TaxTMI 
TaxTMI 
1961 (9) TMI 3
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....not smuggled goods shall be on the person from whose possession the goods were seized. (2) This section shall apply to gold, gold manufacturers, diamonds and other precious stones, cigarattes and cosmetics and any other goods which the Central Government may, by notification in the Official Gazette, specify in this behalf. (3) Every notification issued under sub-section (2) shall be laid before both Houses of Parliament as soon as may be after it is issued." 2. It is the constitutional validity of this section that is the common point which arises in these several cases which have been heard together. We have heard on the merits only Civil Appeals 408 to 410 of 1960 and the other cases were posted before us in order that Counsel appearing for the parties in them, might have an opportunity to be heard upon the common question mentioned earlier. We shall, therefore, refer only to the facts of Civil Appeals 408 to 410 of 1960 in dealing with these petitions. Civil Appeals 408 to 410 : 3. These appeals come before us on a certificate granted by the High Court of Madras under Articles 132(1) and 133(1)(c) of the Constitution and are directed against th....
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....der Article 13 of the Constitution. They further held that even if Section 178A were valid, the condition precedent for invoking the rule as to the burden of proof prescribed by the section had not been complied with, in that the customs officer who effected the seizure which preceded the adjudication did not entertain "a reasonable belief that the gold was smuggled", with the result that the order of confiscation was invalid. Besides, the learned Judges were also of the view that Section 178A of the Sea Customs Act could not be invoked in adjudicating a contravention of a notification under the Foreign Exchange Regulation Act which imposed restrictions on the import of gold. Though on these conclusions the order of the Collector confiscating the gold was set aside, the learned Judges held that the respondent was not entitled to an order for the return of the gold, but only to a direction to the Collector to hear and determine the question about the gold seized being smuggled gold without reference to the rule as to onus of proof enacted by Section 178A. The appellant, the Collector of Customs, Madras, obtained leave from the High Court under Articles 132 and 133 of the Constitutio....
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....e wholly or mainly of gold." These provisions have to be read in conjunction with the provisions of the Sea Customs Act which form, as it were, integrated provisions in relation to the import and export of, among other commodities, gold, and Section 23A of the Foreign Exchange Regulation Act which was introduced by an amendment of 1952 effects this co-ordination. This section reads : "23A. Without prejudice to the provisions of Section 23 or to any other provision contained in this Act the restrictions imposed by sub-sections (1) and (2) of Section 8, sub-section (1) of Section 12 and clause (a) of sub-section (1) of Section 13 shall be deemed to have been imposed under Section 19 of the Sea Customs Act, 1878, and all the provisions of that Act shall have effect, accordingly, except that Section 183 thereof shall have effect as if for the word `shall' therein the word `may' were substituted." Turning now to the Sea Customs Act. Section 167(8) enacts : "167. The offences mentioned in the first column of the following schedule shall be punishable to the extent mentioned in the third column of the same with reference to such offences respectively :- Offences ....
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....y person is liable to penalty,      such confiscation, increased rate of duty or penalty may be adjudged - (a) without limit, by a Deputy Commissioner or Deputy Collector of Customs, or a Customs Collector; (b) up to confiscation of goods not exceeding two hundred and fifty rupees in value, and imposition of penalty or increased duty, not exceeding one hundred rupees, by an Assistant Commissioner or Assistant Collector of Customs; (c) up to confiscation of goods not exceeding fifty rupees in value, and imposition of penalty or increased duty not exceeding ten rupees, by such other subordinate officers of customs as the Chief Customs authority may, from time to time, empower in that behalf in virtue of their office : Provided that the Chief Customs-authority may, in the case of any officer performing the duties of a Customs-collector, limit his powers to those indicated in clause (b) or in clause (c) of this section, and may confer on any officer, by name or in virtue of his office, the powers indicated in clauses (a), (b) or (c) of this section." and "Section 183. Whenever, confiscation is authorized by this Act, the officer a....
