2025 (5) TMI 1467 - HC - Customs

Jurisdiction DRI officers - proper officers or not - Validity of Show cause notices issued by DRI officers - Impact of the Supreme Court s subsequent ruling in the Review Petition (Canon-II) - HELD THAT - As of today the decision in the Review Petition titled Commissioner of Customs v. M/s Canon India Private Limited ( Canon-II ) 2022 (2) TMI 1480 - SC ORDER has now been rendered by the Supreme Court wherein the Supreme Court has categorically held that DRI Officers would be proper officers for the purposes of the Customs Act 1962. Thus the matter would have to be relegated to CESTAT for re-adjudication on merits. Therefore Customs Appeal Nos. 50948/2020 and 50949/2020 and 51136/2020 are restored to their original positions before CESTAT. Parties to appear before the CESTAT on 16th July 2025. The appeals are allowed in the above terms. The appeals are disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(a) Whether officers of the Directorate of Revenue Intelligence (DRI) qualify as "proper officers" under Section 28 of the Customs Act, 1962 for issuing show cause notices initiating adjudication proceedings;

(b) The effect of the Supreme Court's decision in Canon India Pvt. Ltd. v. Commissioner of Customs (Canon-I) on the jurisdiction of DRI officers and the consequent validity of proceedings initiated by them;

(c) The impact of the pending review petition against Canon-I on the adjudication of appeals before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT); and

(d) The consequences of the subsequent Supreme Court ruling in the review petition (Canon-II) affirming that DRI officers are proper officers under Section 28, and the procedural directions flowing therefrom for pending and disposed cases challenging jurisdiction on this ground.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) - Whether DRI officers are proper officers under Section 28 of the Customs Act, 1962

Relevant legal framework and precedents: Section 28 of the Customs Act empowers a "proper officer" to issue show cause notices for confiscation and penalty proceedings. The question of whether DRI officers fall within the definition of "proper officers" was contentious. The Supreme Court's decision in Canon-I held that DRI officers were not proper officers under the Act, rendering proceedings initiated by them invalid. This ruling was followed by the CESTAT in the impugned orders, leading to dismissal of departmental appeals and allowance of assessee appeals on jurisdictional grounds.

Court's interpretation and reasoning: The High Court noted that the impugned orders were rendered in strict adherence to the Canon-I ruling, which had categorically held that show cause notices issued by DRI officers were without jurisdiction. The CESTAT had declined to defer hearing despite the pending review petition against Canon-I, relying on a Karnataka High Court decision that rejected adjournment on similar grounds.

Key evidence and findings: The impugned orders explicitly stated that the show cause notice issued by the Principal Additional Director General, DRI was without jurisdiction, and all proceedings based on it were null and void. The Department's request for adjournment pending the review petition was denied, and the appeals were decided on the jurisdictional issue alone without delving into merits.

Application of law to facts: The High Court upheld the CESTAT's approach in the impugned orders, which strictly followed Canon-I, leading to dismissal of departmental appeals and allowance of the assessees' appeals on the ground that DRI officers lacked jurisdiction to issue show cause notices under Section 28.

Treatment of competing arguments: The Department argued for deferral of the appeals pending the review petition, asserting that the jurisdictional question was sub judice before the Supreme Court. This was rejected based on precedent from the Karnataka High Court and the CESTAT's view that the matter could be decided in the meantime.

Conclusions: At the time of the impugned orders, the legal position as per Canon-I was that DRI officers were not proper officers, and therefore, the proceedings initiated by them were invalid. The appeals were decided accordingly.

Issue (b) - Impact of the Supreme Court's subsequent ruling in the Review Petition (Canon-II)

Relevant legal framework and precedents: The review petition against Canon-I was decided by the Supreme Court in Canon-II, which overruled the earlier position and held that DRI officers are indeed proper officers under Section 28 of the Customs Act. The Court elaborated detailed procedural directions for dealing with pending and disposed cases involving challenges to jurisdiction on this ground.

