By: Ram Chander Sankhla, Advocate | Former Chief Commissioner, GST & Customs| Managing Partner, Sankhla Law associates.

Author can be reached at www.rrsla.com

PRELUDE:

  1. It is not uncommon to witness the enquiry/investigation more than once on the same issue. It so happens that special investigation branch (SIIB) or Special Valuation Branch (SVB) of a Custom House or Directorate of Revenue Intelligence (DRI) (collectively referred as investigating agencies) at about same or different points of time carry out detailed enquiries/investigation on the same issue. These agencies found it immaterial whether the show cause notice has been issued or not, due to an earlier enquiry/investigation, the same will be taken up by other investigating agency for re-inquiry. It is in this backdrop, precisely, that the Hon’ble Supreme Court of India observed in case of Canon India-2021 (376) ELT 3 (SC) (old cannon case), in Sayed Ali and Another – (2011) SCC 537 and Delhi High Court in case of Mangali impex- (2016) SCC Online Del 2597= 2016(335) ELT 605 (Del) that plurality of officers on the same subject matter which may result in utter chaos, unnecessary harassment and conflicting decisions, hence such untrammelled power is arbitrary and violative of Article 14 of the Constitution. Though, the Apex Court in review petition in case of Commissioner of Customs versus Canon India Private Limited-2024 INSC 854 = (2024) 24 Centex 117 (S.C.) has reversed those judgements but the pertinent question still remains whether the importer or trade in general are facing the plurality of investigation/inquiry and resultant chaos, unnecessary harassment and conflicting decisions on the same issue.
  2. Before diving deep into this issue, one must understand the backdrop in which the said review petition was filed and resultant judgement on it.
  3. As is widely known that Honourable Supreme Court (three judge bench and judgement as per justice JB Pardiwala) in Review Petition No. 400 of 2021 in Civil Appeal No.1827 of 2018 in case of Commissioner Customs vs Canon India Pvt. Ltd.- 2024 INSC 854 = (2024) 24 Centex 117 (S.C.), judged that DRI officers are proper officers under section 28 of the Customs Act. However, what is commonly being missed is the important ratio/conclusion that once the show cause notice (SCN)/investigation is issued/started/completed by a proper officer, the other similarly situated proper officers are not to proceed on the same SCN/investigation/issue.
  4. This article is focussing on the highlighted portion above, that is, what and why the Hon’ble Court said with regard to perceived plurality of proper officers and resultant chaos, harassment and confusion for their simultaneous exercise of these powers. An attempt is also made to analyse if the Supreme Court’s clear directives, which are based on CBIC’s assurances, has made any impact in the field?

JOURNEY SO FAR:

