AUGUST 03, 2021

By Sonal Singh, Joint Partner (Bangalore) and Anusha B, Associate (Bangalore), Lakshmikumaran & Sridharan

THE decision of the Apex Court in Canon India ¹ was a long-awaited relief to the assessees. The decision also gave rise to interesting questions regarding the applicability of the same to pending proceedings/on-going litigation arising out of SCNs issued by the DRI officers in the past. Some of those questions have recently been answered by the Hon'ble Karnataka High Court in the case of Sri Mohan C Suvarana. ² This article seeks to understand the implication of Canon India on on-going proceedings/pending litigation.

Decision in the case of Canon India:

A decade after the decision in the case of Sayed Ali ³, the Hon'ble Supreme Court vide judgment in Canon India inter alia has held that DRI officer is not 'the proper officer' to issue show cause notice under Section 28(4) of the Customs Act, 1962. It has been further held that an appropriate authority must entrust such functions on the officer in the manner provided under the relevant legislation in exercise of the power under the relevant legislation. The Apex Court further held if legislation accorded powers of reassessment and recovery on more than one officer and there is an overlap of functions, then as per the principle of comity, the officer who has exercised their jurisdiction first will be the proper authority.

Fate of on-going proceedings/litigation:

The interpretation adopted by Apex Court in case of Canon India has resulted in great deal of restlessness in the minds of revenue authorities and triggered a series of events. Being aware of the far-reaching implications that the decision would have, the revenue authorities took following immediate steps:

- Filed a review petition against the decision in the case of Canon India . However, a stay on operation of the order is yet to be obtained and the review petition remains pending.

- CBIC issued Instruction No. 04/2021-Customs dated 17.03.2021 stating that it has been decided that for the present and until further directions, the SCNs already issued by the DRI may be kept pending for adjudication.

- It was further instructed that all the fresh SCNs under Section 28 of the Customs Act, 1962 in respect of cases presently being investigated by DRI are required to be issued by jurisdictional Commissionerates from where imports have taken place.

In the matters which arose out of SCNs issued by the DRI/Preventive/Audit and other officers and are pending at any stage of litigation, the assessees have been enabled to advance a new line of argument on jurisdiction. The assesses have received favorable orders in some cases from the CESTAT ⁴. However, in cases where suppression was proven, the CESTAT has summarily refused to entertain submissions on jurisdiction based on Canon India. ⁵

Lately, several High Courts were also seized with the opportunity to exercise writ jurisdiction under Article 226 and adjudicate the issue of the propriety of jurisdiction of DRI officials being 'the proper officer' in view of the decision in the case of Canon India. The Hon'ble Madras High Court followed the decision of the Apex Court and held that the issue of jurisdiction being no longer res-integra show cause notice issued by the DRI is without jurisdiction. ⁶ However, in a subsequent decision, the Hon'ble Madras High Court ⁷ and Hon'ble Delhi High Court ⁸ relegated the assessee before them to approach statutory authority while refusing to exercise discretionary powers under Article 226 of the Constitution. The High Courts also noted that submissions on jurisdiction of DRI officials can be adjudicated by statutory authorities.

Decision in the case of Shri Mohan C Suvarna

The applicability of Canon India on proceedings initiated by DRI officials under Section 28 of the Customs Act was considered by a Ld. Single Judge of Hon'ble Karnataka High Court in the case of Shri Mohan C Suvarna. It was the contention of the assessee that the proceedings under the show cause notice which culminated into an Order-in-Original were initiated vide SCN issued by DRI officials and therefore by application of the decision of the Hon'ble Supreme Court in Canon India, the proceedings are void ab initio .

The assessees attempt to place reliance on the decision of the Hon'ble Supreme Court was vehemently objected to by the department interalia on the grounds that the objection is being raised belatedly, that a statutory alternative remedy exists and that the decision of the Supreme Court is inapplicable in cases of suppression. Further, heavy reliance was placed on stay order passed by Apex Court in case of Mangali Impex ⁹ and pendency of review petition against decision of Apex Court in Canon India.

The Hon'ble High Court in a detailed judgment rendered findings on all the aforesaid objections raised by the department. The High Court held that legal submissions on jurisdiction can be raised at a later stage, more so when clarity has been provided by the Apex Court vide Canon India. On the issue of maintainability of writ petition on grounds of alternative remedy, the Hon'ble High Court held that writ is maintainable since error in exercise of jurisdiction is an exception to self-imposed restriction of high courts while exercising writ jurisdiction.

As regards the submissions of the department that the decision of the Hon'ble Supreme Court in the case of Canon India ought not be made applicable to the present case in view of the allegations of suppression against the assessee, the Hon'ble High Court held that the said allegations are yet to be adjudicated and accordingly, any conclusion on the said basis would amount to pre-judging the issue. The Court held that when assessee seeks to rely upon the decision of the Hon'ble Supreme Court which is directly applicable to them the question of non-suiting would be wholly inappropriate.

The Court after analysing the decision of the Supreme Court in detail including the fact that it has affirmed the decision in case of Sayed Ali held that the said decision is squarely applicable to the present case and accordingly the proceedings initiated by the DRI officers are liable to be set aside. The Ld. Single Judge also categorically denied the department's request to keep the writ petition in abeyance during the pendency of the review petition and applied the decision of Canon India on all fours, while distinguishing from the aforementioned remand order of the Madras High Court . The High Court held that if the review petition is allowed, the legal consequences will enure to the benefit of the parties involved.

Conclusion

With the decision of Apex Court straightening the position of law in favour of assessees and in absence of a stay on the operation of order in Canon India, an opportunity is available with the assessees to suitably challenge proceedings initiated by authorities not competent under law. Needless to say, the decision will find application to proceedings initiated under other indirect tax legislations as well. The Hon'ble High Court of Karnataka, after taking into consideration the submission based on Canon India, stayed proceedings initiated by way of SCN issued by DRI officials under Section 73 of the Finance Act, 1994. ¹⁰ The decision upholding the jurisprudential concepts like 'principles of comity' may potentially also arm the assessees with a defense against illegal proceedings initiated under the GST law also.

[The views expressed are strictly personal.]

¹Canon India Pvt. Ltd. v. Commissioner of Customs, 2021-TIOL-123-SC-CUS-LB.

²Mohan C Suvarna v Principal Commissioner of Customs - 2021-TIOL-1614-HC-KAR-CUS

³Commissioner of Customs v. Sayed Ali, 2011-TIOL-20-SC-CUS.

⁴ Sattva Cfs And Logistics Pvt Ltd v. CC, 2021-TIOL-412-CESTAT-MAD.

⁵ Shahid Ali v reported at Principal Commissioner of Customs (Import), 2021-TIOL-320-CESTAT-DEL.

⁶Quantum Coal Energy (P) Ltd. v Commissioner, 2021-TIOL-711-HC-MAD-CUS.

⁷ M/s Sri Sathya Jewellery v. Principal Commissioner of Customs, 2021-TIOL-960-HC-MAD-CUS.

⁸ Rajesh Vedprakash Gupta v. Addl. Director General-Adjudication, 2021-TIOL-1503-HC-DEL-CUS.

⁹ Union of India v Mangali Impex, 2016-TIOL-877-HC-DEL-CUS.

¹⁰Waters India Pvt. Ltd. v. Union of India.