Commissioner of Customs vs M/s Canon India Pvt. Ltd.

Held: DRI officers are ‘proper officers’ to issue show cause notice u/s.28 – Review petition seeking review of the decision in Canon India’s case allowed – DRI officers came to be appointed as the officers of customs vide Notification No. 19/90-Cus (N.T.) dated 26.04.1990 – This notification later came to be superseded by Notification No. 17/2002 dated 07.03.2002, to account for administrative changes – Circular No. 4/99-Cus dated 15.02.1999 which empowered the officers of DRI to issue show cause notices u/s.28 as well as Notification No. 44/2011 dated 06.07.2011 which assigned the functions of the proper officer for the purposes of ss.17 and 28 respectively to the officers of DRI were not brought to the notice of this Court during the proceedings in Canon India’s case, thus the judgment was rendered without looking into the circular and the notification thereby seriously affecting the correctness of the same – Decision in Canon India’s case failed to consider the statutory scheme of ss.2(34) and 5 respectively, thus the decision erroneously recorded the finding that since DRI officers were not entrusted with the functions of a proper officer for the purposes of s.28 in accordance with s.6, they did not possess the jurisdiction to issue show cause notices for the recovery of duty u/s.28 – Reliance placed in Canon India’s on the decision in Sayed Ali’s case is misplaced – Decision in Canon India’s case is reviewed only to the extent that the jurisdiction of the DRI officers to issue show cause notices u/s.28 – Officers of Directorate of Revenue Intelligence, Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence and Commissionerates of Central Excise and other similarly situated officers are proper officers for the purposes of s.28 and are competent to issue show cause notice thereunder – Any challenge made to the maintainability of the show cause notices issued by this particular class of officers, on the ground of want of jurisdiction for not being the proper officer, which remain pending before various forums, to be dealt with in the manner stipulated. [Para 168]

Customs Act, 1962 – ss.17 and 28 – Issue as regards the proper officer to issue show cause notice in terms of s.28 – Sayed Ali’s case held that the Commissioner of Customs (Preventive) is not a “proper officer” as defined in s.2(34) and thus, did not have the jurisdiction to issue a show cause notice in terms of s.28; and that only such officers who are vested with the power of assessment u/s.17 can be empowered to issue show cause notices u/s.28 or else this would result in a state of chaos and confusion – Reconsideration of Sayed Ali’s case: Held: Decision in Sayed Ali proceeds on the assumption that for the “proper officer” to exercise the functions u/s.28, such officer must necessarily possess the power of assessment and reassessment u/s.17 – However, a plain reading of ss.17 and 28 does not bring out any such inter-dependence between the two provisions – Observations pertaining to interlinkage between ss.17 and 28 respectively made in Sayed Ali’s case do not lay down the correct position of law – Even otherwise, decision in Sayed Ali’s case could have been arrived at without deciding on the interdependence of ss.17 and 28 as the Customs (Preventive) officers, whose jurisdiction to issue show cause notices was under challenge in that case, were not assigned the functions of the “proper officer” for the purposes of s.28 through a notification issued by the appropriate authority – Assignment of functions is a mandatory requirement for the exercise of jurisdiction by the “proper officer” – Observations made in Sayed Ali’s case on the connection between ss.17 and 28 are obiter dicta and do not constitute the binding ratio decidendi of that judgment – Sayed Ali’s case could not have been relied upon in Canon India’s case as it could not have been applied for the period subsequent to 08.04.2011 since s.17 has undergone a radical change by virtue of the amendments made by the Finance Act, 2011. [Paras 81-83]

Customs Act, 1962 – s.17 – Assessment of duty – Changes to s.17 w.e.f. 11.04.2011 – Amendment altered the method of assessment of bills of entry and shipping bills – Functions of the proper officer u/s.17 also underwent changes, the assessment of bill of entry and shipping bill no longer the task of the “proper officer”, they were to be self-assessed, which is to be accepted or rejected by the proper officer subject to verification in certain cases – Said changes not brought to the notice of this Court while Canon India’s case was heard – Effect:

