Proper Officer for issuing Show Cause Notice

Case: Commissioner of Customs v/s Sayed Ali & Anr

Citation: Order dated 18.02.2011 in Civil Appeal No. 4294-4295 of 2002 alongwith Civil appeal No.4603-4604 of 2005

Issue:- Proper officer- the jurisdictional commissioner is proper officer for issuing show cause notice and Commissioner (preventive) is not authorized. SCN issued by Commissioner (Preventive) is not legally sustainable.

Brief Facts:- Respondents are engaged in the business of carpet manufacture and its export. Respondent No. 2 firm was charged with misusing the Export Pass Book scheme by selling goods cleared duty free in the open market or selling the pass book on premium in violation of the ITC restriction imposed on such sale. Investigations in the matter were conducted by the Marine and Preventive Wing of the Customs.

On 28.08.1991, the Assistant Collector of Customs (Preventive), Mumbai issued show cause notice to the respondent alleging violation of the provisions of Section 111(d) of the Act. On 03.02.1993, the same officer Adjudicated upon the said show cause notice and confirmed the demand.

In appeal, the Collector (Appeals) allowed the appeal by holding that since the matter involved demand of duty beyond a period of six months, the show cause notice was required to be issued by the Collector (Appeals) and not by the Assistance Collector. The Collector (Appeals) granted liberty to the Department to re-adjudicate the case by issuing proper show cause notice.

The Collector (Appeals) issued show cause notice dated 16.04.1994 seeking confiscation of goods seized and demanding customs duty in terms of Section 28(1) of the Customs Act, 1962 invoking extended period of limitation. Imposition of penalties under Section 112 (a) and (b)(i) and (ii) was also proposed.

Respondent-assessee questioned the jurisdiction of the Collector of Customs (Preventive) on the ground that the jurisdiction of a Commissioner by virtue of Notification No. 251/83 being more specific and limited in nature, the said Notification will prevail over Notification No. 250/83.

The Collector (Appeals) rejected the objections of Respondent and referred to the definition of smuggling under the Act which specified that smuggling is any act or omission which renders the goods to confiscation under the Act. It was held that as the respondent were charged with trafficking of goods imported and cleared only free in violation of provisions of Notification No. 117/88 dated 30.03.1988 and fabrication of documents to show receipt and consumption of the same in their factory. It was held that the goods imported and cleared duty free were thus, liable to be confiscated and Customs (Preventive) Commissionerate created for the purpose of prevention of smuggling and detention of cases of smuggling including commercial   frauds is thus competent to investigate and adjudicate the case. Thus, demand was confirmed under Section 28(1). Confiscation of 2 consignments of dyes Sulphur blue & Sulphur blue green was ordered and redemption fine was imposed.

Respondent preferred appeal before the Tribunal. The Tribunal accepted the preliminary objection of the respondents regarding the jurisdiction of the Collector (Preventive) and allowed the appeal by the holding that the Commissioner (Preventive) did not have jurisdiction to issue the impugned show cause notice and therefore, it could not have adjudicated the matter when imports have taken place at Bombay Customs House.

However, in another matter, the Tribunal following the decision of Larger Bench in the case of Konia Trading Co v/s Commissioner of Customs, Jaipur [2004 (170) E.L.T. 51 (Tri.-LB)], upheld the issue of show cause notice by the Collector (Preventive) under Section 28 of the Act and set aside the order of the Adjudicating Authority and remanded the matter with a direction that the issues require to be determined afresh by the jurisdictional Collector of Customs who had earlier assessed the Bill of entry at Bomaby Port.

Due to conflicting decisions, the matter is before the Supreme Court to decide the question of validity of the demands raised by virtue of re-assessment orders passed by the Collector of Customs (Preventive), Mumbai, pursuant to issue of SCN under Section 28.

Appellant’s Contention:- Revenue contended that once the Commissioner (Preventive) had appointed as Collector of Customs (Preventive), Bombay by virtue of the Notification No. 250/83 and 251/83 issued by the Central Government under Section 4 of the Act, the former became "proper officer" in terms of Section 2(34) of the Act, and was competent to issue notice under Section 28 of the Act as the goods were cleared for home consumption in   Bombay. In support of the proposition that an officer of Customs who has been assigned certain functions, which are to be performed under the Act is a "proper officer" and such assignment can be done by the Board or the Commissioner of Customs.