  1. The said journey started with the judgement in Commissioner of Customs v. Sayed Ali and Another – (2011) SCC 537, where in it was held by two judge Bench of the Apex Court that the Commissioner of Customs (Preventive) is not a “proper officer” as defined in Section 2(34) of the Customs Act, 1962 (in short Act,1962) and hence have no jurisdiction to issue a SCN in terms of Section 28 of the said Act. It was held, among other, that only those officers of customs who were assigned the functions of assessment/re-assessment, working under the jurisdictional collectorate within whose jurisdiction the bills of entry had been filed, would have the jurisdiction to issue show cause notice under Section 28 or else it would lead to a situation of utter chaos and confusion, in as much as all officers of customs in a particular area, be it under the Collectorate of Customs (Imports) or the Preventive Collectorate, would fall under the definition of “proper officers”. To cure this observation of Hon’ble Apex Court, the Central Board of Excise and Customs (CBIC) issued Notification No. 44/2011-Cus-NT dated 06.07.2011 under Section 2(34) of the Act, 1962, assigning the functions of the “proper officers” to the Commissioners of Customs (Preventive), Directorate of Revenue Intelligence (DRI), Directorate General of Anti Evasion (DGAE) and Officers of Central Excise, prospectively. With a view to account for the past period, Section 28(11) was introduced vide the Customs (Amendment and Validation) Act, 2011 by virtue of which all persons appointed as Officers of Customs under sub-section (1) of Section 4 before 06.07.2011 were deemed to have and always had the power of assessment under Section 17 and were deemed to be and always have been “proper officers” for the purpose of the said section.
  2. On challenge, the constitutional validity of said Section 28(11) of the Act, 1962, was decided vide a common judgment dated 03.05.2016 by the High Court of Delhi in the case of Mangali Impex Ltd. v. Union of India- (2016) SCC Online Del 2597= 2016(335) ELT 605 (Del), holding that although Section 28(11) of the Act, 1962 begins with a non-obstante clause, it neither explicitly nor implicitly seeks to overcome the legal position brought about by Explanation 2, which states that the cases of non-levy, short-levy or erroneous refund, prior to 08.04.2011, would continue to be governed by the unamended Section 28 of the Act, 1962 as it stood prior to said date. On this basis, it held that the newly enacted Section 28(11) would not empower officers of DRI or DGAE to either adjudicate the show-cause notices already issued by them for the period prior to 08.04.2011 or to issue fresh show-cause notices for said period. The High Court also held that Section 28(11) of the Act, 1962 is overbroad in as much as it confers jurisdiction on a plurality of officers on the same subject matter which may result in utter chaos, unnecessary harassment and conflicting decisions. It held that such untrammelled power would be arbitrary and violative of Article 14 of the Constitution. The Department preferred an appeal against said decision in Mangali Impex (supra) in Civil Appeal No. 6142 of 2019 before Supreme Court and vide order dated 01.08.2016, a two-Judge Bench stayed the operation of that decision.
  3. Meanwhile, four statutory appeals were decided by the Apex Court on 09.03.2021 in Canon India (three judge bench)- 2021 (376) ELT 3 (SC) wherein the Hon’ble Court proceeded (Judgement as per SA Bobde, CJI, then) to reiterate the principles laid down in Sayed Ali (supra) that only such officers who are vested with the power of assessment under Section 17 can be empowered to issue show cause notices under Section 28 or else this would result in a state of chaos and confusion. It also held that unless it is shown that the officers of DRI are at the first instance, customs officers under the Act, 1962 and are entrusted with the functions of a proper officer under Section 6 of the Act, 1962, they would not be competent to issue show-cause notices.
  4. The present Review Petition against the judgement delivered in Canon India (supra) on 09.03.2021 was filed by the Govt. on the ground that the Notification No. 44/2011-Cus-NT dated 06.07.2011 designating officers of DRI as “proper officers” for the purposes of both Sections 17 and 28 of the Act, 1962; the introduction of Section 28(11) vide the Validation Act, 2011 introducing Section 28(11) empowering such officers for the period prior to 06.07.2011; the statutory scheme as envisaged under Sections 3, 4, 5 and 2(34) of the Act, 1962 ; and the pendency of the appeal against the decision in Mangali Impex- 2016(335) ELT 605 (Del) and the stay of the operation of the said decision was either not noticed or not brought to the notice of the Apex Court.
  5. Due to further developments, Sections 86, 87 and 88 in the Finance Act, 2022 (Act No. 6 of 2022) amending Sections 2(34), 3 and 5 of the Act, 1962 respectively were passed in the parliament. Further, Sections 94 and 97 of the Finance Act, 2022 introduced a new Section 110AA in the Customs Act. These amendments stand challenged before the Supreme Court in W.P. (C) 526 of 2022 titled Daikin Air Conditioning India Pvt. Ltd v. Union of India, which were also taken up in the present review petition and resultant judgement in Cannon India.

REASONS ADVANCED IN SUPPORT OF REVIEW:

  1. Learned ASG on behalf of the department argued that the judgement in Canon India (old) proceeded on the ASSUMPTION that DRI officers are not officers of customs and therefore need to be entrusted with such powers under section 6 of the Act; that, the provisions of section 3, 4 and 5 of the Act, 1962, were not taken into account under which the DRI officers were duly empowered by the relevant Authorities; That, vide notifications GSR-214 (No. 37/F.No. 4/1/63-CAR) and GSR-215 (No. 38/F.No. 4/1/63-CAR), DRI officers were empowered under section 4 and 5 of the Act; that despite being a conceded position that issuance of a show cause notice under Section 28 is a quasi-judicial exercise of power, this Court (Supreme Court) fell in error in holding the same to be an administrative review.
  2. With respect to the point of plurality of officers, it was argued that although no disability is to be found in any provisions of the Act, 1962, yet Sayed Ali- 2011 (265) ELT 17 (SC) creates such an embargo and held that empowering such officers to issue SCN would result in multiple persons dealing with the same issue leading to utter chaos and confusion; that the Board has been issuing circulars and notifications from time to time with a view to ensure that no such overlap occurs; that the respondents have not adduced any evidence or empirical statistics to even remotely indicate that an importer has been visited with either multiple show cause notices or adjudication orders on the same subject. The arguments continued that possible/perceived misuse of the provision by the authorities or mere presumptions and conjectures of a possible misuse cannot constitute basis to hold that a provision is arbitrary and violative of Article 14. The following decisions were relied to fortify this submission:

Collector of Customs v. Nathella Sampathu Chetty-1962 SCC On Line SC 30

Shreya Singhal v. Union of India, (2015) 5 SCC 1

Commissioner Customs v. Dilip Kumar & Co.-(2018) 9 SCC 1

Goodyear India Ltd. v. State of Haryana- (1990) 2 SCC 71

12. It was also a pleading that Section 94 of the Finance Act, 2022 introducing Section 110AA to the Act, 1962 is only a way forward for the future wherein post search and investigation by the DRI, certain category of cases have now been directed to be handed over to the port authorities for issuing necessary show cause notices and this, in no way, can vitiate notices issued by DRI earlier especially in the absence of a constitutional or statutory embargo.

HOW THE DEFENCE FARED:

  1. The respondents vehemently defended the judgements in Mangali Impex and Cannon India (old). For the purpose of this article, their defence can be summarised as, that all proper officers are officers of customs, but all officers of customs are not proper officers; that mere conferment of power or assignment of functions of assessment/reassessment under Sections 17 and 28 of the Act, 1962 respectively is not enough; that, only that proper officer who had actually carried out the assessment will be the proper officer; that there can be concurrent conferment of power but there cannot be concurrent exercise of powers as the same may result in chaos and utter confusion; that, a Validation Act can only validate the law but cannot validate a fact. Once a particular officer has exercised the function of assessment, it is a jurisdictional fact that has occurred to the exclusion of all other groups in the Customs Department. Thereafter, only that officer or his superiors (known as the Customs group) who had undertaken assessment under Section 17 in the first place shall have the jurisdiction to issue notices for recovery of duty under Section 28.
  2. The arguments were further fortified with the reasons that The Finance Act, 2022 also introduced a provision, i.e. Section 110AA, providing a mechanism for actions to be taken subsequent to inquiry, investigation or audit by any officer of customs. Section 110AA operates only prospectively. This provision is Parliament’s recognition of the importance of maintaining the jurisdiction for issuing show cause notices within the assessing group.

THE JUDGEMENT:

  1. Under Article 137 of the Constitution of India, Supreme Court has power to review any judgement pronounced or order made by it. This article is subject to the provisions of any law made by Parliament or any rules made under Article 145. Further, rule 1, Part IV Order XLVII of the Supreme Court Rules, 2013, read with Order XLVII Rule 1(1) of the Code of Civil Procedure, 1908 specify, mistake or error apparent on the face of the record, as one of the grounds for review. Based on various decisions, it was observed that when a court disposes of a case without due regard to a provision of law or when its attention was not invited to a provision of law, it may amount to an error analogous to one apparent on the face of record sufficient to bring the case within the purview of Order XLVII Rule 1 of the Code of Civil Procedure, 1908. In other words, if a court is oblivious to the relevant statutory provisions, the judgment would in fact be per incuriam. In such circumstances, a judgment rendered in ignorance of the applicable law must be reviewed. Accordingly, judgement in Canon India (old) was taken up for review.
  2. And, it was ruled that the proceedings under Section 28 are subsequent to the completion of the process set out in Section 17 of the Act. The procedure envisaged under Section 28 is in the nature of a quasi-judicial proceeding with the issuance of the show cause notice by the proper officer followed by adjudication of such notices by the field customs officers. It is also worth noting that in the case of DRI, the proceedings under Section 28 start only after an investigation has been undertaken by DRI. This is reaffirmed by Circular No. 4/99-Cus dated 15.02.1999 and Circular No. 44/2011 Customs dated 23.11.2011. Therefore, the nature of review under Section 28 is significantly different from the nature of assessment and re assessment under Section 17. The ambit of Section 28 has also been restricted to the review of assessments and re-assessments done under Section 17 for ascertaining if there has been a short-levy, non-levy, part payment, non-payment or erroneous refund. Keeping this statutory scheme in mind, it was held that view taken in both Sayed Ali (supra) and Canon India (old), namely, that the vesting of the functions of assessment and re-assessment under Section 17 is a threshold, mandatory condition for a proper officer to perform functions under Section 28, is not valid and lawful.
  3. It was thus ruled that the JUDICIAL READING to avoid the possibility of chaos and confusion due to the potential for multiple proper officers exercising jurisdiction under Section 28, was unfounded considering that no substantial empirical evidence has been brought forth by the respondents to support such a view.
  4. The Hon’ble Court also said that they are conscious of the fact that Section 110AA of the Act, 1962, which has been introduced by the Finance Act, 2022, stipulates that a show cause notice under Section 28 of the Act, 1962 can only be issued by that “proper officer” who has been conferred with the jurisdiction, by an assignment of functions under Section 5 of the Act, 1962, to conduct assessment under Section 17 of the Act in respect of such duty. However, The Court opined that the introduction of Section 110AA doesn’t alter the statutory scheme of Sections 17 and 28 of the Act, 1962 as it stood prior to the introduction of Section 110AA. The legislature in its wisdom may introduce certain new provisions keeping in mind the exigencies of administration and taking into account the evolution of law. However, this would not, by itself, mean that the procedure which was being followed prior to the introduction of such changes was incorrect or in contravention of the law. The legality and correctness of an action has to be adjudged based on the statutory scheme prevailing at the time when such action took place, and incorrectness or invalidity cannot be imputed to it on the basis of subsequent changes in law.
  5. As far as the issue in this article is concerned, it was ruled by the Honourable Court that the finding in Mangali Impex that Section 28(11) is overbroad and confers the powers of the proper officer to multiple sets of customs officers without any territorial or pecuniary jurisdictional limit which in turn may lead to “utter chaos and confusion” as highlighted in Sayed Ali (supra), is misconceived. The apprehension of the petitioner therein was that plurality of proper officers empowered under Section 28 would result in more than one show cause notice and a consequent misuse of the provision, which would be detrimental to the interests of the persons chargeable with the payment of duty. Although, Mangali Impex (supra) declared Section 28(11) to be invalid on this ground, it suggested that the Board should issue instructions in its administrative capacity that once a show cause notice is issued specifying an adjudicating authority subject to such an officer being the proper officer for the purposes of Section 28, then he or she alone should proceed to adjudicate that particular show cause notice to the exclusion of all other officers who may have power in relation to that subject matter. We find this to be a reasonable construal of the import and application of Section 28(11).
  6. Having agreed with the suggestions made in Mangali Impex (supra) that the CBIC should issue administrative instructions to ensure that there is no chaos or confusion because of plurality of proper officers under section 28, the Honourable court was assured by the Ld. ASG that the customs department has been following such protocol suggested in Mangali impex since 1999. It was because of such an assurance by the ASG on behalf of customs department, that the Honourable court held that once a show cause notice is issued, the jurisdiction of other empowered proper officers shall be excluded for such notice. It was held that such policy acts as a sufficient safeguard against the apprehension of chaos or confusion or misuse.
  7. The Apex Court while examining the validity of section 94 of Finance Act, 2022, vide which section 110AA has been inserted, again ruled in no uncertain terms that there is Custom Department’s policy of exclusion of jurisdiction of other competent proper officers once a particular proper officer empowered to issue a show cause notice under Section 28 has issued it. Such a policy acts as an adequate safeguard in our view against any chaos or misuse.
  8. It was thus so held that the functions of assessment and re-assessment under Section 17 and the recovery of duty under Section 28 are distinct. Therefore, the exercise of functions under Section 17 can only act as a “jurisdictional fact” for the purpose of excluding the jurisdiction of other proper officers empowered under that section for the exercise of the rest of the functions specified therein. Similarly, the exercise of the function of issuing show cause notices under Section 28 by a particular proper officer serves as a jurisdictional fact which would exclude the jurisdiction of other proper officers empowered under Section 28.
  9. It was finally concluded, among other, that the decision in Mangali Impex (supra) failed to take into account the policy being followed by the Customs department since 1999 which provides for the exclusion of jurisdiction of all other proper officers once a show cause notice by a particular proper officer is issued. It could be said that this policy provides a sufficient safeguard against the apprehension of the issuance of multiple show cause notices to the same assessee under Section 28 of the Act, 1962.

