noted that all sorts of 'As Is' Machines imported and warehoused by you at Poona will have to be classified now under I.C.T. No. 73 as per Public Notice mentioned above.
Similarly, in view of the fact that the components and parts which are imported and warehoused at Poona under bond are being used for the manufacture of machines which are now classified under I.C.T. No. 73, such parts which are previously assessed under I.C.T. No. 72(3) are also required to be reclassified under I.C.T. No. 73 which describes :-
'Electrical instruments, apparatus and appliances, not otherwise specified (excluding telegraphic and telephonic) and parts thereof not otherwise specified.' You are, thereforee requested to file the Green Bill of Entry form bond for Home Consumption accordingly in future. Since all the 'As Is' Machines and components cleared by you for Home Consumption have been assessed to duty provisionally, all the assessments concerned will be reviewed separately'.
9. In our view the above communication dated April 28, 1972 cannot be regarded as a show cause notice within the meaning of Section 28 of the Customs Act. For one it has not been issued under section 28 of the Act. Secondly, the reading of the communication itself shows that it has to have prospective operation. Thirdly, section 28 is not attracted in case of provisional assessments, which is the case of the respondents, but only in case of completed assessments in which duty has not been levied or has been short-levied or refund found due and payable. The petitioners are entitled to succeed on this short ground alone.
10. It is not anybody's case that the alleged short-levy in the present case is by reason of collusion or any willful mis-statement or suppression of facts by the petitioners or their exporters or their respective agents or employees. thereforee, the limitation for issue of a show cause notice as contemplated by sub-section (1) of Section 28 of the Act, has to be held to be within six months 'of the relevant date'. thereforee, whether the impugned notice, assuming it is not a demand, is within time or not will depend upon whether the clearances made by the petitioners between February 1972 and April 1972 were after provisional assessment, as contended by the respondents or after final assessment.
11. Section 2(2) defines 'assessment' as including provisional assessment, section 2(4) defines 'Bill of Entry' as the one referred to in Section 46, section 2(14) defines 'dutiable goods' to be any goods which are chargeable to duty and on which duty has not been paid, Section 2(15) defines 'duty' to be the duty of customs livable under the Act, Section 2(23) defines 'import' while section 2(25) defines what are 'imported goods'. Section 2(27) defines 'India' to include territorial waters of India. Customs barrier is known by reading the definition of 'Indian Customs Waters' given in Section 2(28). Section 2(33) defines 'Prohibited goods' for import or export. Section 12 lays down that except as otherwise provided in the Act, or any other law for the time being in force, duties or customs shall be levied at such rates as may be specified under the Customs Tariff Act, or any other law for the time being in force, on goods imported into, or exported from India. Section 14 lays down the criteria for fixing the value for the purposes of levy of duty. Section 15 reads as under :
'15. Date for determination of rate of duty and tariff valuation of imported goods. - (1) The (rate of duty, rate of exchange) and tariff valuation, if any, applicable to any imported goods, shall be the rate and valuation in force -
(a) in the case of goods entered for home consumption under section 46, on the date on which a bill of entry in respect of such goods is presented under that section;
(b) in the case of goods cleared from a warehouse under section 68, on the date on which the goods are actually removed from the warehouse;
(c) in the case of any other goods, on the date of payment of duty :
Provided that if a bill of entry has been presented before the date of entry inwards of the vessel by which the goods are imported, the bill of entry shall be deemed to have been presented on the date of such entry inwards.
(2) The provisions of this section shall not apply to baggage and goods imported by post.
(3) For the purposes of section 14 and this section -
(a) 'rate of exchange' means the rate of exchange determined by the Central Government for the conversion of Indian currency;
(b) 'foreign currency' and 'Indian currency' have the meanings respectively assigned to them in the Foreign Exchange Regulation Act, 1947.'
