The elite investigation wing of the Central Revenue Department – Directorate of Revenue Intelligence (‘DRI’) had been facing an existential crisis since the landmark Canon India v. Commissioner of Customs[1] judgement which ousted its jurisdiction to exercise the functions of Officers of Customs viz. issuance of Show Cause Notice (‘SCN’) under Section 28 of the Customs Act, 1962[2] (‘the Act’). The experienced senior officers of DRI were thus left with very little to do, as their entire modus operandi of over 60 years was rendered invalid and without any authority of law by the 3-judge bench of the Hon’ble Supreme Court. Amidst this gloomy phase of DRI arrives the recent judgement of M/s N.C. Alexander v. Commissioner of Customs, Chennai[3] by Hon’ble Madras High Court as a ray of hope that perhaps coronates DRI back to its glory.
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1. Crisis and Ramifications
Before embarking on a detailed discussion of the said judgement, it is appealing to glance at legal implications and popular reactions to Canon India, to best appreciate the role of N.C. Alexander verdict.
1.1. Judicial responses
What followed Canon India was a series of similar decisions where proceedings before various Courts and Tribunals were instantaneously dropped. The Hon’ble Supreme Court on 2 other occasions[4] was inclined to dismiss the cases following Canon India. Various High Courts and Tribunals (viz. CESTAT) across the country also followed the said decision on at least 22 occasions[5]. Additionally, the decision has been discussed and accepted as the proper position of law in 38 other judgements – wherein it was merely distinguished on facts.
1.2. Popular responses
The reaction of subject-matter experts was quite diverse as some appeared to welcome the said decision[6], some highlighted its far-reaching implications[7], while some others predicted worse to arrive for DRI in light of other pending cases[8]. However, it is notable that no critical analysis of the judgement has been offered as regards its precedential authority.
1.3. Executive responses
The responses from various departments and offices of Government are also interesting to appraise. The Comptroller and Auditor General reported that DRI and Customs (Preventive) had initiated cases before various Courts having a potential revenue exposure of Rs. 170 Trillion. Further, it appeared that the Central Board of Indirect Taxes & Customs (‘CBIC’), the erstwhile Central Board of Excise and Customs – that directly governs DRI was left quite perplexed as indicated by its direction to DRI to stop the issuance of any further SCNs vide Instruction No. 04/2021-Customs dated 17.03.2021. CBIC further communicated in the said Instruction of March 2021 that it was actively examining the implications of the said judgement, but no decision was communicated. Meanwhile, the department has preferred a review petition that stands pending as of date.
1.4. Legislative response
Subsequently, the Finance Act, 2022[9] was passed that amended various provisions of the Customs Act that purportedly empowered DRI officers to be Customs officers. It also validated the past actions taken/ functions performed by DRI.
2. Governmental Blunder or Judicial Overlook: N.C. Alexander Judgement
While any discussion on Canon India now remains purely academic in nature after the amendments by the Finance Act, 2022 – a curious case for re-examining the said verdict has arisen after N.C. Alexander judgement by the Hon’ble Madras High Court. The question that re-emerges is whether the DRI had actually been following a procedure bad in law, that supposedly went unnoticed for so long, or had the Hon’ble Supreme Court arrived at a per incuriam judgement?
While the popular opinion argues that the Finance Act, 2022 aimed to negate the apex court’s decision[10], Justice C. Saravanan of Hon’ble Madras High Court opines otherwise; that the amendment merely clarified explicitly – what was already implicit in the Customs Act. Indeed, the ratio of N.C. Alexander is the first of its kind inasmuch it finds that the officers of DRI always were ‘officers of customs’, and had their powers including the power to issue SCN. It is further suggested in the verdict that Canon India has possibly overlooked certain important provisions of the law. The following section highlights the comprehensive scheme of the Customs Act with regards to DRI’s status and powers that were most likely not brought before the Supreme Court in Canon India.
2.1. Paradigm shift to the era of Self-Assessment
Earlier, the scheme of the Customs Act provided for assessment by the proper officer as per Section 17(2) of the Act. However, Section 38 of the Finance Act, 2011 had made significant changes to Section 17 of the Act by altering the method of assessment of Shipping Bills and Bills of Entry. The amended Section 17 stipulated self-assessment by the importer/ exporter, and the role of the proper officer was limited to verification of such assessment only.
However, it appears that the said major change had not been brought to the attention of the Supreme Court. This is apparent in para 11 of Canon India, where the underlying assumption is that ‘the proper officer’ ought to be the one having powers of assessment as well as re-assessment. At para 13 again, the Supreme Court erred in not considering the amended scheme of self-assessment where the proper officer could now only carry out re-assessment – and has no powers of assessment in the first place.
