Ashok Dhingra & Sonia Gupta1
Rule of law is foundation of any civil society and survival and growth of society is dependent upon how strong its foundation is. Legislature frames laws which are implemented by bureaucracy, interpreted and protected by judiciary, which are the pillars of any democratic and rule-based society. If legislature frames laws which are beyond the mandate of the Constitution or autocratic, the judiciary steps in being protectors of the Constitution and rights of citizens. Hence, a fine balance is always needed between all the pillars of democracy – legislature, bureaucracy and judiciary – of which Indian democracy is a shining example.
Some of the key elements of any legislation are – date of coming into force, applicability, subject matter of legislation, compliance and consequences of non-compliance, enforcement, designated enforcers, adjudication and appellate remedies, etc. Thus, each legislation has to be complete code in itself and provide for every and any eventuality and ensure rule of law.
Designated enforcers or authorised officers or proper officers or specified offers, by whatever name called in any legislation, are designated authorities for enforcement of each legislation. Powers and areas of operations of designated enforcers are invariably specified in the legislation to ensure proper and rule-based enforcement to avoid abuse of law and anarchy. In legal term this is called jurisdiction, which goes to core of any matter. Any action taken or notice issued or order passed without jurisdiction, is non-est in law and void ab initio.
Before going into details of legal issues involved, let us understand with the help of an example. A magistrate grants bail to an accused being tried before magistrate of another Court; Commissioner of Customs Mumbai, issues or decides a show cause answerable to the Commissioner of Customs Delhi; Commissioner of Income Tax Chennai passes an assessment order against a person who is being assessed by his counterpart in Chandigarh; so on so forth. Such actions, if permitted under law or allowed to take place, will lead to anarchy, are without jurisdiction and not permitted under any legislation.
Hence, enforcement of any law within specified jurisdiction has great significance to the rule of law. Additionally, Doctrine of Comity of jurisdiction also requires that for proper administration of justice there should no overlapping of exercise of powers and functions.
In taxation laws – be it now Customs or Goods and Services Tax or Income Tax and earlier Central Excise, Service Tax and VAT – issue of jurisdiction is of greater importance and goes to root of the matter. Under taxation laws, various level of officers are notified as authorities and proper officers for specific provisions of governing legislation and entrusted with specific function of assessment or reassessment, issue of demand notice for recovery of taxes short paid, adjudication, appellate authorities, audit, etc. Accordingly, in taxation laws, ‘the Proper Officers' are notified for the purpose of each function.
Let us examine issue under the Customs Act, 1962 (Customs Act) to have focussed discussions.
Under Section 2(34) of the Customs Act, the term ‘Proper Officer' is defined as ‘proper officer, in relation to any functions to be performed under this Act, means the officer of customs who is assigned those functions by the Board or the Principal Commissioner of Customs or Commissioner of Customs.' Further, Section 3 and Section 5 of the Customs Act, provide for classes of officers of customs and powers of officers of customs, respectively. Section 4 of the Customs Act empowers the CBIC2 to appoint officers of customs, which power has been exercised by the CBIC from time to time.
Inspite of intent of legislature clearly manifested by words ‘the Proper Officer' used in different provisions of the Customs Act, still the issue has been burning for decades. Either by administrative instructions or over enthusiasm of field formations, tax departments have been fighting and losing cases on jurisdiction leading to bringing in retrospective amendment to tax legislations to protect interest of revenue and negating fruits of justice delivered by the Courts after long fight to a litigant.
Each tax administration has preventive, audit and enforcement wing variously named like; the Directorate of Inspection in Income Tax, the Directorate of Revenue Intelligence (DRI), the Directorate General of Goods and Services Tax Intelligence (DGGSTI), Audit Commissionerates, etc., which perform specific duties assigned to them. Generally all these preventive and audit authorities conduct investigation or audit of an assessee and thereafter issue demand show cause notices, which at times are also being adjudicated by adjudicators appointed by heads of these wings like the DRI. Thus, these wings become judge, jury and executioner of its own cause, violating all cannons of fair play and judicious approach.