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....these goods subject to the option mentioned in Section 183 with the modification to this provision enacted by Section 23A of the Foreign Exchange Regulation Act. It would further be manifest that at that date before the gold seized was liable to be dealt with under the third column of Section 167(8) by an officer adjudicating on the matter under Section 182, the burden of proving that the gold was smuggled lay upon the department and unless the adjudging officer who was acting quasi-judicially was reasonably satisfied on that point, the confiscation or the imposition of the penalty could not have been ordered. 11. The effect of the imposition of the severe restrictions on the import of gold into this country by the notifications under the Foreign Exchange Regulation Act with a view to defend and conserve the economy of the country in conjunction with the circumstance that the internal production of gold was very little, resulted in a great disparity between the price of gold in India and outside India i.e., in the international markets. This naturally gave a great incentive to smuggling which besides depriving the State of its revenue, also posed a grave threat to national ....
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....his decision in detail which we shall do later, but for the present it is sufficient to state that the case dealt mainly with an objection based on a violation of Article 14 of the Constitution which the following extract from the headnote would indicate : "Section 178A of the Sea Customs Act which places the burden of proving that any of the goods mentioned in the section and reasonably believed to be smuggled are not really so on the person from whose possession they are seized, is not discriminative in character and does not violate equal protection of law guaranteed by Article 14 of the Constitution." The validity of the section was next attacked before the High Court of Bombay in a Writ Petition filed under Article 226 of the Constitution on the ground that it violated Article 19(1)(f) and (g) of the Constitution : M.G. Abrol v. Amichand - [1958] 62 Bom. L.R. 1043 at p. 1046. The article involved in that case was gold which had been seized from the petitioner and directed to be confiscated by an adjudicating officer under Section 182 of the Sea Customs Act. The case came up for hearing before K.T. Desai, J., and the learned Judge held that Section 178A was unconstitution....
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....tion 178A of the Sea Customs Act which was called in aid by the Collector of Customs to direct the confiscation of the gold seized to be unconstitutional and therefore void under Article 13, the learned Judges also upheld two further contentions urged on behalf of the respondent in support of their petition : (1) that Section 178A was not attracted to the determination of a question raised in relation to the confiscation of an article imported in contravention of a notification under Section 8(1) of the Foreign Exchange Regulation Act, (2) that Section 178A required as a pre-condition of its applicability, that the goods which were the subject of adjudication must have been seized "in the reasonable belief that they are smuggled goods" and that in the instant case the Customs Officer effecting the seizure did not or could not entertain such a belief. We consider it would be convenient if we deal with these two points after examining the constitutional validity of Section 178A. 15. Before embarking on this enquiry it is necessary to deal with the argument of the learned Solicitor-General that every point about the constitutional validity of Section 178A is concluded in his f....
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....tition did not show in what manner there had been a violation of that Article, and the judgment continues : "But Mr. Chatterjee argues that the burden of proof enunciated therein is opposed to fundamental principles of natural justice, as it gives an unrestricted arbitrary and naked power to the Customs authorities without laying down any standard or norm to be followed for exercising powers under the section ............ It is a heavy burden to be laid upon the shoulders of an innocent purchaser who might have come into possession after the article has changed many hands and this, it is alleged, invokes discrimination between him and other litigants and deprives him of the equal protection of the law guaranteed by Article 14 of the Constitution. A large number of cases have been cited at the Bar in support of the respective contentions of the parties." This is followed by a citation from the decisions of this Court in which the scope and content of Article 14 were discussed and in particular a passage in the judgment in Budhan Chaudhury v. The State of Bihar [1955] 1 SCR 1045, 1048-1049 where the principle that Article 14 does not forbid classification on a reasonable and ra....
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....h, for instance, are cases when the denial of equality before the law is based on the ground that the power vested, say, in an administrative authority to affect rights guaranteed to a citizen is arbitrary, being unguided or uncanalised. The vesting of such a power would also amount to the imposition of an unreasonable restriction on the exercise of the guaranteed right to trade or carry on a business etc. Where however, there is guidance and the legislation is challenged on the ground that the law with the definite guidance for which it provides has outstopped the limits of the Constitution by imposing a restraint which is either uncalled for or unreasonable in the circumstances, the scope and content of the enquiry is far removed from the tests of conformity to rational classification adopted for judging whether the law has contravened the requirement of equal protection under Article 14. 17. It is therefore necessary for us to consider whether Section 178A is obnoxious to the rights guaranteed by Article 19(1)(f) and (g) which is the ground upon which the section has been held unconstitutional by the judgment of the Madras High Court under appeal. We have already set out....
