Chandrakant Krishnarao Pradhan & ANR
Vs. The Collector of Customs, Bombay & Ors  INSC 244 (11 August 1961)
CITATION: 1962 AIR 204 1962 SCR (3) 108
CITATOR INFO :
RF 1985 SC 613 (5)
Custom House Agents-Licence-Rules governing
grants thereof- Validity-Agent's liability for short collection of custom
duties-Custom House Agents Licensing Rules, 1960, rr. 4,6(a), 6(b), 6(c),
8,9(2) (p), 10 (1) (c), 11, 16 (g), 15(k), 12,17,19, 22 Forms C. D.-Sea Customs
Act, 1878 (8 of 1878), as amended by Act 21 of 1955, ss.4, 9,39 (1), 202-
Constitution of India, Arts.19 (1)(g) 19 (6).
The petitioners were working as Dalals at New
Customs 109 House, Bombay, under licences issued under s.-202 of the Sea
Customs Act, 1 878. In 1955 by an amending Act, s. 202 was substituted by
another section and, by sub-s.(1) of s. 202 it was enacted : "no person
shall act as an agent for the transaction of any business relating to the
entrance or clearance of vessel or the import or export of goods or baggage in
any custom house unless such person hold'$ a licence granted in this behalf in
accordance with the rules made under sub-section (2) ". By sub-s. (2) the
Chief Customs-authority was empowered to make rules for the purpose of carrying
out the provisions of the section.
Section 4 provided that "when any person
was .... authorised by the owner of the goods to be his agent in respect of
such goods for all or any of the purpose, of this Act....such person shall for
such purposes be deemed to be the owner of such goods". The petitioners
who, after the enactment of the news.202, had to apply for licences to be
granted in accordance with 'the rules framed under sub-s(2), challenged the
validity of certain of the rules on the ground that they contravened Arts. 14
and 19 of the Constitution of India and also that they were in excess of the
rule-making power conferred by s.202 (2). In particular, they questioned power
validity or r. 12 under which inter alia the agent was required to enter into a
bond in Form C by which he was made liable for short collection of customs duty
under s. 39 and also to furnish security which might be increased or decreased
by the Customs-collector.
Held : (1) that the rules in question though
they were headed as framed under s. 202 of the Sea Customs Act, 1878, cannot be
impugned on the ground that some of them go beyond the special purposes of that
section and seek to further some of the general purposes of other parts of the
Act, since the Chief Customs authority is also empowered under s. 9 of the Act
to make. rules consistent with the Act "generally to carry out the
provisions of the Act." (2) that rr. 4 and 8 under which the
Customs-collector could limit the number of licences to be granted at the
Customs House and applications could only be made if the Customs collector
published a notice inviting applications, do not contravene Art. 19 of the
Constitution, as they are only designed to advance public interest.
(3) that rr. 6(a) and 6(b) which require the
applicant, to furnish to the Custom's collector satisfactory evidence as to his
respectability, reliability and financial status and that he would be in a
position to muster sufficient clientel, 110 and business in the event of his
being granted the licencee, are reasonable restrictions within the meaning of
Art. 19(6) and are valid.
(4) that cl. (p) of r. 9(2) which requires
the licensee to have a working knowledge of the procedure in the matter of
refund of claims, appeals and revision petitions under the Sea Customs Act, is
valid, since it is necessary where an, agent handles goods of the principal.
(5) that r. 10 (1)(c) which gives the
Customs-collector a wide discretion to reject an application for the grant of a
licence, if he considers the applicant to be not suitable, is an unreasonable
restriction upon the right of the successful candidate to carry on his
avocation, and is invalid. If a candidate is found fit under the other rules
and has successfully passed the examination, he should only be rejected under a
rule which requires the Customs- collector to state his reasons for the
rejection, and the rules must provide for an appeal against the order.
(6) that r. 11, in so far as it prescribes a
renewal fee of Rs. 50,is invalid inasmuch as it has thereby provided not for a
fee but for a tax to raise revenue. It would be open to the Government to frame
a rule in which the renewal fee to be charged is reasonable in the
(7) that rr. 15(g), 15(k), 17 and 19, are
designed to have a control over agents, including firms which act as agents,
who stand in a fiduciary capacity both in regard to their own clients and the
Government, and are valid.
(8) that r, 22 which enables the
Customs-collector to cance a licence for non-compliance by the agent with the
other rules or for misconduct on the part of the agent, which in the opinion of
the Customs-collector, renders him unfit to transact business in the Custom
House, is within the rule.
making power of the Customs-authorities and
(9) that the words "the person
chargeable with the duty or charge" in s. 39(1) of the. Act are wide
enough. in their ambit to take in, not only the, real owner but also a
"deemed owner" within the meaning of s.4 of the Act.
(10) that on its true construction of s.39(1)
it is only the goods of the defaulting owner in respect of Which, the agent is
also the deemed owner that would suffer the penalty of detention, but not the
goods of a different owner, 111 even though the agent may be authorised to deal
on his behalf.
(11) that r. 12 read with Form C, which makes
an agent liable for short collection of customs duties under s. 39, is valid
and the rule is not invalid on the ground that it enables the
Customs-authorities to make a proper adjustment of the security to be obtained
from each individual agent commensurate with the volume and type of business
which he might transact.
Held, further (Subba Rao, J. dissenting,)
that r. 6(c), which requires the applicant to produce an income-tax clearance
certificate, is connected with the enquiry into his respectability and
financial status to find out if fie can be trusted with other persons' money
and goods, and is valid.