Held: On basis of the amendment to s.17, the competence of the proper officer to conduct “assessment” was completely taken away by the legislature – New s.17 empowers the proper officer to perform the functions of verification of self-assessment and subsequent reassessment, if found necessary – However, such re-assessment is not a mandatory function on the same footing as “assessment” under the old s.17 – Thus, the scope of the functions of the proper officer under the new s.17 is limited – However, the attention of this Court in Canon India’s case not drawn to the important changes brought to s.17 vide s.38 of the Finance Act, 2011 with effect from 08.04.2011 – Conclusion that an officer who did the assessment, could only undertake reassessment u/s.28(4) was arrived at without taking note of the amendment to s.17 – Judgment in Canon India’s case also recorded an erroneous finding that the function of re-assessment is with reference to s.28(4) when in fact it is an exercise of function u/s.17 – In Canon India’s case the show cause notice was dated 19.09.2014 in respect of the Bill of Entry filed on 20.03.2012 – This Court erroneously applied the provisions of s.17, as they stood prior to 08.04.2011 as opposed to the amended s.17 which ought to have been applied. [Paras 90-94] Customs Act, 1962 – ss.17 and 28 – Assessment of duty – Notice for payment of duties, interest – Scheme of ss.17 and 28:

Held: s.17 read with ss.46 and 47 deals with the assessment and re-assessment at the first instance that is, upon entry of the consignments and clearance of bills of entry – Amendment to s.17 introduces the process of self-assessment and subsequent re-assessment upon verification by the proper officer, if so required, for undertaking a check at the first instance – Proceedings u/s.28 are subsequent to the completion of the process set out in s.17 – Procedure envisaged u/s.28 is in the nature of a quasi-judicial proceeding with the issuance of the show cause notice by the proper officer followed by adjudication of such notices by the field customs officers – In the case of DRI, the proceedings u/s.28 start only after an investigation has been undertaken by DRI – This is reaffirmed by Circular No. 4/99-Cus dated 15.02.1999 and Circular No. 44/2011-Customs dated 23.11.2011 – Thus, the nature of review u/s.28 significantly different from the nature of assessment and reassessment u/s.17 – Ambit of s.28 has also been restricted to the review of assessments and re-assessments done u/s.17 for ascertaining if there has been a short-levy, non-levy, part payment, non-payment or erroneous refund – Scheme of ss.17 and 28 indicates that there cannot be a mandatory condition linking the two provisions and the interpretation of this Court in the Sayed Ali’s case and Canon India’s case that vesting of the functions of assessment and re-assessment u/s.17 is a threshold, mandatory condition for proper officer to perform functions u/s.28, patently erroneous. [Paras 95-99]

Customs Act, 1962 – s.28 – Notice for payment of duties, interest – Use of article ‘the’ in the expression “the proper officer” – Interpretation:

Held: In Canon India’s case it was held that the Parliament had employed the article “the” instead of “a/an” in s.28 so as to give effect to its intention of specifying that the proper officer referred to in s.28 is the same officer as the one referred to in s.17 and the use of a definite article instead of an indefinite article is indicative of the fact that the proper officer referred to in s.28 is not “any” proper officer but “the” proper officer assigned with the function of assessment and reassessment u/s.17 – There was an error apparent in the said view – Definite article “the” has been used before “proper officer” with a view to limit the exercise of powers u/s.28 by a specific proper officer and not any proper officer – However, in the absence of any statutory linkage between ss.17 and 28 respectively, there was no legal footing for this Court in Canon India’s case to hold that “the proper officer” in s.28 must necessarily be the same proper officer referred to u/s.17 – Statutory scheme of the 1962 Act necessitates that an officer of Customs can only perform the functions u/s.28 if such officer has been designated as “the proper officer” for the purposes of s.28 by an appropriate notification – Use of the article “the” in the expression “the proper officer” should be read in the context of that proper officer who has been conferred with the powers of discharging the functions u/s.28 by conferment u/s.5 – Proper officer is qua the function or power to be discharged or exercised – Use of article “the” in s.28 has no apparent relation with the proper officer referred to u/s.17. [Paras 100-103]

