2015 (5) TMI 557 - SC - Customs

Denial of exemption on Coal import under Notification 35/90, 36/90 and 23/91 - Samples were rejected on ground of ash content being more than 12% - Samples were drawn in absence of any representative, in contravention of express provisions of IS 436 - Apex court held If the law requires that something be done in a particular manner, it must be done in that manner, and if not done in that manner has no existence in the eye of law at all - Something that is illegal cannot convert itself into something legal by the act of a third person - Held that - In our opinion, the expression deems it necessary obviously means that the proper officer must have good reason to subject imported goods to a chemical or other tests. And, on the facts of the present case, it is clear that where the importer has furnished all the necessary documents to support the fact that the ash content in the coking coal imported is less than 12%, the proper officer must, when questioned, state that, at the very least, the documents produced do not inspire confidence for some good prima facie reason. In the present case, as has been noted above, the Revenue has never stated that CASCO s certificate of quality ought to be rejected or is defective in any manner. This being the case, it is clear that the entire chemical analysis of the imported goods done by the Department was ultra vires Section 18(b) of the Customs Act. The admitted position on record is that the samples drawn were not drawn in accordance with law and were drawn with no regard whatsoever to IS 436. That IS 436 would apply to the facts of the present case is made clear by our judgment reported in Bombay Oil Industries (P) Ltd. v. Union of India 1994 (12) TMI 81 - SUPREME COURT OF INDIA , where this Court held following Union of India v. Delhi Cloth & General Mills Co. Ltd. 1962 (10) TMI 1 - SUPREME COURT OF INDIA , that if the method of testing of any item of Central Excise tariff is not mentioned, then the Indian Standard Institution s method should be applied. That this would apply to the Customs Act as well.Clearly the samples drawn by the Inspector in the present case, have been drawn contrary to the express provisions of IS 436. On this count also, the samples being drawn not in accordance with law, test reports based on the same cannot be looked at. The Tribunal s judgment has proceeded on the basis that even though the samples were drawn contrary to law, the appellants would be estopped because their representative was present when the samples were drawn and they did not object immediately. This is a completely perverse finding both on fact and law. On fact, it has been more than amply proved that no representative of the appellant was, in fact, present at the time the Customs Inspector took the samples. Shri K.M. Jani who was allegedly present not only stated that he did not represent the Clearing Agent of the appellants in that he was not their employee but also stated that he was not present when the samples were taken. In fact, therefore, there was no representative of the appellants when the samples were taken. In law equally the Tribunal ought to have realized that there can be no estoppel against law. If the law requires that something be done in a particular manner, it must be done in that manner, and if not done in that manner has no existence in the eye of law at all. The Customs Authorities are not absolved from following the law depending upon the acts of a particular assessee. Something that is illegal cannot convert itself into something legal by the act of a third person. - Decided in favour of appellant.

Summary

Issues Involved:
1. Validity of the sampling process conducted by the Customs Inspector.
2. Applicability of IS 436 standards for sampling.
3. Legitimacy of the CASCO certificate.
4. Estoppel against the appellants due to the presence of their representative during sampling.
5. Interpretation of Section 18 of the Customs Act.

Issue-wise Detailed Analysis:

1. Validity of the Sampling Process Conducted by the Customs Inspector:
The appellants imported coking coal and claimed exemption based on the ash content being below 12%. The Customs Inspector drew samples of 20 kilograms each from the vessel and shore, crushed them with stones, and made them into powder form. These samples were not drawn in the presence of any employee of the appellants, contrary to the prescribed method. The samples were analyzed, and reports indicated ash content above 12%, leading to a demand for differential duty. The court found that the sampling process was not conducted in accordance with the law and standards, rendering the test reports invalid.

2. Applicability of IS 436 Standards for Sampling:
The court emphasized that IS 436 standards should be applied for sampling when the method is not specified in the Central Excise tariff. IS 436 mandates specific procedures for sampling coal, including the division of consignments into sub-lots and the collection of gross samples. The Customs Inspector's sampling did not adhere to these standards, making the sampling process and subsequent analysis legally flawed.

3. Legitimacy of the CASCO Certificate:
The appellants provided a certificate from CASCO, an internationally reputed inspection agency, indicating an ash content of 9.8%. The Department did not contest the validity or accuracy of the CASCO certificate. The court held that in the absence of any challenge to the CASCO certificate, the Department's decision to conduct its own chemical analysis was unwarranted and ultra vires Section 18(b) of the Customs Act.

4. Estoppel Against the Appellants Due to the Presence of Their Representative During Sampling:
The Tribunal had held that the appellants were estopped from challenging the sampling process because their representative was allegedly present during the sampling. However, the court found this finding to be perverse. It was established that no representative of the appellants was present, and the person alleged to be present, Shri K.M. Jani, was neither an employee of the appellants' clearing agent nor present during the sampling. The court reiterated that there can be no estoppel against law, and illegal actions cannot be legitimized by the presence or absence of a representative.

5. Interpretation of Section 18 of the Customs Act:
Section 18(b) allows for the provisional assessment of duty if the proper officer deems it necessary to subject imported goods to chemical or other tests. The court interpreted "deems it necessary" to mean that the proper officer must have good reason to conduct such tests. In this case, since the CASCO certificate was not disputed, the officer had no valid reason to conduct further testing. The court cited established legal principles that such discretionary powers must be exercised reasonably and not arbitrarily.

Conclusion:
The court concluded that the entire chemical analysis conducted by the Department was invalid and set aside the Tribunal's judgment. The appeals were allowed, and the appellants were entitled to the concessional rate of customs duty as per the notifications. The court emphasized adherence to legal standards and procedures in the sampling and testing of imported goods.