Tag: #cbic

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 31.08.2025

The Canon India Saga- The Judgement & the journey going forward

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Introduction

The jurisprudence surrounding the powers of the Directorate of Revenue Intelligence (DRI) under the Customs Act, 1962 has undergone dramatic shifts in recent years. The Supreme Court’s ruling in Canon India Pvt. Ltd. v. Commissioner of Customs (2021) appeared to decisively curtail DRI’s jurisdiction to issue show cause notices (SCNs) under Section 28. Yet, in Commissioner of Customs v. Canon India Pvt. Ltd. (2024 Review), the Court reversed course, validating DRI’s authority subject to statutory assignment. This oscillation, coupled with legislative intervention in 2022, has produced a recalibrated enforcement regime with profound implications for importers, exporters, and the State’s investigative machinery.

Canon India (Customs) — 2021 vs 2024

Item	2021 decision	2024 review decision
Case & date	M/s Canon India Pvt. Ltd. v. Commissioner of Customs, Civil Appeal No. 1827/2018 and batch (decided 9-Mar-2021)	Commissioner of Customs v. M/s Canon India Pvt. Ltd., Review Petition No. 400/2021 (judgment dated 7-Nov-2024)
Core question	Whether DRI officers are “the proper officer” competent to issue SCNs under S28(4) after clearance by jurisdictional customs officers.	Whether Canon-2021 erred; whether DRI and certain other officers are “proper officers” for S28; validity/effect of later statutory changes/validations.
Holding (short)	DRI not “the proper officer” to issue S28(4) notices; SCNs by ADG-DRI set aside.	Review allowed; DRI are proper officers for S28 (subject to assignment via notifications). Canon-2021’s reasoning corrected; validation of past SCNs upheld.
Key statutory provisions discussed	S2(34) (definition of “proper officer”); S6 (entrustment to other govt officers); S28(4) (extended-period SCN); linkage emphasized to S17 (assessment). Court read S28 power as confined to the officer who handled assessment/re-assessment.	S2(34) (incl. post-2022 text linking assignment to S5); SS3–5 (classes/appointment/powers of customs officers); S6 (distinct from S2(34)/S5 assignment); S17 & S28 (no mandatory inter-dependence for jurisdiction under S28); S110AA (inserted 2022; prospective scheme); S28(11) (Validation Act 2011); S97, Finance Act 2022 (validation of past actions).
Notifications & Circulars considered / reproduced	• Notif. 17/2002-Cus (N.T.), 07-03-2002 (appointing ADG-DRI as Commissioner of Customs). • Notif. 40/2012-Cus (N.T.), 02-05-2012 (assignment table incl. S28 to DC/AC and above). • Context: exemption Notif. 2005 + amending 15/2012 for DSICs (background facts).	Appointments / assignment • Notif. 19/90-Cus (N.T.), 26-04-1990 (DRI appointed as customs officers; later superseded). • Notif. 17/2002-Cus (N.T.), 07-03-2002 (superseding earlier; DRI appointments). • Notif. 44/2011-Cus (N.T.), 06-07-2011 (assigning “proper officer” functions incl. SS17 & 28 to DRI); amendments: 53/2012, 43/2019; rescinded/superseded by 25/2022-Cus (N.T.) aligned with Finance Act 2022. • Notif. 40/2012-Cus (N.T.), 02-05-2012 (assignment table). • Notif. 60/2015-Cus (N.T.), 04-06-2015 (common adjudicating authority—delegation to Principal DG, DRI). Circulars • Circular 4/99-Cus, 15-02-1999 (DRI may issue SCNs in cases they investigate; adjudication by jurisdictional officers). • Circular 18/2015-Cus, 09-06-2015 (guidelines on common adjudicator after Notif. 60/2015). • Circular 44/2011-Cus, 23-11-2011 (referred to alongside 4/99).
Treatment of earlier case-law	Relied heavily on Sayed Ali (2011) to insist that the S28 “proper officer” must be the officer vested with S17 assessment; read S6 as the only entrustment route.	Explains Sayed Ali did not involve DRI with proper assignments; treats its S17–S28 “linkage” as erroneous/obiter; sets aside Delhi HC’s Mangali Impex; affirms Bombay HC’s Sunil Gupta on S28(11) validation.
Reasoning snapshot	• Notif. 40/2012 issued under S2(34) was held ultra vires (since S2(34) only defines; entrustment must be under S6). • Thus ADG-DRI lacked authority to issue S28(4) SCN.	• Distinguishes assignment of “proper officer” functions (S2(34) read with S5) from entrustment under S6 (for non-customs officers). • Confirms multiple proper officers can exist if functions are properly assigned by notification; no statutory need that the S28 officer must be the S17 assessor (pre-S110AA). • Notes post-2022 amendments (to SS2,3,5 and S110AA) and Section 97 validating earlier SCNs; upholds constitutionality of S97.
Outcome / effect	SCNs by DRI quashed; ripple effect invalidated many DRI SCNs.	Review allows department’s plea; DRI recognized as proper officers for S28 where assigned; S97 Finance Act 2022 validation upheld; Mangali Impex overruled; Sunil Gupta approved.