Therefore, while dealing with a case arising out of an SCN issued in 2014, in respect of a Bill of Entry filed in 2012, the Supreme Court in Canon India applied provisions of Section 17 of the Act as it existed prior to the 2011 amendment. This glaring error is further aggravated by the fact that Section 17 of the Act was never actually referred to in the judgement.
2.2. Determination of DRI as ‘Officers of Customs’
The scheme of the Customs Act provides different sources for the appointment of ‘officers of customs’ (or customs officers). Section 2(34) of the Act defines a ‘proper officer’ as a customs officer who has been assigned certain functions by either (i) the Central Board (i.e. CBIC), or (ii) the Principal Commissioner/ Commissioner of Customs. Such powers of appointment are envisaged under Section 4 of the Act, wherein the Board may exercise powers of appointment vide notification under sub-section (1), and certain authorised classes of Commissioner may appoint vide notification under sub-section (2) thereof.
The Supreme Court at para 16 of Canon India indicated that the test as to whether the officers of DRI could be considered as ‘proper officers’ was to be judged on the anvil of their position as ‘officers of customs’. However, in gross disregard to the mechanism under Section 4 of the Act, the Supreme Court straightaway assumed that the power to appoint a ‘proper officer’ was vested only with the Government as per Section 6 of the Customs Act, and not the Central Board.
Firstly, this assumption is ill-founded since the scope of operation of Section 6 of the Act is in a totally different context. Section 6 of the Act provides for ‘entrustment’ of the Board’s functions to officers from other departments and is not concerned with the ‘appointment’ of ‘officers of customs’. Nonetheless, any officer so entrusted under Section 6 of the Act does not become an ‘officer of customs’ by the very virtue of such entrustment. Thus, the standard for fulfilling the test indicated in Canon India was based on a misinterpretation of Section 2(34) and Section 6 of the Act.
Secondly, a series of notifications issued since 1990 had appointed DRI officers as ‘officers of customs’ in one way or another, Notification No. 82/2014-Customs (N.T.) dated 16.09.2014 being the last in the said series. These notifications were issued by the Board in the exercise of powers conferred by Section 4(1) of the Act, following the procedure as indicated in Section 2(34) of the Act.
In arguendo, the officers of DRI are usually those ‘officers of customs’ from the Customs Department or CGST and Central Excise Department, who have been deputed to DRI based on their experience and competence. This exercise of deputation does not mean that they cease to be ‘officers of customs’, as observed in N.C. Alexander at para 271.
Therefore, the Supreme Court had erred in noting at para 21 of Canon India that officers of DRI had not been validly appointed as ‘officers of customs’.
2.3. Powers of DRI officers to issue SCN
A bare perusal of Section 2(34) of the Act as it stood at the material time of Canon India reveals that any ‘officer of customs’ could be a ‘proper officer’ if assigned such functions by the Board. The ‘proper officer’ need not be ‘conferred’ with any specific powers, as the same have been provided under Section 5 of the Act. Thus, the Board could simply ‘identify’ certain classes of ‘officers of customs’ who would perform some specific functions out of all the functions they can perform under Section 5 of the Act. This delegation is an arrangement of convenience and is to be carried out internally by the Board to ensure better tax administration.[11]
N.C. Alexander also advocates this view at para 241 – that two notifications, viz. Notification No. 44/2011-Customs (N.T.) dated 06.07.2011 and consequently, a more elaborate Notification No. 40/2012-Customs (N.T.) dated 02.05.2012, were issued under Section 2(34) of the Act simply to streamline work allocation for purposes of Section 28 and Section 17 of the Act.
It further holds that these notifications merely ‘identified’ the DRI officers, who were already ‘officers of customs’ as ‘proper officers’, and did not ‘confer’ any powers on them, as assumed in Canon India at para 19. As such, these notifications are characterised as ‘enabling Notifications’ in N.C. Alexander at para 275.
However, it seems that Canon India had adopted a very restrictive approach of reading down one of the Notifications issued under Section 2(34) of the Act in isolation. Such reading persuaded the Supreme Court to hold that the said notification No. 40/2012-Customs (N.T.) was bad in law and that the officers of DRI were not ‘officers of customs’. Rather, the notification ought to have been read in conjunction with previous notifications issued under Section 4(1) of the Act.
3. Precedential Authority of Canon India: Beginning of an End
The principle of precedents is widely recognised in jurisprudence with Salmon describing it as the authority enjoyed by a decision at large. This principle finds its roots in the doctrine of stare decisis of common law which advocates for continuity and certainty of law. Indian constitutional scheme also recognises this principle through Article 141 of the Constitution, which provides for binding value of law declared by the Supreme Court on all courts of India. As such, the ratio of Canon India was widely accepted by various courts and tribunals as a matter of judicial discipline.