Reliance was placed on decision in Unionof India & Ors. Vs. Ram Narain Bishwanath & Ors [(1998) 9 SCC 285] and on larger bench decision in Konia Trading Co. and in Manohar   Bros. (Capacitors) Vs. Collector of Customs-II, Bombay [1998 (98) E.L.T. 821 (Tri)] which attained finality on dismissal of Revenue’s appeal by the Supreme Court as reported in 2004 (166) E.L.T. A152 (S.C.).

Respondent’s Contention:- Respondent’s contended that the statutory powers conferred under Section 28 of the Act must be exercised by an officer of Customs, who has been   assigned those functions either by the Central Board of Excise and Customs or by the jurisdictional Commissioner of Customs (Imports). As the Commissioner (Preventive) has not been appointed as a "proper officer" for the purposes of assessment or re-assessment, nor assigned any functions under Section 28 of the Act or under any other Section related to assessment of goods entered for home consumption, he was not competent to issue notice under Section 28 of the Act.

It was also contended that mere appointment of a person as an officer of Customs with territorial jurisdiction over the Mumbai port under Section 4 of the Act does not ipso facto confer authority on him to exercise the statutory powers entrusted to proper officers, as   under the Act, while all proper officers must be `officers of Customs', all `officers of Customs' are not "proper officers".

Reliance was placed on judgments in Devilog Systems India Vs. Collector of Customs, Bangalore [1995 (76) E.L.T. 520 (Kar.)], Orient Arts & Crafts Vs. Commissioner of Customs (Prev.), Mumbai [2003 (155) E.L.T .168 (Tri-Mum)] and in Informatika   Software   (P)   Ltd.   &   Anr. Vs. Commissioner   of Customs (P), Calcutta [1997 (73) ECR 348 (Tri.-Kolkata)].

It was also urged that the use of the expression "proper officer" in contradistinction to "officer of customs" in certain Sections in the Act makes it clear that the two expressions cannot be   used interchangeably. It was submitted that if the Revenue's contention that all "officers of customs" are "proper officers" is accepted, it would render Section 2(34) otiose, and would amount to re-writing the Act, leading to administrative anarchy. In this regard, reliance was placed on The Commissioner, Sales Tax, U.P. Vs. M/s. Suraj Prasad Gouri Shankar [(1974) 3 SCC 230].

The Respondent explaining the procedure for clearance of imported goods for home consumption submitted that the Act clearly delineates the functions to be performed by the Commissioner of Customs (Imports) and the Commissioner (Preventive). It was submitted that under Section 30 of the Act, the owner of a vessel, on arrival or prior to arrival, is required to file an Import General Manifest ("IGM") with the proper officer i.e. the   Commissioner of Customs (Imports), the Rummaging and Intelligence Wing of the Preventive Division checks the conveyance to ensure that all goods in the vessel are mentioned in the IGM; then, in terms of Section 31 of the Act, an order allowing "entry inwards" is granted by the proper officer, i.e. Commissioner of Customs (Imports); the goods are unloaded under the supervision of the Preventive Officer in terms of Section 34; and then, the importer files a bill of entry, which is assessed by the "proper officer" i.e. Commissioner (Imports) who, on payment of all duties by the importer, issues an order allowing clearance of goods for home consumption under Section 47 of the Act. It was thus, asserted that once goods are manifested, the jurisdiction to pass any order of assessment or re-assessment vests in the     Collector of Customs (Imports) and not in the Collector of Customs (Preventive). Reliance in this regard was placed onSharad Himatlal Daftary Vs. Collector of Customs [1988 (36) E.L.T. 468 (Cal.)].

It was submitted that in the present case, the import manifest and the bill of entry were filed   before the Additional Collector of Customs (Imports) Mumbai; the bill of entry was duly   assessed, and the benefit of the exemption was extended, subject to execution of a bond by the importer which was duly executed, undertaking the obligation of export.

It was submitted that the function of the preventive staff is confined to goods which are not manifested as in respect of manifested goods, where the bills of entry are to be filed, the   entire function of assessment, clearance etc. is carried out by the appraising officers functioning under the Commissioner of Customs (Imports).

Reasoning of Judgement:- The Supreme Court referred to the provisions of Section 28 of the Act and held that it is plain from the provision that the "proper officer" being subjectively satisfied on the basis of the material that may be with him that customs duty has not been levied or short levied or erroneously refunded on an import made by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, within one year and in all other cases within six months from the relevant date, may cause service of notice on the person chargeable, requiring him to show cause why he should not pay the amount specified in the notice. It is evident that the notice under the said provision has to be issued by the "proper officer".

