FEBRUARY 03, 2022

By Abhijit Saha

ONE of the sensation news in this 2022 Finance Budget is the amendment in the Customs Act, thereby bringing back the draconian retrospective effect measures through the Validation Act. Let me explain.

The Hon'ble Supreme Court in the case of CANON INDIA PVT LTD Vs COMMISSIONER OF CUSTOMS -  2021-TIOL-123-SC-CUS-LB, held that the entire proceeding in the present case initiated by the Additional Director General of the DRI by issuing show cause notices in all the matters before us are invalid without any authority of law and liable to be set-aside and the ensuing demands are also set aside.

This means in simple language that the DRI is not the proper officer authorized to issue SCN. So, the SCN was struck down as legally invalid. This decision of the Hon'ble Supreme Court entails a massive revenue loss to the Government, as this decision was followed by several High Courts and Tribunals to quash show cause notices and proceedings initiated by the DRI officers. So, the Government has come out with the easiest option to amend the Customs law with retrospective effect to nullify the effect of the above Supreme Court verdict. The direct impact of the amendment will be on the outcome of the pending Petitions / Appeals, wherein the jurisdiction of DRI officer to issue Show Cause Notice has been challenged.

It is the practice for DRI to book cases left right and centre, prepare bulky Show Cause Notices running into hundreds of pages and then make the Jurisdictional Customs or Central Excise officers to adjudicate them. It is an unwritten rule in the field that a Show Cause Notice issued by DRI has to be invariably confirmed. However, the Supreme Court in the case of  Sayed Ali -   2011-TIOL-20-SC-CUS held "It is only the officers of customs, who are assigned the functions of assessment, which of course, would include re-assessment, working under the jurisdictional Collectorate within whose jurisdiction the bills of entry or baggage declarations had been filed and the consignments had been cleared for home consumption, will have the jurisdiction to issue notice under Section 28 of the Act" .

Government to nullify the effect of the above Supreme Court decision, retrospectively amended Section 28 to confer the power on DRI to issue Show Cause Notices. The Parliament amended Section 28 of the Customs Act by inserting a new clause 11 with effect from 16.09.2011. The Delhi High Court observed in what is now famously known as the 'Mangali Impex' case-  2016-TIOL-877-HC-DEL-CUS :

1. The mere fact that Section 28(11) has been given retrospective effect does not solve the essential problem pointed out by the Supreme Court in the Sayed Ali case, which is the absence of the assigning of functions to 'proper officers' under Section 2(34) of the Act.

2. Section 28(11) confers validity only on 'the proper officer'.

Department appealed against the above High Court order before the Supreme Court where it is pending.

In the meantime, Cannon India decision (supra) was passed by the Hon'ble Supreme Court. So, it is evident that the Government has amended the law retrospectively twice to empower DRI to issue the SCN.

Now the bigger question is about the goodwill and credibility of the Government of India. What kind of message is conveyed by such repeated retrospective amendment only to nullify the effect of the decision of the highest court of law in the country? The integrity of the country stands to be questioned not only before the citizens of the country but also to international forum.

Recently there was an internationally famous income tax case, where the government of India demanded capital gain tax on Vodafone for acquisition of 67% share in an Indian telecom company. The matter went up to the Supreme Court which rejected the demand as not legally valid. The government came up with retrospective amendment of the Income Tax Act in 2012 to bypass the Supreme Court decision and impose the demand. [refer my article in www.taxongo.com on 10 August 2021 in THE INSIGHT]. Vodafone moved the International Arbitration Tribunal, Hague, who ordered in favour of Vodafone.

In this perspective, now, in 2021, the government of India has withdrawn that retrospective amendment brought in 2012. Government is now saying that this gesture will send an unambiguous signal to global firms at a time when global supply chains are being relocated from China. Second, it will go a long way in cementing India's reputation as a reliable jurisdiction.

Supreme Court has repeatedly said that the decision of the Supreme Court should be binding on all the High Courts even if the order is not correct because judicial discipline and judicial hierarchy is more important than the validity of a judgment.

So, the question is whether there is any scope for retrospective amendment of the Act which is injurious to trade and commerce and shakes the confidence, commitments and trust of the stakeholders including the global community and detrimental to the equity of the justice systems. 

Retrospective amendment of tax laws should be banned forever to create a non-adversarial tax environment.  Every law should have a certainty. If that certainty of law does not exist, then what is the commitment of the stakeholders including the government to build the economic and social fabrics of the country which is always forever strongly founded on the Pillar of Trust amongst all of us including the government. 

[The views expressed are strictly personal.]