Defining DRI’s turf & powers

July 02, 2021 5:15 AM

The Canon India verdict of the Supreme Court sets the jurisdictional limits of the directorate of revenue intelligence (DRI), over issuing show-cause notices

SCNs pending adjudication, where no hearings have taken place: Taking cue from Instruction No. 4, all SCNs issued by the DRI may be kept pending for adjudication by the Board till further clarity is received from the CBIC.SCNs pending adjudication, where no hearings have taken place: Taking cue from Instruction No. 4, all SCNs issued by the DRI may be kept pending for adjudication by the Board till further clarity is received from the CBIC.

By Viswanathan T & Rachit Jain

The Directorate of Revenue Intelligence (DRI) was constituted as the apex intelligence agency under the ministry of finance, with the objective of collecting information on smuggling activities along with arranging training for officers of customs and central excise.

Over time, it started performing routine tasks of customs officers, i.e. interpreting provisions of Customs Act, 1962, and other allied laws. So, DRI’s jurisdiction to issue a show-cause notice (SCN) was challenged in many cases.

In Canon India Private Limited vs. Commissioner of Customs, the Supreme Court, on March 9, 2021, held that ‘DRI or any other investigation agency had no authority in law to issue an SCN under Section 28(4) of the Customs Act for recovery of duties’.

Decision in Canon India: The Court held that Section 28(4) of the Act uses the expression ‘the proper officer’ to state which officer is competent to issue a notice for recovery of duty. Section 28 confers the power of review on the same officer or his successor who has been assigned the function of assessment and carried out original assessment. Hence, DRI officers are without jurisdiction to exercise powers under Section 28(4).

What lies ahead?
Considering how the DRI and other agencies were investigating MNCs on various issues relating to interpretation of the law which are dealt with by the jurisdictional customs officer at the time of assessment of goods, this decision can provide respite to stakeholders.

Issuance of SCNs pursuant to investigations: Many investigations may be pending with the DRI or new investigations being initiated where SCNs will have to be issued. In light of the Court’s decision, any SCN issued by the DRI will be considered bad in law.

The CBIC issued Instruction No. 04/2021 dated March 17, 2021, clarifying that SCNs under Section 28 in all the cases being investigated by the DRI are required to be issued by the jurisdictional commissionerate from where imports have taken place.

SCNs issued by the DRI where orders are passed: Stakeholders can challenge DRI orders at appellate level relying on Canon India. Such a challenge on the issue of jurisdiction can be made at any stage of litigation and decision in Canon India will be a binding precedent.

General counsels whose organisations face such issues must conduct an internal assessment of such proceedings and seek corrective action immediately. Any relief on this issue is likely to have a positive impact on the working capital of impacted organisations. A favourable outcome is likely to reduce contingent liabilities and open doors for seeking refund of duty deposits made.

SCNs pending adjudication, where no hearings have taken place: Taking cue from Instruction No. 4, all SCNs issued by the DRI may be kept pending for adjudication by the Board till further clarity is received from the CBIC.

SCNs pending adjudication, hearing took place, but no order passed: Stakeholders can challenge such SCNs; such matters may also be kept pending in light of Instruction No. 4.

Position under GST, central excise and service tax laws: Under the central excise and service tax regimes, provisions regarding adjudication and recovery do not use the phrase ‘proper officer’. Hence, one has to bide time with respect to validity of SCNs issued by investigative agencies under these regimes.

Under the GST law regime, the power of issuance of SCNs has been conferred upon ‘proper officer’. The definition of ‘proper officer’ under the GST regime is identical to the definition under the Act. Since the decision in Canon India does not pertain to GST, stakeholders can explore how the issue of validity of SCNs issued by investigative agencies other than GST officers is handled by courts.

A beacon of hope?
Because Canon India is a decision of the full bench of the Supreme Court, the likelihood of success in pending litigation improves exponentially. Riding the wave, stakeholders can wipe off long-pending litigations from their records.

Viswanathan T is principal partner and Rachit Jain is partner, Lakshmikumaran & Sridharan Attorneys

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