CESTAT: DRI Officials, no power, if no CG Notification

CESTAT: DRI Officials, no power, if no CG Notification

P. K. Choudhary (Judicial Member) and P. V. Subba Rao (Technical Member) of the Kolkata Bench of the Customs, Excise & Service Tax Appellate Tribunal have ruled that a show cause notice under the Customs Act, 1962 can only be issued by the officer who performed the assessment.

Three different ports in India handled imports of goods for the Assessee, which were appraised and cleared for consumption on the home front. A search and investigation were then conducted by the Directorate of Revenue Intelligence (DRI) based on some information, leading to the conclusion that the Assessee had undervalued his goods, resulting in a short levied duty. A report issued by the DRI proposed to recover differential duty, interest, penalties and confiscation of impugned goods from the Assessee under Section 28 of the Customs Act, 1962. A penalty of an equal amount was imposed under the Act by the Commissioner of Customs for the differential duty sought. After receiving notice of the impugned order, the Assessee appealed to the Tribunal.

Due to the lack of jurisdiction on the part of the DRI in issuing the show cause notice required by section 28, counsel for the assessee contends that the impugned order should be set aside. Based on the Supreme Court's judgment in Canon India versus Commissioner of Customs in 2021, the Assessee submitted that DRI officers are not in a position of authority under Section 28 and that the said judgment has been upheld by various High Courts and benches of the Customs Excise and Service Tax Appellate Tribunal (CE & STAT) who have rejected the show cause notices issued by the DRI under Section 28.

It was stated that under Section 28(11), any person appointed as an officer of the Customs under Section 4(1) prior to 6th July 2011 was a proper officer both for purposes of assessments under Section 17 and for issuing demands under Section 28. It also asserted that Section 28(11) of the Constitution had not been considered by the Supreme Court in Canon India. According to the Department, since the DRI officers were appointed as Customs officers in 2002 by a Notification, the department submitted that the show cause notice issued by them was valid under Section 4(1).

As provided in Section 28(1), the proper officer may require an assessee to show cause why the figure specified in the notice should not be paid when duty is not levied or paid or short-levied or paid. By section 28(11) of the Customs Act, anyone appointed as a Customs officer under section 4(1) of the Act before 6th July, 2011 shall be deemed to possess the power of assessment under section 17, thus making them the proper officers for the purpose of this section.

In spite of the validity of section 28(11) of the Act, the tribunal found that DRIs and customs officers are treated uniquely and separately under the Customs Act. A DRI officer is not an officer of Customs according to Section 3 and they are appointed via notification under Section 4. According to the Tribunal, DRI officers were treated separately and distinctly from Customs officers pursuant to the Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985 and the Right to Information Act, 2005.

Appointing any other officers, including the DRI, under the Customs Act is only possible under Section 6 of the Customs Act, according to the Supreme Court in Canon India. Furthermore, a show cause notice under Section 28 may only be issued by 'the proper officer' that is, by the officer who first conducted the assessment. It stands to reason, therefore, that the tribunal treated DRI officers as separate from Customs officers just as the legislature did under Customs Act, NDPS Act and RTI Act.

The Tribunal noted a proposal to amend the Customs Act, 1962, retrospectively, in the Finance Bill, 2022. Due to the substitution of section 3, DRI officers would be on the same level as Customs officers under the Customs Act and their various actions, like searches and seizures would not be nullified because they are not entrusted with those functions by the government under section 6. Although the Tribunal found that Section 28 was not intended to be amended, it held that a show-cause notice under Section 28 can only be issued by the 'proper officer', i.e., the person who conducted the assessment in the first place, even after the Bill becomes an Act.

In this case, the Tribunal held that, in spite of the provisions of section 28(11) of the DRI Act, the show cause notice issued under Section 28 lacks authority, because the DRI never assessed the Bills of Entry in the first place.

"Accordingly, by virtue of section 28(11), even if there is more than one proper officer, the demand may only be made by the 'proper officer,' that is, the officer who originally assessed the Bills of Entry or his successor in office, not by anyone else. "In this case, as the Bills of Entry were not assessed by DRI officers, DRI's SCN was void, even if it were to consider 28(11). Therefore, section 28(11) does not permit Revenue to proceed with its case."

A decision of the Tribunal overturned the DRI's show-cause notice, leading to the impugned order and setting aside the Assessee's appeal.