2022 (4) TMI 315 - AT - Customs

Tribunal Invalidates Penalties under Customs Act Sections

The Tribunal set aside the Principal Commissioner's order as the show cause notice issued by the Additional Director General, DRI lacked jurisdiction. ... Jurisdiction - power of Additional Director General DRI to issue SCN - proper officer under section 28 of the Customs Act to issue the notice, or not - Mis-declaration of description of goods - under-valuation of goods - whether the Additional Director General, DRI had the jurisdiction to issue the notice? - HELD THAT:- This precise issue was examined by the Supreme Court in M/S CANON INDIA PRIVATE LIMITED VERSUS COMMISSIONER OF CUSTOMS [2021 (3) TMI 384 - SUPREME COURT]. The Supreme Court observed that the nature of the power to recover the duty not paid or short paid after the goods have been assessed and cleared for import is a power that has been conferred to review the earlier decision for assessment. This power which has been conferred under section 28 of the Customs Act on the proper officer, must necessarily mean the proper officer who, in the first instance, assessed and cleared the goods. Thus, the Additional Director General, DRI did not have the jurisdiction to issue the show cause notice. It would thus be seen that the Supreme Court in Canon India held that the entire proceedings initiated by the Additional Director General, DRI by issuance of a show cause notice was without any authority of law and was, therefore, liable to be set aside - Various Benches of the Tribunal have also set aside the orders for the reason that the show cause notices were not issued by the proper officer, since they were issued by the Department of Revenue and Intelligence. Thus, the show cause notice dated 01.09.2017 issued by the Additional Director General, DRI is, therefore, without jurisdiction as the said officer was not the proper officer and, therefore all proceedings undertaken by the Department on this show cause notice is, therefore, without jurisdiction. The order dated 29.03.2019 passed by the Commissioner of Customs (Import), therefore, cannot be sustained. A Division Bench of the Tribunal in M/S BERIWALA IMPEX PVT. LTD. VERSUS COMMR. OF CUSTOMS (PORT) , KOLKATA [2022 (3) TMI 120 - CESTAT KOLKATA], also examined the proposed amendments to section 2(34), 3, 5 of the Customs Act and introduction of the new section 110AA in the Customs Act and held that the impugned order emanating from a show cause notice issued under section 28 of the Customs Act by the Additional Director General DRI cannot be sustained. The order passed by the Principal Commissioner cannot be sustained and it is set aside - Appeal allowed - decided in favor of appellant. Issues Involved:1. Jurisdiction of the Additional Director General, DRI to issue the show cause notice.2. Validity of penalties imposed under sections 112(a), 114A, and 114AA of the Customs Act, 1962.3. The impact of the Supreme Court's decision in Canon India Pvt. Ltd. on the present case.4. The segregation of duty demand from confiscation and penalty proceedings.Detailed Analysis:1. Jurisdiction of the Additional Director General, DRI:The primary issue was whether the Additional Director General, DRI had the jurisdiction to issue the show cause notice under section 28 of the Customs Act. The Supreme Court in Canon India Pvt. Ltd. vs. Commissioner of Customs held that the power to recover duty not paid or short paid is conferred specifically on 'the proper officer,' who must be the officer who initially assessed and cleared the goods. The Additional Director General, DRI, was not the proper officer as he did not carry out the initial assessment. This was reaffirmed in Commissioner of Customs, Kandla vs. M/s. Agarwal Metals and Alloys, where the Supreme Court dismissed appeals involving show cause notices issued by the Additional Director General, DRI, as he was not a proper officer under section 28(4) read with section 2(34) of the Customs Act. Consequently, the show cause notice issued by the Additional Director General, DRI in this case was without jurisdiction and invalid.2. Validity of Penalties Imposed:The Principal Commissioner imposed penalties under sections 112(a), 114A, and 114AA of the Customs Act on Ashok Singhla, Kapil Dev Aggarwal, and M/s. K.Y. Enterprises. However, since the show cause notice was issued without jurisdiction, the penalties imposed were also invalid. The Tribunal held that the proposal for confiscation of goods and imposition of penalties cannot be segregated from the duty demand. If the duty demand fails due to lack of jurisdiction, the proceedings for confiscation and penalty cannot survive, as established in Bakeman’s Home Products Pvt. Ltd. vs. Collector of Cus., Bombay.3. Impact of Supreme Court's Decision in Canon India Pvt. Ltd.:The Supreme Court's decision in Canon India Pvt. Ltd. was pivotal in this case. The Court held that the entire proceedings initiated by the Additional Director General, DRI were invalid and without any authority of law. This decision was followed by various High Courts, including the Bombay High Court in Kitchen Essentials & Ors. vs. The Union of India & Ors., the Madras High Court in Quantum Coal Energy (P) Ltd. vs. The Commissioner, Office of the Commissioner of Customs, and the Karnataka High Court in Shri Mohan C. Suvarna Director (Finance and Admin) M/s Givaudan India Pvt. Ltd. vs. The Principal Commissioner of Customs. These courts set aside proceedings where show cause notices were issued by the DRI, reinforcing the precedent set by the Supreme Court.4. Segregation of Duty Demand from Confiscation and Penalty Proceedings:The Tribunal accepted the argument that the proposal for confiscation and penalty cannot be segregated from the duty demand. Since the show cause notice was issued without jurisdiction, the entire proceedings, including those for confiscation and penalty, were invalid. This was supported by the Tribunal's decision in Bakeman’s Home Products Pvt. Ltd., which held that if the demand of duty fails, the action for confiscation and penalty cannot survive.Conclusion:The Tribunal set aside the order dated 12.05.2016 passed by the Principal Commissioner, ruling that the show cause notice issued by the Additional Director General, DRI was without jurisdiction. Consequently, all penalties and proceedings based on this notice were invalid. The appeals were allowed, and the order was pronounced on 05.04.2022.