The Supreme Court (SC), in Canon India v. Commissioner of Customs (2021 (376) ELT 3), had held that an officer of the Directorate of Revenue Intelligence (DRI) is not a ‘proper officer’ to conduct investigations/enquiries and issue Show-cause Notices (SCN) to demand duty under Section 28 of Customs Act, 1962 (the Act). This decision, adverse to Revenue, was again reiterated by the SC in the Agarwal Metals case (C.A. No. 3411 of 2020) in August 2021. The decision of the Apex Court is also being followed by High Courts and Tribunals to strike down duty demands.
The Union Budget 2022 seeks to broaden the scope of the definition of the term ‘proper officer’ in Section 2(34) of the Act to expressly allow assignment of functions to an officer of Customs by Central Board Indirect Taxes and Customs (CBIC) or the Principal Commissioner of Customs or the Commissioner of Customs, under the newly inserted sub-section (1A) and (1B) of Section 5 of the Act. Further, sub-section (1A) and (1B) to Section 5 proposes to empower the CBIC or the Principal Commissioner/Commissioner of Customs to assign functions to Custom officers. Section 3 proposes to include officers of DRI and Customs Audit/Preventive wing as ‘proper officers’ to empower them to investigate/enquire and issue SCN.
Clause 96 of the Finance Bill also seeks to retrospectively validate any action taken or duties performed by officers of DRI or Customs before the enactment of the Finance Bill 2022, notwithstanding the decisions of the Courts, Tribunals or Authorities. It has also been clarified that any proceeding arising out of action taken under the clause and pending on the date of commencement of the Finance Act, will be disposed of under the amended provisions. This retrospective amendment will have an overriding effect on the outcome of pending SCNs/Petitions/Appeals, where the jurisdiction of the DRI officer is under challenge.
The statement explaining the amendment says that “this amendment has been necessitated to correct the infirmity observed by the Courts in recent judgments that the Act required explicit provision conferring powers for assignment of function to officers of Customs as “proper officers” for the purposes of the Act, besides the definition clause (34) in section 2 of the Act”.
This is bad news for trade, who were relying on the SC judgment in the Canon case (supra) to defend demands. One may wonder whether the validity of the proposed amendment making it retrospectively applicable, can be tested in the Courts.
It is a well-accepted principle that legislatures possess unlimited power to introduce retroactive provisions in the tax laws. A 5-member bench of the Supreme Court, in the case of Chhotabhai Jethabhai Patel & Co V. UoI & Anr (1962 AIR 1006), relying on the decision of the Privy Council, emphasise that –
“The Parliament had undoubted power to impose taxation under the express words of S. 51 of the Constitution, and it is not now disputed that the Parliament could, if it thought fit, make the Act retrospective and impose the duties from the date of the resolution. That practice is (it is believed) universally followed in the imperial Parliament, and (their Lordships were told) is common in the Colonial Legislatures in Acts of this description, and for obvious reasons it is convenient and almost necessary.”
This principle is followed in AC of Urban Land Tax Vs Buckingham & Carnatic Co (1970 AIR 169) also and various other Court orders too. The saga of retrospective validations continues to hog the taxation domain and also the debate whether it is a step to ‘cure infirmities’ in the law or a case of bureaucratic obstinacy.
Be that as it may, it is time for the taxpayer to revisit their position and consider the utility of such unproductive litigation and the associated burden (interest,penalty, etc.) when the tax authority seems to say, ‘heads I win, tails you lose’.