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....provision is that the facts must be within the knowledge, and often within the exclusive knowledge of the defendant. If, for instance, it is found that he has dealt in prohibited goods, if he can show that he acquired them in the ordinary course of business obviously he would not be guilty of dealing in them with intent to avoid the prohibition. He can prove the positive and, unless he had to undertake the proof, the Crown would generally have to undertake the proof of a negative." 19. Mr. Palkivalla, learned Counsel for the respondent, stated that if the impugned section, Section 178A, had contented itself with laying down the principle enunciated in the above observations of Goddard, C.J., he would not contend that it was an unreasonable restraint on the citizen's rights to hold property or on his right to do business guaranteed by Article 19(1)(f) and (g). His submission, however, was that the burden cast upon the person from whom gold were seized transcended the limits of what that person could reasonably be called on to prove and that as the burden cast by Section 178A was impossible of being discharged, it amounted not to a law laying down a rule of evidence, but oper....
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....Gold as such has no earmark. It is impossible to identify gold in the possession of a person with the gold mentioned in the Bill of Entry of any importer of gold..... Gold has been imported through centuries into this country and it is virtually impossible for a person to establish that any particular quantity of gold in his possession was the gold imported in the country at a particular time without resort to smuggling. The proof required pre-supposes the existence of gold in an identifiable form from the time of its import to the time of its ultimate sale to the person from whose possession the same has been seized." 21. Mr. Palkivala, learned Counsel for the respondent, explained to us the special features attaching to gold as a commodity and as a store of value, and of the difficulties, if not impossibility, of identifying one piece of gold from another in the absence of a requirement of marking, and basing himself on this factual position submitted six grounds in support of his contention that the restriction imposed by Section 178A was unreasonable and we shall deal with these points in the same order : (1) Section 178A, no doubt, on its face purports to be a ....
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....ort but extends also to persons who are able to establish bona fide acquisition of gold but who are unable to prove how the person from whom they acquired, obtained the gold they sold, (5) A presumption of this sort might be reasonable in respect of goods which are dangerous or noxious per se, like firearms or poison, since ordinarily people might be expected to be on their guard before obtaining such goods to ensure that their acquisition was lawful and in accordance with the formalities, if any prescribed by the relevant statute or rule. Gold, however, is not such a type of commodity. It is an innocuous article of commerce and is under the law a subject of unrestricted trade within the country. The burden of proof of the sort imposed by Section 178A, in respect of such a commodity, is therefore unreasonable, (6) The burden of proof cast by Section 178A is, in most cases, impossible of being discharged because : (a) it extends to facts which would not be in the possession of a bona fide purchaser and would comprise matters which he never knew, or could never know, (b) large quantities of gold have been imported into India before restrictions were imposed in 1939. T....
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..... Ed. 191, and Manley v. State of Georgia (1929) 279 U.S. 1 : 73 L. Ed. 575. The first of these was concerned with the validity of a law of the State of Alabama by which refusal without just cause, to perform the labour agreed to be performed in a written contract of employment under which the employee had obtained money which he did not refund was made prima facie evidence of an intent to commit a fraud. The Supreme Court held the law invalid. Two grounds were urged in support of the argument that the legislation was unconstitutional. The first was that it was a violation of the 13th amendment against "involuntary servitude except as punishment for crime", the other that the law as in violation of due `process' clause contained in the 14th amendment. The Supreme Court upheld both these contentions, but what is relevant to the present context and on which learned Counsel relied was the reason assigned for holding that the rule of evidence enacted by the impugned statute violated the requirement of due `process'. Reliance was placed for the State before the Supreme Court on the fact that the presumption raised was not conclusive but was open to rebuttal by the accused, but this was ....
