1. M/s. Gokaldas Harbhagawandas have tiled Revision Applications to the Government of India under old Section 131 of the Customs Act and these have to be treated as appeals to the Tribunal. The appeal registered under CD(T)(BOM)/ 161/1980 is in terms of old Section 131(1)(b) of the Customs Act against the Order No. SG 86/5/A/77 A, dated 18-4-1977 passed by the Collector of Customs, Bombay in terms of old Section 130 of the Customs Act reviewing the clearance of a consignment of Polyester Filament Yarn under B/E No. 2148/652 dated 3-1-1978 per s.s.
"State of Andhra Pradesh" Cash No. 2282 dated 7-2-1978 imported by the appellants and levying a penalty of Rs. 50,000/- on them Under Section 112 of the Customs Act for the illegal import of the consignment. The other two appeals registered under CD(T)233/1980 and CD431/1980 are against the orders of the Collector levying fines in lieu of confiscation of the consignments of identical goods imported by the same importers as confirmed by the Board under their Order Nos. 87-89 of 1980 dated 17-1-1980. Since these appeals raise identical issues, they were heard together and are being disposed of by this common order. Another appeal of the same appellants registered under CD(T)(BOM) 313/1980 was also heard at the same time, but a separate order is being issued in respect of that appeal.
2. The facts covered by the three appeals are identical. The appellants imported various consignments of Polyester Filament Yarns as mentioned under respective orders of the Collector and sought clearance under the import licences also mentioned in the Collector's orders. The licences were issued for raw materials, components and consumable stores and packing materials in accordance with the provisions of A.M. 78 Policy.
However, the collector objected to the clearance of the aforesaid consignments on the ground that the Letter of Credit No. 23/549 dated 1-9-1977 actually opened on 5-7-1977 was not valid to cover the imports as in the meanwhile on 2-9-1977 under the ITC P.N. No. 67/77, the Import Trade Control authorities canalised the import of Polyester Filament Yarn through the State Trading Corporation of India. The P.N.in Para 3 stated the exporters/nominee manufacturers who have during the period from 22-8-1977 to 2-9-1977 entered into firm commitments by way of irrevocable L/C to import Polyester Filament Yarn against REP licences in accordance with the import policy will be allowed to import such yarn directly without going through the canalising agency to the extent of their entitlements, limited however to such firm commitment,.
The Public Notice also advised that the evidence of such firm commitment will have to be furnished by the importers to the satisfaction of the Customs authorities at the time of the clearance of the consignments concerned. The Collector therefore treated the consignments in question as having been imported unauthorisedly and took the penal action against the importers and the goods. M/s.
Gokaldas Harbhagawandas filed revision applications to the Government and these have been transferred to the Tribunal and are to be treated as "appeals before it.
3. During the course of the hearing of the appeals, advocate Shri Harish drew our attention to the import licences produced by the appellants. He explained that these licences were issued to export houses for import of raw materials etc. By the issue of ITC P.N. 62/77 dated 22-8-1977, the import policy was amended and the effect of this amendment was that the import of polyester filament yarn was delinked from the export of synthetic fabrics. Hence any importers wishing to import the yarn could do so without having exported the fabrics.
Accordingly, the importers placed an indent dated 1-9-1977 with M/s.
Shah Trading Co. the local representatives of M/s. Marubeni Corporation, Japan for the import of 49300 kgs. of Polyester Filament Yarn, Toray brand on returnable bobbins. The Bombay office of Marubeni Corporation also confirmed this indent vide their letter dated 1-9-1977. Shri Harish drew our attention to these 2 documents and read the same. He submitted that there was no dispute about the confirmation dated 1-9-1977 of M/s. Shah Trading Co. and from the local office of the suppliers M/s. Marubeni Corporation vide their letter dated 1-9-1977. Thereafter, the appellants contacted the State Bank of India, Bangalore for opening the L/C and the number of L/C was also indicated in hand in the confirmation received from M/s. Shah Trading Co. Shri Harish drew our attention to the copy of the application dated i-9-1977 made by the appellants to the State Bank of India, St. Mark's road, Bangalore-I, for the issue of the L/C in favour of M/s. Marubeni Corporation, Osaka. The advocate also argued that the State Bank of India, Bangalore gave the L/C number on this application and he drew our attention to this endorsement vide photo copy of the application.
The advocate explained that however due to certain formalities by the bank including the procedure to be followed for issuing the letter of credit, the letter of credit was actually issued on 5-9-1977. The letter of credit was however dated 1-9-1977. The advocate drew our attention to the photo copy of this letter of credit it submitted in the paper book. The advocate argued that the L/C dated 1-9-1977 was prior to the date of issue of the Public Notice" No. 67/77 of 2-9-1977.
He explained that Serial No. 2 of the amendment made in the ITC policy through the aforesaid Public Notice was relevant for the purposes of the appeal. The effect of this P.N. was to canalise the import of Polyester Filament Yarn through the State Trading Corporation of India.