K. Raman and Co. v. State of Madras, A. I. R.
Per Subba Rao, J.-Non-production of an
income-tax clearance certificate is not germane to the issue of a licence under
the Custom House Agents Licensing Rules, 1960, and the principle in K. Raman
and Co. v. State of Madras, A. I.R.
1953 Mad. 84, is applicable. Accordingly, r.
6(c) constitutes an unreasonable restriction on the right of an applicant to do
business as Custom-house agent, and is invalid.
ORIGINAL JURISDICTION:Petitions Nos. 80, 80A.
81 and 116 to 213 of 1960.
Petitions under Art. 32 of the Constitution
of India for enforcement of Fundamental Rights.
S. V. Gupta, M. C. Bhandare, S. N. Andley,
Rameshwar Nath and P. L. Vohra, for the petitioners.
H. N. Sanyal, Additional Solicitor-General of
India, D. N. Mukherjee and P. D. Xenon, for the respondents.
Porus A. Mehta, J. R. Gagrat, and G.
Gopalakrishnan, for the interveners.
1961. August 11. The judgment of
Gajendragadkar, Hidayatullah, Shah and Raghubar Dayal, JJ., was delivered by
Hidayatullah, J., Subba Rao,:J., delivered a separate judgment.
112 HIDAYATULLAH, J '-These writ petitions
raise identical questions, and a common argument was addressed to the Court in
all of them. Petitions Nos. 80 and 80A of 1960 have been filed by two
petitioners. One petitioner holds a permanent' licence and the other, a
temporary licence renewable triennially, to work as Dalal's at New. Customs
House, Bombay. In the other petitions also, petitioners Nos. 1 to 50 hold
permanent licences, and petitioners Nos. 51 to 99 hold temporary but renewable
licences. Some of the permanent licences were issued in 1936, and some of the temporary
licences were issued as far back as 1944. These licences, whether permanent or
temporary, were issued under s.202 of the Sea Customs Act, 1878, prior to its
amendment by the Sea Customs 'Amendment) Act, 1955 (Act 21 of 1955).
They were issued after a brief enquiry and
subject to the fulfillment by the applicant of the following conditions :
"(1) He must produce at least 2
certificates of character each from a Justice of Peace or other persons of
(2) He must certify that he has not been
convicted of any criminal offence.
(3) He must declare that he will have no
claim to any accommodation in the Custom House.
(4) He must also give a security of Rs. 2000
in cash or Government paper having an equivalent market value and execute a
Bond for Rs. 2000 on It fifteen rupees Stamp Paper in the attached form."
In 1955, by the amending Act, s.202 was substituted by another section. The
section now reads :
"202. (1) With effect from such date as
the Central Government may, by notification in the Official Gazette specify, no
person shall act as an agent for the transaction of any business relating to
the entrance or 113 clearance of any vessel or the import or export of goods or
baggage in any Custom-house unless such person holds a licence granted in this
behalf in accordance with the rules made under sub-section: (2).
(2) The Chief Customs authority may make
rules for the purpose of carrying out the provisions of this section and in
particular such rules may provide for- (a) the authority by which a licence may
be granted under this section and the period of validity of any such licence;
(b) the form of the licence and the fees
payable there for;
(c) the qualifications of persons who may
apply for a licence (d) the :restrictions and conditions (including the
furnishing of a security by the licensee) for his faithful behaviour as regards
the custom-house regulations and officers) subject to which a licence may be
(e) the circumstances in which a licence may
be suspended or revoked; and (f) the appeals, if any, against an order of
suspension or revocation of a licence, and the period within which- such
appeals shall be filed." As A result of the enactment of this section, the
original licence, whether permanent or temporary. would have become ineffective
after. the date to be specified by the Central Government. It became necessary
for the petitioners and others to apply for licences granted in accordance with
the rules framed- under sub-s. (2). These rules were framed, and public notices
were issued. inviting applications ; but the dates were postponed 114 till the
rules were published in the Gazette on May 14, 1960. It is not necessary to
refer to the prior history of these rules and to the many representations that
were made, as they are not relevant. On June 18 1960, a public, notice (No. 87)
was issued fixing June 25, 1960 as the last date for making applications for
the new licences, and the persons affected were informed that the. operation of
the new licences under the rules would commence on July 14, 1960. On June 27,
1960, Writ Petitions Nos. 80 and 80A of 1960 were filed, followed by Writ
Petitions Nos. 81 and 116 to 213 of 1960 filed on July 12 1960. An ex-parte ad
interim stay of the revocation of the existing licences was obtained from this
Court, and subsequently, the respondents undertook to issue to the petitioners
special temporary licences renewable yearly till the disposal of these
Prior to the. Custom House Agents Licensing
Rules, 1960, there were four classes of Agents. They were (1) Clearing Agents,
(2) Dalals., (3) Muccadams and (4) Baggage Clearing Agents. According to the
petitioners, there were, 100 licensed Clearing Agents, 200 licensed Dalals, 270
Muccadams and about 15 Baggage Clearing Agents. The duties and functions of
these four classes of agents were different.
Whether these distinctions were always
maintained and whether they grew out of regulations or usage is hardly necessary
to enquire. By the Rules of 1960, these classes were merged into one, and all
licensed agents were placed on an equal footing. In other words, there is to be
hereafter one class of agents' Though the petitioners holding "permanent'
licences and the petitioners holding 'temporary" licences with a term to
run out have relied upon the fact that their licences are still valid, there
was no serious attempt to deny that under s.
202(1) they would be rendered ineffective
after the date to be fixed by Government. The "permanent' licences 115
also are not in a favourable position in this regard. If the first sub-section
requires that fresh licences to work as Custom House Agents be obtained, the
distinction between permanent and temporary licences ceases to be material. No
part of s.202 was challenged as being void or ultra vires.