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....efinite word "reasonable", and caution has, therefore to be exercised before the literal application of American decisions. In making these observations we are merely repeating a warning found in the judgment of this Court in A.S. Krishna v. The State of Madras - [1957] SCR 399, 412, where, Venkatarama Ayyar, J., speaking with reference to the point now under discussion after quoting the passage already extracted from Rottschaefer's treatise stated : "The law would thus appear to be based on the due process clause, and it is extremely doubtful whether it can have application under our Constitution." 24. With this caution we shall proceed to examine the submission of learned Counsel regarding the absence of any rational connection between the fact to be proved and the fact on which the presumption is raised. An analysis of the arguments of the learned Counsel shows that the real legal objection to the provision lay in the sixth point urged by him, viz., the impossibility of discharging the burden of proof cast by Section 178A, which thus virtually results in a confiscation of property without a judicial adjudication or condemnation. Pausing here we might mention that two ....
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....is section that Fitzpatrick was found guilty of by the application of the rule as to onus of proof prescribed by Section 259 extracted earlier. If in a prosecution for dealing in smuggled goods the onus could with constitutional propriety be cast upon the accused to prove that the goods were not smuggled, it is difficult to see any reasonable basis for the contention that where the offence charged against a person is not dealing in but possession of smuggled goods, there is a constitutional bar on the burden being so laid. 26. Secondly, is learned Counsel correct in his submission that under Section 178A the onus is cast upon the possessor of the goods seized by reason only of the reasonable belief of the seizing officer that the goods seized by him are smuggled? It is to be noted that the seizure by the officer in the belief that the goods are smuggled does not by itself operate to effect the confiscation or deprive the owner of his property in the goods. This result, however, follows only on an order of an adjudicating officer who investigates into the complaint regarding the defendant's possession of the smuggled goods. As we shall have occasion to point out later the en....
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.... and therefore patently unreasonable. This was advanced on the basis of the passage in the judgment of this Court in Babulal Amthalal Mehta v. The Collector of Customs, Calcutta - [1957] SCR 1110, already extracted reading : "the only pre-requisite for the application of the section is the subjectivity of the Customs Officer in having a reasonable belief that the goods are smuggled." The learned Solicitor-General, on the other hand pointed out that this was not really part of the decision, but was just an observation and that he would not support it. The learned Solicitor-General submitted that a seizure to which Section 178A was applicable was merely a preliminary to proceedings before a quasi-judicial authority under Section 182. When the matter comes before the latter authority, and anterior to that authority invoking the presumption raised by Section 178A, it would, on the terms of the section, have to be satisfied that the seizure was made "in the reasonable belief that the goods seized were goods that had been smuggled". At that stage the enquiry is not and cannot be confined as to whether the seizing-officer bona fide entertained the belief, but must necessarily extend....
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....nd so on until one reached the stage of the origin of the gold which is the subject of seizure and of adjudication before the Customs authority. It would be seen that this is really the argument upon which the sixth of the points urged by learned Counsel rests and therefore it will be convenient to examine the soundness of the contention and the answers which have been made on the other side after dealing with point No. 5. 31. The fifth point relates to the fact that the presumption raised by the section is about the possession of an innocuous article of property which under the law is the subject of unrestricted trade in the open market as distinguish from articles which are inherently dangerous - such as firearms or Poisonous drugs, in regard to which possession and dealing are legitimately subject to severe restrictions. Learned Counsel is, no doubt, right in his submission that gold as a commodity is an innocuous article of commerce, that articles made of gold have been used as part of jewellery by the middle and upper classes from the beginning of time, that it has served as a store of value from ancient times and that the very large number of people in this country ar....
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....wing terms. The burden of proof cast by the section is or is almost impossible of discharge, because (1) it extends to facts which would not be in the possession of bona fide purchaser at all, facts which he never knew and which he could never reasonably ascertain; (2) large quantities of gold have been imported into this country before the introduction of restrictions on their importation by virtue of the legislation brought into force from 1939. In this context, learned Counsel relied on the several matters set out in the passage from the judgment of K.T. Desai, J., extracted earlier and laid particular emphasis on the fact : (a) that gold was held in myriad forms and for diverse purposes by a sizeable portion of the population of the country, (b) that gold in its several forms was incapable of being identified as indigenous or imported, or if imported had paid duty or not. In view of these circumstances he urged that to call upon any person to prove any thing more than that his acquisition of the gold was bona fide and without violation of the law would be to cast an impossible burden upon the possessor. Learned Counsel further urged that the precise reason for which the burden ....
