A three-judge bench of the Hon’ble Supreme Court of India has allowed the review petition seeking review of the 2021 judgment of the Supreme Court of India in M/s Canon India Private Ltd. v. Commissioner of Customs and restored the power of the officers of Directorate of Revenue Intelligence (‘DRI’) to issue show cause notices and recover dues under the Customs Act, 1962 (‘Customs Act’).
This significant ruling of the Apex court confirms the authority of DRI officers as ‘proper officers’ under Section 28 of the Customs Act and overrules the decision in Canon India (supra) by considering the 2021 judgement ‘patently erroneous’ as it did not contemplate the relevant notifications and amendment in the custom laws.
Background of the Case
The present legal saga began in Commissioner of Customs v. Sayed Ali and Another wherein the Apex Court held that the Commissioner of Customs (Preventive) is not a “proper officer” as defined in Section 2(34) of the Customs Act and therefore did not have the jurisdiction to issue a show cause notice in terms of Section 28 of the Customs Act. The Court observed that while all proper officers must be “officers of customs”, all “officers of customs” are not proper officers.
In consequence to Sayed Ali (supra), the Central Board of Excise and Customs (the ‘Board’) issued Notification No. 44/2011-Cus-NT dated 06 July 2011 under Section 2(34) of the Customs Act, assigning the functions of the “proper officers” to DRI with prospective effect. Further, in order to empower DRI for period prior to 06 July 2011, Section 28(11) was introduced vide the Customs (Amendment and Validation) Act, 2011 (‘Validation Act’) by virtue of which all persons appointed as Officers of Customs under sub-section (1) of Section 4 before 06 July 2011 were deemed to have and always had the power of assessment under Section 17 and were deemed to be and always have been “proper officers” for the purpose of the Customs Act.
The Constitutional validity of Section 28(11) of the Customs Act was challenged before the Hon’ble Bombay High Court in Sunil Gupta v. Union of India and Others wherein it was held that DRI officers were competent ‘proper officers’ authorized to issue show cause notices. However, the Hon’ble Delhi High Court in Mangali Impex Ltd. v. Union of India held that Section 28(11) would not empower officers of DRI to either adjudicate the show-cause notices already issued by them for the period prior to 08 April 2011 or to issue fresh show-cause notices for said period since the said provision did not overrule Explanation 2 which stated that cases of non-levy, short levy or erroneous refund prior to 08 April 2011 would continue to be governed by unamended Section 28. Respective appeals were filed against these decisions before the Supreme Court and the same were tagged along with the review petition in Canon India (supra).
On 09 March 2021, the Supreme Court in Canon India (supra) proceeded with the principles established in Syed Ali (supra) that only such officers who are vested with the power of assessment under Section 17 can be empowered to issue show cause notices under Section 28 of the Customs Act. The Apex Court further held that the nature of the power to recover customs duty under Section 28 of the Customs Act is a power to review the earlier decision of assessment. The review power has been conferred specifically on “the proper officer”, which must necessarily mean the proper officer who in the first instance assessed and cleared the goods. Hence, if an officer has exercised his powers of assessment, the power to order re-assessment [under Section 28(4) of the Custom Act] must also be exercised by the same officer.
The Department preferred a review petition against the judgement delivered in Canon India (supra).
Key Conclusions
No linkage between Sections 17 and 28:
The Supreme Court clarified that Section 17 (assessment) and Section 28 (recovery of duty) operate independently without inherent interlinkage. Section 17 permits customs officers to assess duty at import or export, while Section 28 authorizes designated officers to recover unpaid or short-paid duties through show-cause notices. This recovery process does not require the same officer who assessed the duty under Section 17 to issue notices under Section 28. Consequently, the Court held that the linkage between Sections 17 and 28 asserted in the Syed Ali (supra) and Canon India (supra) does not represent the correct legal interpretation.
