Legal
Supreme Court Reaffirmed “DRI Officers can Issue Show Cause Notice under Customs Act, 1962.” (Commissioner of Customs vs. M/S Canon India Pvt. Ltd. Review Petition No. 400 of 2021 in Civil Appeal No. 1827 of 2018)
Dec
Table of Contents:
COMMISSIONER OF CUSTOMS …PETITIONER
VERSUS
M/S CANON INDIA PVT. LTD. …RESPONDENT
Introduction
The COMMISSIONER OF CUSTOMS vs M/S CANON INDIA PVT. LTD judgement is a significant decision in the field of the Customs. Thousands of appeals are pending before the Customs, Excise, and Service Tax Appellate Tribunal, awaiting the Supreme Court’s verdict. Additionally, thousands of other cases previously remanded to the department by the tribunal will now be reconsidered by the department. New appeals will likely be filed with the tribunal if the department’s decisions are unfavourable. The relevant portion of judgement are as below –
Judgement Summary (Relevant part only)
11. A batch of four statutory appeals came to be decided by this Court on 09.03.2021 in Canon India (supra) wherein this Court decided the following two issues – first, whether the officers of DRI would be “proper officers” under Section 2(34) for the purposes of Sections 17 and 28 of the Act, 1962 respectively; and second, whether such officers are empowered to issue show cause notices demanding customs duty under section 28 of the Act, 1962. To elaborate:
(b)Whether an Additional Director General of DRI, who has been appointed as an “officer of Customs” under the Notification dated 07.03.2002, has been entrusted with the functions of “the proper officer” for the purpose of Section 28 of the Act, 1962?
14. It appears from the decision in Canon India (supra) that the Notification No. 44/2011-Cus-NT dated 06.07.2011 designating officers of DRI as “proper officers” for the purposes of both Sections 17 and 28 of the Act, 1962 respectively; the introduction of Section 28(11) vide the Validation Act, 2011 introducing Section 28(11) empowering such officers for the period prior to 06.07.2011; the statutory scheme as envisaged under Sections 3, 4, 5 and 2(34) of the Act, 1962 respectively; and the pendency of the appeal against the decision in Mangali Impex (supra) and the stay of the operation of the said decision by this Court was either not noticed or not brought to the notice of the Court.
17. The present batch comprises of three clusters of matters: (i) The Review Petitions in the Canon India (supra) batch; (ii) The Mangali Impex (supra) appeal and other appeals pending before this Court on the issue of whether the officers of DRI would be proper officers in light of Section 28(11); and (iii) The petitions challenging the constitutional validity of Section 97 of the Finance Act, 2022.
ISSUES FOR CONSIDERATION
D. ISSUES FOR CONSIDERATION
56. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following questions fall for our consideration:
(i) Whether there is an “error apparent on the face of the record” for the purpose of entertaining the review petition?
(ii) If the answer to the aforesaid question is in the affirmative, then whether the exposition of law propounded by this Court in Canon India (supra) as regards the power of the DRI to issue show cause notices could be said to be the correct statement of law? This would entail addressal of the following questions: a. Whether officers of DRI are the proper officers for the purposes of Section 28 of the Act, 1962? b. What would be the extent, scope and domain of Section 6 of the Act, 1962 vis-à-vis Section 2(34), Section 3, Section 4 and Section 5 of the Act, 1962 and whether an entrustment by the Central Government under Section 6 of the Act, 1962 is mandatory to empower the Officers of the DRI for the purpose of issuing show cause notices? c. Whether the power under Section 28 can be exercised only by someone who is empowered to exercise the power under Section 17 of the Act, 1962 for the goods in question? In other words, how best the meaning of the expression “proper officer” should be construed for the purposes of exercise of functions under Section 28? d. Whether “the proper officer” in Section 28 must necessarily be the same proper officer referred to under Section 17 of the Act, 1962? If no, whether the use of the definite article “the” in the expression “the proper officer” in Section 28 is in the context of that proper officer who has been assigned the powers of discharging the functions under Section 28 by virtue of powers conferred under Section 5 of the Act, 1962? e. Whether issuance of show cause notices followed by adjudication under Section 28 of the Act, 1962 is an administrative review as held in Canon India (supra) or a quasi-judicial exercise of power under administrative law?