Definition of “Proper Officer” under Section 2(34) of the Act was also perused. It was held that it is clear from a mere look at the provision that only such officers of customs who have been   assigned specific functions would be "proper officers" in terms of Section 2(34) of the Act.   Specific entrustment of function by either the Board or the Commissioner of Customs is therefore, the governing test to determine whether an "officer of customs" is the "proper officer".

It was held that from a conjoint reading of these two provisions, it is manifest that only such   a customs officer who has been assigned the specific functions of assessment and re-assessment of duty in the jurisdictional area where the import concerned has been affected,   by either the Board or the Commissioner of Customs, in terms of Section 2(34) of the Act is competent to issue notice under Section 28 of the Act. Any other reading of Section 28 would render the provisions of Section 2(34) of the Act otiose in as much as the test contemplated under Section 2(34) of the Act is that of specific conferment of such functions.

It was further held that moreover, if the Revenue's contention that once territorial jurisdiction is conferred, the Collector of Customs (Preventive) becomes a "proper officer" in terms of Section 28 of the Act is accepted, it would lead to a situation of utter chaos and confusion, in   as much as all officers of customs, in a particular area be it under the Collectorate of   Customs (Imports) or the Preventive Collectorate, would be "proper officers".

Supreme Court held the view that it is only the officers of customs, who are assigned the   functions of assessment, which of course, would include re- assessment, working under the   jurisdictional Collectorate within whose jurisdiction the bills of entry or baggage declarations had been filed and the consignments had been cleared for home consumption, will have the jurisdiction to issue notice under Section 28 of the Act.

The Supreme Court also perused the Standing order No. 35/89 dated 12.07.1989 issued by a Collector of Customs, holding dual charges of Collector of Customs, Calcutta and Collector of Customs (Preventive) as also to certain notifications issued by the Board under Section 2   (34) of the Act clearly defining the functions of the Customs House and the Preventive Collectorate.

It was further held that in the present case, the import manifest and the bill of entry having been filed before the Collectorate of Customs (Imports) Mumbai, the same having been assessed and clearance for home consumption having been allowed by the proper officer on importers executing bond, undertaking the obligation of export, in our opinion, the Collector   of Customs (Preventive), not being a "proper officer" within the meaning of Section 2(34) of the Act, was not competent to issue show cause notice for re- assessment under Section 28 of the Act.

It was further held that no evidence was adduced to show that the Collector of Customs   (Preventive), who had issued the show cause notices was assigned the functions under Section 28 of the Act as "proper officer" either by the Board or the Collector/Commissioner of   Customs. We are convinced that Notifications No. 250-Cus and 251-Cus., both dated 27th August, 1983, issued by the Central Government in exercise of the powers conferred by sub-section (1) of the Section 4 of the Act, appointing Collector of Customs (Preventive) etc. to   be the Collector of Customs for Bombay, Thane and Kolaba Districts in the State of Maharashtra did not ipso facto confer jurisdiction on him to exercise power entrusted to the   "proper officers" for the purpose of Section 28 of the Act.

Accordingly, the Supreme Court held that there is no substance in Revenue’s contention that the source of power to act as a "proper officer" is Sections 4 and 5 of the Act and not sub-section 34 of Section 2 of the Act. The said sections merely authorize the Board to appoint officers of Customs and confer on them the powers and duties to be exercised/discharged by them, but for the purpose of Section 28 of the Act, an officer of customs has to be designated as "proper officer" by assigning the function of levy and collection of duty, by the Board or the Commissioner of Customs. Revenue’s contention in this regard is rejected.

Similarly, it was held that Revenue’s reliance on Ram Narain Bishwanath & Ors. is clearly misplaced as in that case the issue for determination was that when goods imported and cleared at Paradip Port (Orissa State) were seized by the Customs authorities in West Bengal on the allegation that these had been imported on the strength of fictitious licences, whether the customs authorities at Paradip or West Bengal will have the jurisdiction to initiate adjudication proceedings. By a short order it was held that it was for the customs authorities   at Paradip to initiate proceedings against the importer. Apart from the fact that none of the statutory provisions were considered in that case, the issue arising for consideration in the present appeals was not the subject matter therein.

In the end it was held that there is no merit in Revenue’s stand. However, it was held that nothing in this order prevents Revenue from initiating any proceedings against the importers for recovery of duty and other charges payable in respect of the subject goods, if permissible under the Act.

Decision:- C.A. Nos. 4294-4295 of 2002 dismissed while C.A. Nos. 4603-4604 of 2005 are allowed.

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PJ/Case Laws/2011-12/1162

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