CESTAT Chennai: DRI Officers Empowered To Issue Show Cause Notices In Duty Drawback Cases, Penalty On Customs Broker Set Aside
Pranav B Prem
The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Directorate of Revenue Intelligence (DRI) has jurisdiction to issue show cause notices (SCNs) in cases involving recovery or wrongful availment of duty drawback under Section 75 of the Customs Act, 1962, read with the relevant provisions of the Drawback Rules, 1995. The Bench comprising P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) decided a batch of appeals filed by M/s Manasa Impex Services, Coimbatore, a Customs House Agent (CHA), arising from a common order of the Commissioner of Customs and Central Excise, Coimbatore. The Tribunal dismissed the department’s contention that DRI lacked jurisdiction, affirming that DRI officers, being duly appointed as “officers of customs,” are competent to issue show cause notices even in drawback matters.
Background
The Directorate of Revenue Intelligence (DRI) had conducted an investigation into M/s SSK Knit Apparels, Tirupur, over allegations of fraudulent exports involving inflated values and wrongful claim of duty drawback. A show cause notice dated October 6, 2006, was issued by the DRI to M/s Manasa Impex Services, the Customs Broker for the exporter, for allegedly filing shipping bills without proper verification of declarations and facilitating the fraudulent drawback claims amounting to ₹1,05,81,796/-.The Order-in-Original confirmed recovery of the drawback amount along with interest from the exporter and imposed a penalty of ₹5 lakh on the Customs Broker under Section 114(iii) of the Customs Act. Aggrieved by this, the broker filed multiple appeals before the Tribunal, raising the question of whether DRI officers were competent to issue show cause notices under Section 75 of the Act.
Appellant’s Contentions
Counsel for the appellant, Shri S. Murugappan, argued that DRI officers were not “proper officers” within the meaning of Section 75 of the Customs Act read with Rules 16 and 16A of the Central Excise and Service Tax Drawback Rules, 1995. It was submitted that while the DRI may have powers under Sections 17 and 28 of the Act for customs duty-related recoveries, such powers do not extend to drawback-related matters, as no specific notification or retrospective validation exists under the Drawback Rules.
He relied on the Tribunal’s earlier decision in Manasa Impex Services & Ors. v. CCE Coimbatore [2018 (1) TMI 441 – CESTAT Chennai], where it was held that DRI officers were not competent to issue SCNs in drawback cases. The counsel further contended that there was no material evidence showing that the CHA had abetted or participated in any fraudulent activity. Any procedural lapses in verifying exporter credentials would fall under the Custom House Agents Licensing Regulations (CHALR) and not attract penalty under the Customs Act.
Revenue’s Arguments
On the other hand, the departmental representative, Smt. Anandalakshmi Ganeshram, argued that DRI officers have been validly appointed as officers of customs under Notification No. 19/90-Cus (NT) dated 26.04.1990, which was later superseded by Notification No. 17/2002-Cus (NT). Hence, they are empowered to issue show cause notices in cases of drawback recoveries. It was also submitted that mens rea is not an essential element for imposing penalties under Section 114, and since the CHA’s actions had facilitated the fraudulent export claims, the penalty was justified.
Tribunal’s Findings
The Tribunal noted that earlier judgments such as Monte International v. Commissioner of Customs [2016 (340) ELT 345 (Tri-Del)] had questioned DRI’s jurisdiction in drawback cases based on the Supreme Court’s ruling in Commissioner of Customs v. Sayed Ali [2011 (265) ELT 17 (SC)]. However, the Bench emphasized that the legal landscape had significantly evolved following the Supreme Court’s three-judge bench decision in Canon India Pvt. Ltd. (Review Petition No. 400 of 2021) [2024 INSC 854] — referred to as Canon India-II — which clarified that DRI officers are “proper officers” under the Customs Act and are competent to issue show cause notices. The Tribunal observed: “Once DRI officers are appointed as officers of customs under valid notifications, full effect must be given to such appointment, and the power to issue show cause notices under Rule 16 of the Drawback Rules would also stand conferred.”
It further held that the Finance Act, 2022 (Section 97) retrospectively validated all actions taken under the Customs Act, including those relating to Chapter X (Drawback) and Chapter XVII (Recovery of sums due to Government), thereby removing any jurisdictional doubts. The Bench also relied on the decision of the Karnataka High Court in Sri Meenakshi Apparels Pvt. Ltd. v. Union of India [2010-TIOL-938-HC-KAR-CUS], which held that once DRI officers are appointed under Section 4(1) of the Act, they enjoy all powers of subordinate officers under Section 5(2), including the power to issue and adjudicate show cause notices in drawback matters.
Penalty Issue
Regarding the penalty imposed on the Customs Broker under Section 114(iii), the Tribunal held that the alleged lapses were procedural violations governed by the CHALR (Customs House Agents Licensing Regulations), which constitute a special law prevailing over the general penal provisions of the Customs Act. The Bench noted that no evidence of abetment or collusion had been produced against the appellant and observed: “Section 117 of the Customs Act will not apply to a case where allegations pertain to the duties of a CHA, which are governed by CHALR. The act of abetment has not been demonstrated by the Revenue.” Accordingly, the penalty imposed on the appellant was set aside.
Holding that DRI officers are empowered to issue show cause notices even in cases involving duty drawback, the Tribunal concluded that the impugned orders were unsustainable and allowed the appeals filed by M/s Manasa Impex Services. “In light of the Apex Court’s ruling in Canon India-II and the retrospective validation under the Finance Act, 2022, it is clear that DRI officers possess jurisdiction to issue show cause notices in drawback cases. The penalty imposed on the Customs Broker is unsustainable in law,” the Tribunal held.
Appearance
Shri S. Murugappan, Advocate for the Appellant
Smt. Anandalakshmi Ganeshram, Auth. Representative for the Respondent
Cause Title: Manasa Impex Services v. Commissioner of Customs (Preventive)
Case No: Customs Appeal No. 290/2009
Coram: P. Dinesha (Judicial Member), M. Ajit Kumar (Technical Member)