Whether Supreme Court’s directives, based on CBIC’s assurances, are being followed in the field: –

  1. It is very difficult, nay impossible, to say with certainty if the above directives based on CBIC assurances are being followed in the field by various investigating agencies/field officials. The Board even in its assurances to Hon’ble Apex Court has not coated any specific circular or instruction vide which officers were instructed not to cause another investigation/inquiry if the issue stands enquired/investigated earlier. Though, it is equally doubtful if data regarding completion of an enquiry/investigation is being shared among investigating agencies. In absence of such data even within the customs department, the argument by Ld. ASG that there are no empirical study/data to prove plurality of investigation/enquiry on same subject, seems to have no meaning.
  2. There are instances where a notice has been issued, after detailed enquiry, on a particular issue, in one Customs Commissionerate but the other investigating agency has summoned the concerned importer for further enquiry. This is not withstanding that there are Board instructions that, first the documents/records should be called and if needed, then only, the concerned importer should be summoned for personal statement. A regular importer, after facing detailed enquiry on an issue, is put in a situation by other investigating agencies to face further enquiry, putting him under significant stress from multiple investigations, potentially leading to a state of distraction or concern about the future of their business. The importer’s focus shifts from managing their core business activities to dealing with the consequences and challenges posed by these investigations.
  3. Another example of multiple investigations on the same issue is, MISUSE of section 17 of the Customs Act itself. It is very surprising, nay astonishing to witness that regular import items are kept on scrutiny and examination by customs officials despite the earlier detailed scrutiny/examination. This is despite, no change in law and facts of the imports. And, the concepts like reasons to believe or doubt, are foreign in such scrutiny/examination. No doubt, these kind of multiple enquiry/examination or investigation were not the part of discussion before Honourable Supreme Court, however, it is high time, CBIC come up with some kind of amendment in the Act itself (especially section 17) to control or regulate such multiple enquiry or investigation.
  4. The efficacy and effectiveness of these Board circulars or instructions is another issue which needs mention here. Despite Hon’ble Supreme Court judgements stating that the Board circulars/instructions are binding on departmental officers, these circular/instructions are known for ‘being flouted’ then followed. There are circulars specifying classification of an imported item but still investigation/enquiry on the same issue will be there leading to resultant disruption in the normal business activities of an importer. This is not with-standing the fact that such adventures come at an economic cost to the individuals and economy as a whole. This situation prevails as no action against those officials working against the dictate in such circulars/instructions are taken. And, the worst part is HIGHER UPS having made aware of such incidents turning blind eyes.
  5. To conclude, whether DRI officers remain ‘proper officer’ to issue show cause notice or not; existence of Board circulars/instructions regarding non-plurality of proper officer/investigations; Other Board circulars on classification, valuation and methods of investigation, the situation in the field is likely to remain same. That, the judgement in Canon India and Board assurances to Hon’ble Apex court, will bring any improvement in the field, will, therefore be a wishful thinking. The author will be pleasantly surprised to be proved wrong, though.

 

DISCLAIMER:  The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the official policy or position of any other individual, organization, employer or Firm. The information provided in this article is accurate and true to the best of the author’s knowledge, but there may be omissions, errors, or mistakes. The authors shall not be liable for any damages, losses, or injuries arising from the use of or reliance on the information presented in this article. Readers are advised to verify any information provided here and to consult with appropriate professionals for specific advice tailored to their individual circumstances.

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