In a major policy shift, the Central Board of Indirect Taxes and Customs (CBIC) has decided that all future show cause notices (SCN) in Customs-related matters will only be issued by the Jurisdictional Commissionerate and not by the Directorate of Revenue Intelligence (DRI).

This decision is a fallout of the Supreme Court’s verdict in the matter of Canon India. “The Board has decided that for the present and until further directions, the said SCN may be kept pending. Further, all the fresh SCNs under Section 28 of the Customs Act, 1962 in respect of cases presently being investigated by DRI are required to be issued by jurisdictional Commissionerate from where imports have taken place,” the CBIC said in an instruction.

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CBIC is the policy making body for indirect taxes and works under the Finance Ministry.

Impact on GST system?

Explaining the decision, chartered accountant Rajat Mohan says “Generally, intelligence units have an all-India jurisdiction. They are not bound by jurisdiction. But now, before issuing a notice, they will have to check their jurisdiction.”

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Explaining it further, Aditya Singhania, Partner with Singhania’s GST Consultancy & Co, says that SCNs that have already been issued by the DRI have been kept on hold until further direction from the CBIC as it would be difficult to issue SCN again by the jurisdiction officer. This is because an assessee cannot be adjudicated by two authorities for the same matter in respect of the same tax period which would result in overlapping of jurisdiction. “Since the matter has been kept on hold, one may anticipate a move for review petition or a retrospective amendment which is well within the legislative competence of the Government subject to tests laid by the Apex Court from time to time”, he said.

The apex court, in its order on March 9, ruled that the Additional Director General (ADG) of DRI is not the proper officer to issue SCN under sub-section (4) of section 28 of the Customs Act, 1962. It concluded that the entire proceeding in the present case initiated by ADG (DRI) by issuing SCN as invalid and without any authority of law. It held that the power to issue SCN lies only on “the proper officer” and not on “any proper officer”. Accordingly, it set aside the SCN.

Now, will this order have any impact on the GST system?

Singhania said that the lacuna even continued under GST in the initial two years where notification was issued to appoint the Directorate General of Goods and Services Tax Intelligence (DGGI), the Directorate General of Goods and Services Tax (DGGST) and the Directorate General of Audit (DGA) as the central tax officers and invest them with powers under GST laws ‘throughout India’ by the “CBIC instead of the Central government”.

Rectification measures have already been done well before the Canon India vide Corrigendum issued in July 2019.

However, as far as “the proper officer” is related, the said case may still have impact to the extent of issuance of SCN by the DGGI as the ruling held that where one officer has exercised his powers of assessment, the power to order re-assessment must also be exercised by the same officer or his successor and not by another officer of another department though he is designated to be an officer of the same rank, which would result into an anarchical and unruly operation of a statute which is not contemplated by any canon of construction of statute as against the CBIC circular which gives power to issue SCN by DGGI and adjudication thereafter by the Executive Commissionerate.

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