However, there was a Savings Clause in Para 3 of the Policy. The advocate urged that the imports of the goods under the present appeals was saved under this para. The advocate referred to the ITC P.N. 33/78 dated 15-5-1978 and in particular to para 5 thereof and explained that unlike the facility given in this trade notice for taking care of the time taken by banks in issue of irrevocable L/C, the ITC P.N. No. 67/77 dated 2-9-1977 did not offer any such facility. The advocate argued that this point was urged before the Collector and it was explained to the Collector that at least two days time was necessary for getting a firm L/C opened by a bank. However, the Collector had not accepted this argument and held that the importations were not valid. He had further held that the letter of credit was posted to M/s. Marubeni Corporation, Osaka only on 5-9-1977 and therefore there was no firm commitment prior to 2-9-1977 and hence the imports were not eligible to the savings contained in Para 3 of the ITC P.N. No. 67/77 dated 2-9-1977. The advocate drew our attention to the respective findings of the Collector in this behalf in his adjudication order. He further argued that the Collector had earlier levelled the charge of manipulation in the date of the Letter of credit but this charge was subsequently given up. The Collector had also proposed penal action against the State Bank of India, M/s. Marubeni Corporation, Bombay M/s. Shah Trading Co., Bombay etc. but the dropped the proceedings against these parties. Coming back to the appellant's case, the learned advocate stated that the Collector was unduly impressed by the fact that the deposit of Rupees one lakh with the bank for the issue of the L/C was made by the appellants only on 8-9-1977. He however contended that the date of payment of the deposit was not material. The appellants held an account with the bank and the same could not be debited without an authority from the appellants. There was therefore this delay in raising the debit. The advocate argued that there was proof of firm commitment on 1-9-1977 by the opening of the letter of credit, by the indent on M/s. Shah Trading Co., Bombay and the confirmation by the Bombay office of M/s. Marubeni Corporation all of which were dated 1-9-1977. Therefore, the imports were not authorised as held by the Collector and the Board. As an alternative argument, the learned advocate contended that though the Public Notice No. 67/77 dated 2-9-1977 was dated 2-9-1977 it was published in the Gazette only on 9-9-1977 and in this behalf he relied on the letter No. GAZ/81691/78 dated 26-12-1978 of Controller of Publications, Government of India, Ministry of Works and Housing, Department of Publications, Civil Lines, Delhi - 110 054 addressed to S/Shri Bhasin & Co. advocate Supreme Court, Haley Road, (10th floor), New Delhi This letter states that the ITC P.N. No. 67/77 did not appear to have been published on 2-9-1977 and that the same appears in the Gazette dated 2-9-1977 which was made available to the Public on 9-9-1977. The advocate also relied on the Supreme Court's decision in the case of Harla v. State of Rajasthan [AIR 1951 (467)]. In this case, the Supreme Court held that the mere passing of a resolution without promulgation or publication in the Gazette, or other means to make the Act known to the public was not sufficient to make it law. The learned advocate further cited the decision of the Allahabad High Court in the case of Kishanalal v. IAC, Allahabad, SC 1983 page 142 ITR 312. He said that this decision was further confirmed by the Allahabad High Court in the case of U.S. Awasthi and Anr. in the case of IAC Lucknow and Anr. A copy of this judgment had been filed by him in the paper book. He thereafter referred to the Bombay High Court, Nagpur Bench's decision in the case of SCA Nos. 1628 and 1629 of 1983 in the case of All India Reporter Ltd., Nagpur v. Competent Authority and Ors. A copy of this judgment was also filed with us. The Nagpur Bench had held that the copies of notices actually addressed to the persons concerned should actually be furnished to them. Relying on these decisions, the advocate contended that since the Public Notice was made available to the public on 9-9-1977 and since the letter of credit was sent on 5-9-1977, the ban imposed on the import of yarn under Public Notice No. 67/77 dated 2-9-1977 could be treated as effective only from 9-9-1977. The advocate further contended that there might not have been any press note issued simultaneously on 2-9-1977 informing the public of the change in the ITC policy. Without publication, the public notice cannot have any legal effect. This was the ratio of the decisions cited by the advocate and relied on by him in this behalf. He, therefore, submitted that these were not cases where fines and penalities should have been imposed. In certain cases, the fine was hundred percent which was very harsh. Shri Harish refered us to the Supreme Court's decision AIR 1961 SC 264 in the case of Ambalal v. Union of India a copy of which has been filed in the paper book. He also referred to the uniform Customs & Practice for Documentary credits regarding the practice for issue of L/Cs. In the present case, he argued that the L/C bound the appellant with effect from 1-9-1977. He read out article 8 of the code for documentary credits, Particularly Clauses (a) and (b). He, therefore, pleaded once again that the orders of fines and penalties should be set aside or the amounts be reduced to minimum.
4. The learned Senior Departmental representative Shri G.D. Pal explained that in one case, the Collector had passed an order under old Section 130 of the Customs Act and levied a penalty of Rs. 50,000/- on the appellants as the goods were not available for confiscation.
Otherwise, the facts of the cases were identical. He explained that the main question hinged on the interpretation of Para 3 of Public Notice No. 67/77 dated 2-9-1977, Under this Public Notice the ITC authorities canalised the import of Polyester Filament Yarn but gave a concession in those cases where firm commitments had been made by the importers.
The trade notice cast the burden on the importers to prove that they had entered into firm commitments for the imports before the crucial date. Referring to the allegations contained in the show cause notice and in the Collector's findings in his adjudication orders, the learned SDR contened that the State Bank of India, Bangalore had admitted that the licence number was not given in the application for opening of the letter of credit. He argued that it was very necessary for the supplier abroad to know that the goods being shipped by him were covered by a valid licence. Similarly, the banks also insist on this information to ensure that the exchange was not being frittered away. He further argued that on search of the premises of M/s. Shah Trading Co., the copies of the indent were seized and this copy of the indent did not bear any hand written endorsement regarding the letter of credit number. It is therefore very clear that this addition was made subsequently. The bank had manipulated the issue of the letter of credit but the Collector had given up this charge of manipulation under his adjudication orders. However, the Collector had mentioned in his findings that the Public Notice No. 67/77 dated 2-9-1977 was given to the press for publication. Besides, the Collector's finding, the Board's order-in-appeal also took note of the press reports in this behalf. The ITC policy was meant for the entire country and not for any one importer. It was therefore not material as to when the change in the policy was known to a particular importer. As regards the advocate's plea regarding ITC P.N. No. 33/78 dated 15-5-1978 giving time for banks to comply with the requirements, ' the learned SDR contended that no such benefit could be extended in the present case as the P.N. No. 67/77 dated 2-9-1977 did not incorporate any such provision. Besides, this plea was not taken up earlier by the appellants hence it should not be admitted by the Tribunal. The learned SDR pleaded that the importations were unauthorised. He added that the Collector's conclusions were lenient. In answer to our question, the learned SDR explained that the margin of profit was more than hundred percent while the Collector had levied fines/penalties of 100% only.
The Board had also admitted this fact that the fine amounts were less than the margin of profit. The letter of credit was opened only on 5-9-1977 and there was no firm commitment for import of the goods before 2-9-1977. The offences were therefore clearly established. He, therefore, prayed that the appeals be dismissed. In reply, the learned advocate Shri Harish stated that the charge that the import licence number was not mentioned in the letter of credit was not taken up earlier in the show cause notice. Therefore it could not be urged at this stage. The appellant was in possession of valid licences and he had placed the indent well in time. The Collector had given up the charges of manipulations and therefore these issues could not be raised once again. The press note alleged to have been issued incorporation the provisions of P.N. No. 67/77 dated 2-9-1977 was not made available to the appellants. Advocate Shri Harish therefore requested for setting aside of the Collector's and the Board's orders. In reply to our query, Shri Harish explained that he was not aware as to whether the banks were issuing letters of credit with retrospective dates and retrospective effect.
