2024 (11) TMI 391 - SC - Customs

Jurisdiction of DRI officers to issue show cause notices under Section 28 affirmed; retrospective validation and procedural directions issued.

The note holds that the distinction between assignment of proper officer functions and entrustment of customs functions is dispositive: DRI officers were ... Proper officer - jurisdiction to issue show cause notice under Section 28 - assignment/entrustment of functions to officers of customs - self-assessment and re-assessment under Section 17 - validation of past actions (retrospective validation) - review on ground of error apparent on face of record - harmonious construction of explanatory and non-obstante provisions - constitutional validity of validating legislationReview on ground of error apparent on face of record - Whether the Review Petition against Canon India (supra) was maintainable on the ground of an error apparent on the face of the record - HELD THAT: - The Court held that review was maintainable because the earlier three-Judge Bench decision in Canon India (supra) was rendered without considering material statutory provisions and notifications relevant to the question of jurisdiction (notably the Board's circulars and notifications appointing DRI officers). The judgment in Canon India had proceeded without attention to Sections 2(34), 3, 4 and 5 and to enabling notifications; omission to consider those materials amounted to an error analogous to one apparent on the face of the record permitting review under Order XLVII.Review petition allowed insofar as the jurisdictional question under Section 28 is concerned.Proper officer - assignment/entrustment of functions to officers of customs - Section 2(34) read with Section 5 and Section 4 - Whether officers of the Directorate of Revenue Intelligence (DRI) are 'officers of customs' and/or 'proper officers' competent to issue show cause notices under Section 28 - HELD THAT: - The Court concluded that DRI officers had been appointed as officers of customs by notifications under Section 4 and that the Board and notifications under Section 2(34)/Section 5 had, by administrative instruments (circulars and notifications), designated DRI officers as proper officers for purposes including Sections 17 and 28. The Court held that the assignment/designation under Section 2(34) and the appointing power in Section 4, read with the powers under Section 5, establish that DRI officers fall within the class of officers capable of being proper officers; Section 6 entrustment is directed to officers outside the custom service and is not the only route for recognising customs officers as proper officers.DRI officers designated by the Board/Central Government are proper officers and competent to issue show cause notices under Section 28 (subject to limitation findings in Canon India left undisturbed).Self-assessment and re-assessment under Section 17 - proper officer - Whether Sections 17 and 28 are mandatorily linked so that only the officer who carried out assessment under Section 17 can issue notices under Section 28 - HELD THAT: - The Court held that the earlier line of authority (Sayed Ali and Canon India) which treated Sections 17 and 28 as mandatorily interconnected was incorrect. The Finance Act, 2011 introduced self-assessment and altered the function of the proper officer under Section 17 to verification and, if necessary, re-assessment. Section 28 proceedings are subsequent and distinct from the assessment process; there is no statutory provision making exercise of Section 28 dependent as a threshold on having undertaken the initial assessment under Section 17. Accordingly the rigid linkage read into the provisions by earlier decisions was patently erroneous.There is no mandatory requirement that the officer who performed assessment under Section 17 must be the exclusive proper officer to exercise Section 28; the prior interdependence reading is unsustainable.Use of the definite article 'the' in statutory construction - proper officer - Whether the definite article 'the' in 'the proper officer' in Section 28 demands that the same officer referred to in Section 17 alone can exercise Section 28 powers - HELD THAT: - The Court explained that while the definite article limits the exercise of power to a specified proper officer, that specification must be read functionally: 'the proper officer' is the officer who has been assigned the particular function under the Act by appropriate designation/notification. The presence of 'the' does not, without more, create a cross-reference tying Section 28 to the officer who performed initial assessment under Section 17.The definite article does not create the rigid cross-section 17-28 linkage; 'the proper officer' is to be understood in relation to the function actually assigned by statute/notification.Validation of past actions (retrospective validation) - non-obstante clause and Explanation 2 - Whether Section 28(11) (Validation Act, 2011) validly retrospectively empowered officers appointed as officers of customs to be proper officers and whether Mangali Impex correctly interpreted the scope of Section 28(11) vis-a -vis Explanation 2 - HELD THAT: - The Court held that Section 28(11) was enacted to validate and deem persons appointed as officers of customs before 6.7.2011 to have always had power of assessment under Section 17 and to have always been proper officers for Section 28. Explanation 2 (savings for pre-8.4.2011 substantive procedural regime) and Section 28(11) operate in distinct fields; there is no necessary conflict requiring the restricted construction adopted in Mangali Impex. The Hyderabad/Bombay High Court approach in Sunil Gupta (upholding retrospective validation) better reflects legislative intent, and the apprehension of multiplicity of proceedings is addressed by administrative practice (exclusion of jurisdiction of other proper officers once a show cause notice is issued).Section 28(11) is constitutionally valid and applies as legislature intended; Mangali Impex's restrictive construction is set aside and Sunil Gupta's view is approved.Constitutional validity of validating legislation - Section 97 of the Finance Act, 2022 - Whether Section 97 of the Finance Act, 2022 (retrospective validation clause) is manifestly arbitrary or unconstitutional - HELD THAT: - Applying established tests for validating statutes, the Court found Section 97 to be within legislative competence and not arbitrary or disproportionate in the context of the issues before the Court. The provision is a legislative means to cure defects and clarify retrospective effect; its