Commissioner of Central Excise vs Molex India Ltd.

N. Kumar, J.

The Revenue has preferred these appeals against the order passed by the Tribunal holding that the proceedings initiated under Rule 8 of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (for short hereinafter referred to "the Customs Rules, 1996") by the Deputy Commissioner of Central Excise is one without jurisdiction as he is not a proper Officer of Customs under Section 28(1) of the Customs Act and accordingly set aside the show cause notices issued by such authority. The assessee is engaged in the manufacture of connectors, connector harnesses and parts thereof. They have been issued with the registration certificate under the Customs Rules, 1996. It was noticed by the Revenue that they had imported goods at concessional rate of duty under Notification No. 25/99, dated 28-2-1999 and used the same for manufacture of parts of connectors which are not specified in the list appended to the said notification. Thus, the assessee violated the provisions of the Customs Rules, 1996. Therefore, show cause notices came to be issued to the assessee by the Deputy Commissioner, Central Excise on 21-8-2001 requiring the assessee to show cause why differential duty for the period from 27-8-1996 to 30-4-2001 should not be recovered from them. The assessee on receipt of the said notice filed its objections contending that notice issued is one without jurisdiction and they substantiated their act on merits also. They also contended that the notice issued without prior approval of the Chief Commissioner of Customs is also without jurisdiction. Overruling the said objection, the original authority confirmed the demand made in the show cause notice. Aggrieved by the same, the assessee preferred an appeal to the Commissioner (Appeals) which also came to be dismissed. Aggrieved by the same, the assessee preferred an appeal to the CESTAT which allowed the appeal of the assessee holding that the show cause notices issued by the Deputy Commissioner of Central Excise is one without jurisdiction and accordingly, the same was set aside. Aggrieved by the said order, the Revenue preferred the appeal to the Apex Court, the Apex Court observed that as the appeal does not relate to the rate of duty or the value of the goods for the purpose of assessment, the appeals are not maintainable. Thereafter the revenue withdrew the appeal with a liberty to file an appeal before this Court. Accordingly, the present appeals are filed.

The learned Counsel for the Revenue assailing the impugned order contended that by virtue of the power conferred under Section 156 of the Customs Act, 1962, the Central Government has made the Rules. Any person who wants to have the benefit of the notification referred to in sub-rule (1) of Rule 2 has to obtain a registration from the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise having jurisdiction over its factory. Once the assessee approaches the said authority and obtains registration and if there is any violation of the terms of the notification, then the aforesaid authority under Rule 8 can recover the amount equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of import along with interest. Therefore, he submits that it is not open to the assessee who has submitted themselves to the jurisdiction of the said authorities to question the jurisdiction of the authorities to initiate action under the Rules. The entire scheme of the Rules, if properly understood, it is clear that the said authorities have authority to initiate action under Rule 8 and therefore, the finding recorded by the Tribunal is erroneous and requires to be set aside.

Per contra, the learned Counsel appearing for the assessee submitted that Section 28 of the Customs Act provides for recovery of duties not levied, short levied or erroneously refunded and a proper Officer is vested with the power to initiate proceedings for recovery of the same. The "Proper Officer" is defined under Section 2(34) of the Act. In the instant case, the Deputy Commissioner of Excise is not the proper Officer under the Customs Act and therefore, the proceedings initiated by him is one without jurisdiction as rightly held by the Tribunal. Therefore, he submits that no case for interference is made out.

In the light of the facts and rival contentions, the point that arises for consideration in this appeal is:--

"Whether the Deputy Commissioner of Excise is the Proper Officer who has the jurisdiction to initiate proceedings under Rule 8 of the Customs Rules for recovery of duty which is not levied?"

