Judgment:
R.S. Mongia, J.
1. The present appeal by the Union of India, through the Secretary to Government of India, Ministry of Finance, has been filed against the judgment of the learned Single Judge, by which the writ petition of M/s. Bimex International had been allowed and order dated 23rd November, 1973 passed by the Assistant Collector, Customs (Annexure P-5), order dated 25th March, 1975, passed by the Appellate Collector Customs (Annexure P-7) and order dated 25th November, 1975, passed by the Joint Secretary to the Government of India, (Annexure P-9) were quashed.
2. Briefly stated the facts of the case are, that the firm of the writ petitioner is engaged in the manufacture of woollen/terrywool textiles, which are sold within the country and are exported to various countries in the Middle East. Under the import and export policy of the Government of India, the Small Scale Industries are entitled to import foreign goods to the extent of 70% of the F.O.B. value of the goods exported by them as determined by the Joint Chief Controller of Imports. The writ petitioner was granted import entitlement to the tune of Rs. 45 lakhs. In exercise of powers conferred on it by the Imports and Exports (Control) Act, 1947, the Government of India decided in 1967 to canalise import of various goods through the State Trading Corporation. Ever since 1969-70, the writ petitioner had been importing goods of various descriptions like greasy wool, wool tops, rags and polyester fibre, etc., through the State Trading Corporation. The firm had imported various consignments of rags which were utilised for the manufacture of different articles of wool and terry wool textiles. According to the petitioner, over a period of time certain quantity of rags got accumulated in the factory premises and because of paucity of space in its factory, 10 bags containing rags weighing 339.50 Kgs. were placed by the petitioner in the factory premises of Messrs Happy Textile Mills which is also functioning in the same premises as a sister concern.
3. On 2nd September, 1972, a party of Central Excise and Customs Officers visited the premises of Happy Textile Mills and took into possession the abovesaid 10 bags of rags. The Superintendent of Central Excise visited the petitioner's premises a few days after this seizure. Shri S.D. Mahajan, one of the partners, explained the petitioner's position to him. The statement of one of the partners was recorded by the Superintendent of Customs (Preventive) on 24th January, 1973, a show cause notice dated 6th February, 1973, was issued to the petitioner-firm, under Section 108 of the Customs Act, 1962 calling upon it to show cause as to why 10 bags containing woollen garments of foreign origin be not confiscated under Section 111 read with Section 11 of the Customs Act, 1962 and penal action be not taken under Section 112 of the Act. The writ petitioner submitted that it stuck to the statement made by Shri Mahajan on 24th January, 1973, and the same should be treated as its reply to the show cause notice. On 27th February, 1973, another communication was addressed to the petitioner alleging that the second-hand clothing recovered by the officials of the Customs Department could not have been legally imported into India. Thereafter, the Assistant Collector Customs, Amritsar, confiscated the goods under Section 111 of the Customs Act, vide order dated 23rd November, 1973 (Annexure P-5). It has been mentioned in the order that the value of the seized goods was Rs. 800 only. The petitioner was unsuccessful in appeal and revision before the higher authorities. These three orders, as mentioned in the opening paragraph, were challenged by the petitioner by way of writ petition. The main stand of the writ petitioner was that it was authorised to import rags from a foreign country and the material recovered from its premises was in fact rags and not second-hand clothes as alleged by the Customs Department. No written statement was filed on behalf of the respondent Union of India (now appellant). The learned Single Judge holding that what the petitioner had imported were rags, allowed the writ petition and quashed the impugned orders. Dissatisfied with the judgment of the learned Single Judge, the Union of India had filed the present appeal, as stated above.