Exposition of the phrase ‘the Proper Officer’:
In the Canon India (supra), it was observed that the legislature had employed the Article “the” instead of “a/an” in Section 28 of the Act, 1962 so as to give effect to its intention of specifying that the proper officer referred to in Section 28 is the same officer as the one referred to in Section 17. However, in the review petition, the Supreme Court clarified that in terms of Section 28, the interpretation of the definite article ‘the’ before the phrase ‘Proper Officer’ should be read in the context of that proper officer who has been conferred with the powers of discharging its functions under Section 28 by means of a notification issued under Section 5 of the Act vis-à-vis the officers of DRI vide the Notification No. 44/2011-Cus-N.T. dated 06 July 2011.
DRI Officers are ‘Officers of Customs’ and need no entrustment under Section 6:
Canon India (supra) observed that the Notification No. 40/2012 dated 02 May 2012 issued by the Board, which empowered the DRI officers to perform functions under Section 28 was invalid and it should have been issued by the Central Government in exercise of its power under Section 6 of the Act. Section 6 of the Customs Act provides for the entrustment of the functions of the Board or any officer of customs under the Customs Act to any of the officers of the Central or the State Government or a local authority. In the review petition, the Supreme Court agreeing with the decision of the Madras High Court , clarified that the Notifications such as No. 44/2011-Cus-N.T. and No. 40/2012-CusN.T. were validly issued under Section 2(34) read with Section 5, empowering DRI officers to act as proper officers inter alia for issuing SCNs under Section 28 and the officers of DRI are not “any other officers of the Central Government or the State Government” to be entrusted with the functions of the Board and the Customs Officers under Section 6.
Section 28(11) is constitutionally valid, and its application is not limited to period between 08 April 2011 and 16 September 2011
The Hon’ble Delhi High Court in the case of Manjali Impex (supra) had held that Section 28(11) could not validate the show cause notices issued by DRI officers prior to 08 April 2011 since the Parliament, by virtue of Finance Act, 2011, added Explanation 2 to Section 28 stating that any non-levy, short-levy or erroneous refund before 08 April 2011 should be governed by Section 28 as stood prior to the amendment. In the review petition, the Hon’ble Supreme Court overruled Manjali Impex (supra) and said that the amendment to Section 28 via Finance Act, 2011 did not have any impact on the competence of the proper officer for the purpose of fulfilment of functions under Section 28. The Supreme Court held that sub-section (11) only pertained to the empowerment of proper officers to issue show cause notices and hence could not be said to be limited only to new Section 28 but also the provision as it stood prior to 08 April 2011. Accordingly, the Supreme Court upheld the constitutionally of Section 28(11) for the period prior to 08 April 2011 as well.
Section 97 of Finance Act, 2022 is constitutionally valid
Section 97 of the Finance Act, 2022 was inserted giving retrospective effect to Section 2, 3, and 5 of the Customs Act in order to cure the defect observed by the Hon’ble Supreme Court in Canon India (supra). In the present review petition, the Hon’ble Supreme Court observed that Canon India (supra) had proceeded on erroneous assumption that jurisdiction of proper officer under Sections 17 and 28 was linked. Further Section 97 of Finance Act, 2022 had merely clarified that any deficiencies in law under Section 2, 3, and 5 of Customs act as they stood prior to Finance Act, 2022 would not be an obstacle to the validation Act as mentioned in clause (i). Accordingly, it was observed that the retrospective application of Sections 2, 3 and 5 of Customs Act was not stand-alone but was restricted to achieve the ultimate object of validation. Basis this, the Court upheld the constitutional validity of Section 97 of Finance Act, 2022.
Our Comments
This ruling and the retrospective amendment in the Customs law grants clearance to the Revenue to move forward with numerous pending tax recovery cases worth over ₹20,000 crore which were stalled due to the litigation on the jurisdiction of DRI officers. Now, with this decision, these will be taken up for hearing on merits.