12. Section 17 provides for assessment of duty, soon after import prior to clearance. Section 18 is the only section which sets out when and how provisional assessments can be made. Sub-section (1) of section 18 reads as under :-
'Notwithstanding anything contained in this Act, but without prejudice to the provisions contained in Section 46 -
(a) where the proper officer is satisfied that an importer or exporter is unable to produce any document or furnish any information necessary for the assessment of duty on the imported goods or the export goods, as the case may be; or
(b) where the proper officer deems it necessary to subject any imported goods or export goods to any Chemical or other test for the purpose of assessment of duty thereon; or
(c) where the importer or the exporter has produced all the necessary documents and furnished full information for the assessment of duty but the proper officer deems it necessary to make further enquiry for assessing the duty.
The proper officer may direct that the duty livable on such goods may pending the production of such documents or furnishing of such information or completion of such test or enquiry, be assessed provisionally if the importer or the exporter, as the case may be, furnishes such security as the proper officer deems fit for the payment of the deficiency, if any, between the duty finally assessed and the duty provisionally assessed.'
13. We have already read Section 28. Section 45 places restriction on custody and removal of imported goods including removal or clearance of goods for home consumption, warehousing and transit. Section 46 makes it obligatory to submit a Bill of Entry for goods intended to be cleared for home consumption from warehouse in the prescribed form. There is an exception in certain circumstances but we are not concerned with that. Section 47 lays down that goods for home consumption can only be cleared on the proper officer being satisfied that an importer has paid the import duty assessed thereon and paid the other charges livable under the Act Section 57 provides for creation of public warehouses. Section 59 requires the execution of a bond for warehousing imported goods. Section 60 lays down that if condition of section 59 are fulfillled the proper officer may make an order permitting the deposit of the goods in a warehouse without payment of duty. Section 68 reads as under :
'Clearance of warehoused goods for home consumption. - The importer of any warehoused goods may clear them for home consumption if -
(a) a bill of entry for home consumption in respect of such goods has been presented in the prescribed form;
(b) the import duty livable on such goods and all penalties, rent, interest and other charges payable in respect of such goods have been paid; and
(c) an order for clearance of such goods for home consumption has been made by the proper officer.
14. It is the undisputed case that the petitioners warehoused 'As Is' Machines and Components and Parts thereof after giving a proper bond and were allowed to clear the same for home consumption only on giving the required Bill of Entry and other documents and payment of the duty under I.C.T. No. 72(3) by Customs Officer. We have not been shown any order prior to or at the time of clearance of goods between February 1972 and April 1972 which says that the assessment of duty was provisional. We have also not been shown that any of the conditions postulated by section 18 were attracted with regard to the said clearances. Provisional assessment of duty is possible only when any one or all three of the circumstances set out in Section 18 exist. There is no allegation that the petitioners were unable to produce any document or furnish any information necessary for assessment of duty or any of the goods required any Chemical or other tests to be carried out on them for the purpose of assessment of duty thereon or that the proper officer deemed it necessary to make further enquiry for assessing the duty despite the petitioners having produced all the necessary documents and furnishing full information for the assessment of duty, when they cleared the goods after filing the Bills of Entries etc. postulated by section 47 of the Act. Indeed, we have not even been shown any default on the part of the petitioners at the time of warehousing or permitting transit to Pune from one bonded warehouse to another. thereforee, to say that assessments were made provisionally at the time of the clearance of the goods for home consumption is untenable. The only reason why, we think, provisional assessment has been mentioned in the communication dated April 28, 1972 is to make the demand within time within the meaning of Section 2(2) of the Act. Adding the last paragraph in the communication dated April 28, 1972 bringing in the concept of provisional assessment has, in consequence, to be held to be an after thought. We, thereforee, hold that there was no provisional assessment; and, inasmuch as the proviso to sub-section (1) of Section 28 is not attracted, the impugned demand having been made more than six months after the assessment, which must be held to have been made at the time of clearance, is time barred. The impugned demand, thereforee is liable to be quashed on this ground also.