In these petitions, only the Rules &ire
challenged as in breach of the fundamental rights under Arts. 14 and 19 of the
Constitution and Also as being in excess of the rule- making power conferred by
sub- s. (2) of s. 202. Form prescribed under the Rules for taking security from
the approved agents is also questioned as being in excess of the power to make
rules and contrary, in certain respects, to the Sea Customs Act itself. It may
be mentioned that the petitioners in all the Writ Petitions are Dalals; but at
the hearing, certain Clearing Agents obtained permission to intervene, and were
Since the Sea Customs Act,' in general and s.
202, in particular were. not challenged in the petitions, we must start with
the premise that the authority to insist , on fresh licences under the Rules in
the case of all the operators was properly exercised. The first question to
consider is whether the Rules, speaking generally, were validly framed and the
next question to consider is whether any of the. Rules individually challenged
goes beyond the Sea Customs Act, or offends against the Constitution.
In questioning the Rules generally, the
petitioners submit that these Rules could only be framed for the purpose of
carrying out the purposes of s.202 [ provide sub-s. (1) ], or, to provide for
the, matters 'mentioned in cls. (a) to (f) of s. 202(2). Some of the Rules. it
is submitted, go beyond the general purpose of the section, which is to license
agents and the special 'topics mentioned there, and seek to further some of the
purposes of other parts of the Act. Mention in this connection 116 is-made
specially of Form 'O' prescribed by the Rules, under which the agents
personally and the security furnished by them have been made liable for short
collection of Customs duty, etc. The question whether the agents are liable, in
any event,. for such short collection under s. 39 is a question, which will
have to be examined on merits separately, but for repelling the argument in its
present from, it is sufficient to say that it is robbed of all its force by a.
9 of the Sea Customs Act. under s. 202(2), the Chief Customs-authority is
empowered to make rules for the purposes of t hat section. That purpose is the
licensing of agents and the regulation of their conduct and functions.
But the Chief Customs-authority is also
empowered by s. 9 to make rules consistent with the Sea Customs Act
"'generally to carry out the provisions of this Act". The power to
make rules under s. 202 is not the only power which the Chief Customs-authority
can exercise, and it is only too clear that power can also be derived from S.
9, if there be need.
Thus, if it is necessary that the agents must
carry out certain provisions of the Act, a rule can be made in the exercise of
the two powers together. Though the impugned Rules are headed as framed under
s.202 of the Sea Customs Act., they cannot be questioned, if they carry out not
only the special purposes of s.202 but also certain other purposes of the Act,
because the two powers will concur to sustain them. It is only when a rule or
rules are pointed out, which sub serve neither the special purpose of the
section nor the general purposes of the Act that they can be successfully
questioned. In short, therefore, the petitioners' case on the individual Rules
alone remains to consider.
The first contention is that under the
impugned Rules, the number of licences to be granted at the Customs House can
be limited by the Customs. collector, and that applications can only be made,
if the Customs-collector publishes a notice inviting 117 applications. This
restriction, it is contended, is unconstitutional, as it interferes with the
right of all the petitioners to carry on their profession or a vocation freely
as contemplated, by Art, 19. The Rules bearing upon these matters are rr.4 and
8. The latter Rule says that the number of licences to be granted would be
fixed by the Customs collector, having regard to the volume of import and
export business transacted through the Customs House, and the number is capable
of being revised from time to time.
The former empowers the Customs-collector to
invite applications, as and when he considers it necessary. It cannot be said
that the Rules are not designed to advance public interest, because even a
processions or trade has sometimes to be limited in the public interest, When
we pointed out to Mr. Gupta that this kind of limitation on the number of
persons allowed to hold licences is common, as, for example, porters in a
railway station, taxicab drivers and so on, he stated that at least during the
transitional period, the old operators might have been given licences on
production of proof that they held licences previously. The argument is really
not one based upon the interests of the public but upon the interests of the
present holders of the licences. Public interests in the context must override
private interests. It cannot be said that all the present operators are equally
desirable, and if their number exceeds the requirement of the Customs House, it
is obvious that some retrenchment in their numbers may legitimately be made,
Every one has an equal chance of applying for the. existing vacancies, but he
must stand in. competition with the others. There is no limitation on the
number of applications that can- be made, and thus, every operator will get' a
chance to have his case examined. It is to be expected that the most exprienced
and the most efficient will get preference, and. no claim can be made on behalf
of the incompetant and the inefficient that they should 118 receive equal
treatment. Once the number is limited to the requirements of the business, it
is manifest that the Customs collector will invite applications only, as and
when occasion demands. These Rules, in our opinion, cannot be said to' offend
against the Constitution.
The next contention is about rr.6(a), (b) and
(c), which require the applicant to furnish to the Customs-collector
satisfactory evidence as to his respectability, reliability and financial
status, and that he would be in a position to muster sufficient clientele and
business in the event of his being granted the licence. The applicant has also
to furnish an income-tax clearance certificate. These conditions are challenged
as being unreasonable restrictions upon the right to carry on a profession or
Serious attempt was not made to establish
that the condition about respectability and reliability was unconstitutional.
