DECEMBER 14, 2015

By P R Chandrasekharan, Member(Tech.)(Retd.), CESTAT, Mumbai

VERY recently the Central Board of Excise & Customs (CBEC in short) issued a circular No. 30/2015-Cusoms dated 4-12-2015 and notification No. 133/2015-Customs (NT) dated 30-11-2015 making certain crucial amendments relating to the adjudication process in Customs matters. The effect of these amendments is that the certain types of cases investigated by Directorate of Revenue Intelligence (DRI in short) will be adjudicated by the Additional Director General (Adjudication), DRI who will be assigned the function by none other than Principal Director General or the Director General, DRI. The types of cases are,-

(i) Cases involving duty of Rs. 5 Crores and above;

(ii) Group of cases on identical issues involving aggregate duty of Rs. 5 crore and more;

(iii) Cases involving seizure value of Rs 25 Crore or more;

(iv) Cases involving wrong availment of export incentives where the export incentives wrongly availed is Rs 5 Crore or more;

(v) Group of case on identical issues involving wrong availment of export incentives aggregating to Rs 5 Crore or more;

(vi) Cases of overvaluation of import where overvaluation is Rs 25 Crore or more; and

(vii) DRI case pending with erstwhile Commissioner (Adjudication).

2. Notification No. 133/2015-Cus, in its opening paragraph states that it has been issued in "public interest". However, paragraph 2 of the circular dated 4-12-2015 makes it clear whose interest is being sub-served by the proposed changes. The circular states that –

"2. DRI has pointed out difficulty being faced in implementing guidelines and accordingly has suggested suitable amendments. The matter has been examined in Board. Accordingly, it has been decided that the following cases investigated by DRI shall be assigned to Additional Director General (Adjudication), DRI. ……"

3. In cases investigated by DRI, they are the investigators and prosecutors. Now the power of adjudication is also vested in them. In other words, the role of investigator, prosecutor and adjudicator has been combined and assigned to one entity. The fact that the present Chairman of CBEC is also holding the charge of the Principal Director General of DRI might have facilitated acceptance of the recommendations of DRI by the Board without much examination. The above action has sounded a death-knell to the concept of "independent, unbiased and impartial adjudication". The scant respect for the principles of adjudication and the impunity with which the CBEC has acted is manifest from the circular itself which has equated DRI's interest with public interest. It is also not known why this preferential treatment is given to DRI alone while there are so many other investigating agencies under the CBEC such as DGCEI, Commissioner (Preventive) and preventive units of the Customs ,Central Excise and Service Tax Commissionerates. May be similar procedure will be prescribed for other investigative agencies also in the near future. Thus, it is an obituary to the time-tested and widely accepted concept of fair and impartial departmental adjudication which can deliver justice to the litigants.

4. In ‘Administrative Law' by Wade and Forsyth (10th Edition), the concept of acting in public interest has been explained as follows:-

"The powers of public authorities are therefore essentially different from those of private persons. A man making his will may, subject to any rights of his dependants, dispose of his property just as he may wish. He may act out of malice or a spirit of revenge, but in law this does not affect his exercise of his power. In the same way a private person has an absolute power to allow whom he likes to use his land, to release a debtor, or, where the law permits, to evict a tenant, regardless of his motives. This is unfettered discretion. But a public authority may do none of these things unless it acts reasonably and in good faith and upon lawful and relevant grounds of public interest. So a city council acted unlawfully when it refused unreasonably to let a local rugby football club use the city's sports ground, though a private owner could of course have refused with impunity. Nor may a local authority arbitrarily release debtors, and if it evicts tenants, even though in accordance with a contract, it must act reasonably and `within the limits of fair dealing'. The whole conception of unfettered discretion is inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good ." (emphasis supplied)

5. In Meerut Development Authority v. Association of Management Studies [AIR 2009 SC 2894] , the hon'ble Apex Court explained the concept of ‘public interest' as follows.

"Public interest if it is employed in a given statute is to be understood and interpreted in the light of the entire scheme, purpose and object of the enactment but in the absence of the same it cannot be pressed into service to confer any right upon a person who otherwise does not possess any such right in law."

In the present case, public interest has been invoked to confer the power of appointing adjudicating authority to the Principal Director General/Director General of the DRI in matters investigated by DRI. Whose interest is served by conferring such powers? Certainly not of the tax-paying public. The power has been conferred in the context of an adjudicatory process and therefore, if it all any public interest has to be sub-served, it should have been in favour of the tax payer and certainly not in favour of the investigating agency. Thus the exercise of the power lacks bona fides. On that ground alone, the impugned notification conferring such powers deserves to be quashed.