5. We have examined the submissions made by both the sides. The thrust of the appellant's argument is that the letter of credit issued by the State Bank of India, Bangalore on 5-9-1977 was effective from 1-9-1977 and therefore there was a firm commitment for the import of Polyester yarn before the issue of the ITC Public Notice No. 67/77 dated 2-9-1977. It is found that this argument is fallacious. Para 3 of the Public Notice makes it amply clear that the ban on the import of Polyester yarn by persons other than the STC was effective from 2-9-,1977 unless a firm commitment had been made already. There is nothing in para 3 of this Public Notice to interpret that if a commitment were to be made earlier from the date of this Public Notice the yarn could be imported. Therefore even if it were to be conceded for the purpose of arguments that the letter of credit was effective from 1-9-1977 which date is given in the L/C, it has been accepted by the appellant that the application for the issue of the L/C was made to the bank on 1-9-1977 and the L/C as an instrument was prepared by the bank on 5-9-1977 and issued by the bank only on that date. Therefore, on 2-9-1977 there was no firm commitment as stipulated by para 3 of the ITC Public Notice No. 67/77 dated 2-9-1977. The above conclusion is self-evident even if the facts were to be ignored that the appellants manipulated the issue of the letter of credit with 1-9-1977 as the date of issue. It is therefore immaterial that the letter of credit which was actually issued on 5-9-1977 purported to bind the appellant with effect from 1-9-1977. The advocate was asked a query as to whether such instances were normal with the banks, namely that the letters of credit are issued retrospectively with back dates. The advocate merely stated his lack of knowledge. Even in the International Chamber of Commerce, publication No. 290 containing the 1974 revision of the uniform Customs and practice for documentary credits, which the learned advocate cited in the course of his arguments, there is no such provisions for issue of letters of credit with retrospective dates and effect. It is also not the contention of the advocate that such practices are followed by the banks in this country. In fact, this is an extremely rare case and this has happened due to manipulations and nothing else. Furthermore, the letter of credit which was issued on 5-9-1977 by the State Bank of India on the Bank of Tokyo Ltd. in favour of M/s. Marubeni Corporation, Osaka did not provide firm commitment before 2-9-1977 and the Bank of Tokyo Ltd. could have been advised by the State Bank of India by telex/telegram not to honour the letter of credit posted by the State Bank of India, Bangalore on 5-9-1977. From this point of view, the explanation tendered by the advocate that M/s. Gokuldas Harbhagwandas had an account with the State Bank of India, Bangalore which was debited towards security only on 9-7-1977 does not affect the fact of firm commitment. In view of our aforesaid findings, we find that the import of the polyester yarn was hit by the provisions of the ITC P.M.No. 67/77 dated 2-9-1977 and the licences produced by the appellants were not valid to cover the imports. Another plea advanced by the appellants was that some time limit should have been permitted by the ITC authorities for completion of the formalities by the banks in those cases where applications had been made for the issue of the firm L/Cs.
In support of this contention, the provisions of ITC P.N. No. 33/78 dated 15-5-1978 had been cited. The trade notices have to be read as such and there is no warrant to incorporate in them more to be read by analogy where the stipulations do not exist. There is therefore no warrant in the advocate's argument that on the basis' of the provisions of the ITC P.N. No. 33/78 dated 15-5-1978, some time should be allowed under P.N. No. 67/77 and therefore the L/C of the appellants should be treated as having been opened in time. This is a point which falls within the competence of the ITC authorities and it is idle to speculate that some time was allowed under one Public Notice and. the same was denied under another Public Notice. In the view, we observe that the findings of the Collector and the Board that there was no firm commitment for the import of the yarn before 2-9-1977 are correct. The advocate has put forth an alternate argument that the Trade Notice No.67/77 dated 2-9-1977 should be made effective from 9-9-1977. In this behalf, he has relied on the letter dated 26-12-1978 of the Controller of Publications, New Delhi. It is seen that this letter is not addressed to the appellants and therefore he cannot rely on the same.
Apart from that, it is seen that this letter does not say that the ITC P.N. No. 67/77 dated 2-9-1977 was not published on that date. It merely states that this Public Notice did not appear to have been published in Extraordinary Gazette of India Part II Section 1 dated 2-9-1977 but the Gazette of India Extraordinary, Part I Section 1 dated 2-9-1977 contains this Public Notice. This Gazette of India was made available to the public on 9-9-1977. It is therefore very clear from the letter of the Controller of Publications dated 26-12-1977 that the Public Notice was published in the Gazette of India on 2-9-1977. This becomes effective from that date. It is not known on what basis the Controller of Publications states that the Gazette of India was made available to the public on 9-9-1977, Even on the basis of the appellant's statement that the appellant came to know of this Public Notice in Bangalore on 8-9-1977, the statement contained in the Controller of Publication's letter dated 26-12-1978 that the Gazette of India was made available to the public on 9-9-1977 is incorrect. Besides as submitted by the learned SDR, the trade notice was meant for general information and not for the information of any particular individual. The requirements were given wide, publicity through press release by the Government.
Therefore, there is no substance in the submission of the learned advocate that the trade notice should be made effective from 9-9-1977.
As regards the reliance of the advocate on the Supreme Court's decision in the case of Harla v. The State of Rajasthan, AIR 1951 SC 467 it is seen that the decision is not applicable to the present case. In Harla's case, the Government of Rajasthan had taken certain action against his property without bringing the Government's resolution to his notice or without publication of the same in the Gazette. This is not the case in the present instance as the trade notice has been published in the gazette and given publicity through press release also. Similarly, the advocate's reliance on all the different decisions of the Nagpur Bench of the Bombay High Court and the Allahabad High Court are of no avail to the appellants. These decisions deal with instances where particular persons were to be deprived of their property and the action was taken without issue of a notice to them as per the provisions of law. Since the facts of the present appeal are distinguishable, there is no substance in the advocate's contention for relying on the ratios of these judgments. In view of these circumstances, we cannot accept the contentions of the advocate that the Public Notice No. 67/77 dated 2-9-1977 should be made effective from 9-9-1977. The remaining plea of the advocate is for leniency with regard to the amounts of fine and penalty. Besides submitting that these amounts are harsh, no arguments have been adduced by the advocate for reduction of the amounts. On the other hand, the Collector and the Board have accepted the fact that the amounts of fine and penalty were levied with a view to neutralising the gains sought to be derived by the appellants through illegal imports. When we knew of the conduct of the appellants including their crude attempt to manipulate the issue of the letter of credit it leaves no scope for sympathy for the appellants. The imports appear to have been made in deliberate contravention of the Trade Control Regulations and call for no mercy.
In view of these facts, we find that the orders of the Collector and the Board are correct in all respects. We confirm the same and reject the appeals.
6. Four Revision Applications filed before the Government of India against the orders passed by the Central Board of Excise and Customs, statutorily stood transferred to the Tribunal for being heard as appeals. All these appeals are by the firm M/s. Gokuldas Harbhagwandas.
7. Shri D.M. Harish, Advocate appeared in all the appeals for the appellant and Shri G.D. Pal, S.D.R appeared for the respondent in all the appeals. They were heard together. We have however, thought fit to pass two orders, one relating to CD(T)(BOM) A.No. 313/80 and another relating to the other three appeals, namely, CD(T)(BOM) A.No. 161/80, CD(T)(BOM) A.No. 233/80 and CD(T)(BOM) A.No 431/80.
8. In this order three appeals CD(T)(BOM) A.No 161/80, CD(T) (BOM) A.No. 233/80 and CD(T)(BOM) A.No. 131/80 are considered.
9. The subject matter of challenge in Appeal CD(T)(BOM) No. 161/80 is the penalty of Rs. 50,000/- levied on the appellant Under Section 112 of the Customs Act.
10. The subject matter of challenge in Appeal CD(T)(BOM) No. 233/80 is levy of fine of Rs. 3,50,000/- in lieu of confiscation of the goods covered by seven Bills of Entry.
