2025 (12) TMI 834 - AT - Customs

DRI show cause notices in drawback disputes upheld; iron ore export duty valuation remanded for fresh decision

The Tribunal rejected the appellant-EOU's challenge to the jurisdiction of DRI officers to issue the show cause notice in a drawback-related matter, ... 100% EOU - Evasion of Customs Duty - misdeclaration of value and quantity shipped - rejection of FOB value and re-determination of the same - absence of an entrustment under section 6 of the Customs Act 1962 - jurisdiction of DRI to issue SCN - invocation of extended period of limitation. HELD THAT:- A Coordinate Bench of this Tribunal at Chennai has examined a similar matter pertaining to jurisdiction of DRI officers issuing SCN’s in the case of Manasa Impex Services Vs Commissioner of Customs (Preventive), Trichy [2025 (9) TMI 263 - CESTAT CHENNAI] where it was held that 'the plea of the appellant on this issue of jurisdiction of DRI officers to issue a SCN in the case of drawback, must fail.' - there are no substance in the submissions made in the Miscellaneous Petition and the same is rejected. The dispute for the period from 13.06.2008 to 30.11.2010, relates to the valuation and payment of duty on High Grade Calibrated Iron Ore and High-Grade Iron Ore Fines with Fe content above 64%. The duty on the iron ore had to be determined on the basis of weight of the commodity at the relevant point of time and the actual iron content along with other elements like phosphorus and sulphur agreed upon between exporter and buyer - it is found that the judgments cited by the rival parties have surprisingly not referred to the landmark judgement of the Supreme Court in Union of India Vs Gangadhar Narsingdas Aggarwal [1995 (8) TMI 73 - SUPREME COURT], in resolving the issue. The Hon’ble Bombay High Court (Goa Bench) in its judgment in V.M. Salgaocar and Brothers Pvt. Ltd. Vs Assistant Commissioner of Customs (Export) [2022 (9) TMI 1306 - BOMBAY HIGH COURT], had an occasion to examine the said judgment along with the earlier judgments of the High Court that were the subject of appeal in the said case along with TRU’s clarification on the matter and laid out the principles to be followed while determining the duty payable on iron ore exports. The impugned order and the judgments cited by the rival parties pre-date the above judgment of the Constitutional Courts. The Original Authority also did not have an opportunity to considered the same while deciding the issue - the matter needs to be determined afresh by adopting the principles set out in the judgments cited above. Appeal disposed off by way of remand. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether officers of the Directorate of Revenue Intelligence are 'proper officers' competent to issue show cause notices under Section 28 of the Customs Act, 1962, in the absence of a specific entrustment under Section 6. 1.2 Principles to be applied for determination of export duty and valuation in respect of iron ore/iron ore fines with specified Fe content, particularly regarding the role of moisture, Wet Metric Tonne (WMT) vs Dry Metric Tonne (DMT) and laboratory analysis, and whether the impugned order required de novo adjudication in light of subsequent constitutional court decisions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Jurisdiction of DRI officers to issue show cause notice under Section 28 (a) Legal framework discussed 2.1 The Court considered Section 28 of the Customs Act, 1962, the concept of 'proper officer' under the Act, Circular No. 4/99 dated 15.02.1999 issued by CBEC, and Notification No. 44/2011 dated 06.07.2011 assigning the functions of 'proper officers' for purposes of Sections 17 and 28 to officers of DRI. 2.2 The Court relied upon the decision in the review petition in COMMISSIONER OF CUSTOMS v. M/S CANON INDIA PVT. LTD. [2024 INSC 854] (Canon India-II), wherein a three-Judge Bench of the Supreme Court reviewed its earlier decision and examined the effect of the above Circular and Notification, and upheld the constitutional validity of Section 97 of the Finance Act, 2022. 2.3 The Court also noted that Canon India-II set aside the Delhi High Court judgment in Mangali Impex Ltd. v. Union of India and approved the Bombay High Court view in Sunil Gupta v. Union of India and Others. (b) Interpretation and reasoning 2.4 Referring to a coordinate Bench decision in Manasa Impex Services v. Commissioner of Customs (Preventive), Trichy (Final Order Nos. 40832-40840/2025, dated 21.08.2025), the Court adopted the reasoning that, in view of Canon India-II and the recognition of CBEC Circular No. 4/99 and Notification No. 44/2011, officers of DRI are to be treated as 'proper officers' for the purposes of issuing show cause notices under Section 28. 