Explore the SC ruling on Canon India Pvt Ltd, dissecting Section 96 of Finance Act, 2022, and the subsequent Madras High Court decision. Unravel the background, impact of the Finance Act, and insightful analysis, shedding light on the ongoing legal intricacies.
Analysis of Supreme Court judgement in case of Canon India Pvt Ltd with reference to Section 96 of Finance Act, 2022 and subsequent judgement of Madras High Court
1. Background of the case
1.1 Jurisdiction of officers of the Directorate of Revenue Intelligence with regards to issuance of recovery notices under Section 28 of Customs Act has been a source of endless litigation and continuous debate since the judgement of hon’ble Supreme Court in case of Cannon India Pvt Ltd Vs Commissioner of Customs Civil Appeal 1827/2018.
The relevant parts of Section 28 are reproduced below
28. Recovery of duties not levied or not paid or short-levied or short-paid] or erroneously refunded.—
(1) Where any duty has not been levied or not paid or short-levied or short-paid or erroneously refunded, or any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than the reasons of collusion or any wilful mis-statement or suppression of facts, —
(a) the proper officer shall, within [two years] from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied [or paid] or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
Hon’ble Supreme Court in case of Cannon India Pvt Ltd(Supra) categorically held that DRI officers were not ’the proper officer’ and hence not eligible to issue SCN under Section 28.
1.2 In case where goods had already been assessed, the power to issue Notice for duty short paid was held to be akin to the power of review of a quasi judicial order. Thus it was held that power to issue SCN under Section 28 lies with the AC/DC who originally assessed the B/E or his successor in office. Relevant extracts are produced below
…..The nature of the power to recover the duty, not paid or short paid after the goods have been assessed and cleared for import, is broadly a power to review the earlier decision of assessment. Such a power is not inherent in any authority. Indeed, it has been conferred by Section 28 and other related provisions. The power has been so conferred specifically on “the proper officer” which must necessarily mean the proper officer who, in the first instance, assessed and cleared the goods i.e. the Deputy Commissioner Appraisal Group.
1.3 In fact, hon’ble Supreme Court has gone one step further and laid down that DRI officers are not even ‘a proper officer’ within the meaning of Customs Act.
The term is defined under Section 2(34) of Customs Act which is reproduced below :
Section 2(34) ―proper officer, in relation to any functions to be performed under this Act, means the officer of customs who is assigned those functions by the Board or the [Principal Commissioner of Customs or Commissioner of Customs];
Notification No.17/2002 – Customs (NT) dated 7.3.2002 shows that all Additional Directors General of the DRI have been appointed as Commissioners of Customs. This has been issued under Section 4 of Customs Act. Notification 40/2012 further appoints AC/DC as proper officers for purposes of Section 28 of Customs Act. The Commissioner of Customs, being senior in rank to the AC/DC could thus be considered the proper officer.
However, the Hon’ble Supreme Court held that Notification 40/2012 was issued by CBIC under Section 2(34) which merely defines the proper officer. This section does not confer powers upon CBIC to entrust functions to such officers. For entrustment, the only option available was recourse to Section 6 of Customs Act.
No such notification having been issued, DRI officers were not any kind of proper officers under Customs Act and all notices issued under Section 28 were set aside as being without jurisdiction. Indeed, by necessary implication, DRI officers could not perform any functions in Customs Act which were entrusted to a proper officer.
2. Effect of Finance Act, 2022
Several Sections of the Customs Act have been amended by Finance Act,2022 with a view to dilute the ratio of Cannon India judgement. The law intends both prospective and retrospective changes. The same are briefly mentioned below for the sake of convenience.
2.1 Section 85 of the Act amends existing Section 2(34) and makes reference to Section 5, thereby empowering CBIC to appoint proper officers.
Further, Section 86 specifically includes DRI officers in the class of Customs officers by amending Section 3 of Customs Act.
Section 87 amends Section 5 to enable CBIC to entrust proper officers with appropriate functions.
Section 96 of Finance Act, 2022 was legislated with a view to cure the defects noticed in the Cannon judgement and retrospectively validate the actions taken by DRI officers. The same is reproduced below.
Notwithstanding anything contained in any judgement, decree or order of any court, tribunal, or other authority, or in the provisions of the Customs Act, 1962 (52 of 1962), (hereinafter referred to as the Customs Act),–
(i) anything done or any duty performed or any action taken or purported to have been taken or done under Chapters V, VAA, VI, IX, X, XI, XII, XIIA, XIII, XIV, XVI and XVII of the Customs Act, as it stood prior to its amendment by this Act, shall be deemed to have been validly done or performed or taken;
(ii) any notification issued under the Customs Act for appointing or assigning functions to any officer shall be deemed to have been validly issued for all purposes, including for the purposes of section 6;
(iii) for the purposes of this section, sections 2, 3 and 5 of the Customs Act, as amended by this Act, shall have and shall always be deemed to have effect for all purposes as if the provisions of the Customs Act, as amended by this Act, had been in force at all material times.
