 "SC restores DRI's key powers; Rs 20K cr Customs duty recovery back on track")
The Supreme Court on Thursday reinstated the power of Directorate of Revenue Intelligence (DRI) officers to issue Customs recovery notices, a move that could revive tax demands totalling between Rs 20,000 crore and Rs 23,000 crore against major firms like Vedanta, Vodafone Idea, Adani Enterprises, TVS Motors, Samsung India, Godrej and Boyce Manufacturing, BSNL, Daikin, Sony India, Canon, Nikon India, Sennheiser, and Yakult Danone. As many as 95 other companies may be impacted by this decision.
The judgment, which may immediately affect firms with significant import-export operations, was issued in response to a review plea filed by the Customs department challenging the Supreme Court’s 2021 decision in Canon India Private Ltd vs Commissioner of Customs. The earlier judgment had held that DRI officers did not have powers to issue showcause notices under the Customs Act, 1962.
Allowing the Customs department’s plea and overturning the 2021 verdict, a Bench comprising Chief Justice of India D Y Chandrachud and Justices JB Pardiwala and Manoj Misra affirmed that DRI officers are “proper officers” under Section 28 of the Customs Act.
Thus, the Bench, DRI officers are authorised to issue recovery notices under Section 28 of the Customs Act, 1962.
“Subject to the observations made in the judgment, the officers of the Directorate of Revenue Intelligence, Commissionerates of Customs Preventive, Directorate General of Central Excise Intelligence, and Commissionates of Central Excise and other similarly situated officers are ‘proper officers’ for the purposes of Section 28 of the Customs Act, and are competent to issue show-cause notices,” the apex court held.
The ruling further directed high courts to align with this interpretation in related cases and instructed that pending appeals before the Supreme Court follow the new guidelines.
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“All notices by the DRI now stand valid and will now go for adjudication. Whatever notices have been issued, now from that stage proceedings will progress,” said Additional Solicitor General N Venkataraman, who appeared for the government.
Earlier in the court, he had highlighted the vast scale of show-cause notices over the past 18 years that needed to be resolved. “The stakes are difficult to quantify, with the estimated value between Rs 20,000 crore and ₹23,000 crore, although we lack complete visibility,” Venkatraman told the court.
The ruling revisits amendments made to the Customs Act under the 2006 Finance Act, which granted enhanced authority to DRI officers. It also addressed Section 97 of the 2022 Finance Act, which retrospectively validated all notices issued under Section 28, rejecting the argument that it was unconstitutional or “manifestly arbitrary, disproportionate, and overbroad.”
“We clarify that the findings in respect of the vires of the Finance Act, 2022 is confined only to the questions raised in the petition seeking review of the judgment in Canon India. The challenge to the Finance Act, 2022 on grounds other than those dealt with herein, if any, are kept open,” the court noted.
The case traces back to March 15, 2012, when a consignment of Canon cameras arrived in Delhi. After verifying the documents, the Customs department cleared the cameras on March 24, 2012, providing a duty exemption. Two years later, however, the DRI issued a show-cause notice alleging that the exemption was based on “wilful misstatement and suppression of facts”, specifically regarding the cameras’ video recording features.
The Customs Excise and Service Tax Appellate Tribunal (CESTAT) upheld the penalty, after which Canon. After this, Canon and other companies facing similar show-cause notices moved the SC, arguing that DRI lacked authority to issue show-cause notices under the Customs Act.
After the apex court’s verdict in 2021, high courts and tribunals across the country quashed similar proceedings by DRI officers and the Central Board of Indirect Taxes and Customs (CBIC) directed its officers to keep show-cause notices issued by the DRI on hold.
The Supreme Court’s latest decision will restart stalled DRI proceedings, a change that Gauhar Mirza, partner at Cyril Amarchand Mangaldas, says may have an immediate impact on businesses with high import and export volumes. “The long pause on the issue, whether a DRI officer is a “proper officer” under Section 28 of the Customs Act, has now been clarified in the affirmative and that, too, in a review jurisdiction. This will impact the industry, majorly. Although the judgment aims at streamlining the technicality and enabling the government to make the long-pending recoveries of Custom duties, its application on cases already in the high courts and Supreme Court versus the ones that are pending at the showcause stage needs to be seen,” Mirza added.