DRI Officers can issue Show Cause Notices (SCN)- Decoding the contours of The Customs Act, 1962

The Supreme Court on November 07^th, 2024 held that the officers of the Directorate of Revenue Intelligence(DRI) have the power to exercise powers under the Customs Act, 1962 to issue show-cause notices and recover duties

The Court held that DRI officers are “proper officers” to issue show cause notices under Section 28 of the Customs Act, 1962.

Background:

In the Landmark Judgment between M/s Canon India Private Limited Vs Commissioner Of Customs [CA 1827 OF 2018], The Supreme Court has held that the officers of Directorate of Revenue Intelligence (DRI) are not ‘proper officers’ within the meaning of Section 28(4) of the Customs Act, who are empowered to undertake process or recovery of duties.

The Court observed that only an officer who did the assessment, can undertake re-assessment under Section 28 (4) of the Customs Act.

The issue considered by the Court in this case was whether the Directorate of Revenue Intelligence had authority in law to issue a show cause notice under Section 28(4) of the Act for recovery of duties allegedly not levied or paid when the goods have been cleared for import by a Deputy Commissioner of Customs who decided that the goods are exempted. In this case, a show cause notice was issued under Section 28 (4) to Canon India Private Limited alleging that the Customs Authorities had been induced to clear the cameras by willful mis-statement and suppression of facts about the cameras.

Now let us address issues as highlighted in the current judgement on 07^th November 2024. We shall now consider one by one as below.

Section-17 of the Customs Act, 1962- Assessment of Customs Duty:

Sub-Section-1: Allows the Importer/Exporter will self-assess the duty for the goods filed for Import clearance under Section-46 or for export clearance under Section-50.

Sub-Section-2: The proper officer may verify & for this purpose, examine or test any imported goods or export goods. Provided that the selection of cases for verification shall primarily be on the basis of risk evaluation through appropriate selection criteria.

Sub-Section-3: The proper officer may require the importer, exporter or any other person to produce any document or information for the purpose of finalizing the duty assessment

Sub-Section-4: Based on the outcome of the verification the proper officer may, without prejudice to any other action which may be taken under this Act, re-assess the duty leviable on such goods.

Sub-Section-5: Where any re-assessment done under sub-section (4) is contrary to the self-assessment done by the importer or exporter and in cases other than those where the importer or exporter, as the case may be, confirms his acceptance of the said re- assessment in writing, the proper officer shall pass a speaking order on the re-assessment, within fifteen days from the date of re-assessment of the bill of entry or the shipping bill, as the case may be.

Notification No. 26/2022-Customs (NT) dtd 31.03.2022:

Check at Sl. No 3 of the Table for the “Proper Officer” for Section-17 (5) assessment
Check at Sl. No 4 of the Table for the “Proper Officer” for Section-28, 17, 110AA, 28B, 28DA

Section-28 of the Customs Act, 1962- Recovery of Duties:

Sub-Section-1: Where any duty has not been levied or not paid or short-levied or short-paid or erroneously refunded, or any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than the reasons of collusion or any willful mis-statement or suppression of facts,-

(a) the proper officer shall, within two years from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice; Period of Two Years Substituted by the Finance Act, 2016 (28 of 2016), section 120 (b)(ii)(A), for “one year”. (w.e.f. 14-05-2016).

Provided that before issuing notice, the proper officer shall hold pre-notice consultation with the person chargeable with duty or interest in such manner as may be prescribed- Refer to Notification No. 29/2018-Customs (NT) dtd 02.04.2018. Inserted by Finance Act, 2018 (13 of 2018), section 63 (w.e.f.29.03.2018). This is a MANDATORY CLAUSE & NOT OPTIONAL. Show Cause Notice (SCN) issued by Customs Department is Void ab-initio where Pre-SCN consultation is not given to the assessee

Citation: Bihar Foundry and Castings Limited Versus Union of India, Jharkhand High Court March 2024

The Supreme Court decided as below:

In 2021: The Supreme Court has held that the officers of Directorate of Revenue Intelligence (DRI) are not ‘proper officers’ within the meaning of Section 28(4) of the Customs Act, who are empowered to undertake process or recovery of duties.

The Court observed that only an officer who did the assessment, can undertake re-assessment under Section 28 (4) of the Customs Act.

The case was not considered for an argument on section 28(11) of the Customs Act, 1962 in anyway.