It was, however, pointed out that evidence
about financial status created a class barrier between the rich and the poor
and only the rich were to be preferred. By the words financial status" is
not meant that the applicant must be a wealthy person; what is required is that
he should not be financially embarrassed, and proof that he is in easy
circumstances. It is obvious that the agents under the Act deal with vast sums
of money and valuable articles, and it may be necessary to scrutinise the
financial position the applicant to find out whether or not he would be exposed
to temptations. A person heavily indebted or insolvent cannot be trusted in the
same way as a person who is not so embarrassed, and an enquiry into financial
status is so much in the public interest, that we cannot say that the condition
must necessarily be unreasonable. Similarly, the argument. that new entrants
would find it difficult to assure that they would have sufficient clientele and
business and would thus be discriminated against, is not correct. The Customs
House is not a place where persons can allowed to learn a 119 profession or to
take a chance. The movement of goods, the due performance, of the duties and
functions under the Sea Customs
Act and observance of the regulations are not easy matters for a person, who is
not sufficiently experienced and who has not got the backing of a certain
amount of business and the experience which such business affords. It may be
necessary for a person to apprentice himself for some time to get to know the
importers and exporters, and to prove to the Customs authority that by reason
of his apprenticeship and his business connections lie would be in a position
to handle the work in the Customs House from the moment he is licensed. The
Rule is designed to avoid entry into the Customs House premises of persons who,
being there, are unable to do business, and merely add to the number of persons
The last condition is the production of an
income-tax clearance certificate. The petitioners rely upon a decision of the
Madras High Court reported in K. Raman and Co. v.
State of Madras (1). In that case, it was
hold that the fact that a person was in arrears of income-tax was not germane
to the issue of a licence under the Yarn Dealers Control Order, and that the
insistence on the production of an income-tax clearance certificate was
extraneous to the carrying on of the business. The position of an agent who
handles other persons' moneys and goods is different from that of a dealer who
deals with goods on his own behalf. As part of an enquiry into an applicant's
respectability, reliability and financial status, an enquiry can also be made
to see whether he has discharged his debts to the State. If a person is liable
to income-tax and pays it punctually, he would have no difficulty in proving
it. If, however, for some good reason the payment has been delayed, there would
be nothing to prevent. him from proving it.
(1) A.I.R. 1953 Mad'. 8A.
120 insistence upon the production of the
certificate is, in our opinion, connected with the enquiry into his
respectability and financial status. to find out if he can be trusted with
other persons' money and goods.
The next Rule which is questioned is r. 9,
which provides for an examination of the applicant. This examination follows a
scrutiny of the application under the other Rules, and embraces questions on
various subjects. The duties of the agents require them to handle goods, and the
examination is designed to find out whether a candidate knows the elements of
the law relating to the arrival, entry and clearance of vessels and goods.
Objection is not raised to the examination as a whole but only to cl. (p) of r.
9 (2) under which a candidate is supposed to know the procedure in the matter
of refund of claims, appeals and revision petitions under the Sea Customs Act.
It is contended that these are matters in which an agent is not interested as
an agent, but are matters for the owner and the Castoms- authorities to know.
It is true that the curriculum for the examination is somewhat extensive ; but
it is also, clear that what is expected of the candidate is knowledge, not
necessarily exhaustive but sufficient, of the laws relating to the arrival,
entry and clearance of vessels and goods.
We do not think that it is wrong for the.
authorities to insist upon at least a working knowledge of the laws applicable
to the kind of work the agents are required to do. When licences are issued
under other laws, a candidate is sometimes required to answer questions
relating to the law under which the licence is issued. One well-known example
is the questioning of a candidate about the rules of the road when he is issued
a licence to drive a mechanically propelled vehicle. These Rules advance
efficiency, and the additional know, ledge about refunds, appeals and revisions
under the Act may be necessary where an agent handles 121 goods of a principal,
who is himself not present to file appeals or revisions or to claim refunds.
The Rule, in our opinion, is perfectly valid.
Rule 10 is the next subject of attack. It
provides that the Customs-collector shall reject an application, for the grant
of a licence (a) if the candidate fails to pass the examination, or (b) the
number of vacancies do not justify the grant of such licence, or (c) the
applicant is not otherwise considered suitable. Objection is taken to cl.
(c). It is said to confer a very wide
discretion on the Customs-collector, and reference is made to sub-r.(2), in
which it is provided that no appeal shall lie from the order. of the
Customs-collector rejecting an application.
It is further pointed out that in July, 1960,
the Rules were amended by the addition of r. 25, under which an appeal is to
lie to the Chief Customs-authority against every order of the
Customs-collector-(i) rejecting an application for the renewal of a licence
granted under these Rules; (ii) rejecting a fresh application made in
accordance with r. 17 ; and (iii) refusing the grant or renewal of a special
temporary licence under r. 24. It is argued that even though an appeal has been
provided for these matters., no appeal has been provided for the rejection under
r. 10(1)(c). No doubt, other reasons may exist for rejecting the application of
a candidate, as for example, when he is found to be a leper or an epileptic ;
but one would expect that an order of this kind would' be backed by reasons to
be recorded in writing. It must be remembered that there is first a scrutiny of
the application and an enquiry into the respectability, reliability and
financial status of the candidate. Then. follows an examination, If a'
candidate satisfies 'all the above condition's, there would hardly be any
ground left. for rejecting his application, except probably his physical
unfitness to. do. the work, The Rule which: is framed is so gel general that it
leaves to discretion of the 122 Customs-collector to reject a. candidate for a trumpery
reason (which he need not state), even though the candidate may be otherwise
suitable. In out opinion, if a candidate is found fit under the other Rules and
has successfully passed the examination, he should only be rejected under a
rule which requires the Customs-collector to state his.
reasons for the rejection, and the rules must
provide for an appeal against that order, as they do in the other cases.
As the Rule stands, it cannot be considered
to be a reasonable restriction upon the right of the successful candidate to
carry on his avocation.
