Demand order set-aside by CESTAT where the SCN is not issued by Proper Officer under Sec 28 of the Customs Act

The New Delhi principal bench of CESTAT ruled that, duty of demand fails in case of show cause notice issued by improper officer. The coram of Justice Dilip Gupta and P.V Subba Rao came up with the final order in the case of M/s. K.Y. Enterprises.

The Principal Commissioner found substance in the charge alleged in the show cause notice that M/s. K.Y. Enterprises misdeclared the description of the goods and in this manner sought to grossly undervalue them. The Principal Commissioner also found that both Ashok Singhla and Kapil Dev Aggarwal were involved in this process.

The issue at hand is whether the Additional Director General DRI did not have the jurisdiction to issue the show cause notice as he was not the proper officer under section 28 of the Customs Act.

The appellants’ counsel argued that the Additional Director General DRI lacked jurisdiction to issue the show cause notice because he was not the proper officer under section 28 of the Customs Act to do so, citing Supreme Court decisions in Canon India Pvt. Ltd. vs. Commissioner of Customs 4 and Commissioner of Customs, Kandla vs. M/s. Agarwal Metals and Alloys in support of this claim.

The Department’s counsel, on the other hand, argued that the Additional Director General, DRI, had jurisdiction to issue the show cause notice, and that the Department had filed a review case against the Supreme Court’s verdict in Canon India on April 7, 2021, which was still ongoing. As a result, the hearing on this appeal may be postponed, according to the learned authorised representative. The notice was also issued under sections 28 and 124 of the Customs Act, according to the learned authorised representative, thus even if the notice issued under section 28 is found to be without jurisdiction, the notice issued under section 124 of the Customs Act will continue.

It was noted that, the Supreme Court concluded in the Canon India case that the authority to recover duty not paid or underpaid after goods have been assessed and cleared for import is a power conferred to review an earlier assessment judgement. This power, which was granted to the proper officer under section 28 of the Customs Act, must necessarily refer to the proper officer who evaluated and cleared the goods in the first instance. As a result, the Additional Director General of DRI lacked the authority to issue the show cause notice. It is thus observed that, the Supreme Court in Canon India determined that the entire action launched by the Additional Director General, DRI by issuing a show cause notice lacked legal authority and was thus liable to be set aside. The Supreme Court’s ruling in Canon India was followed by the Supreme Court’s decision in Agarwal Metals and Alloys.

Apart from the Supreme Court’s judgements in Canon India and Agarwal Metals and Alloys, the High Courts have also set aside proceedings in which the Director of Revenue Intelligence issued show cause notices. The Madras High Court in Quantum Coal Energy (P) Ltd. vs. The Commissioner, Office of the Commissioner of Customs, Custom House, Tuticorin, etc., and the Bombay High Court in Kitchen Essentials & Ors. vs. The Union of India & Ors.

However, the Department’s learned authorised representative argued that the notice was also given under section 124 of the Customs Act for the confiscation of goods under section 111 and imposition of penalty under section 112 of the Customs Act, and so the order is not illegal in this regard.

Further the counsel for the appellant relied on a decision of the Tribunal in Bakeman’s Home Products Pvt. Ltd. vs. Collector of Cus., Bombay, arguing that the proposal for confiscation of goods and imposition of penalty cannot be separated from the duty demand and, as a result, if the duty demand fails because the show cause notice was not issued by the proper officer, the confiscation and penalty proceedings cannot survive.

Therefore, the coram held that since the order of show cause notice was issued by improper officer the the proposal for confiscation and penalty cannot be allowed and the duty of demand fails; thus, the order dated 12.05.2016 passed by the Principal Commissioner cannot be sustained and it is set aside.

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