The analysis of Canon Judgement review by Supreme Court is authored by A. Rangadham, Superintendent (AR), Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad.
Table of Contents
BACKGROUND OF THE REVIEW PETITION
In Commissioner of Customs v. Sayed Ali and Another [(2011) SCC 537] the Hon’ble Supreme Court held that – only those officers of customs who were assigned the functions of assessment, which would include re-assessment, working under the jurisdictional collectorate within whose jurisdiction the bills of entry or baggage declarations had been filed and consignments had been cleared for home consumption, would have the jurisdiction to issue show cause notice under Section 28 or else it would lead to a situation of utter chaos and confusion, in as much as all officers of customs in a particular area, be it under the Collectorate of Customs (Imports) or the Preventive Collectorate, would fall under the definition of “proper officers”.
Consequently, The “Board” issued Notification No. 44/2011-Cus-NT dated 06.07.2011 under Section 2(34) of the Act, 1962, assigning the functions of the “proper officers” to the Commissioners of Customs (Preventive), Directorate of Revenue Intelligence (“DRI”), Directorate General of Anti Evasion (“DGAE”) and Officers of Central Excise.
Section 28(11) was introduced w.e.f 16.09.2011 by virtue of which all persons appointed as Officers of Customs under sub-section (1) of Section 4 before the 06.07.2011 were deemed to have and always had the power of assessment under Section 17 and were deemed to be and always have been “proper officers” for the purpose of the said section.
The High Court of Delhi in the case of Mangali Impex Ltd. v. Union of India [(2016) SCC Online Del 2597] held that the newly enacted Section 28(11) would not empower officers of DRI or DGAE to either to adjudicate the show-cause notices already issued by them for the period prior to 08.04.2011 or to issue fresh show-cause notices for said period.
In the case of Sunil Gupta v. Union of India and Others on the validity of Sec. 28(11) it was held that – The officers namely those from the Directorate of Revenue Intelligence having been entrusted and assigned the functions as noted above, they are deemed to have been possessing the authority, whether in terms of section 28 unamended or amended and substituted as above.
In Canon India Private Ltd. v. Commissioner of Customs, the Hon’ble Supreme Court vide judgment dt. 09.03.2021 held that – unless it is shown that the officers of DRI are at the first instance, customs officers under the Act, 1962 and are entrusted with the functions of a proper officer under Section 6 of the Act, 1962, they would not be competent to issue show-cause notices. It was held that, since no entrustment was made under Section 6 of the Act, 1962, the officers of DRI who were not otherwise officers of customs, could not have been assigned as the “proper officers”.
In the Review Petition, the Court observed that: In Canon India (supra) the following have not been brought to the notice of the Court – (i) Notification No. 44/2011-Cus-NT dated 06.07.2011 designating officers of DRI as “proper officers” for the purposes of both Sections 17 and 28 of the Act, 1962 respectively; (ii) the introduction of Section 28(11) vide the Validation Act, 2011 introducing Section 28(11) empowering such officers for the period prior to 06.07.2011; (iii) the statutory scheme as envisaged under Sections 3, 4, 5 and 2(34) of the Act, 1962 respectively; and (iv) the pendency of the appeal against the decision in Mangali Impex (supra) and the stay of the operation of the said decision by this Court.
To overcome the legal hurdle created on account of Canon, the Parliament introduced the following provisions: Sections 86, 87 and 88 in the Finance Act, 2022 (Act No. 6 of 2022) to amend Sections 2(34), 3 and 5 of the Act, 1962 respectively. Further, Sections 94 and 97 of the Finance Act, 2022 introduced a new Section 110AA and a validation enactment respectively.
ISSUES TO BE DECIDED
- (I) The Review Petitions in the Canon India (supra) batch;
- (II) The Mangali Impex (supra) appeal
- (III) The challenge to the constitutional validity of Section 97 of the Finance Act, 2022
FINDINGS
On Review
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 Order XLVII Rule 1 of the Code of Civil Procedure, 1908. In other words, 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. (Para 67)
On The Decision In Commissioner Of Customs V. Sayed Ali
The decision in Sayed Ali (supra) proceeds on the assumption that for the “proper officer” to exercise the functions under Section 28 of the Act, 1962, such officer must necessarily possess the power of assessment and reassessment under Section 17. However, a plain reading of Sections 17 and 28 of the Act, 1962 does not bring out any such inter-dependence between the two provisions. (para 81)
The observations made in Sayed Ali (supra) on the connection between Sections 17 and 28 of the Act, 1962 are obiter dicta at best and do not constitute the binding ratio decidendi of that judgment. (para 82)
Sayed Ali (supra) could not have been relied upon by this Court in Canon India (supra) as it could not have been applied for the period subsequent to 08.04.2011 in view of the fact that Section 17 of the Act, 1962 has undergone a radical change by virtue of the amendments made by the Finance Act, 2011 (para 83).