The next Rule which is questioned is r. 11,
which enjoins the payment of a fee of Rs. 50 both for a fresh application as
well as renewal of the licence. In so far as the fee for the grant of a licence
in the first instance is concerned, it cannot be said that the charge is
exorbitant. It is not disputed that a fee is an amount collected to reimburse
the Government for the expenses of licensing. It must reasonably be measured
against the cost which may be entailed in the process of granting licences. In
the initial stage, the Customs-authorities have to scrutinise applications,
subject the candidates to an examination, and provide them with licences to
carry on their work. A fee of Rs. 50 initially may not be considered
unreasonable, regard being had to the services involved. The same, however,
cannot be said in the case of renewals. It is pointed out in the petition that
formerly the charge was only 50 nP. It is averred in the petition that all that
the licensing authority does, is to make an endorsement on the licence that it
is renewed for a further period. It has been ruled in this Court that under the
guise of a fee there must not be an attempt to raise revenue for the general
funds of the State. In our opinion, a renewal fee of Rs. 50 does not entail
services which can be reasonably said to measure against the charge. It may be
pointed out that, though this averment was made in the petition, 123 no.
attempt was made by the answering respondents to traverse it.. In our judgment
the renewal fee of Rs. 50 ceases to be a fee, and is, in its nature, a tax to
raise revenue. Such an impost cannot be justified' as a fee, and we
accordingly, hold that this charge is improper. It would, however, be open to
the Government to frame a rule in which the renewal fee to be charged is
reasonable in the circumstances.
The next objection is to sub-r.(g) and
sub-r.(k) of Rs. 15.
Sub-rule (g) requires a Custom House Agent to
pay over to Government all sums received for payment and to account to his
client for monies in his hands. Sub-rule (k) requires him to maintain accounts
in such form and manner as may be directed from time to time by the Customs-collector,
and submit them for inspection to the Customs--collector or an officer
authorised by him. No exception can be taken to sub-r.(g) which only states
what must be regarded as an inevitable obligation on the part of the Agent.
Sub-rule (k) is said to be excessive control on the part of the
Customs-authorities of the way in which the agent may keep his own account.
:The licensing of an agent creates an assurance,, in the minds of the
prospective clients, and the Rule is designed to ensure that the monies which
the agents handle are properly accounted for. In our opinion, these Rules are
salutary, and further the control over the agents, who stand in a fiduciary
capacity both in regard to their own clients and the Government.
Rule, 17, which enjoins upon a firm which
acts as a licensee to report to the Customs collector as early as possible and,
in any event, within a period of three days of a change in the constitution of
the firm, is next challenged. It is said that the period of three days is too
short ; but it" must be remembered that 'a large number of transactions may
go through without the licensing authority being aware that the constitution of
a firm has changed. The Rule is designed to bring promptly to the notice 124 of
the Customs-collector the change in the constitution of the firm, so that he
may be in a position to decide for himself whether the licence in the changed
circumstances should be allowed to operate or be suspended or revoked. In our
judgment, this Rule, cannot be questioned.
Mr. Porus Mehta who argued the case on behalf
of the Clearing Agents, stated that the newly constituted firm is required to
make a fresh application which is to be dealt with in accordance with the
provisions of rr. 6 to 13.
According to him, every change in the,
constitution of the firm requires the firm to go through the entire process of
scrutiny and examination, which he' terms unnecessary. The rule is designed to
ensure that the new members of firm answer the requirements which have been
laid down is Rules 6 to 13, and these requirements may be necessary, if new,
entrants come in. It is to be noticed that pending the disposal of the
application, the Customs-collector is authorised by the rule in his discretion
to allow the existing firm to carry on the business of Custom' House Agents.
This softens the rigorous of the rule, because the work of the agents in proper
cases would not be hampered, and the application would stand over for disposal
to a later date.
Rule 19 which also enjoins the maintenance
and inspection of accounts by a firm was criticised in the same manner as was
r. 15, and for the reasons which we have given, we hold it to be conducive to
the proper control of the financial activities of a firm as licensee.
Rule 22 deals with the cancellation of the
licence for failure of the agent to comply with Any conditions of the bond
executed by him, under "the Rules, for failure to comply with any of the,
provisions of the Rules and for misconduct on.. his part which, in the opinion
of the Customs-collector renders him unfit, to transact business in the 125
Customs House. It is contended that, he rules are so exhaustive and numerous
that no agent would ever -be able to keep out of the operation of that-Rule,
and that he would be' perpetually exposed to the penalty of suspension or
revocation of his licence. Rules are made for compliance and not for breach,
and even though strict, they are all designed to ensure efficient and proper
working on the part of the agents. A rule insisting upon such compliance with
the other rules on pain of penalty _cannot be said to be outside the rulemaking
power of the Customs- authorities. Every order of suspension or revocation is
subject to appeal, and there is thus room for interference if the
Customs-collector acts arbitrarily or perversely. In our: opinion, with the
existence of an appeal, the rigour of the rule, if any, is taken away except in
those flagrant cases, where suspension or revocation of the licence would be
Lastly, it is contended that the Rules
control a licensed agent in a manner which makes him an unpaid servant' of the
Customs-authorities. This is one way of looking at the matter. The right way to
look at it is that a profession is being regulated, and the profession is one
in which an agent deals with the property of another and by the law is deemed
to be owner of the property. A person in such a high fiduciary position must,
of necessity, be subjected to strict control, and the licensing authority in
holding him forth to the prospective principals as a reliable and trustworthy
person must see that persons acting on the faith of the assurance of the
licence are in no way damning. The Rules, therefore, subserve a very salutary
and necessary principle, and, in our judgment, are designed to advance public
interest and cannot be questioned, unless a person wishes to act, dishonestly
and wants to avoid control. It is well known that many underhand practices are
common at Customs Houses, and 'the Customs-authorities 126 have to be vigilant
in preventing them. They must, therefore, see that they do not license the
wrong type of person is and in the interests of the Revenue and more so, in the
into rests of persons who employ licensed agents, these Rules have, been
framed. Looking at the Rules generally, we are of opinion that though they, are
strict, they axe Absolutely necessary, and their strictness would be felt only
by persons, who, are not otherwise honest.
