NOVEMBER 13, 2024

By Vijay Kumar

ONCE we invited the DG, DRI for a seminar. He was ready to come, but told us that his boss, the Member, Customs of CBEC should permit him. I was really surprised that the mighty chief of the mighty DRI needs to take permission from his boss to attend a seminar. The very feeling that he had a boss was a little disturbing. To complete the story, I called up the Member, Customs and requested him to attend the meeting. He was very apologetic that he couldn't make it and then I requested him, "if you cannot come, please send your DG, DRI." The next day he called me up and said, "I cannot come, but I will send my DG, DRI." We all lived happily thereafter.

In the meeting during lunch, the DG asked me, "who is that elegant lady you were talking to?" I said, "you are the best Intelligence Agency in the country, but you don't know the counsel defending your case in the Tribunal. She is your Departmental Representative in the CESTAT having a tough time defending all your fabulous Show Cause Notices."

So, DRI, the super sleuth is a part of the department managed by the CBIC and the DRI chief is a subordinate officer reporting to the Member (Customs) of the Board.

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 that could make James Bond jealous. The taller than you, better than you impression they create is really impressive. Even when the officers go back to the field positions in the department after a stint in DRI, they carry the halo and would like everyone to believe that they are a cut above the rest.

The huge seizures, the good rewards and accolades the officers earn and the might of an investigator - have all made the agency look superhuman and every officer there, is a big 007. The agency was not meant for booking cases as seems to be the only goal now.

Why was DRI set up?

A need was felt to have a centralized agency in India to deal with cases of violations of Customs laws, having ramifications beyond the geographical jurisdiction of localized field formations and for collection, co-ordination and correlation of intelligence with respect to violation of these laws and also to furnish specialized know-how. A beginning was made in 1953, when a nucleus cell, CRIB (Central Revenue Intelligence Bureau), charged with the responsibility of dealing with all matters connected with anti-smuggling and anti-corruption in the Customs and Central Excise all over India was constituted. It was a small unit consisting of an Assistant Collector and two Superintendents within the Directorate of Inspection (Customs and Central Excise), but working directly under the Central Board of Revenue.

By its very composition, a cell like CRIB could have a very limited scope for wider activities. The Directorate of Revenue Intelligence 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.

But what are the powers of DRI? Can it issue a Show Cause Notice?

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, all this changed thirteen 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, 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.

Section 28 of the Customs Act was amended 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."

Problem solved? Not exactly! 20 petitioners challenged this and got relief from the Delhi High Court on 3rd May 2016, where the Show Cause Notices issued by DRI were quashed.

The High Court observed in what is now famously known as the 'Mangali Impex' case 2016-TIOL-877-HC-DEL-CUS;

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.

Undoing a Supreme Court order requires deft drafting skills, which bureaucrats are not fortunately endowed with. As expected, the Department took the matter to the Supreme Court, which, stayed the Delhi High Court Order.

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 held,

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…

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 show cause notices by the DRI were invalid and without any authority of law and so were set aside.

Panic buttons pressed! Fire-fighting on! What? The mighty DRI cannot even issue Show Cause Notices? Even while Mangali Impex was pending before the Supreme Court, the Apex Court has brought in the new idea of Section 6. Many in the department feel that the Supreme Court is wrong in interpreting Section 6 as they feel it is only for conferring power on other officers, not home officers. DRI officers are original Customs officers and there is no need to specially confer upon them powers under Customs Act. Is it so?

In June 1963, the Government issued a notification

So, in 1963, they were aware that a notification under Section 6 had to be issued for DRI, but over the years somebody forgot to issue the notifications under Section 6 and resultantly, all the show cause notices issued by the DRI are under doubtful legitimacy.

The Government filed a Review Petition against the Canon India judgement and the Supreme Court delivered its magnificent judgement on November 07 2024 - 2024-TIOL-115-SC-CUS-LB.

While this was pending, Finance Act 2022 retrospectively validated all show cause notices and also inserted a new Section 110AA in the Customs act stipulating that in future Show Cause Notices be issued by the proper officer.

The Supreme Court allowed the Review petition of the Government for the reasons that:

a. Circular No. 4/99-Cus dated 15.02.1999, which empowered the officers of DRI to issue show cause notices under Section 28 of the Act, 1962 as well as Notification No. 44/2011 dated 06.07.2011 which assigned the functions of the proper officer for the purposes of Sections 17 and 28 of the Act, 1962 respectively to the officers of DRI were not brought to the notice of the Court during the proceedings in Canon India.

b. The judgment in Canon India was rendered without looking into the circular and the notification referred to above thereby seriously affecting the correctness of the same.

c. The decision in Canon India failed to consider the statutory scheme of Sections 2(34) and 5 of the Act, 1962 respectively. As a result, the decision erroneously recorded the finding that since DRI officers were not entrusted with the functions of a proper officer for the purposes of Section 28 in accordance with Section 6, they did not possess the jurisdiction to issue show cause notices for the recovery of duty under Section 28 of the Act, 1962.

d. The reliance placed in Canon India on the decision in Sayed Ali is misplaced for two reasons - first, Sayed Ali dealt with the case of officers of customs (Preventive), who, on the date of the decision in Sayed Ali were not empowered to issue show cause notices under Section 28 of the Act, 1962 unlike the officers of DRI; and secondly, the decision in Sayed Ali took into consideration Section 17 of the Act, 1962 as it stood prior to its amendment by the Finance Act, 2011.

The Supreme Court held that the officers of Directorate of Revenue Intelligence are proper officers for the purposes of Section 28 and are competent to issue show cause notice thereunder.

So, the story is that DRI officers were always competent to issue notices. The period from March 09 2021 to November 07, 2024, when their powers were doubted, disputed debated, delineated, and disparaged, was only because certain vital facts were not brought to the notice of the Supreme Court. Maybe divine intervention, the government could now assist the apex court properly and laugh its way to the treasury.

Now, the past period is covered both by the latest Supreme Court judgement and by the amendment by the Finance Act 2022 and so is the future. DRI never had it so good.

Congratulations to all the dramatis personae in this high octave drama involving thousands of cases and hard cash of hundreds of crores.

Until next week