Mrs. Sujata Manohar, J.
1. Messrs Kessoram Industries and Cotton Mills Ltd., who are the original petitioners (in Miscellaneous Petition No. 224 of 1970) and respondents in this Appeal, have a textile mill. Under the Cotton, Textiles Export Incentive Scheme then in force messrs Kessoram Industries and Cotton Mills Ltd. (hereinafter referred to as the ‘Petitioners’) had obtained four licences of the total value of Rs. 64,324/- for the import of staple fibre of non – viscose origin not exceeding two inches in staple length. Import Licences issued to the petitioners were dated 7 – 12 – 1964, 9 – 12 – 1955 and 21 – 1 – 1965. Under the Scheme then in force as well as under the terms of the licences so issued to the petitioners, the quantity of staple fibre imported under the licences could not be transferred of sold by the licence – holder to any other person or persons without the permission of the Textile Commissioner. In other words, the goods imported under the licences could be sold by the petitioners with the permission of the Textile Commissioner. By an arrangement dated 7 – 4 – 1965 the petitioners entered into an agreement with Messrs Dhanraj Mills under which they sold the goods to be imported by them under these four licences viz. staple fibre of non – viscose origin to Messrs Dhanraj Mills subject to the permission of the Textile Commissioner at a premium of 128% and on the terms and conditions mentioned in the agreement. On the same date by their letter dated 7 – 4 – 1965 addressed to the Textile Commissioner the petitioners asked for permission of the Textile Commissioner to sell the goods to be imported by them under these licences to Dhanraj Mills. Permission to sell the goods was granted by the Textile Commissioner to the petitioners by his letter dated 26 – 5 – 1965. In the meanwhile the petitioners addressed a letter dated 5 – 5 – 1965 to the Joint Chief Controller of Imports and Exports requesting him to issue a letter of authority in favour of Dhanraj Mills in respect of the import of goods covered by the said licences in view of the fact that they had sold the goods to Dhanraj Mills with the permission of the Textile Commissioner. This letter was handed over by the petitioners to Dhanraj Mills to enable them to obtain a Letter of Authority from the Joint Chief Controller of Imports and Exports. The petitioners also handed over to Dhanraj Mills the import licences together with their copies.
2. After the agreement of sale of 7th April, 1965 Messrs Dhanraj Mills addressed a letter dated 12 – 4 – 1965, inter alia, to the petitioners asking them to obtain instructions from Messrs Madhusudan Gordhandas & Co. in connection with the import of goods under the said licences on their behalf. It may be noted that the petitioners have not had any dealings with Messrs Madhusudan Gordhandas under this letter. Dhanraj Mills also handed over the import licences in question to Messrs Madhusudan Gordhandas & Co. On 14 – 4 – 1965 one Messrs Universal Export – Import Agency which was admittedly acting at the instance of Messrs Madhusudan Gordhandas & Co. addressed a letter to the Joint Chief Controller of Imports and Exports asking for an amendment of the licences in question. By this letter Messrs Universal Export – Import Agency requested the Joint Chief Controller of Imports and Exports to amend the licences to cover not merely staple fibre of non – viscose origin but also Viscose Rayon Yarn and/or Polynosic viscose Staple Fibre and/or Synthetic Yarn. This application was made without the knowledge or consent of the petitioners and behind their back. The application was granted by the Joint Chief Controller of imports and Exports without any reference to the petitioners and in spite of the fact that the application was not made by the petitioners who were the licence – holders. The licences in question were thereupon expeditiously amended to cover the import of these other items also, particularly synthetic yarn. Thereafter Messrs Madhusudan Gordhandas & Co. obtained a letter of credit from the Bank of Tokyo for the import of synthetic yarn, an item which was not covered by the original licences, without reference to the petitioners. The Bank of Tokyo also opened the letter of credit without any reference to the petitioners although the petitioners did not have any account with the Bank of Tokyo and had not given any