The main argument in the case is upon r.12
read with From It, which is the bond which every applicant has to executive in
favour of the President of India, and its enforcement against the applicant
under certain 'circumstances. Under r. 12, it is provided that before a licence
is granted under the Rules, the Customs collector shall require the applicant
to enter into a bond in Form 'C' for the 7 due observance of these Rules. and
the conditions of his licence and also to furnish a security of Rs. 3,000 in
cash or securities and a solvent surety for a sum of Rs. 2,000. The surety is
required to execute' a separate bond in, Form 'D'. A proviso added to the 'Rule
says that the security may be:
increased or, decreased by the
Customs--collector at any time, should he, consider it necessary to do so,
having regard to the volume and-type of the business which the applicant will
transact as Custom House Agent. It may be mentioned here, that the four classes
of agents which had grown in the past have now been fused into one, and an
agent under the Rules may not confine his activities to those of any one or
more of the four classes previously existing. Objection, however, is taken to
the basic figure of security and particularly, the cash security of Rs 3000,
which are innovations under the present Rules. Reference is made to the
provisions of Form 'C', in which it is provided as follows:
127 "It is also agreed and declared that
the President of India may apply the above sum of Rs.......... in making good
wholly or in part, any short collection of duty or other charges in respect of
any transactions made by the said...... on behalf of importers in the event of
such sums remaining unpaid,, even after issue of demands under section 39 of
the Sea Customs Act." The petitioners contend. that the increased security,
particularly, in cash, puts an unreasonable restriction upon the right to carry
on the profession or avocation. They point to the fact that in the, past a
security of Rs. 2,000 had been considered adequate, and from 1937 onwards, that
security alone was demanded. They also contend that as Dalals they are only
required, to present the shipping bills and the assessment or appraisement of
the customs duty is the function of the Customs Officer. If any mistakes are
made, due to an error on the part of the Customs-authority, or even due to a
wrong declaration of the real value of the goods by the importer, the
collection of duty should be made from the owner of the goods and not from
them. They also contend that this is the meaning and intent of s. 39, which, in
terms, makes the owner of the goods liable to make up for the short collections
and puts no responsibility on the agents. They further. contend that the last
clause of the bond, quoted earlier, makes the agent liable for payment of the
balance of the duty before any attempt is made to recover it from the owner or
The last point need not detain us long,
because it is raised on the existence of the' word "'even" in the
clause "even after issue of demands under section 39 of the Sea Customs Act". The
word "even" does not mean that the agent's security can be touched
before the notice is given. It rather indicates that the security would be
utilised to make up the deficit only when a notice 128 is given and if even
after notice there is no compliance.
This would indicate that before the ,security
is so utilised, a notice must go to the agent or his principal, and the bond
makes the notice a sine qua non of an action to recoup the deficit duty from
the security amount.
The larger question whether the agent can be
made responsible for the short collection of duty under s.39 may be deferred
for the moment. Previous to the promulgation of the- Rules, there were, as
already stated, four classes of Agents, and their duties, by custom and usage,
were also different. It is now contemplated to make a single class of agents
and also to restrict the number of such agents. It is quite clear, therefore,
that the amount of business which would be done by the agents who are licensed,
would grow significantly. Also, each agent would be entitled to do all kinds of
businesses which were handled separately. This justifies the demand for
increased security, and it should be noticed that there is room for the
reduction of the duty in individual cases, if the amount of business which the
agent would carry on, would be small. Similarly, there is provision for
demanding increased security from a person who does or is expected to do a much
larger amount of business as an agent. There is thus no room for a proper
adjustment of the amount of security to be obtained from each individual
licensed agent, commensurate with the volume and type of business which he will
transact. We do not, therefore, consider that r. 12 is defective on this
Before we deal with s. 39, it is necessary to
review certain other sections of the Sea Customs Act. Under the Sea Customs Act,
it is not obligatory upon a principal to appoint a licensed agent. An importer
or exporter, as the case may be, can also appoint any person with the approval
of the Customs-collector as 129 his agent, who need not be a licensed agent.
(R.3). The Rules are me ant to control action of agents, particularly the
licensed agents. Under the Act, the position of an agent, whether licensed or
not, is indicated in s. 4, which reads "When any person is expressly or
impliedly authorized by the owner of any goods to be his agent in respect of
such goods for all or any of the purposes of this Act. and such authorization
is approved by the Customs- collector, such person shall, for such purposes be
deemed to be the owner of such goods." , One of the duties of the' owner
of the goods is to make a declaration of the real value of the goods in a bill
of entry or shipping bill. Under s. 29, on the importation into, or exportation
from, any customs-port of any goods, whether liable to duty or not, the owner
of such goods must, in his bill of entry or shipping bill as the case may be,
state the real value, quantity and description of such goods to the best of his
knowledge and belief, and must subscribe a declaration of the truth of such
statement at the foot of such bill. Under the same section, the
Customs-collector may require the production of invoices, broker's note, policy
of insurance or other document to satisfy himself about the real value,
quantity or description of such goods.
The Customs-Collector is also authorized to
inspect the goods for the same purpose. Under ss. 29A and 29B, there may be an
assessment of duty prior to the examination of the goods and a provisional
assessment of duty and its payment even prior to, the production of the
documents above mentioned or the inspection of the goods. Section 30 of the Act
defines "real value" and that is the value on which the assessment of
the goods takes place. That section is not dependent upon the 'declaration of
the owner, but defines "real value" in terms of a formula which, on
its application determines of the real value, apart from any declaration.