11. The subject matter of challenge in Appeal CD(T)(BOM) No. 431/80 is also the fine of Rs. 5,93,000/- levied in lieu of confiscation of the goods covered by ten Bills of Entry.
12. I have had the advantage of going through the order of my brother Shri Dilipsinhji. I respectfully disagree with the conclusion arrived at by brother Shri Dilipsinhji.
13. The various facts necessary for the disposal of these appeals have been set out in the order of Shri Dilipsinhji, and therefore, it may not be necessary for me to repeat the facts.
14. The appellant imported various consignments of Polyester Filament Yarns and sought clearance against their import licences. The consignment which is the subject matter of appeal CD(T)(BOM) No. 161/80 was ordered to be cleared by the Customs Officers, but the Collector in exercise of his review power Under Section 130 (as it then stood) of the Customs Act issued a show cause notice alleging among other things manipulation in the matter of opening of Letter of Credit, and further alleging that the Letter of Credit was opened on 5-7-1977. Therefore, it was not valid to cover the import having regard to the ITC Public Notice No. 67/77 which required opening of Letter of Credit on or before 2-9-1977. The consignments which were the subject matter of the other two appeals were not allowed to be cleared on the very same grounds. During the adjudication the Collector absolved the appellant as well as the State Bank of India and others from the charge of manipulation in so far as the opening of Letter of Credit is concerned.
15. Shri Harish appearing for the appellant made the following submissions :- (1) after the issue of the ITC Public Notice No. 62/77 dated 22-8-1977 the appellant placed an indent dated 1-9-1977 with M/s.
Shah Trading Co., the local representatives of M/s. Marubani Corporation, Japan, for the import of 49.300 kgs. of Polyester Filament Yarns, Toray brand on returnable bobbins. They also opened a Letter of Credit dated 1-9-1977. Thus, there was a firm commitment by an irrevocable Letter of Credit, and therefore, merely because the bank had issued the Letter of Credit on 5-9-1977 the Collector was unjustified in holding that the imports in question were unauthorised.
(2) alternatively Shri Harish argued that the Public Notice relied upon by the Collector, namely, Public Notice No. 67/77 dated 2-9-1977 was not published on that day, but it was published on 9-9-1977, and therefore, even if the Letter of Credit was considered as having been opened on 5-9-1977 the same is valid and the Collector's finding that the import was unauthorised was wrong.
(3) the Collector having rightly held that there was no manipulation in the matter of opening of Letter of Credit erred in not accepting the Letter of Credit having been opened on 1-9-1977 even though the Letter of Credit did bear the date 1-9-1977.
(4) the burden of establishing that the Public Notice dated 2-9-1977 was made known to the public on that day or before 9-9-1977 lies on the department and that the burden had not been discharged.
(5) since the appellant had placed the indent and also opened the Letter of Credit on 1-9-1.977 the Collector was not justified in imposing any penalty or levying fine in lieu of confiscation. 16.
Shri Pal appearing. for the respondent Collector, however, submitted that by Public Notice No. 67/77 dated 2-9-1977, the Polyester Filament Yarn came to be canalised, but an exemption was made in respect of firm commitments made by opening irrevocable Letter of Credit between the period 22-8-1977 to 2-9-1977. Shri Pal urged that the burden of establishing that there had been firm commitment by opening Letter of Credit on or before 2-9-1977 is on the importer.
The importer had failed to discharge that burden. Shri Pal contended that admittedly the State Bank of India, Bangalore issued the Letter of Credit on 5-9-1977 though the Letter of Credit is dated 1-9-1977.
The Bank had admitted that the licence No. was not given in the application for opening of the Letter of Credit. Shri Pal urged that the Collector in his order had clearly stated that Public Notice had come out in the Press in time and in the said circumstances the contention of the learned Advocate that the public came to know of the Public Notice only on 9-9-1977 cannot be accepted. He also urged that the Collector's order discloses that the ITC authority at Bangalore had published the Public Notice in question on 8-9-1977 which was earlier to 9-9-1977. Therefore, the Collector's finding that, the change in the Policy had come out in the Press in time should be accepted. Shri Pal also contended that having regard to the value of the goods imported, the penalty imposed or the fine levied cannot be considered unreasonable or unjust. He, therefore, prayed that the appeals should be dismissed.
17. The one and the only question that arises for consideration in all these appeals is whether there was a firm commitment for import of the consignments in question by opening irrevocable Letter of Credit on or before 2-9-1977. Before proceeding to answer the above question it is desirable to refer to few more facts, and to the order passed by the Collector.
18. The Collector had issued the show cause notices not only to the appellant but also to the State Bank of India, Bangalore, M/s. Shah Trading Co., Bombay, and M/s. Marubani Corporation, Bombay. The State Bank of India in their explanation dated 2-7-1978 according to Collectors Order denied knowledge of the Public Notice dated 2-9-1977.
They have stated that they had received the application for opening Letter of Credit on 1-9-1977. Further, opening of Letter of Credit making it effective from a date prior to the actual date was not in contravention of law and that they issued the Letter of Credit on 6-9-1977 but making it effective from 1-9-1977, M/s. Shah Trading Co., Bombay, contended that the confirmation was issued on 1-9-1977 by them.
They denied the charges of connivance and abetment. M/s. Marubani Corporation, Bombay, also denied that there was any manipulation in any of the documents cited in the show cause notice, They contended that there was a firm contract in the sale of goods in question on 1-9-1977.
In his order the Collector after referring to the arguments addressed by the various Advocates on behalf of the parties to whom show cause notices were issued observed : 'I have considered the submissions made at the time of hearing and the written reply dated 12-4-1979 submitted by M/s. Gokuldas Harbhagwandas and the earlier replies given by different parties.
The documents forming the basis of the Customs House allegation have been cited in the reply dated 12-4-1979 and it has also been correctly stated in that reply that on the basis of the hearing granted earlier on 31-3-1979, it had been agreed that the charge of manipulation of dates would not be pursued and the case could be considered only from point of validity of the import licence? 'However taking into consideration the fact that although the change in the date on the L/C would suggest that the fact of restriction on importation had already become known by that time, in view of the fact that the application for the L/C had been received in the Bank on 1-9-1977 indicating absence of manipulation in this regard, I take a lenient view against the importers, I also hold that allegations made against others are not established..." 20. Undisputedly, the appellant placed indent on 1-9-1977 with M/s.
Shah Trading Co., for supply of 49.391 kgs. of polyester filament yarn.