6. It is a well-settled principle of law that "justice should not only be done but should manifestly and undoubtedly seen to be done". In Olga Tellis v. Bombay Municipal Corporation  (1985) 3 SCC 545, a Constitution Bench of the Supreme Court while dealing with a question whether pavement and slum dwellers could be evicted without being heard observed as follows:

"Just as a mala fide act has no existence in the eye of law, even so, unreasonableness vitiates law and procedure alike. It is therefore essential that the procedure prescribed by law for depriving a person of his fundamental right, in this case the right to life, must conform to the norms of justice and fair play. Procedure, which is unjust or unfair in the circumstances of a case, attracts the vice of unreasonableness, thereby vitiating the law which prescribes that procedure and consequently, the action taken under it. Any action taken by a public authority which is invested with statutory powers has, therefore, to be tested by the application of two standards: the action must be within the scope of the authority conferred by law and secondly, it must be reasonable. If any action, within the scope of the authority conferred by law, is found to be unreasonable, it must mean that the procedure established by law under which that action is taken is itself unreasonable. The substance of the law cannot be divorced from the procedure which it prescribes for, how reasonable the law is, depends upon how fair is the procedure prescribed by it. Sir Raymond Evershed says that, "from the point of view of the ordinary citizen, it is the procedure that will most strongly weigh with him. He will tend to form his judgment of the excellence or otherwise of the legal system from his personal knowledge and experience in seeing the legal machine at work". Therefore, "He that takes the procedural sword shall perish with the sword." (emphasis supplied)

7. When a case is investigated and prosecuted by the DRI, if the adjudicating authority also is an officer of the DRI, how can the ordinary citizen be convinced that the adjudicator will be unbiased and impartial or the procedure adopted would be fair? Even to convince a person familiar with the law and its procedures, it would be an impossible task. Therefore, the proposal to appoint an officer of the DRI as an adjudicator clearly violates the above principle. On that ground alone, the notification appointing the ADG (DRI) as the adjudicator in DRI investigated cases is quite amenable to legal and constitutional challenge as it is contrary to the settled legal principles of a fair adjudication. Such an action will also not stand judicial scrutiny by higher appellate authorities.

8. It is an established position in law that "principles of natural justice" applies to judicial, quasi-judicial and administrative proceedings. In A. K. Kraipak & Ors. Etc. vs Union Of India & Ors  , the hon'ble apex court cited with approval their earlier decision in State of Orissa v. Dr. (Miss) Binapani Devi and Ors . as follows:-

"…………We think that such an enquiry and decision were contrary to the basic concept of justice and cannot have any value. It is true that the order is administrative in character, but even an administrative order which involves civil consequences as already stated, must be made consistently with the rules of natural justice after informing the first respondent of the case of the State The aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law of the land but supplement it. The concept of natural justice has undergone a great deal of change in recent years. In the past it was thought that it included just two rules namely (1) no one shall be a judge in his own case (Nemo debet esse judex propria causa) and (2) no decision shall be given against a party without affording him a reasonable hearing (audi alteram partem). Very soon there after a third rule was envisaged and that is that quasi- judicial enquiries must be held in good faith, without bias and not arbitrarily (1) [1967] 2 S.C.R. 625 or unreasonably. But in the course of years, many more subsidiary rules came to be added to the rules of natural justice. Till very recently it was the opinion of the courts that unless the authority concerned was required by the law under which it functioned to act judicially there was no room for the application of the rules of natural justice. The validity of that limitation is now questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. ………………………..Whenever a complaint is made before a court that some principle of natural justice had been contravened the court has to decide whether the observance of that was necessary for a just decision on the facts of that case. (emphasis supplied)

9. The concept of ‘bias' was lucidly explained by the hon'ble Delhi High Court in Gurbachan Singh Sawhney vs Union Of India (Uoi) And Ors. decided on 31 May, 2 002, as follows:-

"11. Natural justice, as is well known, is founded on two basic principles, which are (i) audi alteram partem, (ii) Nemo Judex in causa sua. ……………...The duty to act fairly is the theme of the principles of natural justice. However, the extent of the duty to act fairly will normally be very limited where the authority exercises a function, which does not culminate in a binding decision. The Rule generally applies, at least with full force, only to conduct leading directly to a final act of decision, and not to the making of a preliminary decision or to an investigation designed to obtain information for the purpose of a report or a recommendation on which a subsequent decision may be founded. …………...

12. Bias can be classified under three different heads:

(a) a legal interests which mean that the Judge is "in such a position that a bias must be assumed;(b) Pecuniary interest; (c) Personal bias.

