The Delhi High Court has ruled that merely because an officer of customs contemplates that a question may arise for consideration, does not mean that the question is “pending” consideration so as to bar the Customs Authority for Advance Ruling (CAAR) from deciding the issue in an application for advance ruling, under Clause (a) of the proviso to Section 28-I (2) of the Customs Act, 1962.
The bench of Justices Vibhu Bakhru and Amit Mahajan held that in order for a question to be considered as pending before any customs officer, its necessary that the question must be raised in a notice, enabling the assessee to respond to the said issue. It added that the CAAR is not barred from giving an advance ruling on a question only on the ground that a preliminary exercise was done by a customs officer to determine whether any question for consideration in the case of the assessee arises or not.
The respondent, M/s Spraytec India Ltd, imported certain goods against a Bill of Entry. As per the respondent, the same were covered under the Customs Tariff Heading (CTH) 84248990. The relevant Bills of Entry were assessed by the revenue authorities and an assessment order assessing the imported goods as covered under CTH 84248990, was passed.
However, the Directorate of Revenue Intelligence (DRI) opined that the said goods were required to be classified under CTH 9616 and were subject to a higher rate of customs duty than the goods classified under CTH 84248990. The office premises of the respondent were searched by DRI and thereafter, the DRI issued various summons to the respondent.
The respondent, M/s Spraytec India, filed an application before the Authority for Advance Ruling (AAR), seeking a ruling on the classification of the imported goods under the Custom Tariff Act, 1975. The Customs Authority for Advance Ruling (CAAR) issued a ruling in favour of the respondent, accepting its classification of the imported goods.
Against this, the DRI made a representation before the CAAR, contending that the advance ruling had been obtained by the respondent by “fraud and misrepresentation of facts” and therefore, it was entitled to be declared as void ab initio in terms of Section 28K (1) of the Customs Act. The DRI contended that the respondent, Spraytec India, had not disclosed before CAAR that investigation in respect of the imported goods was being conducted by DRI. It added that if such disclosure was made by the respondent, the application seeking advance ruling would have been rejected in terms of the proviso to Section 28-I (2) of the Customs Act.
Rejecting the representations made by the revenue department, the CAAR held that there was no misrepresentation or suppression of facts on the part of the respondent.
The CAAR opined that in its application, the respondent, Spraytec India, had clearly mentioned that goods covered under the relevant Bills of Entry had been detained by the Customs authority on the instance of DRI. The goods were eventually released without taking any bond or bank guarantee, and the same were cleared under CTH 84248990. It further noted that at the time the applicant/ respondent had filed its application before the AAR, no Show Cause Notice had been issued to it by the DRI.
Against the CAAR’s order, the DRI filed an appeal before the Delhi High Court.
The High Court took note that since DRI, or any other authority, had not issued any show cause notice, it cannot be said that the issue regarding classification of goods was pending before any Customs officer, Appellate Tribunal, or any Court.
Referring to the proviso of Section 28-I (2) of the Customs Act, the bench reckoned that the CAAR is barred from entertaining any application for advance ruling if the question raised in the said application is pending “in the applicant’s case” before “any officer of customs, the Appellate Tribunal or any Court” or if the said question has already been decided by the Appellate Tribunal or any Court.
The Court added: “In the present case, DRI had not issued any pre-consultation notice or show cause notice which would indicate that the question regarding classification of any goods was pending before DRI. Thus, even if it is accepted that an officer of DRI is an officer of Customs, it cannot be accepted that the question raised by the respondent in its application under Section 28H of the Customs Act was pending ‘in the applicant’s case’ before DRI.”
Holding that a distinction must be made between a question that is pending consideration and the possibility of a question arising for consideration, the Court ruled that merely because an officer of customs contemplates that a question may arise, does not mean that the question is pending consideration.
“In order for a question to be considered as pending before any officer of customs, it would be necessary for the question to be raised in any notice enabling the assessee to respond to the said issue. It is only after this stage that it would be necessary for the officer of customs to render its decision on the question,” the bench said. The Court added: “For a question to be stated to be pending, the concerned officer must formally set forth the same for the assessee to contest the same.”
The Court concluded that any preliminary exercise done by an officer of customs, to consider whether any question for consideration arises, would not bar the CAAR from giving an advance ruling on the said question. The possibility that a question would arise for consideration of a customs officer, appellate tribunal or court, is not a ground contemplated under Clause (a) of the proviso to Section 28-I (2) of the Customs Act, the Court held.
“It is relevant to note that the CAAR had also concluded to the effect that even if it was disclosed that there was an on-going investigation by DRI, the same would not be relevant to the outcome of the proceedings. Concededly, no pre-consultation notice or show cause notice had been issued by DRI or any other Authority and it would be erroneous to hold that the question of classification was pending before any Custom officer, Appellate Tribunal or any Court,” the Court remarked.
Upholding the order passed by CAAR, the High Court dismissed DRI’s appeal.
Case Title: Directorate of Revenue Intelligence (Hqrs.) versus M/s Spraytec India Ltd
Counsel for the Appellant: Mr Harpreet Singh, Advocate
Counsel for the Respondent: Ms Anjali Jha Manish, Mr Priyadarshi Manish and Ms Divya Rastogi, Advocates