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....on (and I hope its shortness will not be regarded as disrespect) is that the validity of a measure is not to be determined by its application to particular cases....... If it is not so exercised (i.e., if the powers are abused) it is open to challenge and there is no need for express provision for its challenge in the statute". The possibility of abuse of a statute otherwise valid does not import to it any element of invalidity. The converse must also follow that a statute which is otherwise invalid as being unreasonable cannot be saved by its being administered in a reasonable manner. The constitutional validity of the statute would have to be determined on the basis of its provisions and on the ambit of its operation as reasonably construed. If so judged it passes the test of reasonableness, possibility of the powers conferred being improperly used is no ground for pronouncing the law itself invalid and similarly if the law properly interpreted and tested in the light of the requirements set out in Part III of the Constitution does not pass the test it cannot be pronounced valid merely because it is administered in a manner which might not conflict with the constitutional requ....
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....ust those classes, and that is the ground of complaint by the learned Counsel, and it is precisely on this basis or for this reason that learned Counsel contends that the entire provision is constitutionally invalid. This analysis would show that the provisions of the section are constitutionally valid in the sense of being reasonable restrictions on the right to hold property or to carry on trade or business in the large percentage of cases to which the section would apply, and it is only in the marginal cases already described that it can, with any justification, be contended that the restriction is unreasonable. From this position, the question that rises is whether because of the inclusion of this type of case the impugned provision should be held to be constitutionally invalid. This has to be taken in conjunction with what is obviously correct, that any severance of the marginal cases and their exclusion from the operation of the provision would greatly reduce its effectiveness and provide innumerable loop-holes for easy evasion. It is in this context that the test for asertaining the "resonableness" postulated of the restrictions in Clauses (2) to (6) of Article 19 assumes gr....
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.... foreign trade control. The existence of foreign pockets in the country accentuates the danger. The extent of the leakage of revenue that takes place through this process cannot be estimated even roughly, but, we understand, it is not unlikely that it is substantial. Apart from this deleterious effect on legitimate trade, it also entails the outlay of an appreciable amount of public funds on patrol vessels along with sea costs and permanent works along the land border, and watch and ward staff on a generous scale. It is, therefore, necessary, in our opinion, that stringent measures, both legal and administrative should be adapted with a view to minimising the scope of this evil." The deleterious effects of smuggling, as pointed out in the extract from the Report, are real and it is not in dispute that the prevention and eradication of smuggling is a proper and legally attainable objective and that this is sought to be achieved by the relevant law. If therefore for the purpose of achieving the desired objective and to ensure that the intentions of Parliament shall not be defeated a law is enacted which operates somewhat harshly on a small section of the public, taken in conjuncti....
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.... not and could not affect, modify or enlarge the scope of the incorporated Sea Customs Act which had become part of the Foreign Exchange Regulation Act. In support of this conclusion the learned Judges of the High Court have relied largely on the decision of the Privy Council in The Secretary of State for India in Council v. Hindustan Co-operative Insurance Society - (1931) L.R. 58 I.A. 259. We consider that the legislation regarding which the Privy Council rendered the decision bears no resemblance, whatever to the matter now on hand and that the ruling in The Secretary of State for India in Council v. Hindustan Co-operative Insurance Society Ltd. - (1931) L.R. 58 I.A. 259, cannot therefore furnish any guidance or authority applicable to the interpretation of Section 23A of the Foreign Exchange Regulation Act. To consider that the decision of the Privy Council has any relevance to the construction of the legal effect of the terms of Section 23A of the Foreign Exchange Regulation Act is to ignore the distinction between a mere reference to or a citation of one statute in another and an incorporation which in effect means the bodily lifting of the provisions of one enactment and mak....
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....isions of the earlier statute in the latter. We shall repeat the terms of Section 19 of the Sea Customs Act which runs : "19. The Central Government may from time to time, by notification in the Official Gazette, prohibit or restrict the bringing or taking by sea or by land goods of any specified description into or out of India across any customs frontier as defined by the Central Government." Section 8(1) of the Foreign Exchange Regulation Act enables similar notifications by the Central Government in these terms : "8. (1) The Central Government may, by notification in the Official Gazette, order that subject to such exemptions, if any, as may be contained in the notification, no person shall, except with the general or special permission of the Reserve Bank and on payment of the fee, if any, prescribed bring or send into India any gold or silver or any currency notes or bank notes or coin whether Indian or foreign. Explanation. - The bringing or sending into any port or place in India of any such article as aforesaid intended to be taken out of India without being removed from the ship or conveyance in which it is being carried shall nonetheless be deemed to be a bri....