prospective amendments (including Section 110AA) do not render the validation arbitrary. The Court limited its consideration to challenges arising from the review and left other challenges open.Section 97 of the Finance Act, 2022 is constitutionally valid insofar as challenged in these proceedings.Effect of Board circulars and notifications - administrative allocation of adjudication jurisdiction - Whether the Board's circulars/notifications (including Circular No.4/99 and Notification No.44/2011 and later notifications) and administrative practice sufficiently address the apprehension of multiplicity/chaos from multiple proper officers exercising Section 28 powers - HELD THAT: - The Court accepted that the Board has issued circulars and notifications (and later delegations and guidelines) intended to allocate and avoid multiplicity in adjudication; this administrative framework (including appointment of common adjudicators and internal rules excluding other officers' jurisdiction once a notice is issued) mitigates the concern of overlapping actions. Absence of empirical evidence of misuse strengthened the conclusion that the legislative and administrative scheme supplies adequate safeguards.Administrative notifications/circulars combined with the statutory scheme suffice to prevent chaotic multiplicity; they support the validity of designating multiple classes of proper officers.Final Conclusion: The Review Petition is allowed to the extent of correcting the earlier decision in Canon India (2021) on the jurisdictional question: DRI officers designated as officers of customs and assigned functions by Board/Central Government notifications were competent to be 'proper officers' and to issue show cause notices under Section 28; the rigid interlinking of Sections 17 and 28 as laid down in Sayed Ali and applied in Canon India is incorrect; Section 28(11) (Validation Act, 2011) and Section 97 of the Finance Act, 2022 are constitutionally valid; Mangali Impex is set aside and the High Court of Bombay's view in Sunil Gupta is approved. The review does not disturb Canon India findings on limitation, and the Court directed appropriate procedural steps for pending matters in light of these conclusions. Issues Involved:1. Error apparent on the face of the record in the Canon India judgment.2. Jurisdiction of DRI officers to issue show cause notices under Section 28 of the Customs Act, 1962.3. Interpretation and application of Sections 17 and 28 of the Customs Act, 1962.4. Constitutional validity of Section 28(11) of the Customs Act, 1962.5. Validity of the Finance Act, 2022, particularly Section 97.6. Impact of amendments made by the Finance Act, 2022 on past actions.Detailed Analysis:1. Error apparent on the face of the record in the Canon India judgment:The Supreme Court acknowledged that the judgment in Canon India was delivered without considering crucial notifications and circulars, specifically Circular No. 4/99-Cus dated 15.02.1999 and Notification No. 44/2011 dated 06.07.2011, which empowered DRI officers to issue show cause notices under Section 28. The Court noted that these documents were not presented during the original proceedings, leading to an incorrect conclusion about the jurisdiction of DRI officers. The review petition was allowed on this basis, highlighting that the statutory scheme of Sections 2(34) and 5 was not properly considered in the original judgment.2. Jurisdiction of DRI officers to issue show cause notices under Section 28:The Court clarified that DRI officers are 'proper officers' for the purposes of Section 28, as they were appointed as officers of customs under Section 4 and assigned functions under Section 5. The judgment in Canon India, which held that DRI officers lacked jurisdiction, was based on an erroneous interpretation of the statutory scheme. The Court emphasized that the assignment of functions under Section 2(34) and Section 5 suffices for DRI officers to issue notices under Section 28, without requiring entrustment under Section 6.3. Interpretation and application of Sections 17 and 28 of the Customs Act, 1962:The Court found no statutory linkage between Sections 17 and 28, contrary to the interpretation in Canon India. Section 17 pertains to self-assessment and re-assessment, while Section 28 involves recovery of duties not levied or short-levied. The functions under these sections are distinct, and the requirement that the same officer handle both is not supported by the statutory scheme. The changes to Section 17 introduced by the Finance Act, 2011, which were not considered in Canon India, further support this distinction.4. Constitutional validity of Section 28(11) of the Customs Act, 1962:The Court upheld the constitutional validity of Section 28(11), which retrospectively validated actions taken by officers of customs, including DRI officers, prior to 06.07.2011. The provision was enacted to address the issues raised in Sayed Ali and was found to effectively cure the defects identified therein. The Court disagreed with the Delhi High Court's decision in Mangali Impex, which had limited the retrospective application of Section 28(11).5. Validity of the Finance Act, 2022, particularly Section 97:Section 97 of the Finance Act, 2022, which retrospectively validated show cause notices issued under Section 28, was upheld as constitutional. The Court found that the provision effectively addressed the issues identified in Canon India and was not arbitrary or disproportionate. The amendments made by the Finance Act, 2022, were deemed clarificatory and did not alter the statutory scheme in a manner that would render past actions invalid.6. Impact of amendments made by the Finance Act, 2022 on past actions:The amendments introduced by the Finance Act, 2022, including Sections 86, 87, 88, and 94, were found to be clarificatory and intended to streamline the assignment of functions to customs officers. The retrospective application of these amendments was upheld, and the Court clarified that they do not invalidate past actions taken by DRI officers. The amendments were seen as a legislative response to the evolving legal landscape and administrative needs.Conclusion:The review petition was allowed, setting aside the decision in Canon India regarding the jurisdiction of DRI officers. The Court upheld the constitutional validity of Section 28(11) and Section 97 of the Finance Act, 2022, affirming that DRI officers are competent to issue show cause notices under Section 28. The Court directed that pending cases challenging the jurisdiction of DRI officers be disposed of in accordance with this judgment.