APRIL 13, 2022

By Vijay Kumar

THE Directorate of Revenue Intelligence (DRI) was constituted on 4th December 1957, for dealing exclusively with the work relating to the collection and study of information on smuggling activities and the deployment of all anti-smuggling resources at the all-India level, besides arranging training for the intelligence and Investigation officers of the Custom Houses and Central Excise Collectorates deployed on similar work.

DRI is considered to be  the  premier investigating agency and it is believed that the DRI sleuths are the best in the world. They have over the years created an awe-inspiring image for themselves. The  taller than you,   better than you  impression they created is really impressive. Even when the officers go back to their parent departments after a stint in DRI, they carry the halo and would like everyone to believe that they are a cut above the rest.

However, all this changed ten years ago when 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".

Lo and behold! All the Show Cause Notices issued by DRI, suddenly became illegal. Government does not tolerate such decisions of the Supreme Court and so it got Parliament to retrospectively 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, which reads as:

"(11) Notwithstanding anything to the contrary contained in any judgement, decree or order of any court of law, tribunal or other authority, all persons appointed as officers of Customs under sub-section (1) of section 4 before the sixth day of July 2011 shall be deemed to have and always had the power of assessment under section 17 and shall be deemed to have been and always had been the proper officers for the purposes of this section."

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'.

As expected, the Department took the matter in SLP to the Supreme Court. In one of the SLPs, the Supreme Court on 7.10.2016, stayed the Delhi High Court Order.

So, the Delhi High Court order is stayed. Does it mean that Show Cause Notices issued by DRI are valid? No. Why?

In CANON INDIA PVT LTD Vs COMMISSIONER OF CUSTOMS - 2021-TIOL-123-SC-CUS-LB, on 9th March 2021, the Supreme Court observed,

20. Section 6 is the only Section which provides for entrustment of functions of Customs officer on other officers of the Central or the State Government or local authority, it reads as follows:-

"6. Entrustment of functions of Board and customs officers on certain other officers - The Central Government may, by notification in the Official Gazette, entrust either conditionally or unconditionally to any officer of the Central or the State Government or a local authority any functions of the Board or any officer of customs under this Act."

21. If it was intended that officers of the Directorate of Revenue Intelligence who are officers of Central Government should be entrusted with functions of the Customs officers, it was imperative that the Central Government should have done so in exercise of its power under Section 6 of the Act. 

Therefore, the Supreme Court held that

the entire proceeding in the 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.

Many in the department feel that the Supreme Court was wrong in interpreting Section 6 as they feel it is only for conferring power on other officers, not home officers. DRI officers are born Customs officers and there is no need to specially confer upon them powers under Customs Act.

The Government has filed a Review Petition against the Canon India judgement and it is pending in the Supreme Court. Meanwhile in the Godrej and Boyce Manufacturing Company case reported in - 2022-TIOL-10-SC-CUS, the Supreme Court observed,

The High Court, in the impugned order, has purported to follow the judgment of this Court reported in  Canon India Private Limited v. Commissioner of Customs 2021 SCC Online SC 200  =  2021-TIOL-123-SC-CUS-LB. This is a judgment rendered by a Bench of three learned Judges. By the said judgment, this Court has held that an Additional Director General, Directorate of Revenue Intelligence, cannot be treated as proper officer within the meaning of Section 2(34) of the Customs Act read with Section 28 of the said Act.

The contention, however, which is raised by the learned Attorney General who is assisted also by Mr. N. Venkataraman, learned Additional Solicitor General, is that the Additional Director General, DRI, is an officer of Customs.

Section 6 of the Customs Act which has been found to be the repository of power to appoint a person to exercise the power under Section 28, according to the petitioners, is not relevant insofar as the Additional Director General of DRI is concerned for the reason that he is actually an officer of Customs. What is more, according to the special leave petition, it is stated that he has been authorised by the Board within the meaning of Section 2(34).

More importantly, however, when questioned in this regard, it is pointed out that Section 28(11) would come to the rescue of the petitioners for the reason that the Additional Director General will be treated as 'proper officer' under the said provision irrespective of the requirement declared in Section 2(34) of the Customs Act. It is further pointed out that Section 28(11) could not be brought to the notice of the Bench which decided Canon India Private Limited .

This case is pending in the Supreme Court.

Then came the all-important budget, which is a great opportunity to undo Supreme Court judgements by retrospective amendments. The Finance Act 2022 has substituted Section 3 of the Customs Act to include DRI officers under ‘ classes of officers of customs' – retrospectively. The Finance Act stipulates that:

Any notification issued under the Customs Act for appointing or assigning functions to any officer shall be deemed to have been validly issued for all purposes, including for the purposes of section 6;

Section 3 of the Customs Act, as amended by the Finance Act, shall have and shall always be deemed to have effect for all purposes as if the provisions of the Customs Act, as amended by this Act, had been in force at all material times.

Is the problem solved?

In a recent order, the CESTAT observed, (Beriwala Impex Pvt. Ltd - 2022-TIOL-183-CESTAT-KOL)

26. If the Finance Bill becomes the Act, DRI officers will be at par with Customs officers under the Customs Act by virtue of the substitution of section 3 and their various actions such as searches, seizures, arrests may not become void because of non-entrustment of those functions by the Government under Section 6. However, there is no proposal to amend section 28 and hence SCNs can be issued even after this Bill becomes the Act only by 'the proper officer', i.e., the officer who has done the assessment in the first place. In fact, this specific legal position as held by the Supreme Court in Canon India is likely to be reaffirmed by insertion of section 110AA in the Act. 

Now, the Finance Bill 2022 is enacted and consequent to the enactment, the government has issued Notification No.25/2022-Customs (N.T.) dated 31st March 2022, by which the DRI officers were vested with all the powers of the Customs Officers. Does this make Show Cause Notices issued by DRI valid? What about Section 28 as doubted by the CESTAT?

Within a week of the notification of the Finance Act 2022, a writ has been filed in the Delhi High Court challenging these retrospective provisions. The Delhi High Court has issued notice.

The Tribunal and the High Courts have been quashing all notices issued by DRI. Now that the Finance Act 2022 has come into force, will the Courts uphold these notices? Those cases which came up for hearing before 31st March 2022 were lucky and now after 31st March 2022, because of the changes in Law, the cases coming up for hearing after 31 st March will be unlucky.

Does your fate in law depend on the date of hearing or the date of cause of action? Jestice?

Until Next week