The issue of show cause notices and or adjudication thereof by authorities of these investigative and audit wings have been subject matter of large number of litigations.
Recently, the Hon'ble Supreme Court had occasion to examine the issue as to whether the officers of the DRI have jurisdiction to issue show cause notices in decision in the case of Cannon India Private Limited v. Commissioner of Customs3, wherein while relying on its decision in the case of Commissioner of Customs v. Sayed Ali4 has held that Section 28(4) of the Customs Act confers the power of recovery of duty not paid, part paid or erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts on “the proper officer"; the obvious intention is to confer the power to recover such duties not on ‘any proper officer' but only on ‘the proper officer'; the Parliament has employed the article ‘the' not accidently but with the intention to designate the proper officer who had assessed goods at the time of clearance; the nature of power conferred by Section 28 (4) of the Customs Act to recover duties which have escaped assessment is in the nature of an administrative review of an act; and hence, an officer who did the assessment or his successor in office, could only undertake reassessment which is involved in Section 28 (4) of the Customs Act. Accordingly, the Supreme Court held that the Additional Director General of the DRI was not ‘the' proper officer to exercise power under Section 28(4) of the Customs Act and initiation of recovery proceedings is without any jurisdiction and liable to be set aside. Thus, similar position holds good for show cause notices or recovery proceedings initiated by any other wing of any tax department, other than the assessing officers thereunder.
Interestingly, immediately after decision of the Supreme Court in Sayed Ali case, on April 15, 2011 the CBIC issued instructions5 directing issue of show cause notices under Section 28 of the Customs Act in cases investigated by the DRI/ Customs Preventive by the jurisdictional commissioners.
On April 8, 2011, vide the Finance Act, 2011 Section 28 of the Customs Act was substituted and the important change brought therein relevant for present discussions is Explanation 2 thereof, which states that any non-levy, short-levy or erroneous refund prior to such amendment will be governed by unamended Section 28 of the Customs Act.
Notification 44/2011-Cus dated July 6, 2011 was issued by the CBIC in exercise of powers conferred under Section 2(34) of the Customs Act assigning functions of the proper officer for the purpose of Section 17 and Section 28 of the Customs Act interalia to officers of the DRI, Customs (Preventive), the DGCEI and Central Excise Commissionerates.
Subsequently, sub-Section (11) was inserted in Section 28 of the Customs Act vide the Customs (Amendment and Validation) Act, 2011, to overcome the effect of the Supreme Court decision in the Syed Ali case, the Statement of Objects and Reasons of which also stated that the true legislative intent was that officers of the DRI, Customs (Preventive), the DGCEI, Central Excise Commissionerates were always deemed to be the proper officer for the purpose of Section 17 thereof.
Thereafter, the CBIC issued Circular6 clarifying that while the issue of validity of show cause notices issued by the officers of the DRI and DGCEI is settled with amendment to Section 28 of the Customs Act and Notification 44/2011, the officers of the DRI should not adjudicate show cause notices issued under Section 28 of the Customs Act.
The High Court of Delhi in dealing with constitutional validity of Section 28(11) of the Customs Act in decision in the case of Mangali Impex Ltd. v. UOI7 has been that Section 28(11) thereof would not suffer from unconstitutionality if interpreted as officers of the DRI did not have powers to issue show cause notice demanding Customs Duty for the period prior to April 8, 2011 as there was no proper assigning of functions of assessment or reassessment in their favour and also Explanation 2 to Section 28 thereof made it clear that any non-levy, short-levy or erroneous refund prior to April 8, 2011 will be governed by unamended Section 28 of the Customs Act. The High Court further held as regard period subsequent to April 8, 2011 since there cannot be any duplicating and/ or overlapping of jurisdiction of officers, the CBIC should ensure by issue of administrative instructions that once a show cause notice is issued specifying the adjudicating officer to whom it is answerable then such adjudicating officer subject to being proper officer under Section 2(34) of the Customs Act will alone proceed with adjudication of show cause notice to the exclusion of all other officers who may have power in relation to the subject matter. The decision in the Mangali Impex case has been stayed by the Supreme Court.
