The Supreme Court on Thursday reversed its 2021 ruling and declared that officers of the Directorate of Revenue Intelligence (DRI) are indeed “proper officers” under the Customs Act, thereby restoring their authority to issue recovery notices.
This decision is a significant win for the Union government and DRI, which now has the green light to proceed with numerous pending tax recovery cases, estimated to involve over ₹20,000 crore, that had been left in limbo due to legal challenges.
The ruling was delivered by a three-judge bench comprising Chief Justice of India (CJI) Dhananjaya Y Chandrachud, along with justices JB Pardiwala and Manoj Misra.
The decision effectively overturned the previous stance taken by the top court in the Canon India Pvt Ltd case, which had significantly limited the DRI’s authority to issue notices under the Customs Act, 1962.
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In the Canon judgment, the court had held that only the customs officers originally responsible for clearing goods could issue such notices, invalidating those issued by DRI officers. This interpretation had led to numerous dismissals of DRI-issued notices by courts and tribunals nationwide.
The issue dates to a 2006 amendment to the Customs Act, which expanded the powers of customs officers, including those from the DRI.
However, in March 2021, the Canon ruling created substantial ambiguity by stating that DRI officers were not “proper officers” to issue show-cause notices, impacting thousands of cases in various stages of adjudication.
The government, through additional solicitor general (ASG) N Venkatraman, argued in its review petition that the Canon judgment was flawed and had overlooked crucial statutory interpretations.
According to Venkatraman, this ambiguity hindered the DRI’s enforcement capabilities focus on Delhi which is facing around 800 such cases.
The stakes were high, as the decision potentially impacted ₹20,000- ₹23,000 crore in revenue recovery, including from major corporations like Canon, Sony, Samsung, and Vodafone Idea.
The government’s review petition further asserted that, given the anti-smuggling and anti-evasion mandate of the DRI, limiting its officers’ powers to issue notices under the Customs Act could undermine enforcement efforts.
Importers, on their part, had argued that the 2021 decision restricted DRI’s role, jeopardising their operations and creating uncertainty around pending cases.
The 2022 Finance Act attempted to address these issues by amending the definition of “proper officer” to explicitly include DRI officers. However, the amendment itself faced challenges in various high courts, with petitioners arguing that Parliament could not retroactively alter the basis of a judicial ruling.
The judgment on Thursday clarified that it has only dealt with the issues arising out the Canon India decision and no expression of merit was rendered on any other pending challenge to the 2022 Finance Act provisions.
The court’s decision reinforced the powers of the DRI, allowing it to continue its mandate of investigating and recovering dues related to customs and excise duties.
The ruling also brings clarity to a protracted legal debate and supports the government’s revenue enforcement efforts, setting a precedent for the scope of authority exercised by agencies like the DRI in India’s customs framework.