Explanation. — For the purposes of this section, it is hereby clarified that any proceeding arising out of any action taken under this section and pending on the date of commencement of this Act shall be disposed of in accordance with the provisions of the Customs Act, as amended by this Act.
3. Analysis of Madras High Court Judgement subsequent to this amendment
3.1 Hon’ble Madras High Court in case of N.C. Alexander vs Commissioner of Customs, Chennai – II has held that in view of the above amendment, challenges to DRI notices relying on Cannon India judgement do not survive. Para 12 of the judgement is produced below
*Note : The judgement refers to Section 97 of the Finance Act, 2022 which appears to be an oversight. Copy of Finance Bill as downloaded from gov site mentions the validation section as Section 96
12. In the light of the above development, the challenge to the impugned Show Cause Notices and the impugned Order in Originals have to fail since these proceedings are pending before this Court. They will have to be disposed of in accordance with the provisions of the Customs Act, 1962 and Section 97 of the Finance Act, 2022.
In fact, the Writ petitions have been dismissed either by way of remand or liberty to approach the jurisdictional Tribunal for proceeding under Customs Act, 1962 and specifically denying any benefit that would have been available consequent to the Cannon judgement
3.2 For academic purposes, hon’ble Madras High Court Discussed the Cannon India judgement and made certain observations contrary to the observations of hon’ble Supreme Court. These are mentioned below along with relevant paragraphs from the judgement
Observation 1 : That DRI is an elite investigation wing under CBIC and notification under Section 4 sufficed for DRI officers to be notified as ‘proper officers’.
Para 176 of the order is produced below
“….. they(DRI officers) have been recognized as “Officers of Customs” by notification issued under Section 4 of the Customs Act, 1962. Thus, there is no difficulty in their being appointed as “Proper Officers”.
Observation 2 : Section 86 of Finance Act, 2022 specifically includes DRI officers in list of Customs officers in Section 3 of Customs Act.
221. The Hon’ble Supreme Court appears to have not been informed about the important changes brought to Section 17 of the Customs Act, 1962 vide Section 38 of the Finance Act, 2011 with effect from 08.04.2011 when it passed its decision in Canon India Private Limited Vs. Commissioner of Customs, 2021 (376) E.L.T.3(S.C.). Section 17 of the Act has undergone further changes.
Observation 3 : Hon’ble Supreme Court has not considered the effect of introduction of self assessment regime from 2011.
224. Further, in Canon India Private Limited, Vs. The Commissioner of Customs, 2021 (376) E.L.T.3(S.C.) Show Cause Notice was dated 19.09.2014 in respect of Bill of Entry filed on 20.03.2012. The Court appears to have applied provisions of Section 17 of the Customs Act, 1962, as it stood prior to 08.04.2011 without actually referring to the said provision.
Observation 4 : Notification issued under Section 2(34) must be understood in the larger context of entire Customs Act, especially Section 4
229. Notification No.40/2012-Customs (NT) dated 02.05.2012, issued under Section 2(34) of the Customs Act, 1962 cannot be read in isolation. It has to be read in conjunction with Section 4(1) of the Customs Act, 1962 and Notification issued thereunder.
233. Under sub-section (1) to Section 4(1) of the Act, the Board may appoint such person as Officers of Customs as it thinks fit. Under Section 4(2) of the Act, 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 has not been brought to the attention of the Hon’ble Supreme Court in Canon India Private Limited Vs. Commissioner of Customs, 2021 (376) E.L.T. 3 (S.C).
240. Thus, the officers from the Directorate of Revenue Intelligence have been appointed as “Officers of Customs” under Section 4 of the Customs Act, 1962 and therefore they are “Proper Officers” for the purpose of Section 2(34) of the Customs Act, 1962. This aspect was not brought to the attention of the Hon’ble Supreme Court in Canon India Private Ltd. case referred to supra.
Observation 5 : Judgement relied upon in Cannon case i.e Syed Ali vs Commissioner of Customs lost relevance after amendment to Section 17 and introduction of self assessment
256. The observations in paragraphs 11, 12, 13 & 14 are based on the decision of the Hon’ble Supreme Court in Sayed Ali vs Commissioner of Customs referred to supra. At that time, Section 17 read differently as in column 1 to the above table where again Section 4 was not considered.
Observation 6 : Interpretation of Section 6 by hon’ble Supreme Court appears erroneous
267. A reading of Section 6 of the Act further makes it clear that it applies only to officers from other departments other than the Officers of the Customs under Section 4 of the Customs Act, 1962. The Officers of the Directorate of Revenue Intelligence (DRI) are not any other officers of the Central Government or the State Government or the Local Authority to be entrusted with the function of the Board and the Customs Officers. The Officers of the Directorate of Revenue Intelligence (DRI) are already officers of the Customs by virtue of the Notification issued under Section 4(1) of the Customs Act, 1962.