M/s. Shah Trading Co., by their letter dated 1-9-1977 confirmed the order on behalf of their foreign suppliers. In their letter they indicated the nature of commodity, quantity, price, total amount, shipment particulars, packing etc., and required the appellant to establish the Letter of Credit. M/s. Marubani Corporation by their letter dated 1-9-1977 addressed to the appellant informed the appellant that as per the instructions of their Head Office in Osaka they are confirming the sale of goods to the appellant in accordance with the terms and conditions specified in their letter. This letter again refers to the nature of the commodity, quantity, price, dates of shipments, packing specification and it further bears the No. and the date of Letter of Credit. The Letter of Credit No. and date given was 'L/C No. 23/594 dated 1-9-1977 for U.S.$ 1,13,600. The State Bank of India, St. Marks Road, Bangalore, had issued a Letter of Credit dated 1-9-1977. This Letter of Credit was for U.S.$ 1,13,600. It is an irrevocable Letter of Credit and it bears the No, B 23/594 dated 1-9-1977. It is thus seen that the placing of indent, the confirmation by or on behalf of the foreign suppliers and the opening of the Letter of. Credit all took place on 1-9-1977. This necessarily gave rise to suspicion that the documents were manipulated by the concerned persons.
In the show cause notice dated 27/28-7-1978 which was addressed to the appellant, the State Bank of India, M/s. Marubani Corporation, M/s.
Shah Trading Co. and another, it was alleged that the appellant have deliberately manipulated the date of opening of the Letter of Credit as 1-9-1977 as against 5-9-1977 to suit the imports of polyester filament yarn against the licence in question. It was further alleged that the State Bank of India, M/s. Shah Trading Co., M/s. Marubani Corporation, appears to have actively connived and abeted inasmuch as the bank documents and offer, sales confirmation memos by M/s O Marubani Corporation and indent confirmation memo by M/s. Shah Trading Co., have been manipulated and tampered to give the appearance that the confirmation contract and the Letter of Credit in question have been opened on 1-9-1977. This action on the part of the Bank, M/s. Shah Trading Co., and M/s. Marubani Corporation have led to the unauthorised import of the goods, and therefore, they are liable for action Under Section 112 of the Customs Act. In their reply the appellant denied that the Letter of Credit was established on a date other than 1-9-1977. The replies given by M/s. Shah Trading Coo, M/s. Marubani Corporation and the State Bank of India were referred to in the order-in-original and they have been set out earlier in this order.
They had denied the allegations of manipulation or abetment or connivance.
21. It appears during the personal hearing that took place on.
31-3-1979 the Collector after hearing the Counsels was satisfied that] there was no manipulation of documents and he had agreed to drop the allegations. As has been seen earlier in the order-in-original the Collector had clearly stated that the charge of manipulation of dates would not be pursued and the case could be considered only from the point of validity of the import licence. The effect of the above finding would be . that the Collector accepted the dates mentioned in the indent, confirmation' and the Letter of Credit. The Collector, however, while considering the question of validity of the import on the basis of the following circumstances records a finding that the Letter of Credit came into existence as a document only on 5-9-1977.
The circumstances relied upon by the Collector are : (1) that the date of the Letter of Credit had been mentioned and shown to be as 1-9-1977, (2) the Bank itself admits that the Letter of Credit was opened on 5-9-1977, (3) it was also established on the basis of the records of the Bank that the deposits against the Letter of Credit was made only on 8-9-1977, (4) the Bank registers also showed that the Letter of Credits bearing earlier Nos. (earlier to 23/594) were opened on 5-9-1977 and those following the number 23/594 were established on 12-9-1977.
22. Now it is seen that the Collector having agreed to drop the allegations regarding the alteration of the dates and the manipulation of the documents was not justified in relying on a circumstance that the date on the Letter of Credit had been amended and shown to be as 1-9-1977. The explanation of the Bank as well as the importer was that though the Letter of Credit document as such was issued on 5-9-1977, the Bank's commitment to the foreign suppliers was made on 1-9-1977 itself. The Bank did give the Letter of Credit No. and the amount for which it was opened on 1-9-1977 itself. This fact had been established by the other documents, namely, the confirmation letter dated 1-9-1977 written by M/s. Marubani Corporation which contains the Letter of Credit No., the date of the Letter of Credit and the amount for which the Letter of Credit was opened. The Letter of Credit issued by the Bank corresponds to the particulars mentioned in the confirmation letter. Even if the Letter of Credit as a document came into existance only on 5-9-1977, it cannot be contended that there was no opening of the Letter of Credit on 1-9-1977. There is a distinction between opening of the Letter of Credit and the actual issue of the Letter of Credit in the form of a, document. Admittedly, the Letter of Credit is dated 1-9-1977. It bears the No, 23/594 which was for U.S.$ 1,13,600.
The Bank in reply to the show cause notice stated that it did open a Letter of Credit on 1-9-1977 but actually issued on 5-9-1977. In the matter of opening of the Letter of Credit all that the importer is required to do is to approach the authorised foreign exchange dealer.
In the instant case, the importer had approached the State Bank of India and requested for opening of a Letter of Credit in favour of the foreign suppliers. The Bank had furnished the No. and the date of the Letter of Credit as well as the amount for which it was opened. This had been communicated to the foreign suppliers. As far as the Bank is concerned it has to communicate to the foreign suppliers regarding its commitment. The State Bank of India have committed themselves on 1-9-1977 itself by informing the foreign suppliers regarding opening of the Letter of Credit for U.S. $ 1,13,600.
23. The Letter of Credit according to Halsburys Laws of England Third Edition, Vol. 2, p. 213 "is in principle an undertaking by a Banker to meet drafts drawn under the credit by the beneficiary of the credit in accordance with the conditions laid down therein. A Letter of Credit may be addressed (1) as in a travellers Letter of Credit, to all the issuing Banker's correspondents throughout the world, (2) where the credit is designated to facilitate the trade (generally but not always foreign trade) to another specified Banker. (Called the intermediary Banker) or to the beneficiary".
24. Now according to the State Bank of India the importers on 1-9-1977 requested for opening of a Letter of Credit and that a Letter of Credit was opened on that day and the number and the date as well as the amount had been communicated to the suppliers. There was such a communication is borne out by the confirmation letter of M/s. Marubani Corporation dated 1-9-1977. In this confirmation letter the number, the date as well as the amount of the Letter of Credit have been mentioned.
The Customs authorities in the show cause notice alleged that this letter as well as the Letter of Indent and the opening of a Letter of Credit on 1-9-1977 were manipulated. But during the hearing the Collector agreed to give up the allegation of manipulation. The effect of this agreement would be that on 1-9-1977 there was not only an indent but also a confirmation of indent and also commitment on the part of the bank to the foreign suppliers. In the said circumstances the Collector's finding that no Letter of Credit was opened prior to 2-9-1977 cannot be accepted. As has been observed earlier there is a clear distinction between the opening of a Letter of Credit and issue of a Letter of Credit. There can be a commitment on the part of the Bank without issuing a formal Letter of Credit. What is important is the commitment on the part of the Bank to meet the drafts drawn against the credit by the beneficiary. It is significant to note the finding of the Collector was that the Letter of Credit as a document came into existence on 5-9-1977. The Collector did not record a finding that there had been no commitment on the part of the Bank on 1-9-1977. The Collector no doubt stated from the documents and registers maintained in the Bank and since the deposit towards the Letter of Credit was made only on 8-9-1977, the Letter of Credit as a document could not have come into existence earlier to 5-9-1977. There is a fallacy in this finding of the Collector. Even though there was an allegation of manipulation of documents by the importers, by the suppliers and the State Bank of India the Collector had agreed to give up that charge. In the said circumstances the Collector for the purpose of ascertaining the date of opening of a Letter of Credit could not go into the Bank records or the deposit again. This would virtually amount to raking up the very issue which he had given up and exonerated. It is significant to note that the deposit which was made was not the full amount covered by the Letter of Credit. Further, it is "a matter between the Bank and its client in so far as opening of a Letter of Credit is concerned. A Bank may open a Letter of Credit even though the client had not made a specific deposit. The Bank may have other securities or would have been satisfied about the credit worthiness of its client, In the circumstances the deposit of a part of the amount would not assume much significance. It is necessary to remember the Bank to which the show cause notice had been issued was exonerated and no penalty was imposed.
