2025 (10) TMI 556 - HC - Customs

DRI officers not 'proper officers' to issue SCNs under Section 28(4); recovery proceedings lacked jurisdiction, appeal restored.

Commissioner Of Customs, Inland Container Depot (Export) Tughlakabad, Delhi Versus Sudhir Gulati.

HC held that DRI officers are not 'proper officers' to issue SCNs under Section 28(4), following the Supreme Court's ruling which effectively overruled ... Jurisdiction - proper officer to issue SCN - Directorate Of Revenue Intelligence (DRI) Officers are proper officers or not - HELD THAT:- The question that was raised in Mangali Impex Ltd. Vs. Union of India [2016 (5) TMI 225 - DELHI HIGH COURT] finally came to be decided by the Supreme Court in Canon India Pvt. Ltd. v. Commissioner of Customs, [2021 (3) TMI 384 - SUPREME COURT], initially, where the Supreme Court held that 'It is, therefore, clear to us that the Additional Director General of DRI was not 'the' proper officer to exercise the power under Section 28(4) and the initiation of the recovery proceedings in the present case is without any jurisdiction and liable to be set aside.' The question therefore, as to whether the DRI Officers are proper officers or not, stands decided in the decision in Canon-II and the decision in Mangali Impex Ltd. would no longer be good law. The present appeal deserves to be allowed and is accordingly allowed. The appeal before CESTAT is restored to its original position - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether officers of the Directorate of Revenue Intelligence (DRI) constitute 'proper officer(s)' for the purposes of Section 28 of the Customs Act, 1962 and thereby have jurisdiction to issue show cause notices and initiate recovery under Section 28(4). 2. Whether earlier High Court rulings denying retrospective or retrospective-and-prospective effect to statutory or executive instruments empowering DRI officers (and similar officers) to act as proper officers remain good law in light of subsequent Supreme Court decisions and legislative validation. 3. Consequential question: How pending matters and orders founded on the view that DRI officers lacked jurisdiction should be treated following the authoritative pronouncement affirming such officers as proper officers. ISSUE-WISE DETAILED ANALYSIS Issue 1: DRI Officers as 'proper officer(s)' under Section 28 - Legal framework Legal framework: Section 28 of the Customs Act, 1962 confers power to determine duties not levied or not paid and to recover duties that have escaped assessment; the concept of 'proper officer' in Section 2(34) and the scheme of Sections 5, 6 and 17 govern allocation of functions. Administrative instruments (notifications and circulars) and statutory amendments (including insertion of sub-section (11) in Section 28 and later validating provisions) also bear on the assignment of functions to officers. Precedent treatment: Earlier Supreme Court authority held that only the officer who made the original assessment (or his successor/assigned officer) could exercise the re-assessment/recovery power under Section 28(4), leading to a conclusion that certain officers (e.g., some DRI officers) were not proper officers for that purpose. High Courts reached conflicting conclusions thereafter, with some denying retrospective effect to later statutory assignments and others upholding departmental notifications. Interpretation and reasoning: The Court (following the Supreme Court's subsequent review) reasoned that departmental notifications and circulars (dating back to 1990/1999 and 2002/2011) and the statutory scheme must be taken into account when assessing which officers are 'proper officers.' Administrative practice since 1999, coupled with Notification No.44/2011 and earlier notifications, demonstrate assignment of functions to DRI officers. The re-examination of Canon-I in the review proceeding established that the earlier omission of such instruments from the record materially affected the correctness of the initial conclusion that DRI officers lacked jurisdiction. The Court held that the power under Section 28(4) is one of administrative review properly exercisable by officers who are charged by statute or valid administrative instrument with the functions of a proper officer, which includes DRI officers and similarly situated officials where so assigned. Ratio vs. Obiter: Ratio - DRI officers, Commissionerates of Customs (Preventive), DGCEI and similarly situated officers are proper officers for purposes of Section 28 and competent to issue show cause notices under Section 28 where functions were validly assigned by notification/circular or by statutory amendment. Obiter - observations in the earlier judgment concerning limitation were expressly not reviewed and remain binding as to limitation issues. Conclusion: DRI officers are proper officers for purposes of Section 28 (to the extent functions were validly assigned) and possess jurisdiction to issue show cause notices and initiate recovery under Section 28(4), subject to the limitation law remaining unaffected by this holding. Issue 2: Effect of conflicting High Court decisions and retrospective operation of assignments/statutory provisions - Legal framework Legal framework: Interaction of Explanation 2 to Section 28, the retrospective insertion of Section 28(11) (by the Customs (Amendment and Validation) Act, 2011) and subsequent legislative validation (Finance Act, 2022, Section 97) of show cause notices; doctrine of harmonious construction; role of administrative policy and prior departmental practice; scope of judicial review where conflicting High Court decisions exist. Precedent treatment: Some High Courts (e.g., Delhi in Mangali Impex) declined to give retrospective effect to assignments and held DRI officers not empowered for periods prior to amendment; other High Courts reached contrary conclusions; the Supreme Court in Canon-I initially favored a restrictive view but, on review, found that key administrative instruments were not placed before it and that earlier reasoning failed adequately to consider the statutory scheme and persistent departmental practice. Interpretation and reasoning: The Court explained that (a) departmental policy and long standing administrative practice which carved out jurisdictional exclusivity once a show cause notice was issued by a given proper officer provides safeguards against multiplicity of notices; (b) Section 28(11) and Explanation 2 operate in distinct fields and do not necessarily conflict such that harmonious construction is unavailable; and (c) prior High Court decisions denying retrospective effect overlooked these factors. The review proceeding concluded that Mangali Impex's harmonisation approach was misplaced where no inherent contradiction exists between the statutory provisions and the administrative assignment of functions. Ratio vs. Obiter: Ratio - The view in Mangali Impex that Section 28(11) could not cure defects for the period prior to 08.04.2011 is set aside insofar as it conflicts with the corrected understanding of administrative assignments and statutory scheme; legislative validation by Section 97 of the Finance Act, 2022 is not manifestly arbitrary or overbroad as far as the specific questions raised in the review were concerned. Obiter - broader challenges to the Finance Act, 2022 not arising in the review remain open for adjudication elsewhere. Conclusion: Conflicting High Court authorities that denied jurisdiction to DRI officers for relevant periods are no longer good law to the extent they conflict with the clarified position that administrative notifications and statutory assignments empower DRI officers; legislative validation further supports restoration of such notices, subject to other legal challenges not considered in the review. Issue 3: Treatment of pending proceedings and consequential directions - Legal framework Legal framework: Principles governing restoration of proceedings, remand, and directions for disposal where jurisdictional defect findings have been overruled; supervisory powers to give timelines and preserve rights of parties; distinction between jurisdictional and limitation grounds. Precedent treatment: The Supreme Court, in its review, laid out a structured scheme for disposing of pending writ petitions, appeals, CESTAT matters and orders-in-original affected by earlier rulings on jurisdiction - directing restoration of show cause notices to appropriate fora, granting time to file appeals where necessary, and specifying treatment depending on the forum and stage. Interpretation and reasoning: The Court accepted that restoration and remand are appropriate remedies to cure earlier procedural consequences of a now-overruled jurisdictional view, while preserving parties' rights (including the right to be heard) and leaving untouched any separate findings on limitation from earlier rulings. The decision emphasises that where matters were stayed or set aside on jurisdictional grounds, they should be restored to the adjudicatory process in accordance with the clarified law and the statutory validation, with specified procedural directions (e.g., time for filing appeals before CESTAT, restoration to adjudicating authorities or appellate forums as appropriate). Ratio vs. Obiter: Ratio - Pending matters and orders premised solely on the view that DRI officers lacked jurisdiction shall be processed consistent with the corrected legal position; procedural directions issued by the Supreme Court for handling various categories of pending matters are binding remedial rules. Obiter - the Court expressly did not disturb earlier findings on limitation and left open other challenges to legislative validation not raised in the review. Conclusion: Proceedings and orders that were set aside or stayed on the ground that DRI officers were not proper officers must be restored or remanded for adjudication by the proper officer or appellate forum in accordance with the clarified law; parties are to be afforded opportunities (including filing appeals where time was earlier lost) as directed, while limitation issues remain unaffected by the present ruling. Final Court Conclusion Relevant to Present Appeal The Court concluded that the DRI officers are proper officers for purposes of Section 28 and that earlier contrary High Court authority no longer represents good law. Accordingly, matters remanded or set aside on the basis of lack of jurisdiction of DRI officers should be restored to their original position and decided in accordance with this legal position, subject to preservation of limitation-based findings and other challenges not considered in the review.