A tussle of powers – Demands and recovery by DRI in Customs
Similar to other tax legislations, the issue of jurisdiction or multiplicity of the jurisdiction under the Customs Act has been in the news and before the Courts lately specifically in case of demand and recovery. Section 28 of the Customs empower the proper officer for the purpose demanding and recovery of the duties not levied or not paid or short levied or short paid or erroneously refunded by way of issuance of SCN.
Point of tussle
The term proper officer is defined under the Customs Act, as an officer of customs who is assigned those functions by the Board or the Principal Commissioner of Customs or Commissioner of Customs. Further Section 6 of the Customs Act deal with ‘Entrustment of functions of Board and customs officers on certain other officers’ by the Central Government through issuance of notification in the Official Gazette. It is apparently clear from bare reading of the provision that only such officers of customs who have been assigned specific functions would be “proper officers” either the Board or the Commissioner of Customs in terms of Section 2(34) of the Customs Act.
In this regard, although the Central Government has issued Notification conferring various functions under the Customs Act on officers referred. However, point to be noted is that such Notification was issued by deriving powers from Section 2(34) of the Customs Act instead of Section 6 thereof. Thus, the point of tussle in terms of powers to demand and recover is whether the Additional Director General of the Directorate of Revenue Intelligence (DRI) is proper officer to issue SCN for demand and recovery and also whether assessment of one officer can be re-assessed by another officer without jurisdiction.
Jurisprudence on the issue
The Hon’ble Supreme Court in the case of CC vs. Sayed Ali & Ors. had held that only those officers who have been assigned function of assessment/ re-assessment under Section 2(34) of the Customs Act will be “the proper officer” for the purpose of issuance of SCNs under Section 28 thereof. Further the Hon’ble Apex Court has also categorically observed that if Collector of Customs (Preventive) becomes a “proper officer” under the Customs Act, the situation will lead to a situation of utter chaos and confusion.
Aftermath to Sayed Ali
Considering impact of decision of the Supreme Court in Sayed Ali (supra) in recovery of tax dues in a large number of cases where SCNs were issued by non-jurisdictional officers such as DRI, the Government amended Section 28 of the Customs Act with addition of Explanation 2 stating that for any non-levy/ short-levy prior to April 2011, the old Section 28 will apply. Furthermore, sub-Section 11 was inserted in Section 28 to make /deem all officers (appointed as customs officers under Section 4(1) of the Customs Act) as proper officers to issue show cause notices.
Without prejudice to the legality of Section of 28(11) of the Customs Act, the defect pointed out by the Supreme Court in the case of Sayed Ali to the extent it held that re-assessment by different officer was not dealt with in the amended provision and remained alive. Despite the facts that there are numerous litigations ongoing and pending before various forums on this issue, DRI is still issuing SCN for the recovery of the duty where goods have been assessed by the jurisdictional customs officers at the time of import.
Issue settled by the Apex Court
Putting the issue to rest, the Hon’ble Supreme Court of India in the matter M/s Canon India Private Limited has held that the Additional Director General of DRI was not the proper officer to exercise power under Section 28(4) of the Customs Act where the goods were cleared at the time of import by jurisdictional Deputy Commissioner of Customs.
The Apex Court held that where a particular officer has exercised his power of assessment, the power to order re-assessment must also be exercised by the same officer or his successor and not by another officer of another department (referring to DRI) though he is designated to be an officer of the same rank. The Hon’ble Apex Court observed that power conferred vide Section 28(4) of the Customs Act to recover duties having escaped assessment is in the nature of an administrative review of an act and therefore, it should be construed as conferring the power of such review on the same officer or his successor or any other officer who has been assigned the function of assessment. The Hon’ble Supreme Court further held in definite terms that allowing an officer, who has not passed the original order of assessment, to re-open the assessment is impermissible and specifically emphasised on the relevance of article “the” used by the legislature instead of ‘a’ or ‘an’ before proper officer.
Additionally, the Hon’ble Apex Court held that exercise of powers in the same case, where statute confers the same power to perform an act on different officers, especially when they belong to different departments, would result into an anarchical and unruly operation of a statute which is not contemplated by any canon of construction of the statute. The Hon’ble Supreme Court in Canon India case also went into the legality of the Notification issue for the appointment of proper officers. It has been held that Notification of 2012 does not confer any powers on any authority to entrust any functions to officers but merely defines a proper officer since this notification has been issued in exercise of non-existent power under Section 2(34) of the Customs Act and not under Section 6 thereof which is specifically for entrustment of powers to the proper officers.
Undoubtedly the preposition laid by the Hon’ble Supreme Court in Canon India (Supra) will have its far-reaching impact and definitely limit the powers of the investigative non-jurisdictional officer to demand duties which were originally assessed by the jurisdictional officer. Keeping in view anticipated moves by the Government to keep the stake of heavy-duty demand by the DRI in ongoing matters, as of now the Judgment can be seen as sigh-of-relief for the industry facing demand and tussle with DRI on the jurisdiction, however, for how long the status quo is maintained is a matter of speculation.
Smita Singh,Partner Indirect Tax, Customs & Trade, S&A Law Offices
Ajay Sharma, Associate, Indirect Tax, Customs & Trade, S&A Law Offices