The Supreme Court on November 7, passed one of those orders (henceforth known as Review Order ) which restores and reaffirms faith in the majesty of law.
This was in the petition filed by the Customs Department seeking review of the judgement and order dated 09.03.2021 ( henceforth known as Original Order ) passed by the Supreme Court in the case titled Canon India Private Limited versus Commissioner of Customs.
To recapitulate the Original Order had, following the precedent laid down in the Sayed Ali case ( 2011) SCC 537 and Mangali Impex ( 2016 ) SCC Online Del 2597 of the High Court of Delhi, held that officers of the Directorate of Revenue Intelligence (DRI) were not empowered to issue show cause notices demanding duty, that such power was only with officers who had the powers of assessment. The Apex Court went on to opine, in what was the unkindest cut, that officers of the DRI are neither officers of customs nor ‘proper officers’.
The Government cognisant of the critical role played by DRI in thwarting smuggling and the enormous damage these decisions would have on the functioning of the organisation as also on the notices issued by DRI demanding duty, had acted decisively to amend the law retrospectively — through the Customs (Amendment and Validation) Act 2011 and subsequently through Section 97 of the Finance Act 2022.
The Original Order held that the power to demand duty was only with the officers who had powers of assessment and that officers of DRI were not ‘proper officers’. The consequence of this decision was that all show cause notices issued by the DRI as also by other authorities in similar circumstances, were either dismissed on this technicality (the merits of the case not even being considered) or kept on hold. It was in this background that the department had filed the Review petition — more than a hundred writ petitions were clubbed along with the review and disposed by the Supreme Court in the Review Order.
The Review Order at the outset identified the issues for consideration — to paraphrase:
- (1) Is there a case for review
- (2) If yes, was the earlier decision in Canon that DRI did not have the powers to issue a show cause notice, correct?
- (3) Are DRI officers ‘proper officers’ for issuing such demand notices?
- (4) The nuances of the various provisions of the Customs Act (CA) — more specifically sections 6,2(34)3,4, and 5?
- (5) Is entrustment as contemplated in section 6 essential for the DRI officer to issue a notice?
- (6) Nuances/distinction between Section 17 and 28 of the CA?
- (7) Implications of the definitive article ‘the’ used in section 28 of the CA?
- (8) Whether the retrospective amendments carried out by the Validation Act of 2011 and section 97 of the Finance Act 2022 are arbitrary and violative of Article 14 of the Constitution?
- (9) The implications of the Sayed Ali and Mangali Impex decisions?
The Apex court should be commended for so eloquently fleshing out with such clarity all the issues for consideration and setting out to address them.
A brief background to set the issue in context.
As brought out in one of my earlier article, the Original Order had not appreciated the context in which powers of the CA are ‘entrusted’ and such ‘entrustment’ was not required for officers of customs which the officers of DRI were always. The CA is a logical, brief and one of the better fiscal enactments; it leaves little room for ambiguity. Under the scheme of the CA a ‘proper officer’ was defined as one who has been assigned functions by the Central Board of Indirect Taxes & Customs (Board).
The CA contemplates a ‘proper officer’ who is ‘assigned ‘ functions as determined by the Board, the class and appointment of officers as also the powers which such officers can exercise; it also recognises the challenges in exercising control over such a wide geography and hence stipulates that limited powers can be ‘entrusted’. The CA goes on to delineate the various activities-assessment which later with growing confidence was entrusted to the importer who had to self-assess, re-assessment in case of shortcomings for the purpose of demand of duty and issue of notices for doing so.
The Review Order at the very outset confirmed that there is a case for admitting a review petition in terms of Article 137 of the Constitution, the Code of Civil Procedure and the SC Rules where there is an error apparent on the face of the record or any other sufficient reason. Having admitted the Review Petition, the Review order goes on to discuss the implications of the Sayed Ali and Mangali Impex cases which had weighed on the mind of the SC when the Original Order was passed.
The Sayed Ali case had held that only such officer who had been assigned the functions of assessment/re-assessment could issue a notice demanding duty; the context being a notice issued by the Commissioner of Customs (Preventive) in a case where the assessment had been done by another officer in Bombay Customs House.
The Review Order has categorically delinked the provisions relating to assessment from the provisions relating to demand of duty-and in effect held the two officers could be different. What this also meant as observed in the Review Order was that the emphasis placed on the definitive article ‘the’ in the Original Order was not valid.
The Review Order also acknowledges the fact that the provisions relating to assessment had been amended from 2011-no longer was assessment being done by the department, but the importer was self- assessing which self-assessment could (the CA talks of ‘may ‘) be reviewed by the proper officer to ascertain correctness. The Review Order observed that this critical change in the law had not been brought to the notice of the SC when it passed its Original Order.
The Review Order then goes to emphatically assert that the officers of DRI were empowered to issue show cause notices and adjudicate the cases-that they were indeed proper officers for both these purposes. The 2011 notification which so empowered the officers of DRI had also not been brought to the notice of the SC. The Review Order discusses and confirms that the officers of DRI were and are officers of Customs. That being the case the Review Order dismisses the need for the officer of DRI to be ‘entrusted’ with functions as contemplated under Section 6 of CA – it has pointed out that such ‘entrustment’ of powers was needed only in case of other officers of the Central Government.
The Review Order has deliberated about the implications of Mangali Impex order which had been given much credence in the Original Order. To briefly explain, the provisions relating to recovery of duty had been amended through the Customs (Amendment and Validation) Act 2011 ; a categorical explanation had been brought in that any levy/short-levy/refund before the date of the assent to the Finance Bill would be governed by the provisions of the section as it stood before the amendment.
This provision was brought in with retrospective effect as mentioned in the statement of objects and reasons to address the fall out of the Sayed Ali judgment- the legislative intent was never to invalidate the notices issued by officers by officers other than the assessing officers. The Review order has held that the amendment was constitutionally valid; it has overturned the High Court of Delhi order of Mangali Impex.
The Apex Court has then examined the amendment brought in vide Section 97 of the Finance Act 2022 which sought to address the concerns raised in the Original Order. The Finance Act had retrospectively validated all actions taken by the customs officers before the commencement of the Finance Act 2022; in effect what this meant was that show cause notices even if issued by an officer other the assessing officer were valid in law.
The Apex Court has as discussed earlier emphatically arrived at the conclusion that the officers of DRI were indeed empowered to issue show cause notices even if they had not been the assessing officers. It observed that the amendment carried out by the Finance Act 2022 was a ‘mere surplusage’ – in other words something excessive, nonessential, not required because there was no defect which required curing!
The Review Order allowed the review petition and directed that all notices kept pending should be disposed in the light the observations made in the Review order. Notices issued in the circumstances mentioned above can now be heard and decided. It is estimated that total duty so involved would be totaling more than Rs.50,000 crore.
The order authored by Justice J.B.Pardiwala is well-reasoned and has gone the extra-length to address all issues raised . Officers of the DRI would be relieved that their identity as proud officers of Customs have been restored. There could have been no better gift to the DRI as it heads towards its 67th Founding Day celebrations.
— The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.
Read his previous articles here
