SC validates issuance of SCN by DRI as a Proper Officer by favorably disposing review petition filed by the department

This Tax Alert summarizes a recent Supreme Court (SC) ruling [1] disposing the review petition filed by the Customs department on the issue whether Directorate of Revenue Intelligence (DRI) is the proper officer to exercise the power under section 28(4) of the Customs Act, 1962.

Earlier, the apex court dealt with the issue of validity of the proceedings initiated by the Additional Director General (ADG), DRI for recovery of duty under Section 28(4) of the Customs Act, 1962, and held that ADG, DRI is not “the proper officer” to exercise the power under the said section[2] . Subsequently, a review petition was filed by Department against the impugned order.

The key observations of the SC are: 

• The impugned decision was based on the Apex Court ruling in case of Sayed Ali [3] .  SC in Sayed Ali (supra) held that for the "proper officer" to exercise the functions under Section 28, such officer must necessarily possess assessment power under Section 17.  
• Section 17 was however, subsequently amended w.e.f. 8 April 2011 and the impugned order did not consider the said amendment.  Further, perusal of sections 17 and 28 indicate that there is no mandatory condition linking the two provisions and hence the interpretation in Sayed Ali is erroneous.
• DRI officers were notified [4] by Central Government as “proper officer” for the purposes of Sections 17 and 28.  
• Enactment of Section 28(11) is constitutionally valid and decision of Mangali Impex [5] is set aside. Further, retrospective amendments made through Section 97 of the Finance Act 2022, validating the actions of DRI officer, are valid.
  
  Accordingly, SC allowed the review petition filed by Revenue and restored all the show cause notices issued by DRI.

Comments:

• By overruling its 2021 judgement in a review plea by the Custom department, Supreme Court seems to have finally settled the long-drawn litigation on the status of the officers of DRI, Commissionerate of Customs (Preventive), DGCEI, and Central Excise Commissionerate, as proper officer and its authority to issue SCNs for demanding the duty. 
• The ruling is likely to adversely impact all importers where notices had been issued and proceedings initiated by DRI for recovery of customs duty. Such litigations would have to be pursued on merits and limitation. 
• The judgment also delineates the steps for verifying the validity of retrospective statutory amendments to address legislative errors. 
• Recently, Jharkhand High Court in the case of Aka Logistics Pvt. Ltd. [2024 (10) TMI 314 dated 3 October 2024] held Additional Director General (ADG) is a proper officer under Goods and Services Tax legislation.

[1] TS-515-SC-2024-CUST 
[2] TS-75-SC-2021-CUST. Refer our tax alert dated 15 March 2021
[3]  (2011) SCC 537
[4] Notification No. 44/2011–Cus–N.T. dated 6 July 2011
[5] (2016) SCC Online Del 2597