The Bank had explained that it' would not be illegal to open a Letter of Credit or to get the Letter of Credit anterior to the date of its actual issue. There was conclusive proof that the State Bank of India, Bangalore, did commit on 1-9-1977 itself. It gave the number, the date and the amount of the Letter of Credit which are reflected in the confirmation letter of the suppliers. In the said circumstances the finding of the Collector that the import was bad because there was no opening of a Letter of Credit prior to 2-9-1977 is erroneous. On this ground alone these appeals are required to be allowed.
25. On behalf of the appellant it was contended that by reason of ITC Public Notice No. 62/77 dated 22-8-1977 they became entitled to import polyester filament yarn. Accordingly, they placed an indent on 1-9-1977. By subsequent Public Notice No. 67/77 dated 2-9-1977 the commodity polyester filament yarn came to be canalised and the State Trading Corporation was constituted as the canalising agency. This Public Notice according to the appellant was not made known to the public or to the trade till 9-9-1977, and therefore, it cannot invalidate the action taken by the importers prior to 9-9-1977, and since according to the Collector's finding the Letter of Credit as a document came into existence on 5-9-1977 it cannot be said that there was any deliberate violation of the Import Control regulations, and in the said circumstances, the imposition of penalty and levy of fine was not justified. To support his contention that the Public Notice 67/77 which was printed in the Gazette was made available to the public only on 9-9-1977. Shri Harish relied on the letter No. Gaz/84691/78 dated 26-12-1978 of the Controller of Publications, Ministry of Works and Housing Department of Publications. The letter referred to by Shri Harish clearly states' that the ITC Public Notice No. 67777 had appeared in the Gazette dated 2-9-1977 which was made available to the public only on 9-9-1977. The Collector, however, in his order stated that the Gazette extraordinary is of 2-9-1977 and in any case the change in the policy had come out in the press in time. Therefore, he is unable to accept the contention that the restriction should be given effect from 8-9-1977 or 9-9-1977. In his order the Collector did not state the date or the dates on which this Public Notice appeared in the Press nor did he state whether any other mode was adopted to intimate the Public or the Trade.
26. As the Public Notice relied upon by the department has the effect of taking away certain right or facility conferred under the previous Public Notice, it is necessary that public should be made known of the Public Notice. Public could be informed of the Public Notice by any one or more of the following modes. By printing in the official Gazette and making available the Gazette, and by giving publicity through Press.
The normal practice followed by the department was to issue Trade Notice by one or other Collectorate. The very nomenclature indicates the object behind issue of Public Notice. It is called Public Notice.
It is a notice to the public.
27. The Public Notice No. 67/77 dated 2-9-1977 bears the signature of Chief Controller of Imports and Exports. It means that it was issued by the Chief Controller of Imports & Exports. This was to be published in the Government of India Gazette. According to the letter of Controller of Publications though this Public Notice appeared in the Gazette dated 2-9-1977, the Gazette itself was made available to the Public only on 9-9-1977. The department did not produce any Trade Notice issued by any of the Collectorate excepting the Trade Notice issued by the ITC authority, Bangalore, dated 8-9-1977. The appellant before the Collector had contended that this Public Notice dated 2-9-1977 had not come to their notice earlier to 8-9-1977 and it was made available to the public only on 9-9-1977. In the said circumstances the department ought to have let in evidence to establish that this Public Notice had been brought to the notice of the public particularly, trade either on 2-9-1977 or any day earlier to 5-9-1977 the date on which even according to the Collector the Letter of Credit as a document came into existence. No such evidence had been produced.Harla v. The State of Rajasthan, the Supreme Court "In the absence of. any special law or customs, it would be against the principles of natural justice to permit the subject of a State to be punished or penalised by laws of which they had no knowledge and of which they could not even with the exercise of reasonable diligence have acquired any knowledge. Natural justice requires that before a law can become operative it must be promulgated or published. It must be broadcast in some recognisable way so that all men may know what it is; at the very least, there must become special rule or regulation or customary channel by or through which such knowledge can be acquired with the exercise of due and reasonable diligence. In the absence therefore of any law, rule, regulation or custom, a law cannot come into being by merely passing a resolution without promulgation or publication in the Gazette or other means. Promulgation or publication of some reasonable sort is essential.' The Supreme Court made a distinction between an Order and an Act. The Supreme Court observed : 'Acts of the Parliament are publicly enacted. The debates are open to the public and the Acts are passed by the accredited representatives of the people who in theory can be trusted to see that their constituents know what has been done. They also receive wide publicity in papers and now, over the wireless. Not so Proclamations and Orders of appropriate authorities. There must therefore be promulgation and publication in their cases. The mode of publication can vary. But reasonable publication of some sort there must be'.
29. In (1983) 142 ITR, Kishan Lal v. Inspecting Assistant Commissioner of Income-Tax, Lucknow and Ors., the Allahabad High Court ruled 'that the publication of the notification for initiating proceedings for acquisition under Chapter XX-A was complete only when the Gazette containing the notification became available'.Dagjit Singh v. State of Rajasthan, the Rajasthan High Court held 'printing of a notice in the Official Gazette, if it was not out of the Press could not be deemed to be a good notice to the public at large'.
31. Having regard to the above decisions and in view of the letter of Controller of Publications, that the Gazette dated 2-9-1977 was made available to the public only on 9-9-1977 and in the absence of evidence that there had been trade notice by any Collectorate or Press publications, the contention of Shri Harish, namely, that the Public Notice No. 67/77 dated 2-9-1977 did not come to the notice of the trade and public atleast upto 8-9-1977 on the date on which ITC authority, Bangalore published the same for information of the public should be accepted.
32. If the above contention of Shri Harish is accepted then it cannot be said that the imports were in deliberate violation of the ITC regulations. Therefore, the Collector was not justified in imposing penalty of Rs. 50,000/- in one case or imposing fine which he had imposed in lieu of confiscation in the other two cases.