authority to anyone to act on their behalf with the Bank of Tokyo. Thereafter Messrs Madhusudan Gordhandas sought to import synthetic yarn on these licences. The letters of credit were paid for by Messrs Madhusudan Gordhandas, who retired the documents from the bank and attempted to clear the goods from the Customs. The petitioners in the meanwhile heard rumours in the market that such an import was being made by Messrs Madhusudan Gordhandas. On 20th June 1965 they addressed a letter to Dhanraj Mills pointing out that they had only agreed to sell staple fibre of non – viscose origin and that Dhanraj Mills had no authority to import any other item. They asked Dhanraj Mills to confirm that no other item was being imported. There was no reply to this letter till 14th July 1965 when Dhanraj Mills sent an equivocal reply. The petitioners therefore addressed letters to various authorities in order to bring to their notice the fraud being played by Messrs Madhusudan Gordhandas. Thus they wrote a letter dated 16 – 7 – 1965 to the Bank of Tokyo Ltd.; a letter dated 16 – 7 – 1965 to the shippers, The Great Eastern Shipping Co. Ltd.; a letter dated 17 – 7 – 1965 to the Textile Commissioner setting out in detail the fraud which was committed; a copy of which was also sent to the Collector of Customs and another copy was sent to the Joint Chief Controller of Imports and Exports, Bombay. They also addressed a letter dated 17 – 7 – 1965 to the Manager, Bombay Port Trust. In spite of the above letters having been addressed by the petitioners to all the authorities concerned one consignment of synthetic yarn imported by Messrs Madhusudan Gordhandas on the licences of the petitioners was allowed by the authorities concerned to be cleared by Messrs Madhusudan Gordhandas on 9th August 1965. In respect of this consignment, the signature on the Bill of Entry. Thereafter two consignments on nylon yarn of the cif values of rupees 36,435 and Rs. 7,848 which were also imported under the petitioners’ licences by Messrs Madhusudan Gordhandas arrived by S.S. Orna. Messrs Madhusudan gordhandas filed two bills of Entry, both dated 9, 8 – 1965/18 – 12 – 1965 in respect of the said goods. These consignments were confiscated and a show cause notice was issued inter alia against the petitioners under the provisions of the Customs Act, 1962. In the show cause notice the petitioners have been charged with having transferred their licences to Messrs Madhusudan Gordhandas & Co. without any written authority from the licensing authorities and thus rendering the licences invalid to cover the goods imported. They have also been charged with having become liable for penal action u/s. 112 of the Customs Act, 1962 for allowing Messrs Madhusudan Gordhandas & Co. to import the said goods.
3. After the show cause notice was issued the petitioners appeared before the Collector of Customs and evidence was led inter alia on the charges which were levelled against the petitioners. Thereafter by his order dated 15 – 1 – 1968 the Collector of Customs gave a finding that the amendemnt of the licences was got made by Messrs Madhusudan Gordhandas & Co. behind the back of the petitioners and that the petitioners had no knowledge of such amendment having been made. They had not in any manner been a party to such an amendment. The Collector of Customs also gave a finding that the petitioners had not given any document signed in blank to Messrs Madhusudan Gordhandas & Co. to enable them to obtain either a Letter of Credit or to obtain Bills of Lading or any other documents. In fact the petitioners had not given any document signed in blank even to Messrs Dhanraj Mills with whom they had entered into an agreement of sale. The Collector also came to the conclusion that the Letter of Credit was opended and the goods were imported without the knowledge of the petitioners. In the courses of this inquiry Messrs Madhusudan Gordhandas & Co. admitted that they alone had taken all steps to get the licences amended as also to import the goods behind the back of the petitioners and without their knowledge or consent. The Collector, however, in spite of these findings of fact came to the conclusion that the petitioners were liable to pay a penalty of Rs. 750/- u/s. 112 of the Customs Act, 1962. He also confiscated the goods under the provisions of Section 111(d) of the Customs Act, 1962.