The Supreme Court in the Canon India case delved deeper to determine if the officers of the DRI are even proper officers. The officers of the DRI can be considered as proper officer if they are customs officer under the Customs Act and entrusted with functions of the proper officer under Section 6 of the Customs Act. The Supreme Court held that if it was intended that officers of the DRI who are officers of Federal Government should be entrusted with functions of the customs officers, it was imperative that Federal Government should have done so in exercise of its power under Section 6 of the Customs Act. The notification which purports to entrust functions as proper officer under the Customs Act has been issued by the CBIC in exercise of non-existing power under Section 2(34) of the Customs Act (which only provides for definition of proper officer). The notification is obviously invalid having been issued by an authority which had no power to do so in purported exercise of powers under a provision which does not confer any such power.
As already mentioned, laws are drafted and notified by the legislature, the bureaucracy implements them and the Courts interpret the same in case of any dispute, the Hon'ble Supreme Court has much earlier laid down correct position of law vide the Sayed Ali case decided on February 18, 2011. Further, the Supreme Court also dismissed review petition8 filed by the Commissioner of Customs against the Sayed Ali case on delay and merits on September 7, 2011. Thereafter, law was amended to nullify the effect of decision in the Sayed Ali case. Nevertheless, the conundrum of jurisdiction continued and the High Courts and the Supreme Court were flooded with large number of petitions culminating in decision in the Canon India case on March 9, 2021. Post decision in the Canon India Case, the CBIC issued Instruction9 directing field formations not to proceed with adjudication of show cause notices issued by the DRI and also directed that all fresh show cause notices of matters investigated by the DRI are to be issued by the jurisdictional commissioners.
Thus, for the time being status quo has been maintained on all such show cause notices issued by authorities other than jurisdictional authorities. Further, the High Courts and the Tribunals have started allowing writ petitions and appeals on the ground of jurisdiction alone where show cause notices have been issued by the DRI or similar agencies. Had the Federal Government or the CBIC addressed the issue of jurisdiction judiciously after decision in the Sayed Ali case, lot of precious time of Courts and money of industry and Government would not have been lost. However, as is the practice in the past, any remedy given by the Courts is neutralised by Federal Government by bring in retrospective amendment to governing legislation, thus negating efforts of years of litigation and maintaining status quo ante, which is expected in this case as well.
Before parting with the issue we would emphasise issue of jurisdiction is of prime importance for rule based society which must be respected by the authorities. Any notice issued or order passed without jurisdiction is a nullity and non-est, leading to avoidable cost of litigation and loss of time and efforts. It is high time that the CBIC for the purpose of Customs and GST laws and Federal and States Governments for other legislations must cause review of existing legislation and administrative instructions on the touch stone of jurisdiction and take remedial steps. This will help in improving justice delivery system in fiscal matters and India's image as a Country having certainty of taxation laws.
1 Authors are partners with Ashok Dhingra Associates, Gurgaon (Haryana) India
2 The Central Board of Indirect Taxes and Customs earlier known as the Central Board of Excise and Customs, Ministry of Finance (Department of Revenue), Government of India.
3 Civil Appeal No. 1827 of 2018 decided on March 9, 2021
4 2011 (265) E.L.T. 17 (S.C.).
5 F. No.437/143/2009-Cus.IV(pt) dated April 15, 2011
6 Circular 44/2011 issued under F. No.437/143/2009-Cus.IV dated September 23, 2011
7 2016(335) E.L.T. 605 (Del.)
8 2011 (274) E.L.T. A109 (S.C.)
9 Instruction No. 4/2021-Cus. dated March 17, 2021
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