The show cause notice is issued by the Deputy Commissioner of Central Excise by virtue of Rule 8 of the Customs Rules, 1996, which reads as under:--

"Rule 8. Recovery of duty in certain case.--The (Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise) shall ensure that the goods imported are used by the manufacturer for the intended purpose and in case they are not so used take action to recover (the amount equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of importation, along with interest, at the rate fixed by notification issued under Section 28AB of the Customs Act, 1962, for the period starting from the date of importation of the goods on which the exemption was availed and ending with the date of actual payment of the entire amount of the difference of duty that he is liable to pay.)"

The said Rules are framed by the Central Government by virtue of the power conferred on them under Section 156 of the Customs Act. The power of the Central Government to frame such Rules cannot be questioned. However, under the Rules, the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise has been vested with the power for recovery of duties in certain cases. Section 28 of the Customs Act, 1962 is a provision which empowers the authority under the Act to recover duties not levied, short levied or erroneously refunded. It reads as under:--

"28. Recovery of duties not levied or short-levied or erroneously refunded.--(1) Where any duty has not been levied or has been short-levied or erroneously refunded, or any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than the reasons of collusion or any willful misstatement or suppression of facts,-

(a) the proper officer shall, within one year from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied or which has been short-levied, or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;

(b) the person chargeable with the duty or interest, may pay before service of notice under clause (a) on the basis of, -

(i) his own ascertainment of such duty; or

(ii) the duty ascertained by the proper officer,

the amount of duty along with the interest payable thereon under Section 28AA or the amount of interest which has been so paid or part-paid:

[Provided that the proper officer shall not serve such show cause notice, where the amount involved, is less than rupees one hundred.]

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A reading of the aforesaid provision makes it clear that the person entrusted with the task of recovery of duty is the proper officer. The proper officer is defined under Section 2(34) as under:--

"proper officer", in relation to any functions to be performed under this Act, means the officer of Customs who is assigned those functions by the Board or the (Commissioner of Customs)"

Therefore, from the definition of "proper officer", it is clear that proper officer is a person who is assigned the functions to be performed under the Customs Act by the Board or the Commissioner of Customs. The Supreme Court had an occasion to interpret this provision in the case of Commissioner of Customs v. Syed Ali [2011 (265) E.L.T. 17 (S.C.)] at Paragraphs 13 and 14, which reads thus:--

"13. Section 2(34) of the Act defines a "proper officer", thus:

"2. Definitions. -.................

(34) "proper officer", in relation to any functions to be performed under this Act, means the officer of Customs who is assigned those functions by the Board or the Commissioner of Customs". It is clear from a mere look at the provision that only such Officers of Customs who have been assigned specific functions would be "proper officers" in terms of Section 2(34) of the Act. Specific entrustment of function by either the Board or the Commissioner of Customs is therefore, the governing test to determine whether an "officer of customs" is the "proper officer".

From a conjoint reading of Sections 2(34) and 28of the Act, it is manifest that only such a customs officer who has been assigned the specific functions of assessment and re-assessment of duty in the jurisdictional area where the import concerned has been affected, by either the Board or the Commissioner of Customs, in terms of Section 2(34) of the Act is competent to issue notice under Section 28 of the Act. Any other reading of Section 28 would render the provisions of Section 2(34) of the Act otiose in as much as the test contemplated under Section 2(34) of the Act is that of specific conferment of such functions. Moreover, if the Revenue''s contention that once territorial jurisdiction is conferred, the Collector of Customs (Preventive) becomes a "proper officer" in terms of Section 28 of the Act is accepted, it would lead to a situation of utter chaos and confusion, in as much as all officers of Customs, in a particular area be it under the Collectorate of Customs (imports) or the Preventive Collectorate, would be "proper officers." In our view therefore, it is only the officers of customs, who are assigned the functions of assessment, which of course, would include re-assessment, working under the jurisdictional Collectorate within whose jurisdiction the bills of entry or baggage declarations had been filed and the consignments had been cleared for home consumption, will have the jurisdiction to issue notice under Section 28 of the Act."

