K.A. Nayar, J.

1. As directed by this Court by judgment dated 20-2-1987 in O.P. No. 2483 of 1986 filed by the assessee, the Customs, Excise and Gold (Control) Appellate Tribunal, South Regional Bench at Madras referred to this Court the following question stated to arise from the decision of the Tribunal in Appeal No. ED (MAS) 318/83, viz.

"Whether, on the facts and in the circumstances of the case, the finding that the assessee had produced and removed an unaccounted quantity of 2,18,833 kgs. of tread rubber by use of the short quantity of sulphur is vitiated by non-consideration of evidence relating to installed capacity for manufacture of tread rubber, electrical energy consumed, wages paid and main raw materials acquired and utilised during the relevant period"

2. After obtaining information regarding unauthorised removal of tread rubber from the factory belonging to the assessee, the officers of the Headquarters Preventive in the Collectorate of Central Excise, Cochin intercepted tempo van KRF 7835 containing excisable goods at about 3.00 a.m. on 14-10-1981, found it to contain 63 rolls of tread rubber without the cover of any invoice, gate pass, delivery challan or any valid documents and, therefore, they seized the same. Thereafter, they searched the building from which the goods had been brought out and recovered another 56 rolls of tread rubber. The 119 rolls were found to bear the marks "Super Tread" and Tread". The tempo van was also seized. The driver of the tempo van who is an employee of the assessee stated that the tread rubber under seizure was transported by him from the factory to the assessee and he was not given any documents when the goods were so removed. He also stated that he was directed to go to the godown of the assessee after 12 midnight and arranged for delivery of part of the quantity to one M/s. Metal Rubbers. It was while he was carrying the confiscated goods, the tempo van was intercepted. One of the partners of M/s. Metal Rubber Agencies who was in the van also substantially confirmed the statement of the driver. The department also examined the raw materials consumption by the assessee with particular reference to sulphur and it was found that 6500 kgs. of sulphur have been used from which 2,18,833 kgs. of tread rubber have been manufactured. This tread rubber was unaccounted for and the Collector of Customs, therefore, held that the assessee was liable to pay duty at the appropriate rate on the tread rubber which was valued at Rs. 15,07,015.80. He also found that the tread rubber seized from the building and from the tempo van KRF 7835 had been illicitly manufactured and cleared by the assessee in contravention of the Rules and the goods are liable to be confiscated under Rule 9(2) and Rule 173Q of the Central Excise Rules, 1944. The tempo van was also determined as liable for confiscation, but the van and the tread rubber had been released on execution of bond. The Collector also imposed a penalty of Rupees two lakhs on the assessee. Duty was also demanded in terms of Rule 9(2) read with Section 11A of the Central Excises and Salt Act, 1944. Aggrieved by the order of the Collector, the assessee filed appeal before the Tribunal and the Tribunal upheld the order of the Collector in regard to demand for payment of duty but reduced the penalty on the assessee to Rupees one lakh. The assessee filed application for reference before the Tribunal which , was rejected. It is, thereafter, as directed by this Court, the question of law hereinbefore mentioned was referred to this Court. The assessee George Varghese, Proprietor died on 14-3-1989 and his legal representatives have been impleaded as per order dt. 21-6-1989 in C.M.P. No. 15115/1989 as shown in the reference order.

3. We heard counsel for the assessee Sri Chacko George and Additional Central Government Standing Counsel Sri S.V. Balakrishna Iyer for the respondent.

