2025 (10) TMI 15 - AT - Customs

Officers appointed under s.4(1)/s.5(1) before 06.07.2011 validly demanded differential duty under s.28(1); appeal abates under Rule 22

M/s. Raja Metal Corporation Versus Commissioner of Customs (Seaport – Export), Chennai

CESTAT CHENNAI - AT held that officers of DGCEI appointed under s.4(1) and s.5(1) before 06.07.2011 validly possessed power to demand differential duty ... Jurisdiction - power of Officers of DGCEI to demand differential duty in terms of section 28(1) of the Customs Act, 1962 - proper officers - jurisdiction to take action despite their being clothed under N/N. 27/2009-Cus (NT) dated 17.03.2009 to cover 'Whole of India' - abatement of appeal on death of all the partners and the closure of the partnership firm in terms of Rule 22 of the CESTAT (Procedure) Rules 1982. Authority of Officers of DGCEI to demand differential duty in terms of section 28(1) of the Customs Act, 1962 - HELD THAT:- The Validation Act, 2011 was passed by Parliament on 16.09.2011. The Act held that notwithstanding anything to the contrary contained in any judgment, decree or order of any court of law, tribunal or other authority, all persons appointed as officers of Customs under sub-section (1) of section 4 before 06.07.2011 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 the section. Through this amendment, a new sub-section (11) was introduced in Section 28. We further find that pending the decision on the Review Petition against the Apex Court’s judgment in Canon India Private Limited [2021 (3) TMI 384 - SUPREME COURT], various amendments were made by the Finance Act, 2022 to Sections 2, 3 and 5 of the Customs Act. Further, Section 110AA of the Customs Act was also introduced to inter alia provide that a SCN under Section 28 can only be issued by that ‘proper officer’ who has been conferred with the jurisdiction, by an assignment of functions under Section 5, to conduct assessment under Section 17 in respect of such duty. Section 97 of the Finance Act, 2022 inter alia provides for validation of certain actions. The Hon’ble Supreme court in its Review judgment in COMMISSIONER OF CUSTOMS Vs M/S CANON INDIA PVT. LTD [2021 (3) TMI 384 - SUPREME COURT], held that the challenge to the constitutional validity of the Finance Act, 2022 and more particularly Section 97 thereof, being unfounded should fail. It follows from the above discussion that sub-section (11) of Section 28 is constitutionally valid, and its application is not limited to the period between 08.04.2011 and 16.09.2011. Hence, the officers of DGCEI, in this case, having been appointed as officers of Customs under sub-section (1) of section 4 of the Customs Act, 1962 (52 of 1962) read with sub-section (1) of section 5 of the said Act before the 06.07.2011 had the authority to demand differential duty in terms of section 28 of the Customs Act, 1962 during the material period and there was no infirmity in the SCN. On the death of all the partners and the closure of the partnership firm the appeal stands abated in terms of Rule 22 of the CESTAT (Procedure) Rules 1982 - HELD THAT:- The Hon’ble Supreme Court judgment in SHABINA ABRAHAM Vs COLLECTOR OF CENTRAL EXCISE AND CUSTOMS [2015 (7) TMI 1036 - SUPREME COURT], has held that in the absence of machinery provisions for proceeding against dead person’s legal heirs, duty and other sums do not become “payable” to apply recovery provisions under the Central Excise Act. Similarly, it is found that though Section 142 of the Customs Act, provides for the method by which the Department may recover dues from an assessee, there is no enabling provision therein for the continuance of recovery in the hands of his legal representatives. The Customs Act 1962 does not make a provision for bringing on record the legal representative of the assessee or the procedure to be followed, after his death. However the lack of a procedure merely bars a remedy but does not extinguish the liability. The Hon’ble Supreme Court in the case of Perumon Bhagvathy Devaswom, Vs. Bhargavi Amma (Dead) By LRs & Ors [2008 (7) TMI 836 - SUPREME COURT], held that the word ‘abate’ means termination of the suit or appeal. Abatement is not dependent upon any judicial adjudication or declaration of such abatement by a judicial order. It occurs by operation of law. But nevertheless ‘abatement’ requires judicial cognizance to put an end to a case as having abated. The appeal abates in this case in terms of Rule 22 of the CESTAT (Procedure) Rules 1982. ISSUES PRESENTED AND CONSIDERED 1. Whether officers of the Directorate General of Central Excise Intelligence (DGCEI), appointed as Customs officers and clothed with jurisdiction by notification, are 'proper officers' empowered to issue show cause notices and demand differential duty under Section 28(1) of the Customs Act for the material period. 2. Whether the appeal abates under Rule 22 of the CESTAT (Procedure) Rules, 1982, on account of (a) death of all partners of the noticee partnership firm and (b) subsequent closure of the firm (surrender of commercial tax registration), thereby extinguishing or precluding recovery of adjudicated dues against the firm. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Authority of DGCEI officers to demand differential duty under Section 28(1) Legal framework: Section 4(1) and Section 5(1) of the Customs Act empower appointment and assignment of functions to Customs officers; Section 17 deals with assessment; Section 28(1) prescribes issue of show cause notices by the 'proper officer.' Subsequent legislative validations and amendments (including a validation provision and later amendments clarifying assignment/assessment powers) affect the status of officers appointed prior to a specified date. Precedent treatment: The Tribunal relied on higher court rulings upholding constitutional validity of the validation/amendment provisions and recognizing that officers appointed under the statute prior to the cut-off date are to be treated as having been proper officers for assessment purposes. The decision follows those holdings and treats the validation/amendment provisions as operative to cure any jurisdictional defect in appointment/assignment. Interpretation and reasoning: The Tribunal found that DGCEI officers had been specifically conferred jurisdiction covering the whole of India by notification issued under statutory powers. Even where challenge was raised to their status as 'proper officers,' the Validation statute and later amendments operate to deem officers appointed under Section 4(1) to have been proper officers with powers of assessment under Section 17. The Tribunal further noted that later legislative provisions and judicial review affirmed the constitutional validity and retrospective/declaratory effect of the validation/amendment provisions, thereby validating issuance of the SCN by DGCEI officers for the material period. Ratio vs. Obiter: Ratio - Where officers are appointed under Section 4(1) and are assigned jurisdiction under Section 5(1), subsequent statutory validation and amendment provisions which deem such officers to have been proper officers empower them to issue SCNs under Section 28(1) and to demand differential duty for the relevant period. Obiter - ancillary remarks about the timeline of amendments and legislative intent. Conclusion: The Tribunal held that DGCEI officers in the present matter, being appointed as officers of Customs and having been conferred jurisdiction, were 'proper officers' empowered to issue the show cause notice and demand differential duty under Section 28(1) during the material period; no infirmity was found in the SCN on this ground. Issue 2 - Abatement of appeal on death of all partners and firm closure (Rule 22 CESTAT Procedure Rules) Legal framework: Rule 22 of the CESTAT (Procedure) Rules permits abatement in specified circumstances. Partnership Act provisions: Section 4 (partners form a firm but firm is not a separate juristic person) and Section 42 (dissolution on occurrence of contingencies, including death of a partner) govern dissolution and effect of partner death on firm identity. Customs Act recovery provisions (including Section 142 and rules on attachment/recovery) set out machinery for recovery but do not expressly provide for continuance of recovery against legal representatives in the absence of enabling procedure prior to later statutory amendments. Precedent treatment: The Tribunal relied on higher court authority holding that a partnership firm lacks a separate juristic personality and that partners are personally liable; earlier apex and High Court rulings establishing (a) that death of a partner may dissolve a firm subject to contract/number of partners, (b) absence of pre-existing statutory machinery for pursuing legal heirs in fiscal recovery leads to lapsing of certain demands, and (c) abatement occurs by operation of law though judicial cognizance is required to record it. The Tribunal applied those principles to the facts and followed precedents that the absence of machinery for recovery against legal representatives does not extinguish liability but bars statutory remedy, leading to abatement where statutory procedure is absent or inapplicable. Interpretation and reasoning: The Tribunal examined the partnership deed and factual chronology: three partners initially; two partners died before final adjudication and the last surviving partner died subsequently; the firm surrendered its commercial tax registration. The Tribunal observed that (i) partnership is not a separate juristic entity and the firm's identity is a compendious reference to partners; (ii) Section 42(c) causes dissolution on death of a partner subject to contract and the number of partners-where more than two partners exist, death of one does not automatically dissolve the firm unless contract dictates otherwise; (iii) in the present deed the partnership was to be carried on at will of partners and general application of the Partnership Act was preserved; (iv) ultimate factual position (deaths and surrender/closure) resulted in absence of a continuing partnership firm or partners amenable to statutory recovery procedure; and (v) statutory recovery provisions under the Customs Act (and related rules) prior to specified amendments did not contain a clear machinery to proceed against legal representatives, and absence of such machinery precludes enforcement by departmental recovery under that statute. Ratio vs. Obiter: Ratio - Where a partnership firm has ceased to exist (by operation of the Partnership Act and factual events like deaths and formal closure) and there is no statutory machinery under the Customs Act to continue statutory recovery against legal representatives, an appeal/assessment may abate under Rule 22 and statutory recovery proceedings under the Customs Act cannot be continued; judicial recognition is necessary to record abatement. Obiter - observations on possible characterization of a surviving partner as a proprietor and on policy of priority of government debts. Conclusions: The Tribunal concluded that, on the facts presented (death of all partners and closure/surrender of firm registration), and having regard to the law that partnership lacks separate juristic identity and the absence of enabling procedural provisions to pursue legal representatives under the Customs Act for the relevant period, the appeal abates under Rule 22 of the CESTAT (Procedure) Rules, 1982. The Tribunal ordered abatement accordingly. Cross-reference The Tribunal's conclusion on Issue 2 is independent of its finding on Issue 1: validation renders the DGCEI officers proper officers for issuance of the SCN, but the subsequent factual and legal consequences flowing from dissolution and absence of statutory machinery determine abatement and cessation of departmental statutory recovery remedies in this instance.