DECEMBER 18, 2024

By Vijay Kumar

IN a recent judgement, the Delhi High Court observed, 2024-TIOL-2091-HC-DEL-CUS

The position which thus emerges from the aforesaid discussion and a review of the legal precedents is that the respondents are bound and obliged in law to endeavour to conclude adjudication with due expedition. Matters which have the potential of casting financial liabilities or penal consequences cannot be kept pending for years and decades together. A statute enabling an authority to conclude proceedings within a stipulated period of time "where it is possible to do so" cannot be countenanced as a license to keep matters unresolved for years. The flexibility which the statute confers is not liable to be construed as sanctioning lethargy or indolence. Ultimately it is incumbent upon the authority to establish that it was genuinely hindered and impeded in resolving the dispute with reasonable speed and dispatch. A statutory authority when faced with such a challenge would be obligated to prove that it was either impracticable to proceed or it was constricted by factors beyond its control which prevented it from moving with reasonable expedition. This principle would apply equally to cases falling either under the Customs Act, the 1994 Act or the CGST Act.

This is related to the famous Canon case, about which I have written several times:

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.

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,

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 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?

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.

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.

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.

But wait, there is a twist.

Several notices issued by DRI were not adjudicated by the Department because the case was pending in the Supreme Court and are now being taken up for adjudication after the latest Supreme Court judgement which held that the DRI always had the power. If they had the power, why couldn't the cases be adjudicated? This is exactly the question several petitioners raised before the Delhi High Court in the case mentioned in the beginning of this column.

The principal ground of attack is the inordinate delay in the finalisation of the adjudication proceedings with the writ petitioners contending that the failure on the part of the department to conclude adjudication within a reasonable period of time and inordinately delaying the same for decades together would constitute a sufficient ground to annul those proceedings. They would contend that the principles of a ‘reasonable period' which courts have propounded in connection with an adjudicatory function conferred upon an authority would apply and the impugned SCNs and orders are liable to be quashed on this short score alone.

A sample case:

W.P.(C) 16163/2023: The SCN came to be issued originally on 22 December 2006. On 29 June 2016 the said proceedings were transferred to the call book on the basis of the instructions issued by the Board and which in turn was based on the judgment which had by then come to be pronounced in Mangali Impex . The SCN is thereafter stated to have been taken out from the call book on 03 January 2017 pursuant to the Board's Instructions which were issued on the same date. It thereafter came to be transferred back to the call book on 03 November 2017 pursuant to directives of the Board and retrieved therefrom on 03 May 2019. On 17 March 2021, the SCN was again transferred to the call book for a third time and taken out on 09 April 2022, pursuant to Section 97 of the Finance Act, 2022 coming into force. Personal Hearings were held on 17 April 2012, 13 October 2014, 02 December 2020 and 11 August 2023.

The High Court held that:

1. Despite the legislative interventions, the respondents continued to abstain from taking proactive and effective steps to conclude proceedings that had been initiated as far back as 2006. That is in spite of retrospective amendments to the law, the Department failed to finalise adjudication.

2. The respondents have clearly failed to establish the existence of an insurmountable constraint which operated and which could be acknowledged in law as impeding their power to conclude pending adjudications.

3. In fact, and to the contrary, the frequent placement of matters in the call book, the retrieval of matters there from and transfer all over again not only defies logic it is also demonstrative of due application of mind quite apart from the said procedure having been found by us to be contrary to the procedure contemplated by Section 28.

4. The respondents have, in this regard, failed to abide by the directives of the Board itself which had contemplated affected parties being placed on notice, a periodic review being undertaken and the proceedings having been lingered unnecessarily with no plausible explanation.

5. The inaction and the state of inertia which prevailed thus leads us to the inevitable conclusion that the respondents clearly failed to discharge their obligation within a reasonable time.

6. The issuance of innumerable notices would also not absolve the respondents of their statutory obligation to proceed with promptitude bearing in mind the overarching obligation of ensuring that disputes are resolved in a timely manner and not permitted to fester.

7. We are further constrained to observe that the respondents also failed to act in accord with the legislative interventions which were intended to empower them to pursue further proceedings and take the adjudicatory process to its logical conclusion.

8. We have in the preceding paragraphs of this decision taken note of the various statutory amendments which were introduced in Section 28 and were clearly intended to ratify and reinforce the jurisdiction which the Legislature recognised as inhering in them.

The High Court allowed the writ petitions and quashed the SCNs as well as any final orders that may have come to be passed and impugned in this batch of writ petitions.

This case has All India vibrations and can affect many DRI cases yet to be adjudicated.

Following precedent, the Government has the following options:

1. Immediately amend the law with retrospective effect.

2. Challenge the Delhi High Court judgement in the Supreme Court.

3. If it does not succeed in 2 above, file a review petition.

4. In the meantime, adjudicate all the cases urgently, if necessary, by appointing 100 new Commissioners.

And the saga continues,