2.5 On this basis, the Court found no merit in the plea that, for want of entrustment under Section 6 of the Customs Act, 1962, DRI officers lacked jurisdiction to issue the show cause notice in the present case. (c) Conclusion 2.6 The Miscellaneous Petition raising the additional jurisdictional ground was rejected. The show cause notice issued by DRI was held not to be without jurisdiction. Issue 2 - Determination of export duty and valuation of iron ore/iron ore fines and requirement of de novo adjudication (a) Legal framework discussed 2.7 The dispute related to the period 13.06.2008 to 30.11.2010 and concerned valuation and duty on exports of High Grade Calibrated Iron Ore and High Grade Iron Ore Fines with Fe content above 64%, where duty was to be assessed with reference to weight and Fe content, and other agreed elements like phosphorus and sulphur. 2.8 The Court took note that the rival authorities and precedents relied on by the parties had not discussed the Supreme Court's judgment in Union of India v. Gangadhar Narsingdas Aggarwal [1997 (89) E.L.T. 19 (SC)]. 2.9 The Court relied upon the judgment of the Bombay High Court (Goa Bench) in V.M. Salgaocar and Brothers Pvt. Ltd. v. Assistant Commissioner of Customs (Export) [(2023) 11 Centax 215 (Bom.)], which examined Gangadhar Narsingdas Aggarwal and earlier High Court judgments, as well as TRU clarifications, to crystallise the legal principles governing determination of Fe content and export duty on iron ore. 2.10 The Court reproduced and adopted the principles culled out in V.M. Salgaocar, which, inter alia, state that: (i) Iron ore is to be considered in the natural condition in which it is presented for export, inclusive of impurities and moisture. (ii) There is no direct scientific method to determine Fe content in moist ore; universally accepted approximate formulae are used, based on dry sample analysis. (iii) The relevant condition for classification and duty is the condition of the goods on the date of export, and it is a recognized practice to derive Fe content in moist ore from dry sample analysis using accepted formulae. (iv) Once the Government proceeds on the condition of the goods as presented for export, a different principle cannot be adopted for customs duty computation. (v) It is not correct for Revenue to insist that Fe content be determined only from dried ore; expert laboratory certificates using recognized formulae for moist ore should be accepted. (vi) Duty being relatable to weight, the percentage of Fe content must be calculated with reference to total weight at the relevant time, after determining Fe content and separating impurities including moisture; the percentage cannot be computed by ignoring moisture. 2.11 The Court separately quoted paragraph 4 of the Supreme Court's judgment in Gangadhar Narsingdas Aggarwal approving the method whereby, after determining Fe content based on total weight, the appropriate category for duty under the notifications is ascertained. (b) Interpretation and reasoning 2.12 The Court observed that the impugned order and the authorities/judgments relied upon by both sides pre-dated the above constitutional court pronouncements and that the original authority did not have the benefit of these binding principles when passing the impugned order. 2.13 In particular, the Court held that the dispute concerning: - whether iron ore exports should be assessed on WMT or DMT basis; - how moisture content and impurities are to be treated; - how Fe content is to be determined for tariff classification and duty computation; must be resolved by strictly applying the principles from Gangadhar Narsingdas Aggarwal as explained and summarized in V.M. Salgaocar. 2.14 In view of these later binding authorities, the Court considered that the entire assessment of value and duty, including the alleged misdeclaration of grade, quantity and value, needed to be re-examined afresh by the original authority. (c) Conclusion 2.15 Without affirming or setting aside the merits of the demand, penalties or findings on valuation and classification, the Court remanded the matter to the original adjudicating authority for de novo adjudication, directing that the principles laid down in Gangadhar Narsingdas Aggarwal and V.M. Salgaocar be followed. 2.16 All contentions on merits were expressly kept open for both sides; the appellant was given liberty to advance oral and written submissions, and the adjudicating authority was directed to complete the proceedings expeditiously and in any case within ninety days of receipt of the order. 2.17 The appellant was held entitled to consequential relief, if any, as per law, depending on the outcome of the de novo proceedings. The appeal and the Miscellaneous Petition were disposed of accordingly.