4. The authority came to the conclusion that 2,18,833 kgs. of tread rubber have been manufactured and clandestinely removed without payment of duty. This finding was arrived at on the assumption that 6,500 kgs. of sulphur found short with the assessee was utilised for the manufacture of tread rubber which was disposed of illicitly in contravention of the provisions of Rules 9(1), 52A, 53 and 173G of the Central Excise Rules, 1944. It is found that with the said 6,500 kgs. of sulphur a quantity of 2,18,833 kilograms of tread rubber, at the rate of 3 kilograms sulphur for manufacture of 101 kgs. of tread rubber can be manufactured. In that case it was held that the said quantity viz. 2,18.833. kgs. of tread rubber was removed illicitly during the year 1981-82. The quantity was arrived at only from the shortfall of the sulphur. The assessee had explanation that the quantity of sulphur had damaged in rain and therefore, not used. The contention of the assessee was that under Rule 173E, the normal quantum of production has to be determined with reference to various factors and some of those factors were available with the department, but the same has not been adverted to or considered. If those factors have been adverted to it was the contention of the assessee that the quantum of production could not be what the Collector determined and the Appellate Tribunal confirmed. The Tribunal proceeds on the basis that Rule 173E refers the power of the empowered officer, but the same will not fetter the right of the Collector to make determination of his own in an acceptable manner. Under Rule 173E any officer duly empowered by the Collector will have to fix the quantum of normal production having regard to the installed capacity of the factory, raw material utilisation, labour employed, power consumed and such other relevant factors as it may deem appropriate. Under Rule 6 it is stated that the Collector can perform all or any of the duties, or exercise all or any of the powers assigned to an officer under the Rules. Therefore, it cannot be stated that the requirement of Rule 173E and the factors to be considered for determining the normal production as mentioned therein need be considered only by an officer duly empowered by the Collector and that the Collector need not advert to those factors. If the Collector is determining the normal production, he has to follow the guidelines mentioned in the rule, in any case, it cannot be stated that he can act arbitrarily and come to any conclusion. The rule requires adverting to several factors for determining the normal production such as installed capacity of the factory, labour employed, power consumed and other relevant factors apart from raw material utilisation. If inference has been drawn without adverting to relevant fact, the resulting order will be vitiated.

5. In Venkataswami Naidu & Co. v. Commissioner of Income Tax : [1959]35ITR594(SC) the Supreme Court, while considering the power conferred on the High Court under Section 66(1) of the Income Tax Act, held :

"... In some cases, the point sought to be raised on reference may turn out to be a pure question of fact; and if that be so, the finding of fact recorded by the tribunal must be regarded as conclusive in proceedings under Section 66(1). If, however, such a finding of fact is based on an inference drawn from primary evidentiary facts proved in the case, its correctness or validity is open to challenge in reference proceedings within narrow limits. The assessee or the revenue can contend that the inference has been drawn on considering inadmissible evidence or after excluding admissible and relevant evidence; and, if the High Court is satisfied that the inference is the result of improper admission or exclusion of evidence, it would be justified in examining the correctness of the conclusion. It may also be open to the party to challenge a conclusion of fact drawn by the tribunal on the ground that it is not supported by any legal evidence; or that the impugned conclusion drawn from the relevant facts is not rationally possible; and if such a plea is established, the Court may consider whether the conclusion in question is not perverse and should not, therefore, be set aside."

Further, in Omar Salay Mohamed Sait v. Commissioner of Income Tax, Madras : [1959]37ITR151(SC) the Supreme Court held that the conclusion reached by the Tribunal should not be coloured by any irrelevant consideration or on improper rejection of material or relevant evidence. The Supreme Court observed:

"We have set out the facts in minute detail as we are setting aside the order of the Appellate Tribunal and remanding the matter back to it in order to reconsider the same. The limits of our jurisdiction in regard to the findings of fact reached by courts of fact have been laid down by us in several decisions of this Court, In Dhirajlal Girdharilal v. Commissioner of Income Tax : [1954]26ITR736(SC) we expressed the opinion that when a Court of fact arrives at its decision by considering material which is irrelevant to the enquiry, or acts on material partly relevant and partly irrelevant, where it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its decision, a question of law arises: Whether the finding of the Court of fact is not vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible material.

