Cannon India Overruled?

Even though God rules in the affairs of men, the earth is not God’s jurisdiction. It is man’s jurisdiction. This quote is apt to set the tone for this piece relating to the “jurisdiction” of the “proper officer” of DRI. It is a much-debated question. However, in my humble opinion, it is a self-inflicted injury by the government. The true reason for this debate is the sheer arrogance of the bureaucracy in creating red tape, class distinctions amongst officers, and defining boundaries that do not per se exist.

Whether an officer of DRI is a “proper officer” or not is a vexed question of law. The issue is one relating to jurisdiction. The courts have taken one view. However, the parliament seems to think otherwise and has since brought about a series of retrospective amendments. The Finance Bill, 2022, is yet another attempt. Before we proceed to analyze the proposed amendments, let us, briefly, dive into the development of the law on this issue.

The Hon’ble Apex Court in Commissioner vs. Syed Ali [1] held that a demand notice can only be issued by the so-called ‘proper officer’ who had the jurisdiction to assess the goods at the time when the same were being imported and cleared and not any other officer. In order to overcome this ruling, in 2011, the legislature brought an amendment to the said act by way of an explanation to section 28(11) of the Customs Act, which gave all customs officers, en masse, the power to issue show cause notices.

The said explanation was, yet again, a matter of challenge before the Delhi High Court. The Delhi High Court in Mangali Impex vs. Union of India [2] clarified that the validating amendment brought in 2011 will apply prospectively and not retrospectively. SLP against the said judgment is pending before the Apex Court.

 

In March 2021, a three-judge bench of the Apex Court in Canon India Pvt Ltd Vs Commissioner of Customs [3] followed its earlier decision in Syed Ali supra and held that that an officer of the DRI is not a “proper officer” to issue a show cause.

Notices or raises a customs duty demand against importers. It is the officer who had undertaken the original assessment of imports or his successor who would be the “proper officer” to issue show cause notices and demand customs duty. In the words of the Hon’ble Apex Court:

        “Where the statute confers the same power to perform an act on different officers, as in this case, the two officers, especially when they belong to different departments, cannot exercise their powers in the same case. Where one officer has exercised his powers of assessment, the power to order reassessment must also be exercised by the same officer or his successor and not by another officer of another department, though he is designated to be an officer of the same rank. In our view, this would result in an anarchical and unruly operation of a statute that is not contemplated by any canon of construction of statute.”

The Apex Court, further, went on to hold that the Notification No. 40/2012-Cus. (N.T.) relied on by the Revenue Department was ‘ill-founded.’ The notification was issued under Section 2(34) of the said Act, which merely defines a ‘proper officer’ and does not confer any powers on any authority to entrust any functions to officers. Also, if it was intended that officers of the DRI should be entrusted with functions of the customs officers, it was vital that the government should have done so in exercise of its power under Section 6 of the said Act. A review petition filed by the Revenue against the said judgment is pending before the Supreme Court.

In Unik Traders vs. Additional CC [1], the Madras High Court followed the above law expounded by the Hon’ble Supreme Court. Following this, the Bombay High Court, Madras HighCourt,t and Karnataka High Court have quashed show cause notices issued by DRI officers, saying that though review is pending before the Apex Court, it will not act as a bar from following the Apex Court judgment in the Canon India case.

However, recently, the Apex Court has admitted the SLP filed by Revenue against the judgment of the High Court in Godrej And Boyce Manufacturing Company Ltd. vs. UoI [2]. Trevenuenue contended that the review petition was moved on the ground that the explanation to Section 28 (11) was not noticed by the three-judge bench in the Canon India case. Thus, the controversy is still far from over.

However, in the meantime, the Finance Bill, 2022, has proposed the following amendments:

The bill seeks to expand the scope of the definition of the term ‘proper officer’ under Section 2(34) of the said Act to expressly allow assignment of functions to an officer of Customs by CBIC [2] or the Principal Commissioner of Customs or the Commissioner of Customs. Further, subsections (1A) and (1B) of Section 5 propose to empower the CBIC or the Principal Commissioner/Commissioner of Customs to assign functions to customs officers. Section 3 proposes to include officers of DRI and the Customs Audit/Preventive Wing as ‘proper officers’ to empower them to investigate/inquire and issue show cause notices.

Clause 96 of the bill also seeks to retrospectively validate any action taken or duties performed by officers of DRI or Customs before the enactment of the bill, notwithstanding the decisions of the courts, tribunals, or authorities. Any proceeding arising out of action taken under the clause and pending on the date of commencement of the Finance Act will be disposed of under the amended provisions. This retrospective amendment may have an overriding effect on the outcome of pending SCNs/petitions/appeals where the jurisdiction of the DRI officer is under challenge.

From the above amendments, it can be easily discerned that the Parliament seems to bestow all powers under the Customs Act on the officers of DRI. The said attempts are clearly an attempt to nullify the judgment of the Apex Court in the Canon India case.

Though the power of the legislature to amend retrospectively undoubtedly cannot be questioned, we must refer to the observations of the Apex Court in Commissioner of Income Tax V/s Essar Teleholdings Ltd. [1], whereby it was held that the legislature cannot scrap out any judgment of the court by giving a retrospective amendment of the concerlaw, law as this will confer excessive power on the hands of a particular organ of the government, suppressing the other two. Therefore, the question of whether the retrospective amendment is constitutionally legitimate or not remains a question, as this kind of amendment has received partial legitimacy and not a complete one, which thus keeps it under observation. Thus, the above proposed amendments would have to pass the test of judicial scrutiny.

However, the moot question remains, i.e., assuming the retrospective amendment is valid, whether the proposed amendments nullify the ruling of the Apex Court in the Canon India case. In other words, the lacuna pointed out by the Apex Court, has it been cured? I think not. The essence of the Apex Court judgment was that the “reassessment” can be done by the same officer who had done the original assessment. This aspect of the matter seems to have been lost sight of.

The other question that arises is whether Clause 96 would revive the dead. The answer is in the negative. All show cause notices that have been quashed and all appeals that have been allowed setting aside assessment orders will not and cannot stand revived unless there is a challenge to those orders. Else, those orders have become final and binding. By a retrospective amendment, statutory orders cannot be annulled.

A retrospective amendment is the most powerful tool in the hands of the legislature. However, in recent times, it is only intended to overrule judgments of courts rather than to iron out creases in the law. It is a sign of a bad loser. However, the government seems to suggest that heads I win, tails you lose.

This article was authored by Adv. Bharat Raichandani.