A. Legal provisions canvassed

• 2021 (Canon-I): S2(34); S6; S28(4); linkages to S17 (assessment); reliance on Sayed Ali (2011).
• 2024 (Canon-II / Review): SS2(34), 3, 4, 5, 6, 17, 28 (incl. Explanation 2 & S28(11) Validation Act); S110AA (inserted 2022); Finance Act 2022 S97 (validation); detailed discussion of assignment vs entrustment.

B. Notifications & Circulars cited by the Court

2021 judgment

• Notif. 17/2002-Cus (N.T.), 07-03-2002 (ADG-DRI appointed as Commissioner of Customs).
• Notif. 40/2012-Cus (N.T.), 02-05-2012 (assignment table incl. S28).
• Exemption notifications (factual background): 2005 exemption notification (the judgment text references No. 20/2005/25/2005) as amended by 15/2012 for digital still image video cameras. (India Budget)

2024 review judgment

• Notif. 19/90-Cus (N.T.), 26-04-1990; superseded by Notif. 17/2002-Cus (N.T.), 07-03-2002 (appointment of DRI as officers of customs).
• Notif. 44/2011-Cus (N.T.), 06-07-2011 (assigns “proper officer” functions incl. SS17 & 28 to DRI); amended by 53/2012 & 43/2019; superseded by 25/2022-Cus (N.T.).
• Notif. 40/2012-Cus (N.T.), 02-05-2012 (assignment table; to be read with SS4/5).
• Notif. 60/2015-Cus (N.T.), 04-06-2015 (common adjudicating authority—delegation to Principal DG, DRI).
• Circular 4/99-Cus, 15-02-1999 (DRI to issue SCNs they investigate; adjudication by field formations).
• Circular 18/2015-Cus, 09-06-2015 (post-Notif. 60/2015 guidance).
• Circular 44/2011-Cus, 23-11-2011 (referred alongside 4/99).

What changed between 2021 and 2024?

1. Who can issue S28 SCNs?
   • 2021: Only the officer who did (re)assessment under S17 (or was otherwise assigned) could issue S28 SCN—DRI’s SCNs were invalid.
   • 2024: The Act does not require the S28 SCN issuer to be the same person who did S17 assessment (pre-S110AA). What matters is a valid assignment of S28 functions to that officer via proper notifications (read S2(34) with S5; S6 is for non-customs officers). DRI officers were validly appointed/assigned.
2. Effect of later legislation
   • S110AA (2022) prospectively ties issuance of S28 SCN to the proper officer assigned to conduct S17 assessments; it doesn’t retrospectively invalidate earlier practice.
   • S97, Finance Act 2022 validated past SCNs; SC upheld its constitutionality and clarified scope vis-à-vis S28(11) & Explanation-2.
3. Companion High Court rulings
   • Delhi HC (Mangali Impex) set aside; Bombay HC (Sunil Gupta) approved.

Practical takeaways for customs disputes (post-2024)

• Jurisdictional objections to DRI SCNs (pre-2022) now generally fail if the Department shows valid appointment & assignment via the above notifications.
• For SCNs issued after 31-Mar-2022, consider S110AA: the issuing officer must be the assigned S17 officer; challenges should scrutinize post-2022 assignment orders.
• Validation under S97 Finance Act 2022 covers past SCNs; constitutional challenges were rejected in the review.

1. Scope of the Review

The Supreme Court in 2024 was deciding a review petition against its earlier 2021 ruling. Its focus was:

• Whether the 2021 reasoning (that DRI officers were not “proper officers”) was legally sustainable, and
• Whether the post-2011 Validation Act (S28(11)) and Finance Act 2022 (S97) covered past SCNs.

Because of this limited scope, the Court concentrated on notifications and circulars that existed at the time of the disputed SCNs (2005–2015 era), and the validating provisions enacted later, not on fresh notifications meant to operate prospectively.

2. Temporal Relevance

• Notifications 25/2022 and 26/2022 (N.T.) were issued after 31-03-2022, expressly to align officer-assignments with the newly inserted S110AA (Finance Act 2022).
• Circular 07/2022-Cus (N.T.) clarified field implementation under the new law.

Since the SCNs in dispute in Canon India dated back years earlier, the Court treated these 2022 instruments as not directly applicable to the lis (dispute) before it. Instead, the Court examined:

• older appointment/assignment notifications (17/2002, 40/2012, 44/2011, 60/2015, etc.), and
• validating clauses (S28(11), S97 Finance Act 2022).