13. Law in this regard has expanded to a great extent. In J.F. Garner's Administrative Law, it is stated: "The natural justice 'bias' rule looks to external appearances rather than to proof of actual improper exercise of power. If the reasonable observer would have the requisite degree of suspicion of bias in the decision maker then that decision can be challenged. It is a matter of the courts ensuring that 'justice is seen to be done'. Since successful challenge is based on appearances, it is natural that the types of matter to which the rule applies is somewhat confined. As we shall see it clearly applies to judicial and disciplinary functions but not generally more widely to administrative decision making and actions. "

14. In Metropolitan Properties Co. (FGC) Ltd. v. Lannon 1968 (3) All ER 304, Lord Denning MR observed: "In considering whether there was a real likelihood of bias, the court does not look at the mind of the justice himself or at the mind of the Chairman of the Tribunal, or whoever it may be, who sits in a judicial capacity. It does not look to see if there was a real likelihood that he would, or did, in fact favor one side at the expense of the other. The court looks at the impression, which would be given to other people. Even if he was as impartial as could be, nevertheless if right minded persons would think that in the circumstances, there was a real likelihood of bias on his part, then he should not sit. And if he does it, his decision cannot stand. Nevertheless, there must appear to be a real likelihood of bias. Surmise or conjecture is not enough. There must be circumstances from which a reasonable man would think it likely or probable that the justice, or Chairman, as the case may be, would, or did, favor one side unfairly at the expenses of the other. The court will not enquire whether he did, in fact, favor one side unfairly. Suffice it that reasonable people might think he did. The reason is plain enough. Justice must be rooted in confidence; and confidence is destroyed when right minded people go away thinking- the Judge was biased'." (emphasis supplied)

The issue for consideration is not whether in a given case the adjudicator is actually ‘biased' or not. How does a reasonable man would perceive the matter. When the investigation, prosecution and adjudication is entrusted to one single entity, how can any reasonable/prudent man come to the conclusion that the decision is not biased? When the annual performance of the adjudicator (ADG DRI in this case) is appraised by the DG/Principal DG of thee DRI, who has a vested interest in sustaining a case investigated by DRI, how can the adjudicator be free from administrative or personal bias, for his career progression is dependent on his APAR. The adjudicator would be under tremendous pressure to decide the case in favour of the department and against the assessee tax payer. If past performance of the department is any indication, such a conclusion is inevitable. The success ratio of the department before the Appellate Tribunal is in the vicinity of 10-15%. In other words, 85 to 90% of the cases investigated and initiated by the departmental authorities are not sustainable in law. Before the High Courts and the Supreme Court, it could be even lower.

10. There is a telling commentary on departmental adjudication by the hon'ble Apex Court in Siemens Engineering and Manufacturing Co. of India Ltd. vs.UOI & Anr. [AIR 1976 SC 1785] , wherein the Court observed under:-

"6. ...... If courts of law are to be replaced by administrative authorities and tribunals, as indeed, in some kinds of cases, with the proliferation of Administrative Law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and tribunals exercising quasi-judicial function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem , a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law. ..." (emphasis supplied)

11. The CBEC recently conducted a survey about the public perception about them with the assistance of FICCI and KPMG. As per the reports on the survey about 80% of the participants were quite dissatisfied with the functioning of the CBEC, especially with respect to their quasi-judicial function. The earlier survey conducted by ASSOCHAM sometime last year also is reportedly on the same lines, that is, dissatisfaction about the functioning of the CBEC. The only thing that the CBEC did to remedy the situation was to name one of its Directorates as Directorate of Taxpayer Services. Whether the said Directorate did any meaningful taxpayer services is anybody's guess. This action is like naming the roads of our cities/towns after the ‘father of the nation' or other important national leaders without putting into practice the ideals and ideas they stood for or propounded.

12. Can the situation be remedied ? Most certainly it can. If the CBEC is really concerned about falling taxpayer confidence and wants to regain the same, it should reconsider its recent action of appointing adjudication of DRI cases by an officer of the DRI. An adjudicator to be fair and impartial and appear to be so, he should not be part of the investigation/prosecution set up. In other words, he should not be under any investigative agency like DGDRI/DGCEI or the jurisdictional Chief Commissioner but should be answerable only to the CBEC. The adjudicator should be selected on the criteria of "integrity" (both financial and intellectual) and "competence". This would entail a clear and deeper understanding of law and its methods. Adherence to the principles of natural justice should be an article of faith to the adjudicator. No quantitative targets should be assigned for adjudication and quality of adjudication order alone should be the criterion for judging his performance. The adjudicator should be provided with adequate staff (especially stenographic assistance) who are capable of assisting him. He should have access to all materials (legal and technical), electronic or otherwise so that he is suitably equipped to undertake the assigned task to him, without fear or favour. The only yardstick to measure his performance should be the quality of the order passed by him and not whether the order is in favour or against Revenue. Only if such a course of action is adopted, the tax payer will have some confidence in the departmental adjudicatory process. If this is not done, CBEC would have written the obituary of the ‘independent and impartial adjudicator'.

(The author was an officer of the Indian Customs and Central Excise Service for more than 3 decades and retired as Member (Technical), CESTAT, WZB, Mumbai)