VALIDITY OF RULING OF AUTHORITY FOR ADVANCE RULING PENDING INVESTIGATION BY ‘DRI’

[Mr. M. GOVINDARAJAN]

Advance Ruling under Customs Act

Chapter VB of the Customs Act, 1962 (‘Act’ for short) provides for obtaining the advance ruling under the Act from the Authority for Advance Ruling.   The question on which the advance ruling is sought shall be in respect of-

•  classification of goods under the Customs Tariff Act, 1975;
• applicability of a notification issued under sub-section (1) of section 25, having a bearing on the rate of duty;
• the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act;
• applicability of notifications issued in respect of tax or duties under this Act or the Customs Tariff Act, 1975 or any tax or duty chargeable under any other law for the time being in force in the same manner as duty of customs leviable under this Act or the Customs Tariff Act;
• determination of origin of the goods in terms of the rules notified under the Customs Tariff Act, 1975  and matters relating thereto.
• any other matter as the Central Government may, by notification, specify.

An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and in such manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.  The Authority for Advance Ruling, after examination of the application, may either admit the application or reject the application. 

Rejection of application

The Authority for Advance Ruling shall not allow the application where the question raised in the application is –

• already pending in the applicant's case before any officer of customs, the Appellate Tribunal or any Court;
• the same as in a matter already decided by the Appellate Tribunal or any Court.

Before rejecting the application the applicant shall be given a reasonable opportunity of being heard.

Pending before Customs Authorities

If any investigation is pending before the Customs Authorities the application is liable to be rejected.  The term ‘pending’ has been interpreted in the following two case laws and the requirements to be considered for treating the case pending before the Customs Authorities.  

IN RE : H.Q. LAMPS MANUFACTURING CO. PVT. LTD. - 2023 (2) TMI 618 - CUSTOMS AUTHORITY FOR ADVANCE RULINGS, NEW DELHI the Authority for Advance Ruling  has opined that an application may be considered "pending" before any officer only if it is pending before an officer informal manner before an officer who is competent to answer the said question in terms of specific powers vested with the officer under the Customs Act, An illustrative list of such situations would include cases wherein a Show Cause Notice has been issued; bill of entry has been provisionally assessed under section 18 of the Customs Act, 1962; the matter is pending before the Special Valuation Branch of the Customs Commissionerate for the purpose of valuation of the goods in question; or the proper officer has held the pre-notice consultation with the applicant in terms of the proviso of sub-section (a) of Section 28(1) of the Customs Act. 1962. Therefore. In cases such as the extant case, wherein an officer of customs is engaged in an investigation that may result in formulation of a question that would be posed before another competent officer would not qualify as ‘pending before an officer.’

In DIRECTORATE OF REVENUE INTELLIGENCE (HQRS.) VERSUS M/S. SPRAYTEC INDIA LTD. - 2023 (1) TMI 751 - DELHI HIGH COURT, the respondent company is an importer  of actuator and aerosol valves.  The respondent classified the above said goods under the Customs Tariff Head – 84278990.  In the opinion of Director of Revenue Intelligence (DRI for short) the said goods are covered under the head 9616 which are subject to higher rate of duty than the head classified by the respondent. 

The DRI searched the office premises of the respondent 15.01.2019.  The DRI issued various summons to the respondent between the periods January 2019 to June 2019.  The respondent had imported certain goods against a Bill of Entry dated 14.01.2019.  The said consignment was released.  Therefore the respondent filed a writ petition before the High Court.  During the hearing the Revenue assured that the Bill of Entry would be assessed and a provisional order would be issued.  Therefore the High Court disposed the petition by directing the Revenue to assess and to issue provisional order with two weeks from the date of receipt of the order of High Court.   The Revenue passed the final assessment order on 08.02.2019 holding that the relevant goods fell under the Head – 84278990.

The respondent filed an application before the Authority for Advance Ruling, Customs, seeking a ruling on the classification of the said goods.  After the Authority for Advance Ruling for Customs was constituted the said application was transferred to the present Authority for Advance Ruling.  The Revenue contested the said application on the ground that the respondent suppressed the fact of investigation pending before DRI before the Authority for Advance Ruling. 

The Authority for Advance Ruling observed that the respondent clearly indicated that the ruling was required for the goods covered under the two Bills of Entry dated 14.01.2019 at ICD, Garhi-Harsaru  and the same were detained by the Customs Authority at the instance of DRI Headquarters.  The said goods were released with the demand of any bond.  The goods were cleared under the Tariff Head 84278990.  Therefore the Authority rejected the contentions of the DRI that the material fact of investigation is pending against the respondent as incorrect.  The Department further accepted before the Authority that no show cause notice was issued to the respondent in this regard.

Therefore, the question before the Authority for Advance Ruling narrowed down to whether the brief declaration regarding the investigation by DRI, New Delhi by the applicant  and subsequent non-elaboration thereof tantamount to fraud or misrepresentation of facts by the respondent company.   The Authority for Advance Ruling gave its ruling on 05.10.2021.

The DRI later on issued summons on 02.03.2022 and 09.03.2022 after a  lapse of more than 2 years.  The respondent challenged the said action of DRI before the High Court which was pending.  In the meanwhile the consignments imported by the respondents were also withheld by the Customs Authorities.  The respondent also filed a writ petition before the High Court in this matter which was also pending.

The DRI made representations before the Authority for Advance Ruling contending that the ruling has been obtained by the respondent by means of fraud and suppressing the relevant materials.  The respondent suppressed the fact that investigation was undergoing in the respondent case.  If the same was disclosed the Authority for Advance Ruling itself would reject the application.  Therefore the DRI contended that the ruling given by the Authority for Advance Ruling was void ab initio under Section 28K(l) of the Customs Act.   The Authority for Advance Ruling rejected the representations of the DRI.

Being aggrieved against the order of the Authority for Advance Ruling DRI filed appeal before High Court in the present case.  The appellant contended the following before the High Court-

• The Authority for Advance Ruling has given the impugned ruling on the premise that the goods imported under two Bills of Entry with ICD Garhi Harasu had been detained by the Customs Authorities at the instance of DRI.
• The Customs Authorities detained the said goods and DRI has not passed any order in this regard.
• Even if it is accepted that the goods have been detained at the instance of DRI it clearly indicates that an investigation has been initiated by DRI.
• Since DRI has not issued any show cause notice, it cannot be stated that the question of classification of goods was pending before any officers of the Customs, appellate tribunal or any court.

The High Court observed that even if it was disclosed that there was an out-going investigation by DRI, the same would not be relevant to the outcome of the proceedings.  No show cause notice has been given to the respondent.  Therefore it would be erroneous to hold that the question of classification was pending before any Custom officer, Appellate Tribunal or any Court.   In order  for a question to be considered as pending before any officer of customs, it would be necessary for the question to be raised in any notice enabling the assessee to respond to the said issue.  Merely because an officer of customs contemplates that a question may arise, does not mean that the question is pending consideration. For a question to be stated to be pending, the concerned officer must formally set forth the same for the assessee to contest the same.  Any preliminary exercise done by an officer of customs, to consider whether any question for consideration arises, would not preclude the CAAR from giving its advance ruling on that question. The possibility that a question would arise for consideration of a customs officer, appellate tribunal or court, is not a ground contemplated under Clause (a) of the proviso to Section 28-I(2) of the Customs Act. Clearly, a distinction must be made between that question pending consideration and a possibility of a question arising consideration.

The High Court further observed that the Authority for Advance Ruling examined the aforesaid fact in detail.   The High Court found no infirmity with the impugned order rejecting the representations made by DRI.  The High Court dismissed the appeal.