130 Section 31 provides for the examination
of ad valorem goods, and if the real value such goods is correctly stated in
the bill of entry or shipping bill, the goods are assesssed in accordance
therewith. Section 32 provides for the procedure, if it appears that such goods
are properly chargeable. with a higher rate or amount of duty than that to
which they were subject according to the value stated in the bill of entry or
shipping bill. The Officer may then detain the goods and collect the proper
duty. Sections 33, 34A and 35 deal with abatement allowed or disallowed under
certain circumstances. Sections 36, 37 and 38 deal with the alteration of
import and export duties or tariff valuations.
When the proper duty has- been paid according
to the checks and inspections, if any, the goods are allowed to be cleared.
Section 39, as the marginal note, shows
correctly, deals with payment of duties not levied, short-levied or erroneously
refunded., The first subsection, provides as follows :
"(1) When customs-duties or charges
have, not been levied or have been short-levied through inadvertence, error, or
collusion or misconstruction on the part of the Officers of Customs, or through
misstatement as to real value, quantity. or description on the part of the
owner or when any such duty or charge, after having been levied, or has been,
owing to any such cause, erroneously refunded, the person chargeable with the
duty or charge which has not been levied or which has been so short-levied or
to whom such refund has erroneously been made, shall pay the duty or charge or
the deficiency or repay the amount paid to him- in excess., on a notice of
demand being issued to him within three months from the relevant date as
defined in sub-section (2);
131 and the Customs-collector may refuse to
pass any goods belonging to such person until the said duties or charges or the
said deficiency or excess be paid or repaid,"' The second sub-section need
not be quoted, because ,it does not bear upon the controversy.
The contention of the Petitioners is that
although in the first paragraph of s. 39(1) the word "owner" may
comprehend an agent who is deemed to be an owner, if authorised under the Act,
the, section does not use the word "owner" in the latter part, and speaks
of "the person chargeable with the duty", meaning thereby a change
over to the real owner of the goods in contradistinction to the agent. They
urge that this is even more apparent from the words of the fourth paragraph of
the first subsection which authorises the Customs-collector to refuse to pass
any goods belonging to ",such person" which must mean the goods
belonging to the real owner, who is properly chargeable with the duty. It is
contended, therefore, that as the agent is not within the reach of s.39, the
demand of duty from him cannot be made, and that the provisions of the bond by
which the agent and his security are made liable, are beyond the provisions of
s. 39 and thus invalid.
One, thing is clear that the
Customs-authorities may have no dealing with the real owner of the goods where
the agent has been authorised to deal with them for the purposes of the Sea
Customs Act or any of its provisions. Section, 4 clearly lays down a fiction,
that if the agent is authorised by the real owner in respect of any of the
matters in the Act, the Customs-authorities would deal' with the agent as if he
were the owner. The effect of the fiction is, therefore, to make- an agent
answerable to the Customs- authorities within the four corners of his
The fiction operates only within those
limits. An agent may be authorised 132 to declare the real value and to pay the
customs duty or other charges. If an agent is authorised in this manner, under
the fiction created by s. 4 he would be regarded as the owner and would be
dealt with as such, by the Customs authorities.
It bar, already been pointed out that the
real value, quantity and description of the goods have to be declared in the
bill of entry or the shipping bill. A form was shown to us at the bearing in
which the declaration has to be made either by the real owner or the agent. The
form emphasis also that all responsibility for the declaration and for the
payment of the proper duty and charges may be taken by an agent. Once an agent
has made a declaration and has also been authorised to pay the duty etc., it is
to him that the Customs-authorities would look for payment or additional
payment, and it is to him that refunds would be, made. The Customs-authorities
would not deal with the real owner, and that is the scheme of the Act.
When s. 39 says that where customs duties or
charges have not been levied or have been short-levied through inadvertence,
error collusion or misconstruction on the part of the officers of Customs, or
through misstatement as to real value, quantity or description on the part of
the owner, it refers not only to the real owner,, but also to an agent, if the
latter can be deemed to be the owner., This is indeed, conceded by the
petitioners. The question then arises, what does the section mean when it
speaks of "'the person chargeable with the duty or charge which has not
been levied or Which has been so short-levied, or to whom such refund has erroneously
been made"? Obviously enough, the person to be charged, in so far as the
Customs-authorities are concerned, is not the, real owner but the agent, a
fictional owner of the goods. If a 'fictional owner, can be read into the first
part 133 of the section there is no reason why the words "the person
chargeable with duty" cannot also be applied to him. In the circumstances
in which the agent makes a declaration with authorisation from the real owner,
the agent is the person chargeable with the duty. Otherwise, for the duty
chargeable in the first instance the agent would be the person charge able with
the duty and 'for any short payment he would cease to be such a person and the
Customs- authorities would have to deal with the real owner, who made no
declaration or payment. The words "the person chargeable with the
duty...", therefore, have advisedly been used not to exclude the agent but
to describe in a neutral way the person from whom such a demand can be made.
They are wide enough in their ambit to take in, not only the real owner but
also a "deemed owner" under the Act. So far, there is no difficulty,
and the objection of the learned counsel for the petitioners that a simpler
method would have been to use the word "'owner" in this part of the section,
is without substance, because the legislature may express its meaning and
intention in different ways.
