2025 (5) TMI 1630 - HC - Customs

Maintainability of Show cause notices - Proper Officers under the Customs Act 1962 for the purpose of issuing show cause notices under Section 28 of the Act - Duty Free Import Authorization under the Foreign Trade Policy - HELD THAT - Upon perusal of the records the Court is of the opinion that the Petitioner has not been heard on merits by CESTAT either while passing the order dated 9th January 2020 or on 22nd April 2022. This matter relates to Duty Free Import Authorization under the Foreign Trade Policy. Thus the Court is inclined to relegate the matter in order to provide the Appellant an opportunity to present its case before CESTAT on merits. Accordingly the appeal is allowed. The Customs Appeal No. 53658/2018 is restored to its original position. The appeal is disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

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

(b) The maintainability of show cause notices issued by DRI officers and the consequent jurisdictional challenges raised against such notices;

(c) Whether the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) was justified in upholding penalties under Section 114A of the Customs Act and customs duties, particularly when the appellant claimed to be a bona fide transferee of Duty Free Import Authorization (DFIA) licences;

(d) Whether the appellant was afforded an opportunity to be heard on merits by the CESTAT, especially concerning appeals related to DFIA licenses;

(e) The correctness of the dismissal of the rectification application filed by the appellant seeking correction of the final order on the ground that certain appeals, including the appellant's, were not heard.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Jurisdiction of DRI Officers as 'Proper Officers' under the Customs Act, 1962

The relevant legal framework revolves around Section 28 of the Customs Act, 1962, which empowers 'proper officers' to issue show cause notices. The controversy centered on whether officers of the Directorate of Revenue Intelligence (DRI) constitute 'proper officers' competent to issue such notices.

The Supreme Court's recent authoritative pronouncement in the review petition titled Commissioner of Customs v. M/s Canon India Private Limited (Canon-II) clarified this issue conclusively. The Court held that officers of the DRI, Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence, and similar officers are indeed 'proper officers' for the purposes of Section 28 and are competent to issue show cause notices.

The Supreme Court further laid down a detailed procedural roadmap for adjudicating pending challenges to the maintainability of such notices on jurisdictional grounds. This included directions for High Courts and the Customs Excise and Service Tax Appellate Tribunal (CESTAT) to restore and adjudicate show cause notices issued by such officers, and to grant appropriate time for appeals where necessary.

The Court's interpretation emphasized that jurisdictional objections premised on the identity of the issuing officer as not being a 'proper officer' are no longer sustainable, and all such pending litigation must be resolved in accordance with the Supreme Court's ruling.

This authoritative clarification settled the jurisdictional issue, thereby allowing the adjudication of substantive disputes on merits.

Issue (c): Justification of Penalty under Section 114A and Customs Duties in Context of DFIA Licences

The appellant challenged the imposition of penalty under Section 114A of the Customs Act and the levy of customs duties, asserting bona fide transferee status of the DFIA licences. The question framed by the predecessor bench was whether CESTAT was justified in upholding these penalties and duties.

Section 114A relates to penalties for mis-declaration or suppression of facts in customs matters. The appellant's claim of bona fide transferee status implied that the penalties and duties imposed should not have been sustained if the appellant acted in good faith and complied with the Foreign Trade Policy governing DFIA licences.

The Court noted that the merits of this issue had not been adjudicated by the CESTAT because the appellant was not heard properly on these grounds. The absence of a reasoned order considering the appellant's submissions on bona fide transferee status and the applicability of penalties was a significant procedural lapse.

Therefore, the Court refrained from expressing a conclusive view on the merits of penalty imposition or customs duties, instead emphasizing the necessity for a full opportunity to be heard before CESTAT.

Issue (d) and (e): Opportunity to be Heard and Rectification of Final Order

The appellant contended that out of 30 appeals heard by CESTAT, only 24 were properly adjudicated, and the remaining 6, including the appellant's, were not duly heard. The appellant filed a rectification application to correct this alleged omission.

CESTAT dismissed the rectification application, holding that all 30 appeals, including those related to DFIA licences, were heard and disposed of on merits. The only mistake identified was an omission in the chart listing the appeals, which was rectified by adding the missing details.

Upon review of the record, the Court found that the appellant was not heard on merits either in the original order or in the rectification order. This finding was based on the absence of any indication that the appellant's submissions were considered substantively.

The Court distinguished between the procedural correctness of the chart and the substantive hearing of the appellant's case. While the chart omission was a clerical error, the failure to hear the appellant on merits was a substantial procedural deficiency.

The Court, therefore, concluded that the appellant's right to a fair hearing was violated and that the matter deserved to be remanded for fresh adjudication on merits.

Application of Law to Facts and Treatment of Competing Arguments

The Court applied the Supreme Court's authoritative ruling on jurisdiction to reject the appellant's challenge on the ground of improper issuance of show cause notices. This resolved the jurisdictional dispute in favor of the revenue authorities.

Regarding the substantive penalty and duty issues, the Court acknowledged the appellant's claim of bona fide transferee status and the need for a reasoned adjudication on merits, which had not occurred. The Court's approach balanced the enforcement of customs laws with the protection of procedural fairness.

The competing argument by the department that all appeals were heard was rejected based on the Court's independent review of the record, emphasizing the necessity of an actual hearing rather than mere disposal.

3. SIGNIFICANT HOLDINGS

The Court's reasoning and rulings include the following crucial legal principles and determinations:

"The Supreme Court, vide the said judgment, has categorically held that DRI Officers would be 'proper officers' for the purposes of the Customs Act, 1962."

"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."

"The Court is of the opinion that the Petitioner has not been heard on merits by CESTAT either while passing the order dated 9th January, 2020 or on 22nd April, 2022."

"Considering these circumstances, the Court is inclined to relegate the matter in order to provide the Appellant an opportunity to present its case before CESTAT on merits."

Final determinations:

(i) The jurisdictional issue regarding the competence of DRI officers to issue show cause notices under Section 28 of the Customs Act is conclusively settled in favor of the revenue authorities, as per the Supreme Court's ruling.

(ii) The appellant's challenge to penalties and customs duties under Section 114A, particularly in the context of bona fide transferee status of DFIA licences, requires adjudication on merits, which was not done.

(iii) The appellant was not afforded a fair hearing on merits by CESTAT, and the rectification application was incorrectly dismissed on the ground that all appeals were heard.

(iv) The matter is restored to its original position before CESTAT, which is directed to hear the appellant afresh and pass a reasoned order on merits.