2015 (5) TMI 557 - SC - Customs

Chemical Analysis of Imported Coal Without Proper Sampling Violates Section 18(b) of Customs Act

The SC held that the chemical analysis of imported coal was ultra vires Section 18(b) of the Customs Act as the samples were drawn without following IS ... Provisional assessment and power to subject imported goods to tests under Section 18(b) of the Customs Act - requirement of reasonable grounds before exercising 'deems it necessary' power - sampling in accordance with Indian Standard IS 436 - validity of chemical test reports based on samples drawn contrary to prescribed sampling standards - estoppel cannot validate acts done in contravention of statutory procedure - acceptance of independent international inspection certificate as prima facie evidenceProvisional assessment and power to subject imported goods to tests under Section 18(b) of the Customs Act - requirement of reasonable grounds before exercising 'deems it necessary' power - acceptance of independent international inspection certificate as prima facie evidence - Validity of departmental chemical testing under Section 18(b) where importer furnished an independent CASCO certificate and Revenue did not furnish any prima facie reason to reject it - HELD THAT: - The Court held that Section 18(b) empowers a proper officer to subject imported goods to chemical or other tests only when he 'deems it necessary' on good and relevant grounds. That expression cannot be exercised arbitrarily; it requires satisfaction based on reasonable grounds. Where the importer produced an independent certificate of analysis from an internationally reputed agency (CASCO) and the Department never articulated any defect or lack of confidence in that certificate, the subsequent chemical analysis ordered by the Customs authorities was ultravires Section 18(b). Absent a stated reason why CASCO's certificate should be rejected or why further testing was necessary, the statutory power to test could not be lawfully exercised. [Paras 13, 14, 15]Departmental chemical tests ordered under Section 18(b) were ultra vires and could not be relied upon in the absence of articulated reasonable grounds for distrusting the CASCO certificate.Sampling in accordance with Indian Standard IS 436 - validity of chemical test reports based on samples drawn contrary to prescribed sampling standards - Effect of samples being drawn in a manner contrary to IS 436 on the validity of test reports - HELD THAT: - The Court applied the established principle that where a method of testing is not prescribed, the Indian Standards (IS) method applies, and IS 436 prescribes detailed procedures for sampling from ships, including minimum gross sample weights and sub-lot division. The admitted facts established that the Customs Inspector's sampling departed materially from IS 436 (including taking far smaller samples, breaking lumps with stones, absence of proper custody), and therefore the test reports based on such samples could not be looked at. Tests founded on samples not drawn in accordance with IS 436 have no lawful basis and cannot be used to defeat claims of concession based on the importer's certificate. [Paras 16, 17]Test reports based on samples taken in contravention of IS 436 are invalid and cannot be relied upon.Estoppel cannot validate acts done in contravention of statutory procedure - Whether the appellants were estopped from challenging defective sampling because an alleged representative was present when samples were drawn - HELD THAT: - The Tribunal had held that the appellants were estopped because a representative was present at sampling and did not object. The Court found this conclusion perverse on fact and law. Factually, the person said to have been present disclaimed representing the appellants and stated he was not present when samples were drawn. Legally, even if a party or third person is present, estoppel cannot validate an act that is done contrary to statutory requirements: an act unlawful under the statute cannot be turned into a lawful act by inaction or acquiescence of an assessee or a third party. The Customs authorities are bound to follow the statutory procedure irrespective of the conduct of an importer. [Paras 9, 10, 17]The estoppel finding was unsustainable; appellants were not estopped and estoppel cannot cure sampling done in violation of statutory procedure.Final Conclusion: The Tribunal's order was set aside. Departmental tests and reports based on samples taken contrary to IS 436 and without articulated reasonable grounds for distrusting the independent CASCO certificate were held invalid; the estoppel finding against the appellants was rejected; appeals allowed with no order as to costs. ISSUES: Whether imported coking coal with ash content below 12% is exempt from basic customs duty and auxiliary duties under relevant notifications.Whether the customs department was justified in rejecting the certificate of analysis issued by an independent internationally reputed inspection agency and conducting its own chemical tests.Whether the samples drawn by the customs authorities for testing were valid in law, given they were not drawn in accordance with Indian Standard IS 436.Whether the appellants are estopped from challenging the validity of samples drawn by customs on the ground that a representative was present during sampling.The scope and limits of the power of the proper officer under Section 18 of the Customs Act to subject imported goods to chemical or other tests. RULINGS / HOLDINGS: The exemption under the notifications applies to coking coal with ash content below 12%, and the certificate issued by the internationally reputed agency CASCO showing ash content at 9.8% was valid and not challenged by the department.The customs department's chemical analysis of the samples was 'ultra vires Section 18(b) of the Customs Act' because the department never demonstrated any good prima facie reason to reject CASCO's certificate or to deem it necessary to conduct further tests.The samples drawn by the customs authorities were invalid as they were not drawn in accordance with IS 436, which prescribes detailed procedures for sampling coal, including minimum sample weights and sampling methods; the customs samples were insufficient and improperly handled.The appellants were not estopped from challenging the sampling process because no representative of the appellants was present at the time of sampling, and estoppel cannot be invoked against a violation of law; 'there can be no estoppel against law.'The power under Section 18 of the Customs Act to subject goods to chemical or other tests requires that the proper officer 'deems it necessary' based on reasonable grounds and not mere suspicion, and such power must be exercised within legal restraints. RATIONALE: The Court applied the statutory provisions of the Customs Act, particularly Section 18, which allows provisional assessment and testing only if the proper officer 'deems it necessary' based on reasonable grounds.The Court relied on precedents establishing that expressions like 'deems it necessary' and 'reason to believe' require an honest and reasonable belief supported by material facts, not arbitrary or subjective satisfaction.The Court referred to Indian Standard IS 436 for coal sampling, holding that where the statute or notification is silent on the method of testing, the Indian Standard Institution's method applies, as previously held in related judgments.The Court rejected the Tribunal's finding on estoppel, emphasizing the principle that illegal acts cannot be validated by acquiescence or presence of a third party, and that no representative of the appellants was actually present during sampling.The Court emphasized that the customs authorities must comply with prescribed legal procedures and cannot rely on defective samples or tests conducted without proper legal basis.