15. It is significant to note that the impugned demand does not say that the clearance was allowed after provisional assessment. Indeed, if it had said so, Section 28 would not have been attracted at all. To us it appears the Superintendent of Central Excise when he issued his communication dated April 28, 1972 played safe, by relying on the correct provision of law but saying that the clearance was after provisional assessments. The untenability of taking up such a stand was realised when the Bond Officer issued the impugned demand dated December 5, 1972 and so he did not take up that stand. Short-levy or non-levy are not compatible with provisional assessment. thereforee, respondents cannot take advantage of communication dated April 28, 1972 to sustain the validity of the impugned demand dated December 5, 1972. Section 68 postulates clearances of warehoused goods for home consumption only after assessment and payment of duty. thereforee, when admittedly, in the present case, petitioners had cleared the goods after filing proper Bills of Entry, unless it is positively shown that the clearance was allowed on provisional assessment, it stands to reason that clearance was made only on assessment. This assessment could be reopened or revised under Section 28 only if the conditions of that section are fulfillled. The same not having been fulfillled, the petitioners are not liable to have the goods cleared long time ago by them re-assessed.
16. Learned counsel for the respondents urges that though the tariff advice may be the basis for reopening assessments but if provisions of law are followed, it cannot be urged that on a tariff advice reassessment cannot be ordered. He also contends that provisional assessment was of valuation and not classification. Regarding this contention, we need not say much. In this case we have found that power was sought to be exercised under section 28 of the Act but none of the conditions stood fulfillled. Regarding the second contention, we are of the view that the proposition propounded is unacceptable. Tariff classification is fixed when the Bill of Entry is given and bond executed at the time of warehousing the goods. When an importer wishes to warehouse goods, he has to file a Bill of Entry in the prescribed form. Form No. 2 of Bill of Entries under the relevant rules makes it clear, that valuation and classification are both to be given.
17. Having come to the conclusion that the impugned notice/demand dated December 5, 1972 is illegal, invalid, ultra virus and time barred, it is hardly necessary to comment upon the validity of the other impugned orders. All the same we may notice certain salient features of those orders and comment upon them. The other impugned orders are Exhibit 'G', dated September 10/12th, 1973 of the Assistant Collector, order dated November 12, 1975 of the Appellate Collector of Customs and the order dated May 18, 1979 of the Central Government.
18. The order of the Assistant Collector makes out two points. First, that despite issue of the Public Notice dated February 22, 1972, the clearance was still sought by invoking Tariff Entries I.C.T. No. 72(B)/72(3) and the clearance was allowed provisionally. Secondly, that the petitioners were aware of the revised classification. In view of what we have said in our judgment, one need hardly comment upon such an untenable stand.
19. The Appellate Collector has based his order on the theory that the rate on the date of removal of the goods is the rate which was payable after proper classification. The approach is incorrect. The rate attracted would be that which was in force when the goods became liable for payment of customs duty. That liability arises on 'import' and import is when the goods cross the customs barrier and are deemed to have been imported into India.
20. The Central Government took the stand that the tariff advice published on February 22, 1972 only corrected the classification in law and so cannot be said to be operative retrospectively. Further the Central Government assumed that there was provisional assessment in accordance with Section 18 of the Customs Act. The Central Government was aware that Section 28 could not be invoked if the clearance was after provisional assessment. It, however, failed to observe that the impugned demand was raised under Section 28 and no mention of provisional assessment was made in it. The departmental case made out is of provisional assessment. We have already commented upon the conditions of Section 18 of the Act not being fulfillled. None of the three orders can, thereforee, be considered to be valid in the eye of law. Indeed, if the impugned demand dated December 5, 1972 is itself struck down, the subsequent orders do not survive. We are of the view that the three impugned orders of the Assistant Collector, the Appellate Collector and the Central Government are also liable to be quashed.
21. In view of our findings above, we make the rule absolute quashing the demand contained in the communication dated December 5, 1972 and the aforesaid three orders of the Assistant Collector, Appellate Collector and the Central Government. We further hold that the payment of Rs. 3,74,144.18 having been made under protest and, in the circumstances, recovered illegally, the said amount cannot be retained by the respondents. We, thereforee, direct that the said amount be adjusted against subsequent claims of customs duty payable by the petitioners. If there be any amount which cannot be adjusted, we direct the refund of the same by the respondents to the petitioners. The petitioners will be entitled to their costs. Counsel fee Rs. 350/-.