Re-assessment notice held invalid and CESTAT order set-aside on recovery of duty on exempt goods

The Supreme Court (SC), the highest judicial authority of the country, in a joint civil appeal made by importers of cameras namely Nikon India Pvt. Ltd., Canon India Pvt. Ltd., Sony India Pvt. Ltd., and Samsung India Electronics Pvt. Ltd has rendered its judgment dated 09.Mar.2021 on Civil Appeal No. 1827 of 2018, with reference to a show-cause notice issued by the Directorate of Revenue Intelligence (DRI) for evading payment of customs duty by the appellants herein on goods cleared by customs officials as exempt goods.

The question of law which is addressed through this judgment is as follows:

• Whether the proceedings initiated by DRI for the recovery of customs duty are correct and whether DRI is ‘the proper officer’ under Section 28 and Section 28(4) to initiate such actions.

Facts of the appeal made to Supreme Court, by Nikon India Pvt. Ltd., Canon India Pvt. Ltd., Sony India Pvt. Ltd., and Samsung India Electronics Pvt. Ltd (appellants herein :

The appellants, Nikon India Pvt. Ltd., Canon India Pvt. Ltd., Sony India Pvt. Ltd., and Samsung India Electronics Pvt. Ltd filed independent appeals under authority if law and based on the impugned order passed by the Central Excise and Service Tax Appellate Tribunal (CESAT) dated 19.Dec.2017, the appellants filed the present appeal. DRI issues show-cause notice to the appellants with reference to non-payment of tax on ‘imported Digital Still Image Video Cameras (DSIC) and for recovery of revenue under Section 28(4) of the Customs Act. The goods were cleared by the customs officer as exempt goods based on notification no. 25/2005 dated 01.Mar.2005 amended vide notification no. 15/2012 dated 17.Mar.2012. The DRI issued the show-cause notice for recovery of revenue as they were of the contention that the customs authority cleared the goods on 24.Mar.2012 was forced to clear them and the goods imported were not exempt goods and there was misstatement and suppression of facts by the appellants on the goods declared and that the cameras were not exempt from customs duty as their memory capacity was higher than declared. On an appeal made to CESAT on the show-cause notice received, the CESAT also upheld the decision of the DRI for recovery of revenue.

The appellants, impugned by the order of the CESAT, appealed that DRI was not the proper authority under law to issue a show-cause notice under Section 28(4) of Customs Act, for the recovery of lost revenue. The respondents contended that, since the decision to clear the cameras was taken by Deputy Commissioner, Appraisal Group, Delhi Air Cargo, the show cause notice was further issued by Additional Director General, DRI.

Observations and final ruling by Supreme Court vide order dated 09.Mar.2021:

The SC first presented Section 28(4) of the Act which empowers ‘the proper officer’ to recover lost duty due to wilful suppression or misstatement of facts or by collusion on non-payment, part payment, or erroneous refund of taxes paid. The SC further stated that the power to issue notice is conferred on ‘the proper officer’ and not ‘any’ proper officer and stated that the article ‘the’ is a definite article and means the same officer who cleared the goods or his/her successor or any other officer who possesses the authority within the same office and not like ‘any’ which is an ‘indefinite article’ and means anyone. Hence it contended that the proper officer means the same officer who cleared the goods or his/her successor or any other officer who possesses the authority within the same office, which in this instant case would be anyone from the ‘Appraisal Group’. Since the show-cause notice was initiated by DRI which does not form part of the ‘Appraisal Group’ and belongs to a different department altogether, the SC opined that it is the unruly operation of the law and incorrect and is not the intention of the statute. It, therefore, concurred that the show-cause notice issued by the DRI is not binding on the appellants and set aside the order passed by CESTAT.

On the representation made by the Additional Solicitor General that Additional Director General of DRI is ‘the proper officer’ under Customs Act to issue show cause notice, the SC opined that the two notifications presented, Notification No. 17/2002-Customs(NT) dated 07.Mar.2002 and 40/2012 dated 02.May.2012 are irrelevant to the case and it is Section 6 of the Customs Act which provides entrustment functions for Customs Officers over other State/Central/local authorities as deemed fit and required by Central Government. The SC opined that if the intention of the Central Government was to appoint the DRI as ‘the proper officer’, it would have done so via a notification which is not the case.

The SC further highlighted the decision of the Court in Commissioner of Customs Vs. Sayed Ali and another where it clearly clarifies on 3 main points of law where it states that a show-cause notice can be issued within 5 years from the date of levy or non-levy of taxes in case of mis-statement and suppression of facts at the time of clearing of goods, a proper officer as per section 2(34) of the customs act is one who is specifically entrusted with functions by either the Commissioner of Customs or the Board and he/she has to be specifically assigned the function of assessment / re-assessment as per Section 2 of the Customs Act. Hence it concluded that the initiation of proceedings by the DRI itself is invalid and hence the impugned order passed by the CESTAT should be set-aside.

Further on the question of limitation, the SC opined that the assessing officer could have examined the goods for specifications as mentioned in the literature at the time of import in 2012 itself and even though the case is presented for re-assessment now and well within the period of five years allowed by law, the goods in question cannot be re-examined as they were already cleared and the hence cannot be re-opened under Section 28(4). The SC did not go into the question of whether the cameras were actually exempt from customs duty on import. But, it further stated that cameras having similar nomenclature were treated as exempt by the European Communities and also the same cameras were considered as exempt from basic customs duty before 17.Mar.2012 and after 30.Apr.2015.

Hence the SC set aside the common order passed by CESTAT, New Delhi dated 19.Dec.2017 against appeals made by the appellants herein and also set-aside the show-cause notice issued against the appellants herein.