(iii) Whether the introduction of Section 28(11) vide the Validation Act of 2011 which retrospectively validates the show cause notices issued under Section 28 with effect from 06.07.2011, is discriminatory and arbitrary for not curing the defect highlighted in Sayed Ali (supra) and, therefore, is violative of Article 14 of the Constitution of India?
(iv) Whether the judgment delivered by the High Court of Delhi in the case of Mangali Impex (supra) expounds the correct interpretation of Section 28(11)? (v) Whether Section 97 of the Finance Act, 2022, which retrospectively validates the show cause notices with effect from 01.04.2023, is manifestly arbitrary and therefore, violative of Article 14 of the Constitution of India?
Conclusion
F. CONCLUSION
168. In view of the aforesaid discussion, we conclude that:
(i) DRI officers came to be appointed as the officers of customs vide Notification No. 19/90-Cus (N.T.) dated 26.04.1990 issued by the Department of Revenue, Ministry of Finance, Government of India. This notification later came to be superseded by Notification No. 17/2002 dated 07.03.2002 issued by the Department of Revenue, Ministry of Finance, Government of India, to account for administrative changes.
(ii) The petition seeking review of the decision in Canon India (supra) is allowed for the following reasons: a. Circular No. 4/99-Cus dated 15.02.1999 issued by the Central Board of Excise & Customs, New Delhi which empowered the officers of DRI to issue show cause notices under Section 28 of the Act, 1962 as well as Notification No. 44/2011 dated 06.07.2011 which assigned the functions of the proper officer for the purposes of Sections 17 and 28 of the Act, 1962 respectively to the officers of DRI were not brought to the notice of this Court during the proceedings in Canon India (supra). In other words, the judgment in Canon India (supra) was rendered without looking into the circular and the notification referred to above thereby seriously affecting the correctness of the same. b. The decision in Canon India (supra) failed to consider the statutory scheme of Sections 2(34) and 5 of the Act, 1962 respectively. As a result, the decision erroneously recorded the finding that since DRI officers were not entrusted with the functions of a proper officer for the purposes of Section 28 in accordance with Section 6, they did not possess the jurisdiction to issue show cause notices for the recovery of duty under Section 28 of the Act, 1962. c. The reliance placed in Canon India (supra) on the decision in Sayed Ali (supra) is misplaced for two reasons – first, Sayed Ali (supra) dealt with the case of officers of customs (Preventive), who, on the date of the decision in Sayed Ali (supra) were not empowered to issue show cause notices under Section 28 of the Act, 1962 unlike the officers of DRI; and secondly, the decision in Sayed Ali (supra) took into consideration Section 17 of the Act 1962 as it stood prior to its amendment by the Finance Act, 2011. However, the assessment orders, in respect of which the show cause notices under challenge in Canon India (supra) were issued, were passed under Section 17 of the Act, 1962 as amended by the Finance Act, 2011. (iii) This Court in Canon India (supra) based its judgment on two grounds: (1) the show cause notices issued by the DRI officers were invalid for want of jurisdiction; and (2) the show cause notices were issued after the expiry of the prescribed limitation period. In the present judgment, we have only considered and reviewed the decision in Canon India (supra) to the extent that it pertains to the first ground, that is, the jurisdiction of the DRI officers to issue show cause notices under Section 28. We clarify that the observations made by this Court in Canon India (supra) on the aspect of limitation have neither been considered nor reviewed by way of this decision. Thus, this decision will not disturb the findings of this Court in Canon India (supra) insofar as the issue of limitation is concerned. (iv) The Delhi High Court in Mangali Impex (supra) observed that Section 28(11) could not be said to have cured the defect pointed out in Sayed Ali (supra) as the possibility of chaos and confusion would continue to subsist despite the introduction of the said section with retrospective effect. In view of this, the High Court declined to give retrospective operation to Section 28(11) for the period prior to 08.04.2011 by harmoniously construing it with Explanation 2 to Section 28 of the Act, 1962. We are of the considered view that the decision in Mangali Impex (supra) failed to take into account the policy being followed by the Customs department since 1999 which provides for the exclusion of jurisdiction of all other proper officers once a show cause notice by a particular proper officer is issued. It could be said that this policy provides a sufficient safeguard against the apprehension of the issuance of multiple show cause notices to the same assessee under Section 28 of the Act, 1962. Further, the High Court could not have applied the doctrine of harmonious construction to harmonise Section 