4. The petitioners being aggrieved by the order of the Collector of Customs went in appeal before the Central Board of Excise and Customs. The petitioners made their submissions in the Memorandum of Appeal but did not ask for a personal hearing. By its order dated 12 – 12 – 1968 the Central Board of Excise and Customs dismissed the appeal of the petitioners. It seems that a number of similar matters of other Mills were also before the Central Board of Excise and Customs,f because from the order of the Central Board of Excise and Customs it appears that they have mixed up the facts of some other cases with the facts in the case of the petitioners; for example, in the order it is stated that to facilitate importation by the purchaser the licensees handed over to M/s. Madhusudan Gordhandas & Co. signed blank application for customs clearance and letters authorising Bank of Tokyo Ltd. to hand over the import documents to Messrs Madhusudan Gordhandas & Co. against payments. Those observations are clearly contrary to the findings given by the Collector of Customs. The Central Board of Excise and Customs held that the appellants before them were correctly penalised u/s. 112 of the Customs Act and dismissed the appeal. The Revision Application filed by the petitioners from the order of the Central Board of Excise and Customs was also dismissed by an order of the Secretary to the Government of India. Ministry of Finance, dated 24th November 1969. Thereafter the petitioners preferred the present petition, challenging the levy of penalty u/s. 112 of the Customs Act, 1962.
5. The learned Single Judge who heard the petition after referring to the facts stated briefly above held that on the basis of the findings given by the Collector of Customs it was clear that Messrs Madhusudan Gordhandas & Co. acted on their own in all their activities; the petitioners had not taken any part in the activities of M/s. Madhusudan Gordhandas. He has referred to the provisions of Section 112 of the Customs Act and held that before any penalty could be levied against the petitioners u/s. 112 of the Act it was necessary to come to the conclusion that in respect of the goods which had been imported viz. synthetic yarn the petitioners had done any act or omission which would render the goods in question viz. synthetic yarn liable to confiscation. In the alternative it should be shown that they had abetted such an act or omission of another person. After analysing the conduct of the petitioners the learned Judge came to the conclusion that there was no nexus between the action of the petitioners in selling the goods to be imported under the licences to M/s. Dhanraj Mills and the alterations in the licences and import of the goods not covered by the licences by Messrs Madhusudan Gordhandas & Co. He held that all the authorities had not applied their minds to the facts in dispute and the findings which were arrived at on the charges which had been levelled against the petitioners. He held that the conclusions arrived at by all the three authorities could not possible have been arrived at on the basis of the evidence on record. He, therefore, made the Rule absolute, quashed the order of penalty and directed the 4th respondent to refund to the petitioners the amount of penalty levied under the orders which were quashed.
6. In our view, the judgment of the learned Single Judge cannot be assailed in any manner. Mr.Sethna, learned counsel for the appellants namely the Collector of Customs, the Central Board of Excise and Customs and the Secretary to the Government of India, Ministry of Finance, submitted that in essence the charges which had been levelled against the petitioners were twofold. According to him, the first charge levelled against the petitioners was that they had by their own act or omission enabled Messrs Madhusudan Gordhandas & Co. to import the goods in question. The second charge, according to him, was that the goods which were imported were not covered by the licences. On both these counts, he submitted, the petitioners must be held liable to penalty u/s. 112 of the Customs Act, 1962.
