The Punjab and Haryana High Court has quashed an entire customs adjudication proceeding after holding that the Joint Director of the Directorate of Revenue Intelligence (DRI) who issued the show cause notice was not the “proper officer” authorised under the Customs Act, 1962 to initiate the proceedings.
The Bench of Justice Ajay Tiwari and Justice Vikas Bahl relied substantially on the Supreme Court’s landmark ruling in M/s Canon India Pvt. Ltd. v. Commissioner of Customs to hold that proceedings initiated by an incompetent authority cannot be sustained.
The central issue before the High Court was not the merits of the underlying customs demand but whether the Joint Director, DRI had the statutory jurisdiction to issue the show cause notice in the first place.
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The petitioner had specifically contended that Rule 16 of the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995 contemplated recovery of erroneously or excessively paid drawback only upon a demand made by the “proper officer” of Customs.
The petitioner’s case was that the Joint Director, DRI was not shown to have been assigned the requisite statutory functions and, therefore, lacked authority to initiate recovery proceedings.
The petition also relied on Section 2(34) of the Customs Act, which defines a “proper officer” as an officer of Customs who has been assigned the relevant functions by the Board or the Commissioner of Customs. The petitioner argued that there was no valid notification specifically entrusting the Joint Director, DRI with the relevant functions.
The proceedings had earlier been adjourned sine die because the question of law concerning the powers of DRI officers was pending consideration before the Supreme Court. The petitioner subsequently sought disposal of the writ petition in light of the Supreme Court’s judgment dated March 9, 2021 in M/s Canon India Pvt. Ltd. v. Commissioner of Customs.
In Canon India, the Supreme Court examined whether the DRI had authority under Section 28(4) of the Customs Act to issue show cause notices for recovery of customs duty allegedly not levied, short-levied or erroneously refunded.
The Supreme Court emphasised the statutory expression “the proper officer”, holding that Parliament had deliberately used the definite article rather than the expression “any proper officer”. According to the ruling, the power to reopen an assessment and recover duty had to be exercised by the officer who had originally undertaken the assessment, or by a successor or another officer who had been properly assigned the relevant assessment functions.
The Supreme Court further held that reassessment and recovery could not simply be undertaken by an officer from another department merely because that officer held an equivalent rank. Such an interpretation, the Supreme Court observed, would lead to an impermissible and unstructured exercise of statutory powers.
A significant aspect of the Supreme Court ruling, reproduced in the High Court judgment, concerned the distinction between holding an office and being specifically entrusted with a statutory function.
The Supreme Court noted that an Additional Director General of DRI could be treated as a Customs officer only if he had been appointed as such under the Customs Act and had also been entrusted with the relevant functions under the statutory scheme. It examined the notifications relied upon by the Revenue and found that the purported entrustment of functions under Section 28 could not be sustained merely on the basis of Section 2(34), which is essentially a definition provision.
The Supreme Court specifically examined Notification No. 40/2012-Customs (N.T.) dated May 2, 2012. The notification assigned various functions under the Customs Act to specified categories of officers. The judgment recorded that Section 28 functions had been assigned to Deputy Commissioners or Assistant Commissioners of Customs and Central Excise.
The Supreme Court subsequently observed that Section 6 of the Customs Act was the provision empowering the Central Government to entrust functions of Customs officers to officers of other Central or State Government departments or local authorities. It concluded that if DRI officers were intended to exercise functions of Customs officers, the requisite entrustment had to be made in accordance with the statutory mechanism.
The High Court noted that the Supreme Court’s earlier decision in Commissioner of Customs v. Sayed Ali had already laid down the importance of specific assignment of functions in determining who qualifies as the “proper officer”.
Under that principle, merely being an officer of Customs was insufficient. The officer had to be specifically assigned the relevant statutory functions by the competent authority. The Supreme Court had held that only a Customs officer assigned the specific functions of assessment and reassessment in the relevant jurisdiction could issue a notice under Section 28.
The High Court therefore found that the legal position concerning the authority of DRI officers to initiate such proceedings had already been settled by the Supreme Court.
The Punjab and Haryana High Court also considered the legal consequence of a show cause notice being issued by an authority lacking jurisdiction.
The Court noted that the Supreme Court in Canon India had held proceedings initiated by the Additional Director General of DRI through show cause notices to be without authority of law, with the consequential demands liable to be set aside.
The High Court also referred to a July 14, 2021 judgment of the Karnataka High Court in Shri Mohan C. Suvarna v. Principal Commissioner of Customs. In that case, the Karnataka High Court had applied Canon India and set aside an order-in-original because the proceedings had commenced with a show cause notice issued by an Additional Director General of DRI who was not the “proper officer”.
The Karnataka High Court had specifically held that an order passed as the culmination of proceedings initiated through an invalid show cause notice could not survive. At the same time, it had left it open to the authorities to initiate fresh proceedings in accordance with law.
Against this legal background, the Punjab and Haryana High Court concluded that the challenge to the jurisdiction of the Joint Director, DRI was squarely covered by the Supreme Court’s decision.
The Bench observed that the judgments of the Supreme Court and other High Courts clearly established that the Joint Director, DRI was not “the proper officer” competent to issue the show cause notice in the circumstances of the case. Consequently, the proceedings initiated through that notice stood vitiated.
The Court accordingly allowed the writ petition and set aside the entire proceedings beginning with the show cause notice dated November 29, 2012 and culminating in the order dated May 15, 2015.
The High Court did not grant unconditional immunity from future action. Since the petition had been decided on the specific jurisdictional issue concerning the authority of the officer who issued the show cause notice, the Court granted the authorities liberty to initiate fresh proceedings in accordance with law.
The Court clarified that if fresh proceedings were initiated, the petitioner would remain entitled to raise all available pleas, including the grounds that had been raised in the original writ petition.
This aspect is significant because the judgment turns on the validity of the initiation of proceedings, rather than a final adjudication of whether any underlying customs liability or drawback recovery was otherwise legally sustainable.
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