Customs Act, 1962 – s.2(34) – Proper officer – DRI officers as proper officers u/s 2(34):

Held: In Canon India’s case, this Court erroneously concluded that officer from the Directorate of Revenue Intelligence (DRI) was not an officer of customs and thus, cannot function as a “Proper Officer” – Finding that the power conferred by the Board under Notification No. 40/2012-Customs (N.T.) dated 02.05.2012 was ill-founded is an error apparent – By way of Notification No. 40/2012-Customs (N.T.), the Board appointed several persons including the Officers of Directorate of Revenue Intelligence (DRI) as “Proper Officers” u/s.2(34) – Notification No. 40/2012-Customs (N.T.) issued u/s.2(34) cannot be read in isolation – It has to be read in conjunction with s.4(1) and the Notification issued thereunder – View that the “Proper Officer” for the purpose of s.28 and other provisions of the 1962 Act could only mean the person who cleared the goods or the officer who succeeds such officer and not any other officer from any other department requires reconsideration in view of the changes to the 1962 Act vide the Finance Act, 2011 and s.4 and the notification issued thereunder – Court in Canon India’s case proceeded on the footing that under the provisions of the Act, 1962, the Board has no power to appoint “Proper Officers” – As per s.4(1), the Board is vested with the power to appoint such persons as it thinks fit to be “officers of customs”, u/s.4(2) the Board can even authorize a Chief Commissioner of Customs or a Joint or Assistant or Deputy Commissioner of Customs to appoint any officers below the rank of Assistant Commissioner of Customs as an “officer of customs” – This aspect was not brought to the notice in Canon India’s case. [Paras 106-113]

Customs Act, 1962 – s.4 – Appointment of “Officers of Customs:

Held: It is only an officer of customs, appointed u/s.4(1) who can be designated as the “proper officer” as defined in s.2(34) by a notification – Notifications issued u/ss.2(34) and 4(1) are nothing but an internal arrangement for the purpose of allocation of work among the officers of customs. [Para 115]

Customs Act, 1962 – s.6 – Entrustment of functions of Board and customs officers on certain other officers – Application of s.6:

Held: s.6 contemplates the entrustment of the functions of the Board or any officer of customs under the Act to any of the officers of the Central or the State Government or a local authority – Such entrustment could be either conditional or unconditional – Object of this Section is to confer powers of search, seizure, arrest and recording of statements, to the officers working in border states as also officers working in the coast guard or the navy as they may be involved in anti smuggling operations – Plain reading of s.6 makes it abundantly clear that it applies only to officers from departments other than the officers of the customs u/s.4 – Officers of DRI are not any other officers of the Central Government or the State Government or the local authority to be entrusted with the functions of the Board and the Customs Officers – Post 07.03.2002, a notification of the Central Government u/s.6 is not required to recognise the officers from DRI as officers of customs – Assignment of functions of proper officers as mentioned in s.2(34) and entrustment of functions of customs officers as mentioned in s.6 operate on different planes – Assignment of functions of proper officer is to be done only to officers of customs (whether appointed u/s.4 or entrusted with certain functions u/s.6) – There may be some overlap between assignment of functions of proper officers u/s.2(34) rw s.5 and entrustment of functions of officers of customs u/s.6 in some instances but there can be no scenario where it can be held that “functions” u/s.6 and s.2(34) are congruent – One of the basis for the decision in Canon India’s case was that no entrustment of functions u/s.6 was done in favour of DRI officers, which is a misapplication of s.6 and is in ignorance of the applicable law, ss.2(34) rw s.5 of the Act. [Paras 120-122, 125, 129, 130] Customs Act, 1962 – s.28 (11) – Recovery of duties not levied or short-levied or erroneously refunded – Constitutional validity of s.28(11) – Introduction of s.28(11) vide the Validation Act of 2011 which retrospectively validates the show cause notices issued u/s.28 with effect from 06.07.2011, if discriminatory and arbitrary for not curing the defect highlighted in Sayed Ali’s case and, thus, violative of Art.14 of the Constitution of India: Held: s.28(11) is constitutionally valid and its application is not limited to the period between 08.04.2011 and 16.09.2011 – None of the changes made by the amendments to s.28 has any impact on the competence of the proper officer for the purposes of fulfilment of functions u/s.28 – Only major change that warrants the clarification provided under Explanation 2 is the distinction with respect to the limitation period for the issuance of show cause notices – Thus, the application of sub-section (11), which pertains only to the empowerment of proper officers to issue show cause notices u/s.28, cannot be said to be limited only to new s.28 but also to the provision as it stood prior to 08.04.2011 – Legislative intent is that sub-section (11) was meant to apply to s.28 without any restriction as to time – Enactment of sub-section (11) of s.28 cures the defect pointed out in Sayed Ali’s case. [Paras 147, 148, 151, 154, 155]