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.... in that part shall, except so far as repealed by this Act, be incorporated with this part of this Act, subject to the amendments specified in the second column of the 8th Schedule of this Act and of the following provision of this section". 6 & 7 Eliz. 2 Chapter 63 (the Park Lane Improvement Act, 1958), Section 5 reads : "The Land Clauses Act (other than the excepted provision); so far as they are applicable for the purposes of this Act and are not inconsistent with the provisions thereof, are hereby incorporated with this Act." 40. A comparison of the formulae with the text of Section 23A shows that the reference in it to Section 19 of the Sea Customs Act is merely for rendering notifications under the named provisions of the Foreign Exchange Regulation Act to operate as notifications under the Sea Customs Act, and that it cannot have the effect of incorporating the relevant provisions of the earlier Act into the Act of 1947, so as to attract the rule formulated by Brett, L.J., in Clarke v. Bradlaugh already quoted. 41. A close examination of the decision of the Privy Council in The Secretary of State for India in Council v. Hindustan Co-operative Insurance ....
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....t attracted to the incorporated provisions in the "Local Act". We consider that there is no analogy between the provisions held to be incorporated in the Calcutta Improvement Trust Act, 1911 dealt with by the Privy Council and Section 23A of the Foreign Exchange Regulation Act now under discussion. We hold therefore that when a notification issued under Section 8(1) of the Foreign Exchange Regulation Act is deemed for all purposes to be a notification issued under Section 19 of the Sea Customs Act, the contravention of the notification attracts to it each and every provision of the Sea Customs Act which is in force at the date of the notification. 42. The other ground upon which the learned Judges upheld the respondents contention that the rule as to the burden of proof enunciated in Section 178A was not attracted to the present case was based on the finding that the Customs Officer who effected the seizure did not, at the moment of seizure, entertain a reasonable belief that the goods seized were smuggled. The learned Solicitor-General who contested the correctness of this finding did not urge that the word in Section 178A "in the reasonable belief that they are smuggled g....
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....se of gold. Hence the gold was seized and he was arrested under a mahazar. The passenger and gold are forwarded for further action under Customs Act." It would be seen that up to this point there had been no seizure by an officer acting under the Sea Customs Act within Section 178A of the Act. It has also to be noticed that Nandgopal had in his possession admittedly no receipt of any kind for the purchase of the gold; further he had on him the letter addressed by the first respondent to Mathuradas Gopalakrishnayya & Co., Bullion Merchants, Bombay intimating that cash to the extent of rupees one lakh was being sent through the representative, which obviously could not possibly remain in the possession of Nandgopal if his story about his taking cash to that addressee and the purchase of the gold from him were ture. It was in these circumstances that the Inspector (Special Division) Customs House recorded : "Detained four blocks of gold said to weigh about 1,000 tolas from Shri Nandgopal, representative of Nathella Sampathu Chetty & Sons for further investigation". There are two views possible of the exact import of this note by the Customs Inspector : (1) that it was a "d....
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....normal trade, particularly when the person in possession was the representative of a well-known firm of bullion dealers. But one would also normally expect that the representative would have secured a bill or voucher to evidence the purchase. In other words : (1) it was not a case of a few trinkets of gold or small quantity purchased for domestic or personal use by a considerable amount for purposes of business, (2) the undelivered letter addressed to M/s. Mathuradas Gopalakrishnayya and Co., which admittedly had a bearing upon the purchase of gold in the possession of Nandgopal necessarily drew an amount of suspicion on the theory of a bona fide purchase. These circumstances, in our opinion, which were admittedly present at the moment when the gold was taken by the Customs Officer at the Central Station did tend to raise a reasonable suspicion that the gold seized had been obtained illicitly and this was sufficient to constitute, in the words of the statute, "a reasonable belief that the goods (gold) were smuggled". 45. We are therefore of opinion (1) that Section 178A was constitutionally valid, (2) that the rule as to the burden of proof enacted by that section applies t....