Court's interpretation and reasoning: The Supreme Court in Canon-II clarified that officers of the Directorate of Revenue Intelligence and other similar agencies are competent to issue show cause notices under Section 28. The Court recognized the need for uniformity and finality in adjudications and provided a comprehensive roadmap for restoration and re-adjudication of cases where jurisdiction was challenged based on the earlier ruling.

Key evidence and findings: The judgment in Canon-II explicitly states: "Subject to the observations made in this judgment, the officers of Directorate of Revenue Intelligence... are proper officers for the purposes of Section 28 and are competent to issue show cause notice thereunder." The Court further provided detailed instructions for disposal of writ petitions, appeals, and proceedings before High Courts and CESTAT, emphasizing restoration of show cause notices for adjudication on merits.

Application of law to facts: Given the Supreme Court's authoritative ruling in Canon-II, the High Court held that the impugned orders based on Canon-I were no longer sustainable. The matter was required to be restored to the CESTAT for fresh adjudication on merits, considering the correct legal position that DRI officers have jurisdiction.

Treatment of competing arguments: The Department's argument for deferral pending the review petition was vindicated by the subsequent Supreme Court decision. The assessees' reliance on the earlier judgment was superseded by the new ruling, necessitating re-opening of the adjudication process.

Conclusions: The High Court restored the appeals to their original position before the CESTAT and directed that they be heard on merits in light of the Supreme Court's ruling in Canon-II.

Issue (c) - Procedural consequences of the Supreme Court's directions in Canon-II

Relevant legal framework and precedents: The Supreme Court in Canon-II issued detailed procedural directions for handling cases where jurisdictional challenges to show cause notices issued by DRI officers were pending or disposed of. These include disposal of writ petitions, restoration of notices, granting time to file appeals before CESTAT, and disposal of appeals in accordance with the new ruling.

Court's interpretation and reasoning: The High Court applied these directions to the present appeals, recognizing that the impugned orders had prematurely decided jurisdiction without the benefit of the review petition ruling. The Court emphasized that the appeals must be re-adjudicated on merits after restoring the proper jurisdictional status of DRI officers.

Key evidence and findings: The Supreme Court's directions in Canon-II provide a comprehensive framework to ensure that cases are not prejudiced by the earlier erroneous ruling and that all parties have an opportunity to have their disputes adjudicated on substantive grounds.

Application of law to facts: The High Court's order to restore the appeals to CESTAT and proceed on merits aligns with the Supreme Court's procedural roadmap, ensuring consistency and fairness in adjudication.

Treatment of competing arguments: The Court balanced the Department's interest in upholding jurisdiction with the assessees' right to a fair hearing, directing re-adjudication rather than outright dismissal or allowance based solely on jurisdiction.

Conclusions: The appeals were restored and remanded for fresh adjudication in accordance with Canon-II's procedural directions.

3. SIGNIFICANT HOLDINGS

"Subject to the observations made in this judgment, the officers of Directorate of Revenue Intelligence, Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence and Commissionerates of Central Excise and other similarly situated officers are proper officers for the purposes of Section 28 and are competent to issue show cause notice thereunder."

This core principle established by the Supreme Court in Canon-II decisively resolved the jurisdictional controversy, overruling the earlier Canon-I decision.

The Court held that all pending appeals and writ petitions challenging the jurisdiction of DRI officers to issue show cause notices must be disposed of in accordance with the new ruling, with restoration of notices and allowance of appropriate appeals before CESTAT within prescribed time frames.

The High Court, applying this principle, restored the appeals to CESTAT for re-adjudication on merits, thereby setting aside the impugned orders which had relied on the now-overruled Canon-I.

The final determination is that DRI officers are proper officers under Section 28 of the Customs Act, 1962, and show cause notices issued by them are maintainable. Consequently, adjudication proceedings initiated by DRI officers cannot be invalidated on jurisdictional grounds alone.