33. Having regard to my above findings the orders passed by the Collector are not sustainable, and accordingly I allow these appeals and set aside the orders and direct that the penalty and fine if paid shall be refunded to the appellant.
34. As there is difference of opinion between the two Members the records may be submitted to the President for refering the points of difference to one or more of the other Members of. the Tribunal as provided in Section 129-C(5) of the Customs Act.
(1) On the facts and in the circumstances of the case could it be said that the imports in question were in violation of the Public Notice No. 67/77 dated 2-9-1977.
(2) On the facts and in the circumstances of the case could it be said that there was deliberate contravention of the Public Notice 67/77 requiring imposition of penalty and fines.
36. These are third member references in terms of Section 129(C)(5) of the Customs Act, 1962 (the Act, for short) on differences between the two members of the West Regional bench of this Tribunal on the following points arising in the instant appeals heard by them : (a) On the facts and in the circumstances of the case, could it be said that the imports in question were in violation of the Public Notice No, 67/77 dated 2-9-1977? (b) On the facts and in the circumstances of the case, could it be said that there was a deliberate contravention of the Public Notice No. 67/77 requiring imposition of penalties and fines.
37. The points as framed would appear to take within their compass the entire cases as adjudicated and now the subject matter of the instant appeals.
38. The facts have been set forth in the two separate orders of my learned brethren and do not require to be recapitulated at length all over again. Suffice it to notice that :- (a) by a Public Notice dated 22-8-1977, the import policy for Registered Exporters for the period April, 1977 - March, 1978 amended so as to liberalise import of polyester Filament Yarn (the goods in question). By a further amendment made on 2-9-1977, the import of the goods in question was linked again with specified export products and canalised. An exception was, however, made in the case of "Exporters/nominee manufacturers who have during the period from 22-8-1977 through 2-9-1977 entered into firm commitment by way of irrevocable letters of credit to import the goods in question" in accordance with the policy prior thereto. They were allowed to import the goods directly without going through the canalising agency; (b) it was alleged in the three notices to show cause, inter alia, that : (i) the L/C in question had been actually opened on 5-9-1977, i.e., after 2-9-1977 when, admittedly, Public Notice No. 67/77 restricting imports of the goods in question was gazetted; (ii) about ten documents have been manipulated and tampered with to make it appear as if the L/C had been opened on 1-9-1977 itself; (iii) in view thereof, the licence produced (although ex facie, dated 1-9-1977) is not valid for clearance of the imported goods.
Accordingly, they were imported in contravention of Import (Control) Order 17/55 dated 7-12-1955. The goods were, therefore, liable to be confiscated Under Section 111(d) of the Act read with Section 3(2) of the Imports and Exports (Control) Act, 1947 as amended; (iv) since it was the appellant that had deliberately manipulated the date of opening of L/Cs to read 1-9-1977 as against 5-9-1977, to suit the import of the goods against the licence in question and this action on their part had lead to the unauthorised import, the appellant is liable for action Under Section 112 of the Act; (v) in these acts of the appellant, the State Bank of India, Bangalore, M/s. Shah Trading Co., Bombay and M/s. Marubani Corporation, Bombay had actively connived at and abetted inasmuch as the Bank documents and the documents relating to the contract for supply of the goods were manipulated and tampered with to make it appear that a firm contract and L/Cs came into existence on 1-9-1977 itself, thereby leading to the unauthorised import in question and thus rendering themselves liable for action Under Section 112 of the Act; and the appellant and the three abettors were required to show cause as to why they should not be penalised Under Section 112 of the Act. In two of the notices, the appellant was additionally required to show cause as to why the goods still under clearance should not be confiscated; (c) all the three aforesaid notices to show cause were adjudicated by the Collector of Customs, Bombay who, by three substantially identical orders, all dated 18-4-1979,- (i) observed that the charge of manipulation of the dates in the aforesaid documents was not being proceeded with and it was agreed that the case "could be considered only from the point of view of the validity of the I/L"; (ii) accordingly, exonerated the three alleged abettors of the appellant of the charge of abetment in the manipulation of the dates in the documents relating to the conclusion of contract and issue of the L/C; (iii) held, affirmatively, in one case that the application for the L/C was received in the Bank on 1-9-1977 while in the other two, it was observed that there is "no clear evidence that the application for the L/C, had not been received in the Bank on 1-9-1977"; (iv) nevertheless, concluded that since the L/Cs dated 1-9-1977 were admittedly, issued only on 5-9-1977, there was no firm commitment prior to 2-9-1977 as required in terms of the Public Notice dated 2-9-1977; (v) accordingly, directed the confiscation of the goods in question subject to redemption of fines of Rs. 3,50,000 and Rs. 5,93,000 in respect of two of the notices and levied a penalty of Rs. 50,000/- in regard to the other.
(a) the allegations of manipulation - the only basis in the notices to show cause for the charge of unauthorised import of the goods entailing their confiscation in terms of Section 111(d) of the Act read with Section 3(2) of the Imports and Exports (Control) Act, 1947 and levy of penalties Under Section 112 of the Act - having been expressly given up, can no longer be looked into or cited, adverted to or relied upon in arriving at a decision in adjudication or in appeal; (b) indeed, once those allegations were given up and the alleged abettors exonerated, there was nothing left in the notices to show cause that remains to be adjudicated. The assumption of jurisdiction vested in the Collector to adjudicate is by means of the notices to show cause and if the allegations constituting the sum and substance thereof are expressly withdrawn or abandoned, the adjudication should have come to an end. But then, it proceeded by an agreement between the parties, in respect of the issue as to whether there was, in the facts and circumstances of the case and, in particular, the actual issue of the L/Cs, dated 1-9-1977 on 5-9-1977, compliance with the requirement of the Public Notice No. 67/77 of 2-9-1977, and, accordingly, the imports in question were not unauthorised. In terms of the proviso to Section 124 of the Act, such a course is not prohibited and the adjudication, in the circumstances, was not without jurisdiction; (c) the date of the application for the L/C ceases to be a matter of controversy. In one case, the learned Collector had observed that the application for the L/C was, in fact, received in the Bank on 1-9-1977. In the other two cases, when he observed that there was no evidence to the contra, it must be deemed to have been conceded that the applications were received on that date. Once, this is so, questions relating to the date of publication of the Public Notice No. 67/77 dated 2-9-1977 in the Gazette and the date when it came to be known to the public are no longer germane. Such questions may have been relevant if it were found, on evidence, that the applications were made, in actual fact, subsequent to 1-9-1977 and the charge of manipulation was persisted in - not if it was abandoned; (d) once the charge of manipulation of documents was abandoned, it cannot be contended that the number and date of the L/C was not communicated to M/s. Marubeni Corporation - the agents of the foreign sellers - on 1-9-1977, seeing that their letter of confirmation of that date contains those particulars which tally with those in the L/Cs. Nor is there a finding to that effect anywhere in these proceedings. Communication to the agent is communication to the principal; (e) as already mentioned, the L/Cs indisputably bore the date of 1-9-1977, notwithstanding that they were admittedly issued on 5-9-1977.
