NOVEMBER 09, 2024

By Asmita Kuvalekar, Advocate, Swamy Associates

ON Thursday, 07.11.2024, DRI officers around the country waited with bated breath.

As the Supreme Court pronounced the judgment in review of its own order dated 09.03.2021 passed in M/s Canon India Private Ltd. vs Commissioner of Customs- 2021-TIOL-123-SC-CUS-LB, a new page was turned in the Indian Customs jurisprudence. The Court ruled in favor of the Department, potentially opening the floodgates for DRI's quasi-judicial proceedings with renewed gusto.

Until the Canon judgment in 2021, DRI had invoked Section 28 of the Act to initiate recovery of revenue by issuing Show Cause Notices in its own capacity, acting as proper officers under the Act. However, the 2021 Canon order practically fettered DRI by stripping the elite Customs intelligence officers of their hitherto enjoyed status of 'proper officers' under the Act.

In 2011, in Commissioner of Customs vs Sayed Ali and Another - 2011-TIOL-20-SC-CUS, the Supreme Court had examined whether Commissioner of Customs (Preventive) would be a 'proper officer' under the Act, having jurisdiction to act under Section 28. The matter was decided in favor of the assessee, holding that the Commissioner of Customs (Preventive) wasn't a 'proper officer' under the Act and proceedings initiated by him failed for want of jurisdiction. Interestingly, when the Canon case was heard in 2021, the Sayed Ali judgment became an important point of reference.

Having crossed the hurdle of error apparent on record to entertain the review, a 3-judge Bench of the Supreme Court presided as the Ld. ASG assailed Sayed Ali's bearing on the Canon judgment, submitting that the former had been decided on a misinterpretation of law. In that case, the Court had found an inherent inter connectivity between Section 17 and Section 28 of the Act whereby it was concluded that only officers who had the powers of assessment under Section 17 could invoke Section 28. And, the reasoning was that the Legislature couldn't have intended different officers to be carrying out different duties under the Act as it would lead to chaotic implementation and overlap of powers.

The Apex Court agreed. In fact, the Court's attention was brought to various Notifications [19/90-Cus(NT) dated 26.04.1990; 44/2011-Cus(NT) dated 06.07.2011] and Circular 4/99-Cus dated 15.02.1999 issued in favor of DRI's power to act under Section 28 and also to ensure that Customs officers carry out their duties in a streamlined manner. On that note, the judgment in Mangali Impex Ltd. v. Union of India - 2016-TIOL-877-HC-DEL-CUS was set aside as erroneous barring its direction to ensure that once a Show Cause Notice is issued, all other proper officers would be excluded from adjudicating that Notice, holding the direction to be an adequate safeguard against multiplicity of proceedings by various competent officers. Noting that the connection between Section 17 and Section 28 appeared to be more of an obiter dictum than a binding ratio, the review Bench rendered the Sayed Ali order toothless on that count. Its applicability to Canon was also held to be limited in light of the amendment to Section 17 with effect from 08.04.2011. The said amendment was held to not have been brought to the Court's notice when Canon was first decided, leading to an error apparent on record, deserving review.

With respect to Section 17, as the self-assessment era dawned with effect from 08.04.2011, the assessment of Bills of Entry or Shipping Bills was no longer to be done by the 'proper officer'. They were instead tasked with verification of the self-assessment so done. Thus, the role of the proper officer under the amended Section 17 was to reassess the Bill of Entry or Shipping Bill in cases of difference of opinion. This new provision was not considered the first time around in Canon. Instead, an obsolete version of Section 17 was relied upon to determine the issue despite the fact that the dispute on merits emanated from a Bill of Entry filed on 20.03.2012, which was well after the amendment to Section 17.

In addition, the Supreme Court scrutinized the Canon judgment's finding on the use of the definite article 'the' in 'the proper officer' under Section 28 instead of 'a proper officer'. It had been concluded that the use of the definite article was a reference to the proper officer under Section 17, as Section 17 and Section 28 were said to be interlinked. However, this time around, the Court rejected the said conclusion on the ground that the purview of Section 17 and Section 28 is in no way comparable or similar. Section 28 provides for a quasi-judicial process (and not an administrative process as originally held) including the review of assessments or reassessments done under Section 17. In fact, the Act makes it clear that the functions envisaged therein shall be carried out by those who have been assigned as 'proper officers' by way of appropriate Notification under Section 5 or Section 6. Thus, the Court found that the words 'the proper officer' in Section 28 actually refer to the officers empowered under Section 5 and not the ones carrying out functions under Section 17.

While the Respondents maintained their challenge, the Review Bench dismissed the rival submissions largely on the basis of Justice C. Saravanan's brilliant treatise of a judgment on the same issue in M/s. N.C. Alexander v. The Commissioner of Customs, Chennai 2022 (6) TMI 723 - MADRAS HIGH COURT, dated 09.06.2022. Differentiating from the then prevalent Canon judgment of 2021, Justice Saravanan had disposed of the Writ Petitions at hand, upholding DRI's power to initiate proceedings under Section 28. Drawing from Justice C. Saravanan's analysis, the Supreme Court held that there could be no doubt that DRI officers were Customs officers, first notified to be Customs officers vide Notification No.186-Cus, dated 04.08.1981 issued under Section 4(1) of the Act. Moreover, by way of Notification No. 40/2012-Customs (N.T.) dated 02.05.2012, the Board had appointed DRI officers as proper officers under Section 2(34). But in Canon, the Court disregarded Notification No. 40/2012-Customs (N.T.) despite the fact that the same had not been brought into question. The review Bench noted the error in doing so.

Additionally, there seemed to be some confusion regarding the applicability of Section 6 to DRI's actions under the Act. Section 6 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.

Evidently, Section 6 provides for conferment of powers to officers who are not already functioning under the purview of the Customs Act. The Canon judgment had held that DRI officers can act as proper officers for the purposes of Section 28 only by way of a Notification issued under Section 6 as they are not Customs officers to begin with. However, in its review, the Supreme Court explained the correct legal position: DRI officers are Customs officers for all means and purposes and thus, Section 6 would automatically become inapplicable to their case. In light of the Notifications mentioned above, there was no further need to prove their right to also function as a proper officer under the Act.

But as the Customs Department realigns its priorities and assessees cower de novo, it becomes important to understand the practical takeaway for other stakeholders of the indirect tax community. It is no news that the ambit of the review mechanism under Article 137 of the Indian Constitution is very narrow. It is neither a one size fits all panacea nor is it a backup plan to reverse an unfavorable judgment. It is but a tool to be used sparingly in exceptional situations. In the present case, the patent error in determination of the issue resulted out of an oversight of relevant provisions. Had the amendments to Section 17 been brought to light during the original hearing of the case, it is possible that the false corollary between Section 17 and Section 28 would not have been drawn.

Revenue Departments and taxpayers both stand to lose and next time, a review may not save the day. It is also pertinent to note that the original Canon ruling upset a well-oiled machine. Such high stakes judicial pronouncements merit deeper consideration of the domino effect they can have on the industry. That said, bygones are bygones and celebrations are in (re)view.

[The views expressed are strictly personal.]