From the aforesaid judgment, it is clear that only such officers of the Customs who have been assigned specified functions would be proper officers in terms of Section 2(34) of the Act. The specific entrustment of functions by either the Board or Commissioner of Customs is the governing test to determine whether the Officer of customs is the proper officer. From a conjoint reading of Sections 2(34) and 28 of the Customs Act, it is manifest that only such a customs officer who has been assigned the specific functions in the jurisdictional area where the import concerned has been affected, by either the Board or the Commissioner of Customs, in terms of Section 2(34) of the Act is competent to issue notice under Section 28 of the Act. Any other reading of Section 28 would render the provisions of Section 2(34) of the Act otiose. The Supreme Court in the case of Subhash Photographics and Others Vs. Union of India (UOI) and Others, dealing with the power of making rules under Section 156 and Regulations under Section 157 of the Customs Act has held as follows:--

"12. Section 156 confers upon the Central Government the power to make rules "consistent with this Act generally, to carry out the purposes of this Act". Sub-section (2) of Section 156 again specifies certain matters with respect to which rules can be made. The specification in sub-section (2) is without prejudice to the generality of the power conferred by sub-section (1).

The Parliament has appointed two authorities i.e., Central Government and the Board to make rules/regulations to carry out the purposes of the Act generally. The character of Rules and of the Regulations made under Sections 156 and 157 respectively is the same-both constitute delegated legislation. The Regulations are subject to an additional limitation viz., they should not be contrary to the Rules made under Section 156. The purpose of sub-section (2) in both the delegates can exercise the power vested in them for carrying out the purposes of the Act. No established legislative practice of any considerable duration has been brought to out notice to read any further limitation into the regulation-making power under Section 157, assuming that a legislative practice can be read as a limitation. We cannot, therefore, accept the contention that regulation-making power under Section 157 should be confined only to peripheral and/or procedural matters."

Section 156 of the Customs Act confers on the Central Government the general power to make Rules consistent with the Act generally to carry out the process of the Act, whereas Section 157 confers on the Board the general power to make Regulations consistent with the Act and the Rules framed by the Government under Section 156 generally to carry out the purposes of the Act. The Customs Rules, 1996 is made by the Central Government by virtue of the power conferred under Section 156.

Section 2(34) read with Section 28 of the Customs Act empowers the Board or Commissioner of Customs to appoint Proper Officers in relation to any function to be performed under the Act. Therefore, under the scheme of the Act, when Section 156 deals with the power of the Central Government to make Rules, Section 151 deals with the power of the Board to appoint a Proper Officer for the purpose of Section 28. The Central Government cannot appoint an Officer as a Proper Officer for the purpose of Section 28.

In this connection, it is also useful to refer to Chapter II of The Customs Act, 1962. Section 3 deals with the ''Classes of Officers of Customs''. Section 4 deals with ''Appointment of Officers of Customs''. It confers power on the Board to appoint such persons as it thinks fit to be officers of Customs. Without prejudice to the provisions of sub-section (1), Board may authorize a Chief Commissioner of Customs or a Joint or Assistant or Deputy Commissioner of Customs to appoint Officers of Customs below the rank of Assistant Commissioner of Customs. Section 5 of the Act deals with ''Powers of Officers of Customs''. However Section 6 of the Customs Act confers power on the Central Government to entrust either conditionally or unconditionally to any officer of the Central or the State Government or a local authority any functions of the Board or any officer of Customs under this Act. Therefore, under the scheme of the Act, the power of the Central Government, the power of the Board and the power of persons to whom the Board entrusts responsibilities are clearly defined and they are mutually exclusive. In this background, we may look at the Rules framed by the Central Government by virtue of the power conferred on them under Section 156. While framing the Rules for registration of assessees who claim benefits under notifications, the Rule for recovery of duty in certain cases, entrusts the power to recover to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise who are not the Customs Officers under the Act. When the power of recovery of duty is expressly conferred on the Customs Officers under Section 28, who is the "proper officer" who should be entrusted with the responsibility, is vested with the Board or Commissioner of Customs under Section 2(34). The Central Government had no power to entrust that responsibility to a person who is not even a Customs Officer. Therefore, the said Rule runs counter to Section 28 read with Section 2(34) of the Act and to that extent, it cannot be enforced.