3. Statutory Coverage Already Achieved

The 2024 judgment did consider S110AA and S97 of Finance Act 2022 in detail. Those provisions themselves were the statutory foundation upon which Notifications 25/2022 & 26/2022 and Circular 07/2022 were based.
Thus, by upholding S97 and clarifying S110AA’s prospective effect, the Court implicitly accepted the validity of the 2022 notification/circular regime, without needing to cite each by number.

4. Judicial Practice

The Supreme Court often:

• Cites only those notifications/circulars that form the crux of the dispute or which were argued before it.
• Leaves out subsequent administrative instruments if their effect is prospective or merely implementational.

The 2024 bench emphasized that post-31.03.2022 SCNs would fall under S110AA and fresh notifications, but it was not ruling on those—so it found no need to reproduce or analyze 25/2022, 26/2022, or Circular 07/2022.

In short:
The 2024 Supreme Court judgment did not consider those specific 31-03-2022 notifications and circular because they were prospective instruments implementing S110AA, while the Court’s task was to decide the validity of pre-2022 SCNs and the scope of validation under S97. Their effect was implicitly acknowledged, but not directly adjudicated.

That’s a very important concern. After the Canon India litigation saga and the March 2022 amendments, the powers of DRI officers have indeed been regularized, but they are not “unlimited” or unchecked. Let me explain in detail:

1. What changed in 2022?

• Finance Act, 2022 inserted Section 110AA into the Customs Act, 1962.
  → It mandates that the same “proper officer” who is assigned functions of assessment under Section 17 will also have jurisdiction to issue show cause notices under Section 28.
• To operationalize this:
  • Notification 25/2022-Cus (N.T.) and 26/2022-Cus (N.T.) (31-03-2022) were issued. They re-assigned functions clearly to DRI, Audit, Preventive, and Commissionerates, ensuring statutory backing.
  • Circular 07/2022-Cus (31-03-2022) gave field-level guidance, clarifying how officers should exercise powers under the new framework.

This effectively plugged the “jurisdictional defect” highlighted in Canon India (2021).

2. Checks on DRI powers post-2022

Even with these notifications, DRI officers are not beyond scrutiny:

(a) Statutory Limitation

• Section 110AA ties issuance of SCNs to proper assignment; DRI can only act if lawfully assigned by notification.
• Their jurisdiction flows strictly from Sections 2(34), 3, 5, 6, and 110AA read with the assignment notifications.

(b) Validation but Prospective Guardrails

• The Supreme Court in 2024 (Canon India Review) upheld the validity of past SCNs via Section 97 of Finance Act 2022, but also emphasized that going forward, the post-2022 assignment regime applies.
• This means future SCNs can be challenged if issued contrary to Section 110AA or without proper assignment.

(c) Procedural Safeguards

• DRI must comply with natural justice (notice, reply, hearing).
• SCNs are adjudicated by jurisdictional Commissioners/Principal Commissioners, not by DRI itself, preventing them from being “judge in their own cause.”
• Circular 07/2022 reinforces this segregation of roles.

(d) Judicial Oversight

• Courts and CESTAT remain open to review whether DRI officers exceeded statutory assignment, acted mala fide, or violated procedural safeguards.
• Writ petitions under Article 226/227 and appeals under Section 129A (CESTAT) and Section 130 (High Court) continue to act as a check.

3. Practical Position Going Forward

• Yes, DRI has regained legal authority (as “proper officers”), but their powers are not unfettered.
• The 2022 notifications and circulars give them jurisdiction, but also bind them within the statutory scheme of Sections 17, 28, and 110AA.
• Any SCN post-2022 must be tested for:
  • Correct assignment in the relevant notification;
  • Compliance with limitation under Section 28;
  • Observance of natural justice.

Conclusion:
DRI officers’ powers will not go unchecked under Notifications 25/2022, 26/2022, and Circular 07/2022. These instruments regularize and define their jurisdiction, but checks still exist through Section 110AA, adjudication by separate authorities, and judicial review.

The Canon India Saga: Judicial U-Turn, Legislative Response, and the Recalibration of DRI Powers under the Customs Act, 1962

I. The 2021 Decision: Curtailing DRI Jurisdiction

In its 9 March 2021 judgment, the Supreme Court held that officers of DRI were not “proper officers” under Section 28 of the Act.

• The Court relied on Section 2(34) (defining “proper officer”) and Section 6 (entrustment of functions to other government officers) to conclude that only the officer who originally assessed goods under Section 17 could subsequently reopen or reassess liability under Section 28.
• Notifications such as Notification No. 40/2012-Cus (N.T.), issued to empower DRI, were held ultra vires, since Section 2(34) was merely definitional and could not serve as a source of power.
• In effect, all SCNs issued by DRI under Section 28(4) were rendered invalid.

