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Shanmukha Vilas Cashew Traders Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
SubjectCustoms;FERA
CourtKerala High Court
Decided On
Case Number O.P. No. 2051/84-N
Judge
Reported in1985(6)ECC185; 1985LC603(Kerala)
AppellantShanmukha Vilas Cashew Traders
RespondentCollector of Customs
DispositionPetition allowed
Cases ReferredShew Bhagwan Goanka v. Collector of Customs
Excerpt:
.....foreign exchange regulation--penalty--appeal--writs under constitution--contract by petitioner to export cashew kernels--strike in petitioner's factory--inability of petitioner to fulfil contract--withdrawal of agitation by workers--request by petitioner to foreign buyer to accept lower grade goods instead of contracted quality--acceptance of proposal by buyer on condition that price ruling on date of original contract will be charged--presentation of documents for shipment of lower grade goods by petitioner--non-clearance of documents and goods by collector on ground that value of goods stated in documents was lower than prevailing market price--show cause notice--levy of penalty under section 114 of customs act--not justified--substitution of contract--other parties in similar..........menon, j.1. the petitioner, a registered firm, is carrying on business in processing and export of cashew kernels to foreign countries. the petitioner, in the course of its business, entered into a. 'sale contract' no. 3767, dated 11th april, 1983 with m/s. j.f. braun and sons, a company incorporated in new york, for the sale of 500 cartons (1000 tins) of cashew kernels, 320 grade, at 1.55 dollars per pound, c. & f. new york, this contract was entered into through m/s. mitchel beck & co. incorporated in new york, the brokers. 2. due to labour agitation and strike resulting in financial difficulties, the petitioner could not fulfil its contract aforementioned. by about october, 1983, the situation in the factory of the petitioner changed as the labourers withdrew their agitation. the.....
Judgment:

K.P. Radhakishnan Menon, J.

1. The petitioner, a registered firm, is carrying on business in processing and export of cashew kernels to foreign countries. The petitioner, in the course of its business, entered into a. 'sale contract' No. 3767, dated 11th April, 1983 with M/s. J.F. Braun and Sons, a company incorporated in New York, for the sale of 500 cartons (1000 tins) of cashew kernels, 320 grade, at 1.55 dollars per pound, c. & f. New York, This contract was entered into through M/s. Mitchel Beck & Co. incorporated in New York, the brokers.

2. Due to labour agitation and strike resulting in financial difficulties, the petitioner could not fulfil its contract aforementioned. By about October, 1983, the situation in the factory of the petitioner changed as the labourers withdrew their agitation. The petitioner, therefore, could start processing of kernels in his factory towards the end of December, 1983. Since it was not possible for the petitioner to process and get ready the 500 cartons of 320 grade kernels before the time stipulated in the contract for shipment the petitioner requested the purchaser to substitute lower quality grades in the place of 320 grade the petitioner had contracted to supply. These lower grades are produced during the processing of cashew. It was in this context, the petitioner with further damage, sought substitution of lower grade kernels in the place of 320 grade he was bound to export as per the contract. The purchaser accepted this proposal and that it is so can be seen from the teleprinter message, dated 4th January, 1984, subsequently confirmed by the letter of the Union Bank addressed to the petitioner under advice from the City Bank, New York. The purchaser agreed for the substitution on condition that the petitioner undertook to supply the said kernels at the price that prevailed on the date of the contract, namely, 11th April, 1983.

3. The petitioner thereafter made ready the goods and presented the shipping bill, dated 9th February, 1984 and pro forma invoice dated 8th February, 1984, before the Collector of Customs, Cochin. The authority concerned, however, refused to clear the goods for shipment on the ground that the price declared in the shipping documents was low when compared to the market price prevailing at the time of export. The petitioner straightaway explained the position as to how and why the sale was being effected at the rates fixed in the contract and in confirmation thereof wrote letters, Exts. P5 and P6. The petitioner also took up the matter with the Cashew Export Promotion Council, the body constituted by the Government of India to render assistance to exporters in the business. The Cashew Export Promotion Council having been satisfied with the explanation recommended to the Collector of Customs that this is a fit case where the petitioner should be permitted to export the articles without any delay.