The critical argument, however, is, on the.
fourth paragraph of s. 39(1). There, it is provided that if the excess charge
is not paid, "the Customs-collector may refuse to Pass any goods belonging
to 'such person' until the said duties or charges or the said deficiency or
excess be paid or repaid". It is contended that an agent deals with
numerous owners at the same time, and if this paragraph is applied literally,
then the Customs-collector would be entitled to refuse to pass the goods
belonging to other Owners, handled by the same agent. This argument, in our
opinion, does not represent the true state of the law. An agent, when he works
for different owners with authorisation, undoubtedly becomes a fictional owner
of the goods belonging to them; but he does not become. a single, owner in
respect of the good belonging to 134 different clients. He becomes an owner
quoad each client and his ownership of the goods is diversified and is not one.
The agent, therefore, stands in the shoes of several persons at the same time,
and is himself a multitude of owners. It is only when short payment has been
made in his capacity as one fictional owner, that he can be asked to pay that
which he ought to have paid in the first instance. He is exposed to the penalty
of having his goods detained in the, same capacity as owner quoad his
defaulting client, and the goods within his control for the same client will be
detained until the duty has been paid. It is only the goods of the defaulting
owner in respect of which he is also the deemed owner, that would suffer the
penalty of detention but not the goods of a different owner, even though the
agent may be authorised to deal on his behalf. It is in this way that the
section must be read' without contradiction in its several parts, because to
read it as suggested by the petitioners, creates a contradiction between the
first paragraph and the other paragraphs that follow. An authorised agent is an
owner for all purposes of the Act (including payment of duty). If one were to
say that in the other paragraphs of s. 39(1) he is not included, then the
fiction which is created by s. 4 would cease to be worked out to its logical
limits. Once it is held that the words ",'the person chargeable with the
duty........... are apt to describe not only the real owner but also his
authorised agent (and there is no reason why these words should be restricted),
the fourth paragraph falls in line with the others, and the ownership of the
agent is, therefore, limited to one client at a' time, and the goods of that
client of which the agent is also the deemed owner, are exposed to the. penalty
of detention. It must be remembered that the Act makes the 'goods' liable to
duty and the payment of duty by owners clears the goods. The law goes further,
and says that other goods of the owner are also liable for an deficit, if the
135 liable to duty are 'cleared.' before the full duty has been paid.
The condition in the bond is limited by the
operation of s.39 to the transactions of one constituent at a time, and the for
feature of security is also limited to the constituent in default. The bond
prescribes for recouping of the deficiency in the customs duty or charges from
the security, even after notice is given. This notice must be given within
three months from the relevant date as demand in the section. The limit of
three months also applies to the agent as the deemed owner in the same way as
it does to the real owner. If no notice. is given, then the bond, on its own
terms, cannot be enforced. In our opinion, the contentions of the petitioners
are not, sustainable.
In the result, the petitions must fail except
to the extent that we declare r. 10(c) to be an unreasonable restraint upon the
right of the petitioners to carry on their avocation and r.11 when it
prescribes a renewal fee of Rs. 50, invalid inasmuch as it has provided not for
a fee but for a tax. Subject to this, the petitions are dismissed.
The petitioners will pay the costs of the
other side (one set only), as they have lost substantially.
SUBBA RAO, J.-I have, had the advantage of',
perusing the judgment prepared by my learned brother, Hidayatullah, J. I agree
with him except in regard to r. 6(c) of' the Custom House Agents Licensing
Rules, 1960 (hereinafter called the Rules). Rules 6(c) says : "An
applicant for a licence shall furnish an income-tax clearance
certificate." The Rules were made to regulate the conduct of the clearing
agents so that they may discharge their duties to the satisfaction of not only
the Customs Authorities but also the public. In my view, the production of
income-tax clearance certificate is extraneous to the issue, of a licence to a
customs house agent. How' does the 'production of such a certificate improve
the credentials of an applicant 136 for selection as a customs house agent, An
applicant may be financially sound and also otherwise duly qualified; he may
have discharged all his debts, and paid all his taxes except a small portion of
his income-tax: he may not have paid the income-tax for good reasons. Yet, if
he goes. not produce the income-tax clearance certificate, he is disqualified.
What is. the reasonable nexus between the
production of such a certificate and a person's right to do business as a
clearing agent ? There is none, except a remote and fanciful presumption that a
man who pays the income-tax. may also pay the dues payable to the Customs
Authorities. In K. Raman & Co., Tellicherry v. State of Madras (1), in the
context of issue of a licence under the Yarn Dealers Control Order, as Judge of
the Madras High Court,, I have held, "the fact that a person is in arrears
of income-tax is not germane to the issue of a licence under the Yarn Dealers
It is a, circumstance extraneous to the
petitioner's right to carry on his business.
The Income-tax Act provides an adequate
machinery for realising the arrears due from an assessee. I am of the view that
the restriction imposed is unreasonable and is not in the interests of the
general public." I still adhere to that view. Every taxing Act has a
machinery for collecting the tax imposed by it, but the said rule, in effect
and substance, provides for an additional machinery for collection of
income-tax. I would, therefore, hold-that the nonproductive of an income-tax
clearance certificate is not germane to the issue of a licence under the said
Rules. I would therefore strike out r.6(c) of the Rules on the ground that it
constitutes an unreasonable restriction on the right of an applicant to do
business as customs, house agent, (1) A.I.R. 1953 mad. 84.
137 BY COURT: In accordance 'with the
opinion, of the majority, the petitions must fail except to the extent that we
declare r.10 (c) to be: an unreasonable restraint upon the right of the,
petitioners to carry on their avocation, and r.11, when it prescribes a renewal
fee of Rs. 50, invalid inasmuch as it has provided not for a fee but for a tax.
Subject to this, the petitions are dismissed. The petitioners will pay the
costs of the other side (one set only), as they have lost substantially.