The judgment’s reasoning was strongly influenced by Union of India v. Sayed Ali (2011), which had emphasized a close nexus between the assessing officer and the officer reopening the assessment.

II. Legislative Response: Finance Act, 2022

The 2021 ruling created widespread disruption in anti-evasion enforcement. Parliament responded promptly through the Finance Act, 2022, which introduced two pivotal reforms:

1. Section 110AA (prospective): mandated that the “proper officer” assigned the functions of assessment under Section 17 would also have jurisdiction to issue notices under Section 28. This tied jurisdiction to statutory assignment rather than to the original assessing officer.
2. Section 97, Finance Act 2022 (retrospective): validated all past actions of DRI and similar officers, curing the jurisdictional defect identified in Canon 2021.

To operationalize these amendments, the Government issued:

• Notification No. 25/2022-Cus (N.T.) and 26/2022-Cus (N.T.) (both dated 31-03-2022), re-assigning assessment and demand functions across Customs Commissionerates, DRI, Audit, and Preventive formations.
• Circular No. 07/2022-Cus (31-03-2022), clarifying procedural aspects of SCN issuance and adjudication under the new regime.

III. The 2024 Review Decision: A Judicial Recalibration

In its 7 November 2024 judgment, the Supreme Court allowed the Department’s review petitions, effectively reversing the 2021 ruling.

• Assignment vs. Entrustment: The Court distinguished between assignment of functions (Sections 2(34) read with 3, 4, and 5) and entrustment of functions (Section 6). Since DRI officers were duly appointed and their functions assigned through statutory notifications (17/2002, 44/2011, 40/2012, 60/2015), they qualified as “proper officers.”
• Rejection of Section 17–28 Nexus: The earlier insistence that the officer under Section 28 must be the same officer who assessed under Section 17 was held erroneous, save for the prospective effect of Section 110AA.
• Validation: The Court upheld the constitutionality of Section 97, Finance Act 2022, thereby retrospectively validating past SCNs.
• Precedents Revisited: Mangali Impex (Delhi High Court), which had invalidated DRI notices, was expressly overruled, while Sunil Gupta (Bombay High Court) was approved.

Thus, the Court restored DRI’s jurisdiction while acknowledging the legislative guardrails introduced in 2022.

IV. The Status of Notifications and Circulars

It is noteworthy that Notifications 25/2022, 26/2022 and Circular 07/2022 were not expressly discussed in the 2024 judgment. This was deliberate:

• The Court’s task in review was confined to pre-2022 SCNs and the effect of retrospective validation.
• Since the 2022 instruments were prospective, their role was implicitly recognized but not adjudicated upon.

Accordingly, future SCNs will be governed by Section 110AA and these notifications, while past SCNs stand validated by Section 97 of Finance Act, 2022.

V. Will DRI Powers Go Unchecked?

Concerns about unchecked investigative powers must be balanced against statutory safeguards:

1. Statutory Assignment – DRI’s jurisdiction flows strictly from notifications issued under Sections 3, 5, and 110AA; it cannot act beyond assigned functions.
2. Separation of Roles – While DRI investigates and issues SCNs, adjudication lies with jurisdictional Commissioners, ensuring impartiality.
3. Natural Justice and Limitation – Section 28 prescribes limitation periods and procedural fairness, binding on DRI.
4. Judicial Oversight – Writ jurisdiction under Article 226 and appeals under Sections 129A and 130 act as systemic checks on arbitrary exercise.

Thus, the new framework strengthens enforcement while embedding institutional and judicial safeguards.

VI. Conclusion

The Canon India saga exemplifies the dynamic interplay between judicial pronouncement, legislative correction, and administrative implementation.

• The 2021 judgment underscored the dangers of empowering investigative agencies without statutory clarity.
• The 2022 amendments created a prospective framework under Section 110AA and retrospectively validated past SCNs under Section 97.
• The 2024 review judgment restored balance by recognizing DRI’s jurisdiction but within the bounds of statutory assignment.

Going forward, litigation will likely shift from jurisdictional challenges to questions of procedural compliance, limitation, and fairness in adjudication. For taxpayers and counsel, the message is clear: the battle has moved from “whether” DRI can issue SCNs, to “how” those SCNs are exercised under law.

Editorial Note:
The Canon India trajectory—from invalidation, to legislative intervention, to judicial recalibration—is a striking illustration of how revenue enforcement, judicial oversight, and legislative sovereignty co-evolve. For customs law in India, it marks the end of jurisdictional uncertainty and the beginning of a new era of substantive procedural scrutiny.

Source: Canon-2021 judgment (9-Mar-2021) — Supreme Court of India (Reportable) & Canon-2024 review judgment (7-Nov-2024) — Supreme Court of India (Reportable)

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