4. The Customs Department apparently was not satisfied with the explanation given by the petitioner as also the Cashew Export Promotion Council, because the Assistant Collector of Customs had issued a show cause notice why action should not be taken against the petitioner for alleged violation of Section 18(1) of the Foreign Exchange Regulation Act read with Section 113(d) of the Customs Act, 1962. The petitioner by Ext. P10 showed cause immediately and also appeared at the hearing afforded by the respondent. The Secretary of Export Promotion Council, one Sri. K.T. Ravivarma, also was present at the hearing, sponsoring the case of the petitioner inasmuch as the Council was convinced that it was a genuine case where the export should be allowed.

5. The respondent, after considering the various aspects of the case, has passed Ext. P11 order wherein it has been found that the petitioner has rendered itself liable for penalty of Rs. 50,000 under Section 114 of the Customs Act, 1962. He has also found that the petitioner in attempting to export cashew kernels at a price lower than the one prevalent at the time of export, has violated the provisions of Foreign Exchange Regulation Act, 1973 (wrongly stated as Section 18(1) read with Section 113(d) of Customs Act, 1962). Consequentially, the respondent has levied a sum of Rs. 50,000 as 'personal' penalty under Section 114 of the Customs Act, 1962.

6. The challenge in this original petition is against Ext. P11.

7. There is no dispute that the contract in question is governed by the provisions of the Indian Contract Act. From the facts mentioned above it can be seen that due to circumstances beyond its control, the petitioner was compelled to bargain for and obtain 'a substitution of one of the terms of the contract relating to quality of goods. In short, after negotiation the purchaser had agreed to purchase 150 cartons of 320 grades and in the place of the remaining 350 cartons of 320 grade the agreement was that the purchaser would take lower grade cashew kernels. These facts would indicate that the contract remains the same though there was some variation regarding the mode of performance. In such circumstances, I am of the view that Section 63 of the Contract Act squarely applies. Section 63 reads:--

63. Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

8. The correspondence between the petitioner and the purchaser (these facts are not disputed) would positively show that the purchaser has been extending the time for the performance of the contract, from time to time; not only that, the purchaser had also accepted lower grade quality in the place of superior quality it had bargained for at the time when the contract was entered into. This being the position, the petitioner cannot be said to have attempted to export goods in violation of the provisions contained in Section 18 of the Foreign Exchange Regulations Act, 1973 because the value declared in the shipping documents is in accordance with the terms of the contract. Here, it is also relevant to note that it is not the case of the department that the price quoted and agreed upon between the parties at the time when the contract was entered into, did not represent the market price that prevailed at that time.

9. The above position notwithstanding, the respondent has held that there is a substitution of the contract in 1984 and therefore the price of cashew kernels as existed in January, 1984 should have been shown in the shipping documents. Inasmuch as the petitioner has not done that, it was further held that he committed an offence of attempt to export cashew kernels in violation of the provisions of Section 18 of the Foreign Exchange Regulations Act, 1973. In proof of his contention that there is a substitution of the contract, the respondent has relied on the correspondence between the parties; but, curiously enough, the respondent was not prepared to refer to the relevant law governing the contract, before he held that there was a substitution of the contract. Substitution of contract pre-supposes the annihilation of the earlier contract resulting in what is called novation. Then only there will be a substitution of a new contract in the place of the old one, known to law.

10. It is not as if the respondent was not aware of the rights of parties who are placed in circumstances similar to the one the petitioner is placed. In the case of three other exporters, Jasmine Cashew Industries, Premier Cashew Industries and S.R. Cashews Pvt. Ltd., though they are similarly situated, the respondent did pass the shipping documents although in their case also they were exporting goods, the value of which was determined as per the rates agreed upon at the time the contract was entered into, viz., April, 1983. It is pertinent to note that in their case the export took place only in April, 1984.I shall, in this connection, extract the relevant passage from the pleadings in the Original Petition:

The petitioner states that the respondent is acting illegally and in a discriminatory manner in refusing to permit export of the petitioner's goods aforesaid. In cases similar to the petitioner the respondent has allowed export of the cashews, despite the fact that the price at the time of export was very much higher than that quoted in the parties' contract and at which they were selling. The petitioner begs to point out the cases of Jasmine Cashew Industries, Premier Cashew Industies and S.R. Cashews Pvt. Ltd., all of Quilon, who have exported goods in similar circumstances very recently. For instance, the petitioner understands that Jasmine Cashew Industries were permitted to export cashews pursuant to a contract dated 7th April, 1983, towards the end of May, 1984. The goods exported were scorched butts and large white pieces for which the price under the contract dated 7th April, 1983 was around U.S. $ 1.40 and 1.20. These goods were exported towards the end of May, 1984 when the prevailing market price was around $ 2.60 and Messrs. S.R. Cashews Private Limited had similarly exported cashews to the United States towards the end of May, 1984 at prices which were very much lower--about half--of the prevailing rates in May, 1984 pursuant to contract entered into by them earlier. Premier Cashew Industries is another exporter who had similarly exported cashews in May, 1984 at prices very much lower than the prevailing rates to the United States. The petitioner had very good reason why they could not export the goods pursuant to the contract entered into in April 1983.

In answer to the above statements in the Original Petition, the respondent has stated thus:

The cases of Jessy Cashew Industries (Not Jasmine), S.R. Cashew and Premier Industries relates to extention of contract wherein the goods were sold at the price agreed upon in the contract. Extention of contract was not considered acceptable where there is price difference. That has occasioned in the case of the petitioner.

11. It is significant to note that the Department ordinarily refuses to grant permission to export kernels only in such cases where there is difference in the price of kernels shown in the original contract and the substituted contract. That means, if there is a valid contract which satisfies the requirements of Section 63 of the Contract Act, then the exporter is entitled to get the requisite permission to export the kernels provided the value of the kernels shown in the shipping document is worked out at the rates prevailing at the time when the contract was entered into. The Department however, has no case that the price of the lower grade kernels shown in the shipping document is lower than the price prevalent at the time when the agreement was entered into on 11th April, 1983.

12. In these circumstances, I am of the view that the 1st respondent has wrongly refused to grant the permission to export the cashew kernels as per the shipping documents produced before him. If that be so, the consequential levy of penalty under Section 18 of the Foreign Exchange Regulation Act, 1973 is also without jurisdiction. The order thus is void and hence liable to be quashed.

13. I could have stopped the discussion here and disposed of the original petition in the light of the findings above. But, the learned Central Government Pleader raised a preliminary contention thet the original petition is liable to be dismissed on the short ground that the petitioner has rushed to this Court without exhausting the adequate, efficacious and alternate remedies provided for under the Customs Act. In this connection, he brought to my notice the provisions contained in Section 129A of the Customs Act. This section provides that any person aggrieved by any of the orders mentioned therein, may appeal to the Appellate Tribunal, against the said order. The impugned order is one such order, and therefore, the counsel submits, that the petitioner should have had recourse to the said remedy instead of rushing to this Court invoking its jurisdiction under Article 226 of the Constitution of India. He submits, he is fortified in his submission by this decision of the Supreme Court in Titagur Paper Mills Co. Ltd. v. State of Orissa and Ors. : [1983]142ITR663(SC) . He cited the following passage therefrom in support of his contention:

The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. (Head note).

14. The learned Counsel for the petitioner, however, submitted that in the case on hand it cannot be said that the alternative remedy provided for under Section 129A is either adequate or efficacious alternate remedy because the right of appeal conferred on an aggrieved person under the said section is not an absolute right, for, he cannot file an appeal straightaway unless he deposits the penalty levied or the duty demanded with the proper office before the appeal is filed. No doubt, there is a proviso enabling the appellate forum in the exercise of its discretion, to dispense with such deposits. Such discretion also is circumscribed because it is said that the dispensation of deposit can be ordered only subject to such conditions as the appellate authority my deem fit to impose so as to safeguard the interests of the Department. In short, the right of appeal said to have been conferred on an aggrieved person under Section 129A is only illusory as its scope is circumscribed by Section 129E of the Act and therefore, the said right cannot be said to provide and adequate, efficacious alternative remedy as understood in law. I am of the view that the learned Counsel is well founded in this submission. The decision of the Supreme Court in Collector of Customs, Cochin v. A.S. Bava : 1973ECR18(SC) lends support to the above view. In the said decision the Supreme Court was considering the scope of Section 129 of the Customs Act, as it stood then. The provisions in the said section are identical to Section 129A of the new Act. The Supreme Court after considering almost identical arguments advanced by the counsel for the Department has held as follows:--

(3) The learned Counsel for the appellants has raised three points before us:

(1) The petitions under Article 226 were not maintainable as the petitioner did not avail himself of the remedy of revision provided by Section 36 of the Excise Act.