It was similarly observed by us in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax (1954) 26 ITR 775 that the powers given to the Income Tax Officer under Section 23(3) of the Income Tax Act, however wide, did not entitle him to base the assessment on pure guess without reference to any evidence 01 material. An assessment under Section 23(3) of the Act, could not be made only on bare suspicion. An assessment so made without disclosing to the assessee the information supplied by the departmental representative and without giving an opportunity to the assessee to rebut the information so supplied and declining to take into consideration all materials which the assessee wanted to produce in support port of his case constituted a violation of the fundamental rules of justice are called called for exercise of the powers under Article 136 of the Constitution."

In Gopinathan Nair & Co. v. State of Kerala (1987) 64 STC 452 [LQ/KerHC/1986/582] a Division Bench of the Court, of which one of us was a party, while examining the power of the tribunal, of served as follows:

"We have seen that 7 sets of documents were available before the Tribunal From 1st September, 1970, import of raw cashew nuts was canalised through the Cashew Corporation of India Limited. The provisions of the Import Conti(sic) Order are relevant to determine the nature of the transaction. On a perusal the order of the Tribunal, we find that the Appellate Tribunal has not address itself to the provisions of the Import Control Act and the Import Control Order 1955. It is also evident that the Appellate Tribunal referred to seven sets of documents produced by the assessee and observed that they have perused all the, documents in respect of these transactions. What is the nature and effect of these documents, considered in the light of the Import Control Order, is not seen discussed in the order of the Appellate Tribunal."

As observed by the Supreme Court in the C.I.T. Gujarat v. Cellulose Products of India Ltd. : [1991]192ITR155(SC) :

"... It is settled law that a High Court hearing a reference under the does not exercise any appellate or revisional or supervisory jurisdiction over the Tribunal and that it acts purely in an advisory capacity. If the Tribunal after considering the evidence produced before it on a question of fact records its finding not supported by any evidence, was perverse or patently unreasonable."

What is unreasonable is a matter to be judged in each individual case. As observed in Davis Contractors Ltd. v. Fareham U.D. C. (1956) 2 All. E.R. 145, "the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is, and must be the court itself...." The test of reasonableness has been laid down in the frequently cited passage though, as observed by Prof. Wade is most commonly cited by its nickname Wednesburys case. Prof. Wade stated in his book Administrative Law, 6th Edition at page 407 that:

"Unreasonableness has thus become a generalised rubric covering not only sheer absurdity or caprice, but merging into illegitimate motives and purposes, a wide category of errors commonly described as irrelevant considerations, and mistakes and misunderstandings which can be classed as self-misdirection, or addressing oneself to the wrong question ...".

The doctrine usually styled as Wednesbury unreasonableness in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation is as under:

"It is true that discretion must be exercised reasonably. Now what does that mean Lawyers familiar with the phraseology used in relation to exercise of statutory discretions often use the word unreasonable in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with a discretion must, so to speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting unreasonably. Similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority. Warrington L.J. in Short v. Poole Corporation gave the example of the red-haired teacher, dismissed because she had red hair. This is unreasonable in one sense. In another it is taking into consideration extraneous matters. It is so unreasonable that it might almost be described as being done in bad faith; and, in fact, all these things run into one another."

This passage has been cited with approval in G.B. Mohajon v. Jalgaon Municipal Council : AIR1991SC1153 .

6. From the above statement of law, it will be seen that the Tribunal cannot base its finding on suspicion or surmise. The failure to advert to proper material or relevant evidence will vitiate the order itself. The Tribunal, in this case, failed to consider all the relevant factors required to be considered under Rule 173E for determining the normal production.

7. In the circumstances, we are satisfied that the order is vitiated and, therefore, we refuse to answer the question referred to us, but direct the Tribunal to restore Appeal No. ED (MAS) 318/1983 on file and pass appropriate order after giving an opportunity to the assessee to be heard according to law.

A copy of this judgment under the seal of this Court and the signature of the Registrar will be forwarded to the Customs, Excise and Gold (Control) Appellate Tribunal, South Regional Bench at Madras.