When the Apex Court in the case of Sayed Ali explained Section 2(34) and Section 28 of the Act, it seems the Central Government has opened its eyes. Realising the mistake, they have approached the Parliament and an amendment is brought into Section 28 by Act No. 14 of 2011, which came into effect from 16th September, 2011 by way of ''The Customs (Amendment and Validation) Act, 2011''. It reads as under:

"An Act further to amend the Customs Act, 1962.

BE it enacted by Parliament in the Sixty-second Year of the Republic of India as follows:--

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Amendment of Section 28 of Act 52 of 1962.--In Section 28 of the Customs Act, 1962, after sub-section (10), the following sub-section shall be inserted, namely:--

"(11) Notwithstanding anything to the contrary contained in any judgment, decree or order of any Court of law, Tribunal or other authority, all persons appointed as officers of Customs under sub-section (1) of Section 4 before the 6th day of July, 2011 shall be deemed to have and always had the power of assessment under Section 17 and shall be deemed to have been and always had been the proper officers for the purposes of this section."

By inserting the said provision, an attempt is made to give retrospective effect. A reading of the aforesaid provision makes it very clear, all persons appointed as officers of Customs under sub-section (1) of Section 4 before the 6th day of July, 2011, were deemed to have been and always have been the proper officers for the purpose of this section. In other words, by the said amendment, deeming provision is introduced into Section 2(34) and all officers appointed under sub-section (1) of Section 4 were treated as proper officers. Consequently the Board issued Circular 44 of 2011 on 23rd September, 2011, giving effect to the said amendment. Further, a notification also came to be issued in exercise of the powers conferred by sub-section (34) of Section 2 of the Customs Act, 1962, the Central Board of Excise and Customs assigned the functions of the proper officer to the following officers mentioned in column (2) of the Table, for the purposes of Section 17 and Section 28 of the said Act, which is extracted hereunder:--

"4. Commissioners of Central Excise, Additional Commissioners or Joint Commissioners of Central Excise, Deputy Commissioners or Assistant Commissioners of Central Excise."

Therefore, for the first time, the Board appointed Deputy Commissioners or Assistant Commissioners of Central Excise as proper officers for the purpose of Section 17 and Section 28 of the Act. Till such time, neither the Board nor the Commissioner of Customs had appointed them as proper officers. Though the Parliament amended Section 28, it has no application to the facts of this case, because the Deputy Commissioner of Central Excise who initiated the proceedings is not the officer of Customs. He had not been appointed as an officer of the Customs by issue of a notification under Section 4(1) by the Board. As there are several officers under the Customs Act, if a notification had been issued under Section 4(1) by the Board and if they did not constitute proper officers under Section 2(34), by virtue of the amendment they are deemed to be proper officers, notwithstanding the fact, no such appointment was made under Section 2(34). But the notification does not extend to recognize a Deputy Commissioner of Central Excise as a proper officer, because before they are recognized, the Deputy Commissioner of Central Excise ought to have been appointed as a Customs officer under Section 4(1).

In that view of the matter, as the impugned notice was issued on 21-8-2001 and subsequent notices issued, which are all prior to 2005 as on that date the Deputy Commissioner of Central Excise was not appointed under Section 4(1) of the Customs Act as a Customs officer nor was he appointed as a proper officer under Section 2(34) by the Board or the Commissioner of Customs, he had no jurisdiction to issue show cause notice. It is exactly what the Tribunal has said. Therefore, there is no error committed by the Tribunal in quashing the show cause notice and holding that he had no jurisdiction to initiate proceedings. The substantial question of law is answered in favour of the assessee and against the Revenue.

No merits. Appeals are dismissed.