7. Sections 111(d) and 112 of the Customs Act, 1962 are as follows : –
“111. The following goods brought from a place outside India shall be liable to confiscation :-
xx xx xx xx xx (d) any goods which are imported or attempted to be imported or are brought within the Indian customs waters for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force; xx xx xx xx xx "112. Any person, - (a) who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under Section 111, or abets the doing or omission of such an act, or (b) who acquires possession of or is in any was concerned in carrying, removing, depositing, harbouring, keeping concealing selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under Section 111, shall be liable, - xx xx xx xx xx"
In order that a person can be held liable for any penalty u/s. 112 it is necessary to establish that that person has done or omitted to do any act which would render the goods in question liable to confiscation u/s. 111 of the Act. In the alternative, he should have abetted the commission or omission of any such act. Under Section 111, sub – section (d), of the Customs Act, 1962 if goods are imported contrary to any prohibition imposed by or under the Customs Act or any other law for the time being in force, they are liable to confiscation. We are not concerned with the other provisions of Section 111. Mr. Sethna has submitted that the action of the petitioners in entering into a contract of sale with Messrs Dhanraj Bills has resulted in the import of synthetic yarn which is liable to be confiscated. He has submitted that the contract of sale between the petitioners and Dhanraj Mills was for the sale of licences and not for the sale of goods to be imported under the licences. Admittedly no such charge was framed in the present inquiry against the petitioners and Mr. Sethan has conceded that such a charge would be beyond the scope of inquiry under the Customs Act, 1962. It is not therefore necessary to examine whether the sale in favour of Dhanraj Mills by the petitioners amounted to a sale of licences or not. What we have to consider is whether the petitioners can, in any manner, be said to have done any act or omission in relation to the import of synthetic yarn which has rendered these goods liable to confiscation. The petitioners had sold to Dhanraj Mills not synthetic yarn but staple fibre of non – viscose origin. This sale was effected with the permission of the Textile Commissioner. Thereafter they had handed over the licences to Messrs Dhanraj Mills on receiving payment under the contract of sale. Thereafter the petitioners have not done or omitted to do anything either to get the licences amended or to import synthetic yarn. The Collector of Customs has given a finding that Messrs Madhusudan Gordhandas & Co. were acting on their own in respect of these matter and the petitioners were totally in the dark regarding these activities of Messrs Madhusudan Gordhandas & Co. The learned Single Judge has, therefore, rightly come to the conclusion that there was no “casual” connection between the petitioners and the import of synthetic yarn. In the circumstances they cannot be said to have committed any offence u/s. 112 of the Customs Act, 1962.
8. The second argument of Mr. Sethna was that the petitioners have been negligent in relation to the goods to be imported under their licences. The negligence of the petitioners has resulted in the import of synthetic yarn by Messrs Madhusudan Gordhandas. Therefore, they have been rightly held liable to penalty u/s. 112. In this connection he emphasised the fact that the petitioners handed over their licences to Dhanraj Mills. According to him, the petitioners should have taken the licences back from Dhanraj Mills. By their negligence in parting with the licences they have enabled Messrs Madhusudan gordhandas & Co. to perpetrate the fraud. We do not find any substance in this connection of Mr. Sethna. The petitioners after receiving consideration under the contract of sale handed over to Messrs Dhanraj Mills their licences together with a letter addressed to the Joint Chief Controller or Imports and Exports requesting him to issue a letter of authority in favour of Dhanraj Mills which would enable Dhanraj Mills to take delivery of the goods sold to them under the said licences. There was nothing wrong in this act of the petitioners. In fact as soon as they came to learn that a fraud was being perpetrated, they addressed a letter dated 28 – 6 – 1965 to Dhanraj Mills asking them whether a letter of authority had been issued in their favour by the Joint Chief Controller of Imports and Exports and also insisting that only the goods covered by the licences should be imported by them. They have also addressed a number of letters to all the authorities concerned in order to prevent their licences being misused. It is difficult in these circumstances to find them guilty of any negligence in connection with the import of goods. In these circumstances the learned Single Judge rightly came to the conclusion that the order imposing penalty on the petitioners which was upheld in Appeal as well as in Revision was an order passed without any application of mind and it was an order which could not be supported on the basis of facts as found in the inquiry. We accept the reasoning of the learned Single Judge given in his judgment for arriving at his conclusion. In our view, the order passed against the petitioners has been rightly quashed by the learned Single Judge.
9. In these circumstances we dismiss the Appeal with costs.
10. Appeal dismissed.