28(11) with Explanation 2 because Section 28(11) and Explanation 2 operate in two distinct fields and no inherent contradiction can be said to exist between the two. Therefore, we set aside the decision in Mangali Impex (supra) and approve the view taken by the High Court of Bombay in the case of Sunil Gupta (supra). (v) Section 97 of the Finance Act, 2022 which, inter-alia, retrospectively validated all show cause notices issued under Section 28 of the Act, 1962 cannot be said to be unconstitutional. It cannot be said that Section 97 fails to cure the defect pointed out in Canon India (supra) nor is it manifestly arbitrary, disproportionate and overbroad, for the reasons recorded in the foregoing parts of this judgment. We clarify that the findings in respect of the vires of the Finance Act, 2022 is confined only to the questions raised in the petition seeking review of the judgment in Canon India (supra). The challenge to the Finance Act, 2022 on grounds other than those dealt with herein, if any, are kept open. (vi) Subject to the observations made in this judgment, the officers of Directorate of Revenue Intelligence, Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence and Commissionerates of Central Excise and other similarly situated officers are proper officers for the purposes of Section 28 and are competent to issue show cause notice thereunder. Therefore, any challenge made to the maintainability of such show cause notices issued by this particular class of officers, on the ground of want of jurisdiction for not being the proper officer, which remain pending before various forums, shall now be dealt with in the following manner: a. Where the show cause notices issued under Section 28 of the Act, 1962 have been challenged before the High Courts directly by way of a writ petition, the respective High Court shall dispose of such writ petitions in accordance with the observations made in this judgment and restore such notices for adjudication by the proper officer under Section 28. b. Where the writ petitions have been disposed of by the respective High Court and appeals have been preferred against such orders which are pending before this Court, they shall be disposed of in accordance with this decision and the show cause notices impugned therein shall be restored for adjudication by the proper officer under Section 28. c. Where the orders-in-original passed by the adjudicating authority under Section 28 have been challenged before the High Courts on the ground of maintainability due to lack of jurisdiction of the proper officer to issue show cause notices, the respective High Court shall grant eight weeks’ time to the respective assessee to prefer appropriate appeal before the Customs Excise and Service Tax Appellate Tribunal (CESTAT). d. Where the writ petitions have been disposed of by the High Court and appeals have been preferred against them which are pending before this Court, they shall be disposed of in accordance with this decision and this Court shall grant eight weeks’ time to the respective assessee to prefer appropriate appeals before the CESTAT. e. Where the orders of CESTAT have been challenged before this Court or the respective High Court on the ground of maintainability due to lack of jurisdiction of the proper officer to issue show cause notices, this Court or the respective High Court shall dispose of such appeals or writ petitions in accordance with the ruling in this judgment and restore such notices to the CESTAT for hearing the matter on merits. f. Where appeals against the orders-in-original involving issues pertaining to the jurisdiction of the proper officer to issue show cause notices under Section 28 are pending before the CESTAT, they shall now be decided in accordance with the observations made in this decision.
(a) Whether the Directorate of Revenue Intelligence (DRI) had the legal authority to issue a show cause notice under Section 28(4) of the Act, 1962, when the goods were cleared for import by a Deputy Commissioner of Customs (who had decided that the goods are exempted from being taxed on import)?
169. In view of the aforesaid, we allow the Review Petition No. 400/2021 titled Commissioner of Customs v. M/s Canon India Pvt. Ltd. and the connected Review Petition Nos. 401/2021, 402/2021 and 403/2021 insofar as the issue of jurisdiction of the proper officer to issue show cause notice under Section 28 is concerned. As discussed, the findings of this Court in Canon India (supra) in respect of the show cause notices having been issued beyond the limitation period remain undisturbed.
170. We set aside the decision of the High Court of Delhi rendered in the case of Mangali Impex (supra) and uphold the view taken by the High Court of Bombay in the case of Sunil Gupta (supra). We also uphold the constitutional validity of Section 97 of the Finance Act, 2022.
171. The Registry shall take steps to list the connected civil appeals and writ petitions before the appropriate Bench and they shall be disposed in terms of the observations made in this judgment.
172. The review petitions are accordingly disposed of.