The petitioner having availed of the remedy under Section 129 of the Customs Act was debarred from challenging the impugned notification, dated May 4, 1963.

(3) The impugned notification applying Section 129 of the Customs Act was good.

(4) There is no force in the first point. First, the point was not taken in the High Court, Secondly, it is settled that the existence of a remedy by way of revision does not bar the jurisdiction of the High Court to entertain a petition under Article 226. Moreover, the petitioner had alleged that the Collector had no jurisdiction to demand the deposit of duty pending the appeals as the notification dated May 4, 1963, was bad in so far as it applied Section 129 of the Customs Act. In those circumstances it was not necessary for the petitioner to have filed revisions.

(5) There is equally no force in the second point. If the petitioner had not applied for dispensation of the deposit of the duty, the appellants would have contended that the petitions under Article 226 were not maintainable. Moreover, as already stated, the petitions raised a question of jurisdiction.

This discussion will be incomplete if I fail to refer to paragraph 11 of the judgment. In para 11 the Supreme Court has stated thus:--

(11)..Section 35 of the Excise Act gave a right of appeal, but Section 129 of the Customs Act whittles down the substantive right of appeal and accordingly it cannot be regarded as 'procedure relating to appeals' within Section 12 of the Excise Act.

15. This decision of the Supreme Court, in fact, governs the field. The decision of the Supreme Court in Titaghur Paper Mills case : [1983]142ITR663(SC) has no application to the facts of this case. I do not wish to burden this judgment by referring more authorities except to cite one more dictum of the Supreme Court in State of West Bengal v. North Adjai Coal Co. Ltd. 1971 (1) SCWR 133 : [1971] 27 STC 268 (SC):

It is urged that the High Court was incompetent to entertain the writ petition because the respondent had failed to exhaust the statutory remedies permissable under the Bengal Finance (Sales Tax) Act. It was submitted that a revision application lay to the Board of Revenue, and without moving the Board of Revenue, the respondent could not file a petition before the High Court. There is no substance in this contention. It is true that normally before a petition under Article 226 is entertained the High Court would insist that the party aggrieved by the order of a quasi-judicial Tribunal should have recourse to the statutory authorities, which have power to give reliefs. But, that is a rule of practice and not of jurisdiction. In appropriate cases the High Court may entertain a petition even if the aggrieved party has not exhausted the remedies available under a statute before the departmental authorities. In the present case in the view of High Court a case was made out for its interference with the order passed by the Deputy Commissioner and there is no reason to hold that the High Court had not properly exercised jurisdiction in this case. The facts were apparently not in dispute, and the only question was whether in the facts and circumstances of the case, the respondents were entitled to the exemption claimed by them. In the circumstances the High Court cannot be said to have acted improperly in entertaining the petition under Article 226. (Head Note)

(emphasis supplied.)

Here also the facts are not in dispute.

16. It may not be out of context if I refer to a decision of the Calcutta High Court in Shew Bhagwan Goanka v. Collector of Customs : AIR1971Cal112 . The Calcutta High Court was considering a similar argument in a case arising under the Customs Act. The Court rejected the preliminary objections and held that the aggrieved party could agitate his case before the High Court under Article 226 of the Constitution notwithstanding the fact that there was an alternative remedy provided for under the Customs Act.

17. From the facts and in the circumstances mentioned above, it can be seen that the respondent has arbitrarily disallowed the request of the petinioner for permission to export the cashew kernels and for this reason alone the impugned order is liable to be set aside. Arbitrariness is writ large on the orders, especially for the reason that respondent has granted permission to Jasmine Cashew Industries, Premier Cashew Industries and S.R. Cashew Pvt. Ltd. to export kernels although they are also similarly situated as the petitioner is.

The Original Petition is allowed. No order as to costs.


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