On Assessment Under Section 17
With effect from 08.04.2011, the “proper officer” appointed for the purpose of Section 17 of the Act, 1962 under a notification issued under Section 2(34) of the Act, 1962 could only make a re-assessment of the bill(s) of entry and shipping bill(s) in case they did not agree with the self-assessment of the importer or the exporter as the case may be. (para 86)
Section 17, as amended vide the Finance Act, 2011 provided for (i) Self assessment; (ii) allowed the officer to verify the self-assessment; (iii) the proper officer is required to pass a speaking order within 15 days of re-assessment. (para 89)
In Canon India, the conclusion that an officer who did the assessment, could only undertake reassessment under Section 28(4) was arrived at without taking note of the abovementioned amendment to Section 17 of the Act, 1962 with effect from 08.04.2011. The judgment in Canon India (supra) also recorded an erroneous finding that the function of re-assessment is with reference to Section 28(4) when in fact it is an exercise of function under Section 17. (para 93)
On Interface Between Section 17 And 24
Section 17 read with Sections 46 and 47 of the Act, 1962 deals with the assessment and re-assessment. The proceedings under Section 28 are subsequent to the completion of the process set out in Section 17 of the Act, 1962. The nature of review under Section 28 is significantly different from the nature of assessment and reassessment under Section 17. The ambit of Section 28 has also been restricted to the review of assessments and re-assessments done under Section 17 for ascertaining if there has been a short-levy, non-levy, part payment, non-payment or erroneous refund (para 95 & 96)
The parameters under Section 28 cannot be reduced to an administrative review of assessment/re- assessment done under Section 17. Syed Ali and Canon India did not lay down the correct law on this point. (para 97)
The scheme of Sections 17 and 28 of the Act, 1962 indicates that there cannot be a mandatory condition linking the two provisions. (para 99)
On Section 110aa
The introduction of Section 110AA doesn’t alter the statutory scheme of Sections 17 and 28 of the Act, 1962 as it stood prior to the introduction of Section 110AA. (para 98)
On Use Of Article “The’ In Section 28 Before The Phrase “Proper Officer”
In the absence of any statutory linkage between Sections 17 and 28 of the Act, 1962 respectively, there was no legal footing for this Court in Canon India (supra) to hold that “the proper officer” in Section 28 must necessarily be the same proper officer referred to under Section 17 of the Act, 1962 (para 101)
The 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 under Section 28 by conferment under Section 5. (para 102)
The use of article “the” in Section 28 has no apparent relation with the proper officer referred to under Section 17 (para 103)
Hence, those officers of DRI who were designated as “the proper officer” for the purpose of Section 28 by Notification No. 44/2011–Cus–N.T. dated 06.07.2011 were competent to issue show cause notices under Section 28 (para 104)
On Invoking 2(34)
The Notification No. 40/2012-Customs (N.T.) dated 02.05.2012, issued under Section 2(34) of the Act, 1962 cannot be read in isolation. It has to be read in conjunction with Section 4(1) of the Act, 1962 and the Notification issued thereunder (para 109)
The notifications issued under Section 2(34) and 4(1) of the Act, 1962 are nothing but an internal arrangement for the purpose of allocation of work among the officers of customs. (para 115)
On Section 6
It is evident on a plain reading of Section 6 of the Act, 1962 referred to above that the same contemplates the entrustment of the functions of the Board or any officer of customs under the Act, 1962 to any of the officers of the Central or the State Government or a local authority. (para 120)
Section 6 of the Act, 1962, makes it abundantly clear that it applies only to officers from departments other than the officers of the customs under Section 4 of the Act, 1962 (para 125)
The assignment of functions of the proper officer for the purposes of any section under the Act to an officer of customs is expressly mentioned in Section 2(34). Section 5 empowers the customs
officer to discharge the duties of proper officer so conferred. Even prior to the amendment to Sections 2(34) and 5, this could be the only understanding with respect to the question of entrustment of functions of the proper officer to a customs officer (para 128)
On Section 28(11)
Section 28 was re-cast with effect from 08.04.2011. Section 28(11 was introduced on 16.09.2011. The same retrospectively empowered all officers of customs appointed under Section 4(1) before 06.07.2011 to conduct assessments under Section 17 of the Act and to be proper officers for the purpose of Section 28 (para 138)
Parliament added Explanation 2 to clarify that recoveries arising prior to 08.04.2011 shall be governed by old Section 28 of the Act. (para 146 d)
The application of sub-section (11), which pertains only to the empowerment of proper officers to issue show cause notices under Section 28, cannot be said to be limited only to new Section 28 but also to the provision as it stood prior to 08.04.2011 (para 148)
Section 28(11) is constitutionally valid, and its application is not limited to the period between 08.04.2011 and 16.09.2011 (para 155)
To avoid the ‘chaos theory’ propounded in earlier judgements: It suggested that the Board should issue instructions in its administrative capacity that once a show cause notice is issued specifying an adjudicating authority subject to such an officer being the proper officer for the purposes of Section 28, then he or she alone should proceed to adjudicate that particular show cause notice to the exclusion of all other officers who may have power in relation to that subject matter (para 151).
On Validity Of Sections 86, 87, 88, 94 And 97 Of The Finance Act, 2022
The ouster of jurisdiction of DRI to issue show cause notices under Section 28 once an assessment has been done under Section 17 is not a defect at all in light of Notification No. 44/2011 dated 06.07.2011 and new Section 17 as amended by the Finance Act, 2011 (para 163 d)
The functions of assessment and re-assessment under Section 17 and recovery of duty under Section 28 are distinct (para 163 f)
The validating provision under Section 97 of the Finance Act, 2022 is a mere surplusage (para 163 g)
On Section 110aa
The introduction of Section 110AA was a valid exercise of legislative power (para 165 c)
Conclusions
Circular No. 4/99-Cus dated 15.02.1999 and Notification No. 44/2011 dated 06.07.2011 empowered the officers of DRI to issue show cause notices under Section 28 of the Act, 1962 as well as assigned the functions of the proper officer for the purposes of Sections 17 and 28 of the Act, 1962 respectively to the officers of DRI.
Section 28(11) and Explanation 2 operate in two distinct fields and no inherent contradiction can be said to exist between the two.
Section 97 of the Finance Act, 2022 which, inter-alia, retrospectively validated all show cause notices issued under Section 28 of the Act, 1962 cannot be said to be unconstitutional.
