1968 (10) TMI 46 - SC - Central Excise

Whether under the circumstances of the case the confiscation ordered by the Collector, Central Excise is illegal? Whether under any circumstances he could not have confiscated the entire quantity of tobacco used in the mixture? Held that - At the same time no person can be permitted to benefit by his wrongful act. No rule of law should be so interpreted as to permit or encourage its circumvention. If by the wrongful act of a party he renders it impossible for the authorities to confiscate under Rule 40 the non-duty paid goods, it is in our opinion open to those authorities to confiscate from out of the goods seized, goods of the value reasonably representing the value of the non-duty paid goods mixed in the goods seized. Applying that rule to the facts of this case, it follows that the Collector Central Excise could have confiscated out of the tobacco seized so much of it as can be held to reasonably represented the value of the tobacco on which the duty had not been paid. As noticed earlier the tobacco confiscated had been returned to the appellants after realising from them a sum of ₹ 1 lac. as fine. The Counsel for the parties agreed at the hearing that the value of the Biri Patti tobacco used in the mixture for which no duty had been paid could be fixed at ₹ 35,000/-. In view of this agreement it is not necessary for us to remit the case back to the Collector of Central Excise for assessing the value of the tobacco on which duty had not been paid. In view of our earlier findings the fine to be levied on the appellants in lieu of the confiscation that could have been ordered has to be fixed at ₹ 35,000/-. From this it follows that the Collector has to refund to the appellants a sum of ₹ 65,000/- which he has collected from them in excess of the aforementioned ₹ 35,000/-. The appeal is allowed to that extent. In the circumstances of the case we direct the parties to bear their own costs both in this Court as well as before the High Court.

Issues Involved:
1. Legality of the confiscation ordered by the Collector, Central Excise.
2. Scope of confiscation under Rule 40 of the Central Excise Rules, 1944.

Detailed Analysis:

1. Legality of the Confiscation Ordered by the Collector, Central Excise:

The appellants, tobacco merchants, held Central Excise licenses for storing, selling, and processing duty-paid and non-duty-paid tobacco. They obtained permission from the Local Central Excise Authorities to mix different varieties of tobacco. During the mixing process, the Superintendent of Central Excise conducted an experiment and found a higher percentage of non-duty-paid Biri Patti tobacco in the mixture than recorded. Consequently, the Collector of Central Excise issued a notice to the appellants for contravening Rule 40 of the Central Excise Rules, 1944, and seized the entire mixture of tobacco weighing 1,64,834.50 lbs.

The Collector imposed a penalty of Rs. 2,000 and ordered the confiscation of the seized tobacco, giving the appellants an option to redeem it on payment of a fine of Rs. 1 lakh, which the appellants paid under protest. The appellants challenged this order in the High Court, and subsequently, in the Supreme Court.

In the Supreme Court, the appellants did not challenge the finding that they mixed duty-paid with non-duty-paid tobacco, thereby contravening Rule 40. However, they contended that under Rule 40, the Collector could not confiscate the entire mixture as it included duty-paid tobacco.

2. Scope of Confiscation under Rule 40 of the Central Excise Rules, 1944:

Rule 40 states that any wholesale purchaser who receives or has in his custody or possession any unmanufactured tobacco without proper duty payment is liable to pay the duty and a penalty, and the goods shall also be liable to confiscation. The appellants argued that only the non-duty-paid tobacco could be confiscated, not the entire mixture.

The Supreme Court examined the legal principles related to the mixing of goods, referencing various legal texts and precedents. It was noted that when goods of different owners are mixed and become indistinguishable, the owners become tenants in common of the whole in proportion to their contributions. However, in cases of unlawful mixing by one owner, the wrongdoer cannot benefit from their act.

The Court held that Rule 40 permits the confiscation of only non-duty-paid goods. Since it was not possible to separate the duty-paid from the non-duty-paid tobacco, the Collector could not confiscate the entire mixture. Instead, the authorities could confiscate goods reasonably representing the value of the non-duty-paid tobacco.

The value of the non-duty-paid Biri Patti tobacco used in the mixture was agreed upon by both parties to be Rs. 35,000. Therefore, the fine levied in lieu of confiscation was fixed at Rs. 35,000. Consequently, the Collector was directed to refund Rs. 65,000 to the appellants, which was collected in excess.

Conclusion:

The Supreme Court allowed the appeal to the extent that the fine was reduced to Rs. 35,000, and directed the refund of Rs. 65,000 to the appellants. The parties were ordered to bear their own costs both in the Supreme Court and the High Court.

← Previous Next →