Supreme Court Overturns 'Canon India' on DRI Jurisdiction, Holds DRI Officers Are Proper Officers Under Customs Act

New Delhi: In a significant ruling, the Supreme Court of India has clarified the contentious issue of whether officers of the Directorate of Revenue Intelligence (DRI) are "proper officers" empowered to issue show cause notices under Section 28 of the Customs Act, 1962. A bench of the Supreme Court, led by J.B. Pardiwala , J. authoring the judgment, allowed a review petition filed by the Customs Department and overturned its earlier decision in M/s Canon India Private Ltd. v. Commissioner of Customs on the aspect of DRI's jurisdiction.

The court held that DRI officers are indeed "proper officers" under Section 2(34) of the Act, duly empowered to issue such notices. The judgment also upheld the constitutional validity of Section 28(11) of the Customs Act, inserted by the Customs (Amendment and Validation) Act, 2011, and Section 97 of the Finance Act, 2022, which retrospectively validated actions taken under the Act, including the issuance of show cause notices by various customs officers.

Background of the Dispute

The controversy arose from the Supreme Court's 2011 decision in Commissioner of Customs v. Sayed Ali , which held that only customs officers assigned the functions of assessment under Section 17 could issue show cause notices under Section 28. This decision created uncertainty regarding the jurisdiction of officers from preventive units and DRI, who were not typically involved in the initial assessment process at ports.

Following the Sayed Ali judgment, the Central Board of Excise and Customs (CBEC) issued Notification No. 44/2011-Cus-NT on July 6, 2011, assigning the functions of "proper officers" for Sections 17 and 28 to various officers, including those from DRI and Preventive formations. Subsequently, Section 28(11) was introduced in the Act through the Validation Act of 2011 (effective September 16, 2011) to retrospectively validate actions taken by officers appointed under Section 4(1) before July 6, 2011, deeming them to have always had assessment powers under Section 17 and been proper officers for Section 28.

The constitutional validity of Section 28(11) was challenged in various High Courts, leading to conflicting decisions. The Delhi High Court in Mangali Impex Ltd. v. Union of India struck down Section 28(11) as unconstitutional, finding it overbroad and potentially leading to chaos, while the Bombay High Court in Sunil Gupta v. Union of India upheld its validity. An appeal against the Mangali Impex decision was pending before the Supreme Court and its operation was stayed.

The Supreme Court's 2021 decision in Canon India relied on the Sayed Ali principle, holding that DRI officers were not "proper officers" for issuing Section 28 notices because they did not perform the original assessment under Section 17 and lacked necessary entrustment under Section 6 of the Act. This judgment further exacerbated the uncertainty and led to numerous challenges against DRI-issued notices.

Arguments Before the Court

The Customs Department, represented by the Additional Solicitor General, argued that the Canon India judgment suffered from errors apparent on the face of the record, including not considering crucial statutory provisions like Sections 3, 4, and 5, and relevant notifications appointing DRI officers as officers of customs and assigning them functions. They contended that DRI officers are officers of customs appointed under Section 4, and entrustment under Section 6 (meant for officers of other government departments or local authorities) was unnecessary. It was further submitted that the linkage between Sections 17 and 28 made in Sayed Ali and followed in Canon India was erroneous, particularly given the changes to Section 17 post-2011 introducing self-assessment. The Department also argued that Section 28(11) validly cured any past defects and that the amendments in the Finance Act, 2022, including Section 97 (validation) and Section 110AA (future mechanism), were clarificatory or prospective administrative adjustments.

The respondents (importers) vehemently opposed the review, arguing its limited scope and asserting that Sayed Ali and Mangali Impex were correctly decided. They maintained that Sections 17 and 28 are interlinked, requiring the same officer (or assessing group) to handle both assessment and recovery. They contended that DRI officers needed specific entrustment under Section 6, distinguishing "powers/duties" (Section 5) from "functions" (Section 6). They also challenged Section 28(11) and Section 97 (Finance Act 2022) as arbitrary, manifestly unreasonable, and attempting to overrule judicial determinations of fact regarding jurisdiction retrospectively.

Court's Analysis and Findings

The Supreme Court, exercising its review jurisdiction, noted that an error apparent on the face of the record includes overlooking or failing to consider a relevant statutory provision or notification. The Court found that Canon India had indeed failed to consider essential provisions like Sections 3, 4, and 5, and relevant notifications appointing DRI officers as customs officers and assigning them functions under Section 2(34) read with Section 5.

The Court clarified several key points: * Sections 3, 4 & 5 vs. Section 6: DRI officers are appointed as "officers of customs" under Section 4. Their powers and duties are governed by Section 5, including the assignment of functions as "proper officers" under Section 2(34). Section 6 applies only to officers of other Central/State government departments or local authorities being entrusted with customs functions, not to officers already appointed under Section 4. * Linkage between Section 17 and 28: The Court held that the observation in Sayed Ali and Canon India linking the functions under Section 17 (assessment/re-assessment) and Section 28 (recovery) was not mandated by the statute and was an erroneous reading. It noted that Section 17 was significantly changed in 2011, moving to self-assessment, making the premise of the prior link invalid for subsequent periods. Functions under Section 17 and Section 28 are distinct. * "The proper officer": The use of the definite article "the" in Section 28 refers to the specific "proper officer" who has been assigned the function under Section 28 by the Board/Commissioner via notification under Section 5, not necessarily the officer who handled the Section 17 assessment. * Section 28(11) Validity: The Court upheld the constitutional validity of Section 28(11). It found no conflict between Section 28(11) and Explanation 2 to Section 28 (which preserves the old Section 28 for pre-April 8, 2011 cases), as they operate in different fields (officer competence vs. applicable procedural/limitation rules). The Court also rejected the argument that Section 28(11) was overbroad, noting that the Customs Department's administrative policy since 1999 ensures that once a notice is issued by one competent officer, others are excluded from proceeding on the same matter, preventing chaos. * Section 97 (Finance Act 2022) Validity: The Court upheld the constitutional validity of Section 97, which validated past actions. It reiterated that the legislature has the power to enact validating laws to cure defects. It found Section 97 a valid exercise of this power, curing any perceived defects (including those erroneously highlighted in Canon India based on a misunderstanding of the law and facts) and not being manifestly arbitrary. The introduction of Section 110AA for future cases does not invalidate the validation of past actions under Section 97.

Conclusion and Directions

The Supreme Court concluded that DRI officers, being officers of customs appointed under Section 4 and assigned functions under Section 2(34) read with Section 5, are competent "proper officers" to issue show cause notices under Section 28. The Court's finding in Canon India regarding the jurisdiction of DRI officers was set aside, based on the identified errors in overlooking relevant legal provisions and notifications.

The Court, however, clarified that its review was limited to the jurisdictional issue and did not disturb the finding in Canon India regarding the issue of limitation for issuing notices.

The Court provided detailed directions for the disposal of pending cases challenging the jurisdiction of DRI officers (and other similarly situated officers like Customs Preventive, DGCEI, Central Excise) to issue Section 28 notices before various forums, requiring them to be decided in accordance with this judgment.

The review petition was allowed to the extent of the jurisdictional issue, the Mangali Impex judgment was set aside, and the Sunil Gupta judgment was upheld. The constitutional validity of Section 97 of the Finance Act, 2022, was also affirmed.

This judgment provides much-needed clarity on the authority of DRI and other specialized customs formations, validating numerous past actions and streamlining future enforcement proceedings under the Customs Act.