Customs Act, 1962 – ss.17 and 28 – Proper officer to issue show cause notice in terms of s.28 – Judgment by the High Court in the case of Mangali Impex’, if expounds the correct interpretation of s.28(11):

Held: High Court in Mangali Impex’s case observed that s.28(11) could not be said to have cured the defect pointed out in Sayed Ali’s case as the possibility of chaos and confusion would continue to subsist despite the introduction of the said section with retrospective effect – High Court declined to give retrospective operation to s.28(11) for the period prior to 08.04.2011 by harmoniously construing it with Explanation 2 to s.28 of the 1962 Act – Decision in Mangali Impex’s case failed to take into account the policy being followed by the Customs department since 1999 which provides for the exclusion of jurisdiction of all other proper officers once a show cause notice by a particular proper officer is issued – It could be said that this policy provides a sufficient safeguard against the apprehension of the issuance of multiple show cause notices to the same assessee u/s.28 – Further, the High Court could not have applied the doctrine of harmonious construction to harmonise s.28(11) with Explanation 2 because s.28(11) and Explanation 2 operate in two distinct fields and no inherent contradiction can be said to exist between the two – Thus, the decision in Mangali Impex’s case set aside. [Para 168] Finance Act, 2022 – s.97, Amendments made by Finance Act – Constitutional validity of ss.86, 87, 88, 94 and 97 – s.97 which retrospectively validates the show cause notices with effect from 01.04.2023, if manifestly arbitrary and thus, violative of Art.14 of the Constitution of India:

Held: s.97 which, inter-alia, retrospectively validated all show cause notices issued u/s.28 of the Act, 1962 cannot be said to be unconstitutional – It cannot be said that s.97 fails to cure the defect pointed out in Canon India’s case nor is it manifestly arbitrary and discriminatory and is not disproportional to the object sought to be achieved by it. [Para 168]

Constitution of India – Art.137 – Review of judgments or orders by the Supreme Court – Grounds of review as stipulated by the statute:

Held: Grounds of review are discovery of new and important matter or evidence which, after the exercise of due diligence, was not within the knowledge of the petitioner or could not be produced by him at the time when the decree was passed or order made; mistake or error apparent on the face of the record; or any other sufficient reason – Thus, when a court disposes of a case without due regard to a provision of law or when its attention was not invited to a provision of law, it may amount to an error analogous to one apparent on the face of record sufficient to bring the case within the purview of Ord. XLVII r.1 CPC – If a court is oblivious to the relevant statutory provisions, the judgment would in fact be per incuriam – In such circumstances, a judgment rendered in ignorance of the applicable law must be reviewed – Code of Civil Procedure, 1908 – Ord. XLVII r.1 – Supreme Court Rules, 2013 – Ord. XLVII Part IV. [Paras 60, 67]

Legislation – Validation of legislation to validate earlier acts declared illegal – Power of:

Held: Legislature is empowered to enact validating legislations to validate earlier acts declared illegal and unconstitutional by courts by removing the defect or lacuna which led to the invalidation of the law – With the removal of the defect or lacuna resulting in the validation of any act held invalid by a competent court, the act may become valid, if the validating law is lawfully enacted – Possibility of misuse or abuse of a law which is otherwise valid cannot be a ground for invalidating it. [Paras 152, 160]