Existential crisis for Directorate of Revenue Intelligence

The Directorate of Revenue Intelligence (DRI) has been dealt a body blow. The Supreme Court (SC) in its order on March 9, in a civil appeal matter relating to a showcause notice issued by DRI denying the benefit of an exemption, held that the benefit could not be denied. According to the SC, only a “proper officer” as per the Customs Act (CA) could have issued such a notice which the officers of the DRI were not, since they had not been entrusted with such powers under the CA. The order has huge implications and would be causing reverberations in the offices of the DRI.

Before a discussion on the order itself, a brief background about the DRI to put matters in perspective is necessary. There was a need felt for the creation of a centralized agency to deal with all matters relating to collection, collation and analysis of intelligence relating to smuggling and to investigate important cases. A cell known as Central Revenue Intelligence Bureau was created which subsequently evolved into the DRI. The 1957 notification creating the DRI inter alia states that the new “Directorate would function as an independent unit” and would “look after all work relating to anti-smuggling work in the customs, central excise and narcotics departments which will require handling, direction and investigation from the Centre”.

So began a glorious chapter in the nation’s fight against economic offences. The DRI was at the forefront of curbing smuggling and evasion of duty. The charter of the DRI encompassed all aspects of work pertaining to customs, central excise and narcotics which required control, direction and investigation from the Centre. Subsequently, specialized agencies to deal with violations of central excise and narcotics were created and the DRI focused on customs offences. It was an organization manned and headed by officers of the Customs Department with officers from other services occasionally coming on deputation. Thus, the DRI has always been and is an organization of the Customs department working under the aegis of the Central Board of Excise & Customs (CBEC )as it was known then, and under the Central Board of Indirect Taxes & Customs (CBIC) as it is presently known.

Investigations into violations of the CA culminate in the issue of notice suggesting violation of the customs and other allied laws, seeking explanations from the alleged offenders, giving an option of a personal hearing and adjudication. Smuggling itself is defined under the CA to mean any act or omission in relation to any goods which will render such goods liable to confiscation. Thus, import or export is subject to the laws of the land and a violation of the laws render such goods liable to confiscation. If the import is subject to payment of duty for instance and the duty has not been paid, the goods are offending and liable to confiscation. If an exemption from payment of duty is subject to conditions and the conditions are not fulfilled then the exemption is denied and duty is to be demanded. If such exemption had been sought on the basis of misdeclaration than the department has the power to examine all imports, going back up to five years, to investigate if the benefit has been rightly been claimed.

It is in this background that we would need to examine the order of the SC. The Court has laid emphasis on the fact that the notice denying the benefit of the exemption sought and demanding duty can be done only by “the proper officer”. The concept of “the proper officer “is important in the CA-because only such a proper officer can discharge the functions assigned. The assignment of functions being done by either the Board or a senior functionary of the department.

The Court has held that demand for duty can be done only by the proper officer - and such a proper officer can in terms of (section 28 (4) of the CA) be only the officer who has done the original assessment or his successor in the same office. The Court has eloquently given a primer in English grammar and emphasized that the expression used is “the proper officer” which is a definite article which the Court has kindly pointed out is different from an indefinite article-like ‘a’ or ‘an’. Since the expression used is ‘the’ only the officer who has done the original assessment can also demand duty.

Unfortunately, the provisions of Section 28(11) ibid which expressly states that all persons appointed as officers of customs under the CA ‘shall be deemed to have and always had the powers of assessment and always had been the “proper officers”’ does not appear to have been brought to the notice of the Court. This was an amendment introduced in the aftermath of an earlier SC decision (2011 3 SCC 537) which the Court has quoted with appreciation in the present order.

Officers of the DRI have been notified in terms of section 2(34) ibid as “proper officers” for the purpose of section 28 ibid. According to the SC “, this section does not confer any powers or any authority to entrust any functions”. It is a different matter that section 2(34) ibid or the notifications issued under it never use the word “entrust”.

The word used is “assigns” which is what the Board has done - it assigned to officers of the DRI specific powers under the CA. Further, the fact that all officers of the DRI have also been notified to be appointed as officers of customs under another section (section 4) ibid has also not been brought to the notice of the SC. The Hon’ble Court has consequently decided that a DRI officer can be considered the proper officer only if they were ‘entrusted’ with the function of the proper officer under section 6 ibid.

Section 6 ibid states that the Central Government could by notification entrust either conditionally or unconditionally to any officer of the Centre or the State Government or a local authority any functions of the Board or any officer of customs under this Act. The very title of this section would suggest that the purpose of the section was to empower the Central Government to ‘entrust’ functions. Thus, the Central government has entrusted specific functions to paramilitary forces, like the Border Security Force, ITBP, CRPF, SSB apart from the Coast Guard and all State police officers’ specific functions of the CA like search, seizure, arrest. This is a functional necessity to give the extent and spread of the problem of smuggling and the inability of the customs department to be present across the length and breadth of the country.

The SC has, by concluding that officers of the DRI needed to be ‘entrusted’ specifically the functions, in effect held them to not be having any powers under the CA. This is the unkindest cut of all-for officers of the DRI who have been discharging customs functions since 1957. Some of the biggest seizures of narcotics, gold, silver, arms & ammunition, antiques, have been affected by the DRI, all without fear or favour – facing the bullets of smugglers, and in some cases laying down their lives for the Nation.

The SC decision in effect also means that the crucial Audit functions of the department where Audit is carried necessarily by officers other than the assessing officers, also become questionable. The logic of the SC order will also mean that officers of the Customs Preventive formations who man the sea frontiers and land borders and who also initiate investigations and issue notices will no longer have the powers.

There are severe repercussions of the SC order. It would in effect jeopardize notices issued by the DRI pending decision in various fora, which on a conservative estimate would be having revenue implications in excess of Rs.50,000 crore. It would mean the very closure of a premier intelligence and investigative agency.

The government will have to intervene. Urgent action needs to be taken to file a review petition and request that the matter goes before a larger bench. In the interregnum, the Hon’ble Court should be requested to stay the operation of the order till the impact is examined. And with the Budget session still on the government will have to examine if legislative intervention is required to make explicit what is de facto.

The DRI is too important an organisation because of the integrity of its officers and the depth of its investigations, to be permitted to wither away.