Jurisdiction of DRI Officers: Supreme Court Upholds Section 97 of Finance Act 2022 validating Customs Notices

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Deciphering Legal Judgments: A Comprehensive Analysis of Apex Court's Judgment on Jurisdiction of DRI Officers under Customs Act to issue Show Cause Notices

Reported as:

2024 (11) TMI 391 - Supreme Court (LB)

1. INTRODUCTION

This article analyzes the Supreme Court's judgment reviewing its earlier decision in Canon India Private Limited v. Commissioner of Customs [2021 (3) TMI 384 - SUPREME COURT]. The core legal questions addressed are: (a) whether the defect pointed out in Canon India regarding the jurisdiction of Directorate of Revenue Intelligence (DRI) officers to issue show cause notices u/s 28 of the Customs Act, 1962 is cured; (b) whether the Legislature has the competence to validate such notices through the Finance Act, 2022; and (c) whether such validation is consistent with the rights guaranteed in Part III of the Constitution.

2. ARGUMENTS PRESENTED

The primary contentions of the parties (anonymized) are as follows:

Petitioner's Arguments:

The Finance Act, 2022 cannot overrule the finding of fact in Canon India regarding the actual exercise of jurisdiction by DRI officers.
Section 97 of the Finance Act, 2022, which validates past show cause notices, fails to create a reasonable classification and is manifestly arbitrary and disproportionate, violating Article 14 of the Constitution.
The retrospective application of amended Sections 2, 3, and 5 of the Customs Act, 1962, through Section 97(iii) is unconstitutional as the previous notifications empowering DRI officers do not fulfill the mandate of Section 5(4).

Respondent's Arguments:

The defect pointed out in Canon India is cured by the introduction of Section 110AA of the Customs Act, 1962, which provides for a different mechanism for the exercise of functions u/ss 17 and 28.
The Legislature has the competence to validate the law and remove the defect through the Finance Act, 2022, as held in previous judgments.
The validation is consistent with the rights guaranteed in Part III of the Constitution and is a valid exercise of legislative power.

The legal basis for each position and the evidence relied upon are discussed in detail in the judgment.

3. COURT DISCUSSIONS AND FINDINGS

The Court analyzed each legal issue in depth, treating relevant precedents and evaluating the evidence presented. The key discussions and findings are as follows:

a) Defect in Canon India: The Court found that the defect pointed out in Canon India regarding the jurisdiction of DRI officers is unfounded. Notification No. 44/2011 and the amended Section 17 of the Customs Act, 1962, which were not considered in Canon India, empower DRI officers to issue show cause notices u/s 28.

b) Jurisdiction of DRI Officers: The Court clarified that the functions of assessment/re-assessment u/s 17 and recovery of duty u/s 28 are distinct. Canon India erroneously held that Section 28(4) involves re-assessment, which is not the case after the introduction of self-assessment in Section 17.

c) Validation through Finance Act, 2022: The Court upheld the constitutional validity of Section 97 of the Finance Act, 2022, which validates past show cause notices issued by DRI officers. It found that the validation cures the defect pointed out in Canon India and is a valid exercise of legislative power.

d) Retrospective Application of Amendments: The Court rejected the argument that the retrospective application of amended Sections 2, 3, and 5 of the Customs Act, 1962, through Section 97(iii) is unconstitutional. It held that the retrospective application is not stand-alone but is restricted to achieving the object of validation u/s 97(i).

e) Reasonable Classification and Proportionality: The Court found that Section 97 does not create an unreasonable classification or violate the test of proportionality under Article 14 of the Constitution. The differential mechanism for the exercise of functions u/ss 17 and 28 is not for a different class of assessees but for show cause notices issued during different periods.

4. ANALYSIS AND DECISION

Based on the discussions and findings, the Court arrived at the following conclusions:

a) The review petition seeking review of the decision in Canon India is allowed insofar as the issue of jurisdiction of the proper officer to issue show cause notices u/s 28 is concerned.

b) The officers of the Directorate of Revenue Intelligence, Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence, and other similarly situated officers are proper officers for the purposes of Section 28 and are competent to issue show cause notices thereunder.

c) The decision of the Delhi High Court in Mangali Impex [2016 (5) TMI 225 - DELHI HIGH COURT] is set aside, and the view taken by the Bombay High Court in Sunil Gupta [2014 (12) TMI 151 - BOMBAY HIGH COURT] is upheld.

d) The constitutional validity of Section 97 of the Finance Act, 2022, is upheld.

e) Pending challenges to the maintainability of show cause notices issued by DRI officers and other similarly situated officers on the ground of want of jurisdiction shall be dealt with in accordance with the observations made in the judgment.

5. DOCTRINAL ANALYSIS

The judgment discusses and applies several legal principles and doctrines, including:

Legislative Competence and Validation: The Court reiterated the principles laid down in previous judgments regarding the Legislature's competence to validate a law and remove defects through retrospective legislation. It emphasized that the validity of a validating law depends on whether the Legislature possesses the competence over the subject matter and whether it removes the defect pointed out by the courts.

Purposive Interpretation: The Court relied on the principle of purposive interpretation to construe Section 97 of the Finance Act, 2022, and the retrospective application of amended provisions of the Customs Act, 1962. It held that a narrow interpretation that fails to achieve the manifest purpose of the legislation should be avoided.

Judicial Deference in Economic Policies: The Court acknowledged that matters of economic policy are best left to the wisdom of the Legislature, and courts should not interfere unless the view reflected in the legislation is not possible to be taken at all.

Reasonable Classification and Proportionality: The Court applied the tests of reasonable classification and proportionality under Article 14 of the Constitution to assess the validity of Section 97 of the Finance Act, 2022.

The judgment clarifies the scope and application of the Customs Act, 1962, and the jurisdiction of various officers in the Customs department. It also reinforces the principles governing the Legislature's power to validate laws and the judicial approach to economic policies and retrospective legislation.

Full Text:

2024 (11) TMI 391 - Supreme Court (LB)