Observation 7 : Proper facts of the case were not brought to the attention of hon’ble Supreme Court leading to a flawed decision.
272. If Section 3 and Section 4 of the Act and the Notification issued thereunder referred to supra were perhaps brought to the attention of the Hon’ble Supreme Court in Canon India Private Limited Vs. Commissioner of Customs, 2021 (376) E.L.T.3(S.C.), the Hon’ble Supreme Court would have given a different interpretation. In any event, these discussion are academic in the light of the validation in Section 97 of the Finance Act, 2022.
Finally, notwithstanding the Cannon judgement and its binding nature on lower courts, considering the amendment brought by Finance Act, 2022, the Court refused any benefit to aggrieved parties.
284. Though the law laid down by the Hon’ble Supreme Court in Canon India Private Limited case referred to supra is a declaration of law under Article 141 of the Constitution of India and therefore binding on this Court and therefore some of these Writ Petitions would have to be allowed. However, in view of the validations in Section 97 of the Customs Act, 1962 vide Finance Act, 2022, I am unable to allow these Writ Petitions.
4 Observations of the Author :
4.1 Jurisdictional Bombay High Court in case of Elite Aromas Vs Union of India (DoJ : 25/07/2023) has however taken a different view while staying the hearing of a bunch of Civil Appeals and Writ Petitions on the issue. Hon’ble Court has observed that Review Petition 400/2021 filed by the Revenue against Cannon India judgement is pending before the Apex Court. Also, the validity of retrospective amendment by Section 96 of Finance Act, 2022 is under Challenge before the Apex Court on grounds of violation of Article 32 of the Constitution. Hon’ble Supreme Court in case of Union Of India vs Aspam Petrochem Pvt. Ltd. has adjourned the hearing in this case till the review petition is decided in case of Cannon India.The operation of orders passed in cases where SCN was issued by DRI under Section 28 were therefore stayed, as an interim relief till hon’ble Supreme Court disposes off the appeal and review petitions.
4.2 However, the Parliament is suitably empowered to remove any defects in legislation that would have led to adverse judgements. Observations of hon’ble Supreme Court in Civil Appeal 3498 of 2009 NHPC vs State of Himachal Pradesh has reaffirmed this position :
12. The power of a legislature to legislate within its field, both prospectively and to a permissible extent, retrospectively, cannot be interfered with by Courts provided it is in accordance with the Constitution. It would be permissible for the legislature to remove a defect in an earlier legislation, as pointed out by a constitutional court in exercise of its powers by way of judicial review. This defect can be removed both prospectively and retrospectively by a legislative process and previous actions can also be validated.
The enactment of legislation, therefore, appears enough to validate the issuance of impugned DRI notices retrospectively and validating them especially since the challenge in Cannon India was not on any grounds which would render the notices invalid by account of Constitutional ingress.
4.3 It would therefore appear that once the defects observed in Cannon india are removed by competent legislation, the need to review the judgement is rendered obsolete. Would it be necessary for the Supreme Court to validate the retrospective amendment of Customs Act, 1962 ? Provisions in Chapter II of the constitution suggest no such requirement. In fact, it appears that the objective is to protect the legislative powers from judicial overreach. Once a law is enacted, its sanctity holds till such a time as powers of judicial review are exercised to strike them down.
This view is further strengthened by the observations of Hon’ble Madras High Court in case of N.C.Alexander (supra) where it has been held that subsequent to enactment of Finance Act, 2022, challenge to DRI notices relying on Cannon India judgement do not hold any ground.
However, hon’ble Bombay High Court pronouncing the judgement in Idea Cellular Vs Union of India almost an year after the Madras High Court judgement has taken a contrary view and placing reliance on Supreme Court order which has bunched the petitions challenging validity of retrospective amendment in Finance Act, 2022 and listed them for hearing after the review petition.
It may be disclosed that the Supreme Court order was passed subsequent to the order of Madras High Court, however, the former does not seem to have considered the detailed discussion in the latter order.
It ultimately is a case of the department that once the legislation to correct defects has been pronounced, the Review Petition be withdrawn at the earliest. This helps to disclose and reaffirm the stand of the department. Substantial time has elapsed since enactment of Finance Act, 2023 and failure to withdraw precipitates confusion.
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Author Profile – Adeeb Pathan
Adeeb Pathan, with a strong academic foundation holding an M.Sc. in Economics, brings a wealth of knowledge and experience to the table. He is a proud member of the Indian Revenue Service (Customs and Indirect Taxes) from the 2015 batch. Currently serving as a Deputy Commissioner with the Central Board of Indirect Taxes and Customs (CBIC) in New Delhi, his expertise in the field of economics and taxation is commendable. With a distinguished career path, Adeeb is currently awaiting his posting after repatriation from the Enforcement Directorate.