In 2024: The petition seeking review of Canon India are allowed for the following reasons. Circular No.4/99 dated 15.02.1999 issued by the Central Board of Excise and Customs which empowered officers of DRI to issue show-cause notices under S.28 of the Act as well as Notification no.44/2011 dated 06.07.2011 which assigned the functions of “proper officers” for the purposes of Sections 17 and 28 to the officers of the DRI were not brought to the notice of this Court during the proceedings in Canon India.

In other words, the judgment in Canon India was rendered without looking into the circular and notification, therefore seriously affecting the correctness of the same. The decision in Canon India failed to look into the statutory scheme.

Section 28(11) of the Customs Act, 1962 is a Non-obstante clause (having overriding effect) which says that all persons appointed as officers of Customs under section-4 (1) of the Customs Act, 1962 before the 6th 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. It gives the Custom officers appointed before 06.07.2011 and now posted in DRI the powers to assess the duty under section-17. This clarifies that an officer of DRI who was appointed as an officer of Custom after 06.11.2011 does not have the power to issue any SCN.

It is Important to mention the only section of the Customs Act, 1962 under which the SCNs are issued i.e. Section-108.

Section-108 of the Customs Act, 1962:

Sub-Section-1: Any Gazetted Officer of customs shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making under this Act. Gazetted Officer has not be particularly defined yet in the Customs Act, 1962. However a reference can be drawn from DoPTs CCS (CCA) RULES, 1965 PART – II CLASSIFICATION Group-A and Group-B officers for the same.

Key take aways:

a. on 06.07.2011 CBIC issued Notification no.44/2011-Customs (NT) giving powers to the officers of DRI, Preventive, CEX as “Proper Officer” for duty assessment under section-17 and for duty recoveries under section-28 of the Customs Act, 1962.

b. To keep a check and balance on the powers of the above said officers, as per Section-5(1) of the Customs Act, 1962, the CBIC issued Notification No. 29/2018-Customs (NT) dtd 02.04.2018 as to enforce the MANDATORY Proviso under Section-28(1)(a) of the Customs Act, 1962, requiring the officers of the Customs, DRI, Preventive, as the case maybe to issue a Mandatory Pre-SCN Consultation Notice before issuing any SCN, to upheld the Principles of Natural Justice. However, SCN can be issued by officers of DRI/Preventive/Customs, as the case maybe, without the Mandatory Pre-SCN Provisions as per Notfn. 29/2018, where the SCN is issued under Section-28(4) of the Customs Act, 1962. Section-28(4) deals with duty recoveries in case of willful mis-statement & suppression of facts.

c. Customs Notification No. 26/2022-Customs (NT) dtd 31.03.2022 specifies who are the “Proper Officer”, as per Section-2(34) of the Customs Act, under the Customs Act, 1962. This Notification is clarificatory in nature and gives a very clear position as to the jurisdictions of the “Proper officer” section wise.

Conclusion:

1. The matter in M/s Cannon India Vs Union of India was related to recovery of duties u/s 28(4) i.e. willful mis-statement & suppression of facts.

2. The Supreme Court exercised its inherent power to allow the review petition against the earlier order of 2021, after due consideration of Circular No.4/99 dated 15.02.1999 issued by the Central Board of Excise and Customs which empowered officers of DRI to issue show-cause notices under S.28 of the Act as well as Notification no.44/2011 dated 06.07.2011 which assigned the functions of “proper officers” for the purposes of Sections 17 and 28 to the officers of the DRI.

3. DRI officers/Preventive Officers can issue SCN directly if there is any willful mis-statement or suppression of facts in order to recover duties u/s 28(4) of the Customs Act, 1962. They don’t have to follow the Mandate of issuing Pre-SCN Consultation as per Notfn No. 29/2018-Customs (NT) dtd 02.04.2024. However, before issuing any SCN under any other provision of section-28, the customs department must and has to comply with Notfn No. 29/2018 mandatorily.

4. Any SCN issued in relation to Section-28, except issued in relation to section-28(4), without the compliance of Notfn No. 29/2018 is Null & Void ab-initio.

5. The case of M/s Canon India and all similar pending appeals, across all judicial forums, will be adjudicated as per the revised order issued by the Hon’ble Supreme Court.

6. The only question to be asked and understood is whether a case of willful mis-statement and suppression of facts can be drawn in the pending matters or not. It is yet to be seen going forward as the pending cases unfold across different judicial forums.

This Article is Authored by: Mr. Ravi Jha, BALLB/Mob: +91-9999005379 & The Author can be directly reached at his email id intelconsul@gmail.com also.

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