(i) what exactly is meant by "firm commitments by way of irrevocable letters of credit"? Whose commitments? How are such commitments made and when do they come into being? (ii) Does the subsequent issue of irrevocable letters of credit, pursuant' to such applications relate back to the date of application and its acceptance? 41. (a) It will be noticed that it is only such cases where exporters had "entered into firm commitments by way of irrevocable letters of credit to import polyester filament yarn" that had been saved and excepted from the prohibition contained in the aforesaid Public Notice No. 67/77 dated 2-9-1977.
(b) What exactly is meant by "firm commitments by way of irrevocable letters of credit"? By whom is the commitment made by way of irrevocable letters of credit? (c) A letter of credit is only a means by which the payment of price for the sale of goods is secured. As observed by Denning L.J. in Pavia & Co., SPA v. Thurmann Neilsen, (1952) 2 QB 84 at 88 : (1932) 1 Lloyd's Rep. 153). "The sale of goods across the world is how usually arranged by means of confirmed credit. The buyer requests his banker to open a credit in favour of the seller and in pursuance of that request, the banker or his foreign agent, issues a confirmed credit in favour of the seller. The credit is a promise by the banker to pay money to the seller in return for the shipping documents. Then the seller, when he presents the documents, gets paid the contract price. The conditions of the credit must be strictly fulfilled, otherwise the seller would not be entitled to draw on it". Accordingly, the commitment is by the bank to pay money to the seller in return for the shipping documents.
(d) An irrevocable Letter of Credit is also explained thus in Halsbury's Laws of England [Vol. 3.4, paragraph 319 at P. 185] - "...The contractual relationship between the issuing bank and the buyer is defined by the terms of agreement between them under which the letter opening the credit is issued, and as between the seller and the bank the issue of the credit duly notified to the seller creates a new contractual nexus and renders the bank directly liable to the seller to pay the purchase price or to accept the Bill of Exchange upon tender of the documents. The contract thus created between the seller and the bank is separate from, although ancillary to, the original contract between the buyer and the seller, by reason of the bank's undertaking to the seller which is absolute." [passage cited from AIR 1970 S.C. 89 - Tarapore & Co. v. Tractoroexport].
(e) The commitment is not that of the buyer, for, the conclusion of a contract for sale of goods is a firm commitment on the part of the buyer regardless of whether payment may be, by agreement between the parties, stipulated to be made by an arrangement other than an irrevocable letter of credit. Why then "firm commitments by way of irrevocable letters of credit"? Obviously because, for the purposes of the saving in the public notice, no commitment other than that of a Bank irrevocably securing the payment of the price by means of an irrevocable letter of credit, a commitment that constitutes a definite undertaking by the issuing Bank provided the terms and conditions of the credit are complied with, is recognised and comprehended.
Consequently the commitment of a Bank for the issue of letters of credit prior to 2-9-1977 is as much of an absolute requirement a condition precedent - as the conclusion of contracts for the sale of.
the goods in question with the foreign sellers for the consequential imports, to come within the excepted category in terms of the aforesaid Public Notice.
(f) How then is a letter of credit established? "A credit comes into being as the result of a formal written application by the applicant, usually the buyer of the goods, which is, at the same time, a request, a mandate and an indemnity... It requests the banker to issue or "open" the credit, sets out the conditions on which he is to act and holds him covered in respect of his doing so". (Paget's Law of Banking - Ninth Edition - p. 531). Once such an application is made and accepted by the Bank, an agreement or contract for the issue of a L/C is concluded between the applicant and the Bank. Thus, in Woods v. Martins Bank Ltd. (1959) 1 QB 55 : (1958) 3 AII ER 166 it was held that the relationship of banker and customer existed between the parties from the time when the Bank accepted instructions from the Plaintiff to collect moneys from a building society, to pay a part to a company he was going to finance and "retain to my order the balance of the proceeds" although there was at that time no account. As observed at P.13 of Paget's Law of Banking (Ninth Edition), there was the likelihood that an account would be opened, as shortly after, it was. There were early negotiations from which it could be normally inferred that Woods would open an account with the Bank and that the Bank was willing for him to do so, so that a contract was concluded between them".
(g) It would follow, in the circumstances, that, although an application for the issue of irrevocable L/Cs may not be, by itself "firm commitments by way of Letters of Credit", when such application was accepted by the Bank, a contract for the issue of the irrevocable L/Cs was concluded between the applicant and the Bank, who in the premises, are inexorably committed to the issue of the L/Cs applied for. When such commitment by contract between the Bank and the buyer is communicated to the seller, the ancillary contract between the seller and the Bank rendering the latter absolutely liable to the seller to pay the purchase price comes into existence. What are such contracts, if not firm commitments by way of irrevocable letters of credit? (h) The actual irrevocable L/Cs. may be issued subsequently. But they have, necessarily, to bear the date when the contract for the issue thereof was concluded. The L/Cs. issued and communicated to the seller are, in their turn, as already observed, contracts between the bank and the seller ancillary to the contract between the buyer and seller.
(i) This is not something which is not almost of daily occurrence in banking. When an application is made for the acceptance of a fixed deposit, the Bank accepts the application but if owing to various contingencies the fixed deposit receipt is issued a few days later, what date should the F.D.R. bear? The date when the application was accepted i.e. the contract was concluded or the date of actual issue? Which depositor can accept a F.D.R. bearing a date subsequent to the acceptance of his application and its acceptance? (j) Once the Bank is committed to the issue of the L/Cs there is no question of its withdrawal just because the formal documents - the L/Cs. - have not been issued - except for fraud or other circumstances that vitiate the contract between the buyer and the Bank.
42. In the facts and circumstances of the case, it cannot but be held that.- (ii) the contract for the issue of the L/Cs had been communicated to the agent of the foreign seller and, thereby, the ancillary contract was also concluded; If that were not so, the particulars of the L/Cs could not have been incorporated - and there is no case and no finding that it was manipulated - in the letter of M/s. Marubeni confirming the contract; (b) the subsequent issue of the L/Cs is merely confirmatory of such commitment and, necessarily, relates back to the date of the commitment i.e. 1-9-1977; (c) there is no option for the Bank but to mention the date therein to be 1-9-1977; (d) consequently, the import in question was perfectly valid and not, by any means, violative of the Public Notice No. 67/77 dated 2-9-1977. There is no contravention that could be penalised either by fine or penalty.
43. For the foregoing reasons and the reasons set forth in our Brother Hegde's order. I agree with him that the appeals are to be allowed. The penalty and fines, if paid, should be refunded.
45. The points of difference in this appeal were referred by the President in terms of Section 129C(5) of the Customs Act to the Third Member. He has now recorded his findings. As per Section 129C(5), the appeal has to be disposed of in terms of the majority opinion.
Accordingly, we set aside the orders of the Collector and the Board and allow three appeals with consequential refund of fines and penalty to the appellants.