Supreme Court Clarifies Powers of DRI Officers in Customs Duty Recovery: Commissioner of Customs vs. Canon India Pvt. Ltd. (2024)

LEGAL ISSUE: Scope of authority of Directorate of Revenue Intelligence (DRI) officers to issue show cause notices for customs duty recovery.

CASE TYPE: Customs Law, Tax Law

Case Name: Commissioner of Customs vs. M/s Canon India Pvt. Ltd.

Judgment Date: 7th November 2024

Can officers of the Directorate of Revenue Intelligence (DRI) initiate proceedings to recover customs duties? The Supreme Court of India has addressed this critical question in a recent judgment, clarifying the extent of powers vested with DRI officers concerning customs duty recovery. This ruling is pivotal for businesses involved in import and export, and for the customs authorities themselves. The Supreme Court bench comprised of Chief Justice Dr. Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, with the majority opinion authored by Justice Pardiwala.

Case Background

The core issue revolves around the authority of DRI officers to issue show cause notices for the recovery of customs duties. This matter arose from a review petition filed by the Customs Department against an earlier judgment in M/s Canon India Private Ltd. v. Commissioner of Customs. The initial judgment had ruled against the DRI’s authority, leading to a re-evaluation by the Supreme Court. The case also involves a batch of other petitions and appeals relating to the same issue, including the constitutional validity of certain amendments made by the Finance Act, 2022.

Timeline:

Course of Proceedings

The case initially stemmed from a ruling that officers of the Customs (Preventive) wing were not ‘proper officers’ to issue show cause notices for duty recovery. This led to the enactment of Section 28(11) of the Customs Act, 1962, to validate past actions. However, the Delhi High Court in Mangali Impex held that Section 28(11) did not overcome the legal position that cases prior to 08.04.2011 would continue to be governed by the unamended Section 28. This decision was stayed by the Supreme Court. The Bombay High Court in Sunil Gupta, however, upheld the validity of Section 28(11). The Supreme Court in Canon India then reiterated the principles laid down in Sayed Ali, which led to the current review proceedings.

Legal Framework

The judgment primarily interprets the following provisions of the Customs Act, 1962:

• Section 2(34): Defines “proper officer” as “the officer of customs who is assigned those functions by the Board or the Principal Commissioner of Customs or Commissioner of Customs under section 5.”
• Section 3: Specifies the classes of officers of customs, including Chief Commissioners, Commissioners, Deputy Commissioners, and Assistant Commissioners.
• Section 4: Empowers the Board to appoint officers of customs.
• Section 5: Deals with the powers and duties of officers of customs.
• Section 6: Empowers the Central Government to entrust functions of the Board or customs officers to other Central or State Government officers or local authorities.
• Section 17: Concerns the assessment and reassessment of duties on imported or exported goods.
• Section 28: Provides for the recovery of duties not levied, short-levied, or erroneously refunded.
• Section 28(11): Introduced by the Customs (Amendment and Validation) Act, 2011, it validates the power of assessment and proper officer status for customs officers appointed before 06.07.2011.
• Section 110AA: Introduced by the Finance Act, 2022, it provides a mechanism for actions subsequent to inquiry, investigation, or audit.

The Court also considered the interplay of these sections with the Finance Act, 2022, which amended several provisions of the Customs Act, 1962.

Arguments

Submissions on Behalf of the Department:

• The review petitions are maintainable due to errors on the face of the record in the Canon India judgment.
• The decision in Sayed Ali requires reconsideration as it incorrectly links the powers under Sections 17 and 28 of the Customs Act, 1962.
• The Delhi High Court’s decision in Mangali Impex should be overruled, and the Bombay High Court’s view in Sunil Gupta should be upheld.
• The amendments introduced by the Finance Act, 2022, are merely clarificatory.
• DRI officers are a class of customs officers under Section 3, appointed under Section 4, and do not require separate entrustment under Section 6.
• The term “the proper officer” in Section 28 refers to an officer assigned functions under Section 5, not necessarily the officer who assessed the goods under Section 17.
• Issuance of show cause notices is a quasi-judicial exercise, not an administrative review.

Submissions on Behalf of the Respondents:

• The scope of review is limited, and the Department is attempting to re-argue the case.
• Sections 17, 46, 47, and 28 are interlinked, requiring a single officer to perform all related functions.
• DRI officers should be entrusted with functions under Section 6, and without such entrustment, they cannot be “proper officers.”
• Section 28 involves revising the original assessment done under Section 17, thus requiring the same officer to issue the notice.
• Section 28(11) does not validate past actions and does not revive show cause notices issued by officers without jurisdiction.
• Section 97 of the Finance Act, 2022, is manifestly arbitrary and violates Article 14 of the Constitution.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

1. Whether there is an “error apparent on the face of the record” to entertain the review petition?
2. If yes, whether the exposition of law in Canon India regarding the power of the DRI to issue show cause notices is correct?
   • Are DRI officers “proper officers” under Section 28?
   • What is the scope of Section 6 vis-à-vis Sections 2(34), 3, 4, and 5, and is entrustment under Section 6 mandatory?
   • Can power under Section 28 be exercised only by someone with power under Section 17?
   • Does “the proper officer” in Section 28 necessarily mean the same officer under Section 17?
   • Is issuing a show cause notice an administrative review or a quasi-judicial exercise?
3. Whether Section 28(11) is discriminatory and arbitrary for not curing the defect in Sayed Ali?
4. Whether the judgment in Mangali Impex correctly interprets Section 28(11)?
5. Whether Section 97 of the Finance Act, 2022, is manifestly arbitrary and violates Article 14?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court allowed the review petition, overturning its previous decision in Canon India on the issue of jurisdiction of DRI officers. The Court clarified that:

How each authority was viewed by the Court?