4. The learned Single Judge has observed that there was no statutory definition of 'rags' in 1972-73, when the goods were seized from the petitioner (now respondent). In the absence of statutory definition, the meaning assigned to the term 'woollen rags' in the trade has to be accepted. The Appellate Collector held that the articles which had been seized were woollen garments which is not the same thing as 'rags'. It may be highlighted here that even in the seizure memo prepared by the Customs authorities the goods were described as 'woollen rags (used)'. It has not been denied that the writ petitioner had been legally importing woollen rags through the State Trading Corporation. There was no time-limit for using those rags for the manufacture of shoddy yarn and textiles. It is not the case of the department that the material found at the premises was over and above the total material which had been legally imported by the petitioner or in other words the material was smuggled. The material had been imported through the State Trading Corporation and had been cieared by the Customs Department. After all, what is a 'rag', will depend upon the feeling of an individual or a society. What an individual in a foreign country or a society in a foreign country may consider a clothe as a rag, may be considered by an individual in India or a society in India to be a second-hand garment, which may be used or worn as such. It cannot be said that a clothe is only a rag if it cannot be used as a clothe. It will depend upon from a person to person. As stated above, in the absence of definition of 'rags', it has to be assigned a meaning what is understood in the trade. If the articles seized could reasonably be termed as 'woollen rags' then it cannot be confiscated. The learned counsel for the appellants concedes this aspect of the matter. The learned Single Judge relied on a judgement of the Bombay High Court in Misc. Petition No. 92 of 1974 - . Nagesh Hosiery Mills v. M.R. Ramachandran and Anr., decided on 15th January, 1975, wherein it was observed as under:
'This, to my mind, is besides the point, because an item cannot be classified on the basis of what will be done to the goods so imported, either before its importation, or after its importation. What has to be seen is the construction put upon the item by the person in the trade and if 'woollen rags' found in a serviceable condition comply with the attribute as known in the trade then it must be treated as 'woollen rags'. No further elucidation was made on behalf of the Respondents in regard to the query as to why the S.T.C. should include under the item 'woollen rags' items such as nylon producer drawn waste sparkling waste or bright (bright) nylon waste or woollen knitwear hosiery. Rags by their very nature must include different kinds of clothes which would mean some of which may be serviceable, some of which may be unserviceable, some of which may contain large percentage of wool or no percentage of wool but known in the trade as 'woollen rags' which would have to be taken into consideration.
Therefore, the question is, whether what has been imported by the petitioners under the Import Licence granted to the S.T.C. is 'woollen rags'. This is independent of consideration of items mentioned in the Customs Act, 1962 because, insofar as the Customs Act, 1962, is concerned, the Government is concerned with the question of what is the duty payable upon such items. In the present case, the entire basis of the order dated 22nd June, 1973, is that the petitioner had contravened the provisions of rule 3 of this order and had imported, what is termed 'second-hand clothing in the garb of woollen rags'. Having considered the question, I am of the opinion in the present case that it cannot be said that what the petitioners have imported is 'second-hand clothing' as the true scope of the item 'woollen rags' has not been properly considered by the 1st Respondent. The expression 'second-hand clothing' has a different connotation altogether. That article which has once been used and is yet in a new condition can be treated as 'second-hand' if placed in the market for resale.
The meaning which must be given is the meaning necessarily known in the trade.
It was then urged on behalf of the Respondents that in the present case there has been no mutilation of the consignment and hence the petitioners were not entitled to import the same. This to my mind does not affect in any way the right to import. In fact, the 1st Respondent himself had in his letter dated 2nd May, 1973 addressed to the petitioners, intimated to the petitioners that as the goods had been imported for the purpose of conversion into shoddy yarn, the petitioners were advised to get them mutilated in the presence of Customs Officer in order to establish the petitioners' bona fides. This advice of the 1st Respondent was accepted by the petitioners by their reply to the 1st Respondent dated 7th May, 1973. If this be the position, then I do not think it worthwhile considering that merely because the goods were not in a mutilated condition, which was not a condition precedent to the importation of the goods, it would in any way affect the validity of the import of this consignment by the petitioners. In my opinion, therefore, the 1st Respondent was in error in holding that the imported goods were not covered by the licence for 'woollen rags' and the impugned order dated 22nd June, 1973 is liable to be quashed and set aside.'
5. We are in respectful agreement with the view expressed by the Bombay High Court.
6. The learned counsel for the appellants submitted that it is not the Court to go into the matter whether the confiscated goods were rags or not and this being a finding of fact should not have been interfered with. For this proposition, he relied upon Girdharilal Bansidhar v. The Union of India and Ors., A.I.R. 1964 Supreme Court 1519; Collector of Customs, Madras v. K. Ganga Setty, A.I.R. 1963 Supreme Court 1319 and some other authorities. If the finding of fact arrived at, especially in the absence of any statutory definition of 'rags', is on totally wrong basis or wholly arbitrary, the Court can certainly interfere under Article 226 of the Constitution of India. In the present case, in the seizure memo the articles were described as 'woollen rags used' and according to the department, the value of the goods seized was only Rs. 800/-, it cannot be said that the finding of fact arrived at by the departmental authorities was well-based. For the view which was taken by the learned Single Judge, it cannot be said that the approach of the learned Single Judge was wrong in coming to a conclusion that the articles which were confiscated were 'rags' and not liable to confiscation.
7. For the reasons recorded above, we find no merit in this appeal, which is hereby dismissed, with no order as to costs. The appellants are directed to release the confiscated material to the respondent-firm.