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Supreme Court Clarifies DRI Jurisdiction Under Customs Act: Proper Officer Reinterpreted

  • jitinbharadwaj
  • Nov 26, 2024
  • 4 min read

Introduction

Judicial review is an essential function that the courts of this country carry out to ensure that the precedents laid by them consciously align with the legislative intent and the statutory framework that lies behind framing the law. While putting to use this very function, the Supreme Court has,  in the case of Commissioner of Customs v. Canon India Pvt. Ltd.[i], re-examined its earlier ruling[ii] to determine whether it the term ‘proper officer’ under s. 28 of the Customs Act, 1962 (‘Act’) was correctly interpreted or not. The Court was compelled to initiate a judicial review in the present matter since the earlier judgment had adversely impacted the cases pending with the Directorate of Revenue Intelligence (‘DRI’), wherein show cause notices (‘SCNs’) had been issued by DRI officers, however they could not be adjudicated upon due to lack of jurisdiction.  

Origin of the Dispute

To reiterate, the roots trace back to the 2011 decision of the Court in Commissioner of Customs v. Sayed Ali & Anr.[iii], wherein it was observed that only the officers who were explicitly assigned the function of assessment would be classified as ‘proper officers’ under the Act. Subsequently, the Central Board of Excise and Customs (‘CBEC’) issued Notification No. 44/2011, through which it retrospectively appointed DRI officers as ‘proper officers’. The issuance of the aforementioned notification gave rise to certain constitutional disputes. Resultantly, its validity was challenged before various High Courts, including the Delhi Court, wherein it was adjudicated upon the said matter in Mangali Impex Ltd. v. Union of India[iv], observed that the retrospective appointment of DRI officers as ‘proper officers’ was unconstitutional. On the contrary, the  Bombay High Court, in Sunil Gupta v. Union of India[v] upheld its validity.

Subsequently, in 2021, the Court held that DRI officers could not issue SCNs unless specifically entrusted under s. 6 of the Act, thus compelling the Customs Department (‘Department’) to file a review petition against such order. In the meanwhile, however, the legislature proceeded to retrospectively validate the issuance of the SCNs by the DRI officers by enacting s. 97 of the Finance Act, 2022.

Submissions made by the Department

The Department made the following key submissions:

  • The Department asserted that DRI officers, being part of a ‘class of officers of customs’ under s. 3 of the Act did not require additional entrustment under s. 6 of the Act, as warranted by the Court’s 2021 decision.  The Department contended that ss. 3, 4 and 5 of the Act provided sufficient authority to the  DRI officers to function as proper officers.

  • Further, the Department also submitted that the Notification allowing retrospective appointment of DRI officers as proper officers was valid, and various precedents to support the same were cited. Additionally, the Department also argued that the amendments introduced by the Finance Act, 2022, were merely clarificatory and sought to resolve the ongoing disputes regarding DRI’s powers.

Submissions made by the Respondents

The Respondents made the following submissions:

  • The Respondents contended that retrospective notifications issued by the Department could not have validated the actions that were prima facie illegal when performed, considering that the  DRI officers were not ‘proper officers’ at the time the notices were issued, and thus, their subsequent retrospective designation could not have legitimized the actions undertaken by DRI officers.

  • It was further argued that under s. 2(34) of the Act, the term ‘proper officer’ was specifically assigned for the purpose of conducting an assessment or reassessment. They contended that the entrustment of such powers to DRI officers by way of Notification No. 44/2011 and the Finance Act, 2022, was contrary to the statutory mandate. Additionally, the Respondents further argued that retrospective assignment of powers to DRI officers was in violation of as. 14 and 21 of the Constitution of India (‘Constitution’), as it resulted in arbitrary and excessive executive action.

Held

The Supreme Court, while allowing the review petition, made the following observations:

  • The Court, while acknowledging that the judgment passed in  2021 was made sans considering several crucial notifications and statutory provisions, which was an error. Hence, the filing of the review petition under a. 137 of the Constitution was justified.

  • The Court clarified that s. 28(11), introduced by the Validation Act, 2011, was meant to counteract the limitations imposed by Sayed Ali’s (Supra) judgment and was constitutionally valid.

  • While commenting on s. 97 of the Finance Act, 2022, which retrospectively validated SCNs issued by DRI officers, the Court upheld its validity and observed that the Finance Act amendments were not substantive changes but clarifications issued qua the already existing law.

  • The Supreme Court set aside the decision of the Delhi High Court in Mangali Impex (Supra), while affirming the Bombay High Court’s decision in Sunil Gupta’s case. Resultantly, the Court directed that all pending cases challenging the jurisdiction of DRI officers would now be decided in light of this judgment. Further, the SCNs previously issued by the DRI officers were also deemed valid.

Our Analysis

The Supreme Court’s judgment resolves the longstanding ambiguity regarding the authority of DRI officers under the Customs Act. By revisiting and setting aside its 2021 judgment, and affirming that DRI officers have always been empowered to issue SCNs under s. 28 of the Act, the Court has eliminated uncertainty and settled a wide range of pending litigations.

The ruling underscores the necessity of interpreting statutory provisions contextually and cohesively, rather than in isolation, thereby preserving the functional integrity of revenue enforcement agencies. Additionally, the Court’s upholding of the retrospective validation under s. 97 of the Finance Act, 2022, sets a vital precedent for the legislature’s authority to clarify or rectify judicial misinterpretations through validation laws.

This decision constitutes a significant win for the Department, restoring administrative continuity and providing long-awaited legal certainty in the domain of customs enforcement.




End Notes

[i] 2024 SCC OnLine SC 3188.

[ii] (2011) 3 SCC 537.

[iii] 2011 SCC OnLine SC 361.

[iv] 2016 SCC OnLine Del 2597.

[v] 2014 SCC OnLine Bom 1742.





Authored by Jitin Bharadwaj, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.

Metalegal Advocates is a litigation-based law firm based in New Delhi and Mumbai, providing litigation and advisory services in the fields of economic offences, tax (income-tax, GST, black money, VAT and other taxes), general corporate advisory, FEMA, commercial laws, and other related business and mercantile laws to businesses and individuals in a wide array of industry verticals. 

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