• The Supreme Court partially overruled Commissioner of Customs v. Sayed Ali and Another (2011) SCC 537^[CITATION] on the interpretation of the interlinkage between Sections 17 and 28.
• The Supreme Court overruled Mangali Impex Ltd. v. Union of India (2016) SCC Online Del 2597^[CITATION] .
• The Supreme Court approved Sunil Gupta v. Union of India and Others (2014) SCC Online Bom 1742^[CITATION].
• The Supreme Court held that reliance on Consolidated Coffee Ltd. and Anr. v. Coffee Board, Bangalore 1980 AIR 1468^[CITATION] by the court in Canon India was unfounded.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by a combination of factors, emphasizing the need for a practical interpretation of the law that aligns with the legislative intent. The Court noted the following:

• The DRI officers are a class of customs officers under Section 3, appointed under Section 4, and do not require separate entrustment under Section 6.
• The term “the proper officer” in Section 28 refers to an officer assigned functions under Section 5, not necessarily the officer who assessed the goods under Section 17.
• Issuance of show cause notices is a quasi-judicial exercise, not an administrative review.
• The scheme of the Act, 1962 necessitates that a proper officer can only perform specific functions under the Act if he has been assigned as “the proper officer” to perform such functions by an appropriate notification issued by the competent authority.
• The use of the article “the” in the expression “the proper officer” should be read in the context of that proper officer who has been conferred with the powers of discharging the functions under Section 28 by conferment under Section 5.
• The Validation Act was meant to apply to Section 28 without any restriction as to time.

Logical Reasoning:

The Court considered alternative interpretations, particularly the argument that Section 6 is mandatory for DRI officers to be “proper officers,” but rejected it, clarifying that Section 6 applies to officers of other departments, not to DRI officers who are already customs officers under Section 4. The Court also rejected the argument that the phrase “the proper officer” in Section 28 necessarily means the same officer who assessed the goods under Section 17, clarifying the distinct nature of the functions under these sections.

The decision is that DRI officers, duly appointed and assigned functions under the Customs Act, are competent to issue show cause notices under Section 28. The Court held that the judgment in Canon India was incorrect on this point and clarified that the interlinkage between Section 17 and 28 as previously understood was erroneous. The Court also upheld the validity of Section 28(11) and Section 97 of the Finance Act, 2022.

The Supreme Court also made the following observations which weighed in its mind:

• “From a conjoint reading of Sections 2(34) and 28 of the Act, it is manifest that only such a Customs Officer who has been assigned the specific functions of assessment and reassessment of duty in the jurisdictional area where the import concerned has been affected, by either the Board or the Commissioner of Customs, in terms of Section 2(34) of the Act is competent to issue notice under section 28 of the Act.”
• “The nature of the power to recover the duty, not paid or short-paid after the goods have been assessed and cleared for import, is broadly a power to review the earlier decision of assessment. Such a power is not inherent in any authority.”
• “Where the statute confers the same power to perform an act on different officers, as in this case, the two officers, especially when they belong to different departments, cannot exercise their powers in the same case.”

The Court clarified the distinction between the functions of assessment under Section 17 and recovery under Section 28. The Court also addressed the constitutional validity of Section 28(11) and Section 97 of the Finance Act, 2022, holding that these provisions are not arbitrary or discriminatory and do not violate Article 14 of the Constitution.

Impact of the Judgment

This judgment has significant implications for:

• Customs Authorities: The ruling clarifies the authority of DRI officers to issue show cause notices, providing legal certainty and streamlining the process of duty recovery.
• Businesses: Importers and exporters need to be aware that DRI officers can initiate proceedings for duty recovery. This may lead to increased scrutiny and the need for greater vigilance in customs compliance.
• Legal Community: The judgment provides a detailed analysis of the relevant provisions of the Customs Act, 1962, and clarifies the scope of review jurisdiction. It also sets a precedent for the interpretation of “proper officer” and the interrelation of different sections of the Act.

Conclusion

The Supreme Court’s judgment in Commissioner of Customs vs. Canon India Pvt. Ltd. has clarified the powers of DRI officers concerning customs duty recovery. The Court has held that DRI officers are “proper officers” under Section 2(34) of the Customs Act, 1962, and are competent to issue show cause notices under Section 28. The judgment also upholds the validity of Section 28(11) and Section 97 of the Finance Act, 2022. This ruling is likely to have a significant impact on the customs landscape, providing clarity on the powers of DRI officers and the procedures for duty recovery.

This judgment is a significant development in customs law, and it is essential for businesses and legal professionals to understand its implications. The Supreme Court has provided much-needed clarity on the powers of DRI officers and the procedures for duty recovery, ensuring a more efficient and transparent customs regime. The ruling has set a precedent for the interpretation of “proper officer” and the interrelation of different sections of the Act, which will be crucial in future cases. The judgment also reinforces the importance of legislative intent and the need for a practical interpretation of the law.

Disclaimer: This analysis is for informational purposes only and should not be considered legal advice. For specific legal advice, please consult with a qualified legal professional.