However, this practice of following precedents has certain exceptions, two of them being sub silentio and per incuriam judgement.
3.1. Sub silentio application of Sayed Ali
Sub silentio application refers to the reliance placed by a court on a prior decision in silence, i.e. without consideration of the applicable law/ other arguments thereof.[12] Interestingly, the Supreme Court in Canon India had heavily relied upon the decision of Commissioner of Customs v. Sayed Ali[13], which held that only such ‘officers of customs’ who had been assigned the specific functions of assessment and re-assessment were competent to issue an SCN. As elaborately discussed in N.C. Alexander from para 164 to 166, the said decision of Sayed Ali cannot be relied upon after the amendments to Section 17 of the Act in 2011 as the era of assessment by the proper officer was done away with and a new era of self-assessment was brought about. The subsequent amendment to Section 28 of the Act vide Customs (Amendment and Validation) Act, 2011[14] had effectively restricted the Sayed Ali verdict’s application. Therefore, the reliance placed on this judgement in Canon India is essentially sub silentio and improper in law.
3.2. Per incuriam judgement
A per incuriam judgement is a decision delivered in ignorance of relevant law or other authority of legal nature. Such decisions do not have binding precedential value and need not be followed.[15] N.C. Alexander at para 281 similarly noted that if relevant provisions of the law are not brought before the Court, they might end up giving a ratio inconsistent with the contemporary legal position. The Supreme Court in Canon India was not appraised with many important provisions of the law, like the change in process of assessment under Section 17, the mechanism of appointment under Section 4, the amendments to the Act brought in 2011 after the Sayed Ali judgement, etc. As such, the Supreme Court had no opportunity to discuss and apply its mind to this issue in a comprehensive manner. Therefore, Canon India is rendered as a per incuriam judgement.
4. Conclusion
It appears that the judgement of Canon India has acquired a momentous position with regards to its precedential authority as many courts have chosen to follow it since. However, an independent examination of the legal position at the material time of Canon India reveals that the verdict is ill-founded and in ignorance of existing law. The issue of DRI’s power to issue SCN still remains unsettled as the Customs department has preferred a review petition[16] as well as an SLP before the Supreme Court challenging the position of law laid down in Canon India. However, these stand pending as of date. Against this backdrop, the Madras High Court judgement of N.C. Alexander has certainly laid the groundwork for the declaration of Canon India as a per-incuriam judgement.
* The author is a 3rd-year student pursuing B.A. L.L.B. (Hons) from Gujarat National Law University and can be reached at [email protected].
[1] M/s Canon India Pvt. Ltd. v. Commissioner of Customs, AIR 2021 SC 1699 (hereinafter ‘Canon India’).
[2] Customs Act, 1962, No. 52, Acts of Parliament, 1962 (India).
[3] W.P. Nos. 33099/2015 & etc. – Mad HC (hereinafter ‘N.C. Alexander’).
[4] Commissioner of Customs, Ahmedabad v. M/s Suncity Strips and Tubes Pvt. Ltd., 2021 (376) E.L.T. 3 (SC); Commissioner of Customs, Kandla v. Agarwal Metals and Alloys, 2021 (378) E.L.T. 7 (S.C.).
[5] N.C. Alexander, ¶ 155.
[6] DRI officer not ‘the’ proper officer to issue show cause notice under Customs Section 28(4), Lakshmisri.com (Mar. 10, 2021), <https://www.lakshmisri.com/newsroom/news-briefings/dri-officer-not-the-proper-officer-to-issue-show-cause-notice-under-customs-section-28-4>.
[7] S. Patnaik, Shivam Garg, Who is proper officer of customs? The argument continues!, cam india tax law blog (May 30, 2022), <https://tax.cyrilamarchandblogs.com/2022/04/who-is-proper-officer-for-customs-the-argument-continues>.
[8] Rajneet Mahtani, Sherin Daniel, Is the DRI’s Jurisdiction Outsted? Tax Sutra (Mar. 16, 2021), <https://idt.taxsutra.com/experts/column?sid=452>.
[9] Finance Act, 2022, No. 6, Acts of Parliament, 2022 (India).
[10] S. Patnaik, Shivam Garg, supra note 7.
[11] N.C. Alexander, ¶ 211.
[12] M/s A-One Granites v. State of UP, (2001) 3 SCC 537.
[13] Commissioner of Customs v. Sayed Ali and Anr., (2011) 3 SCC 537.
[14] The Customs (Amendment and Validation) Act, 2011, No. 14, Acts of Parliament, 2011 (India).
[15] State of UP v. Synthetics and Chemicals Ltd., (1991) 4 SCC 139.
[16] Commissioner of Customs v. M/s Canon India Pvt. Ltd., R.P.(C) No. 400/2021.
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