The Canon India Private Limited v. Commissioner of Customs[1], decided on 9th March, 2021 in Supreme Court held that the Directorate of Revenue Intelligence cannot be considered as ‘the Proper Officer’ while issuing a Show Cause Notice for recovering a duty not paid under section 28(4) of the Customs Act, 1962.
Section 28(4) states that where any duty has not been levied or not paid or has been short-levied or short-paid or erroneously refunded, or interest payable has not been paid, part-paid or erroneously refunded, by reason of-
a. collusion, or
b. any willful misstatement, or
c. suppression of facts,
by the importer or the exporter or the agent or employee of the importer or exporter, the proper officer shall, within five years from the relevant date, serve notice on the person chargeable…
In the above judgment, assessment of goods imported and to exempt the same from duty was conducted by the Deputy Commissioner of Customs. However, the Show Cause Notice was issued by the Additional Director General, Directorate of Revenue Intelligence. This issuance of notice was held outside of jurisdiction by the Hon’ble Supreme Court stating that the term ‘the’ is of great significance and only ‘the proper officer’ who had previously assessed the goods has the power to issue the notice instead of ‘any officer’.
This ruling was then followed by various High Courts and Tribunals and quashed demand proceedings wherein the show cause notice was issued by the Directorate of Revenue Intelligence on the ground of lack of jurisdiction. The Supreme Court again gave a similar reasoning in the case of Commissioner of Customs, Kandla v. M/s. Agarwal Metals and Alloys[2] decided on 31st August 2021.
In the Finance Bill 2022, various amendments were proposed to the Customs Act, 1962 to nullify the decision set out by Supreme Court in Canon India-
Section 2- ‘Proper Officer’ means the officer of customs who is assigned those functions by the board of the Principal Commissioner of Customs or Commissioner of Customs under Section 5.
Section 3- Including Principal Director General of Revenue Intelligence, Director General of Revenue Intelligence, Principal Additional Director General of Revenue Intelligence, Additional Director General of Revenue Intelligence, Additional Director of Revenue Intelligence, Joint Director of Revenue Intelligence, Deputy Director of Revenue Intelligence and Assistant Director of Revenue Intelligence within the class of Classes of Officers of Customs.
Section 5- The Central Board of Indirect Taxes and Customs has been empowered to issue notifications to assign functions of ‘proper officer’. Further, two or more officers can exercise concurrent authority.
Clause 96 of Finance Bill- Validation of the duty performed and notifications assigning functions to officers with an overriding effect over any judgments passed by the courts retrospectively.
It is also clarified that all the pending cases, i.e., Show Cause Notice, Petition, Appeals will be disposed of under the amended provisions proposed in the bill. The above proposed amendments clearly nullify the decision passed by the Hon’ble Supreme Court in the Canon India case.
History-
In the case of Commissioner of Customs v. Sayed Ali[3] decided on 18th February, 2011 in the Supreme Court, while determining the meaning and scope of the term ‘proper officer’, it was held that only the officers of customs, who are assigned the functions of assessment including re-assessment, working under the jurisdictional collectorate will have the jurisdiction to issue notice under Section 28 of the Act.
Post this decision, a notification by the Ministry of Finance specifically declared certain classes of officers as proper officers. Further, the Customs (Amendment and Validation) Bill, 2011 was introduced in Lok Sabha with a validation clause to validate all the notice issued or the actions taken by the Commissionerate of Customs (Preventive), Directorate of Revenue Intelligence and others retrospectively. This bill specifically mentioned that consequence of a decision passed by the Supreme Court in the case of Sayed Ali would result in huge loss and disruption to revenue.
In the case of M/s. Mangali Impex Ltd., M/s. Pace International and others v. Union of India and Ors.[4] decided in the High Court of Delhi on 3rd May, 2016 held that Section 28(11) of the Customs Act does not validate the show cause notices issued by the Directorate of Revenue Intelligence for the period prior to 8th April 2011 or issue notices for that period. However, appeal against this judgment remains pending before the Supreme Court. A picture as to the validity of Section 28(11) and power of issuance of show cause notices by Directorate of Revenue Intelligence will only be cleared once this case is decided by the Supreme Court.
Thereby the validation clause proposed in Finance Bill, 2022 was very much anticipated looking at the history of cases discussed above wherein the legislation has overruled judicial decisions. However, the constitution validity of the same will again be challenged as they seek to retrospectively validate the actions taken by the Directorate of Revenue Intelligence.
[1] 2021 (3) TMI 384.
[2] 2021 (9) TMI 316.
[3] 2011 (2) TMI 5.
[4] 2016 (5) TMI 225.
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