Supreme Court’s Landmark Review in Canon India Case: Restoring DRI’s Powers in Customs Scrutiny of Electronic Equipment Imports

Introduction

The Supreme Court of India’s review judgment in Commissioner of Customs v. M/s Canon India Private Limited (Review Petition No. 400 of 2021), delivered on November 7, 2024, marks a significant shift in the interpretation of customs laws in India. This ruling overturned the Court’s earlier 2021 decision, affirming the authority of Directorate of Revenue Intelligence (DRI) officers as “proper officers” under the Customs Act, 1962. The case originated from disputes over the import of electronic equipment, specifically digital cameras by Canon India, and has far-reaching implications for customs enforcement, particularly in scrutinizing imports of high-value electronic goods prone to misdeclaration or undervaluation. By validating DRI’s powers to issue show cause notices (SCNs) under Section 28, the judgment enhances regulatory oversight while addressing long-standing jurisdictional ambiguities.

Background of the Case

The dispute traces back to 2014 when Canon India imported digital still image video cameras from countries like Japan and China, claiming exemptions from customs duty under Notification No. 15/2012-Customs dated March 17, 2012. These imports were self-assessed under the amended Section 17 of the Customs Act, which shifted to a self-assessment regime post the Finance Act, 2011. However, the DRI initiated an investigation, alleging misclassification of the cameras as “digital still image video cameras” instead of “video camera recorders,” leading to undue exemptions. A SCN was issued under Section 28(4) in 2017, demanding duty recovery of approximately INR 2.17 crores plus penalties.

Canon India challenged the SCN before the Delhi High Court, arguing that DRI officers were not “proper officers” under Section 2(34) to issue such notices, relying on the Supreme Court’s 2011 ruling in Commissioner of Customs v. Sayed Ali. The High Court quashed the SCN, prompting an appeal to the Supreme Court.

This case highlighted broader issues in India’s customs framework, especially for electronic equipment imports. Electronics, including cameras, telecom devices, and components, form a significant portion of India’s imports (valued at over USD 100 billion annually as of 2024), often subject to scrutiny for tariff evasion, intellectual property violations, or anti-dumping concerns. The self-assessment system, introduced to facilitate trade, had inadvertently created loopholes, leading to post-clearance audits by agencies like DRI.

The Original 2021 Judgment

In its March 9, 2021, ruling, a three-judge bench led by Justice A.M. Khanwilkar held that DRI officers were not “proper officers” empowered to issue SCNs under Section 28. The Court reasoned that only officers assigned functions under Section 17 (assessment) via explicit entrustment under Section 6 could exercise recovery powers under Section 28. Drawing from Sayed Ali (2011), it emphasized that DRI, being an investigative agency, lacked the requisite assignment for assessment functions.

This decision invalidated thousands of SCNs issued by DRI, impacting cases worth billions in revenue. For electronic imports, it temporarily shielded importers from aggressive post-clearance probes, leading to a surge in litigation and uncertainty in customs enforcement. The ruling was criticized for overlooking amendments to the Customs Act and notifications appointing DRI officers, prompting the government to enact retrospective validations via the Finance Act, 2022.

The Review Petition and 2024 Judgment

The Customs Department filed Review Petition No. 400 of 2021, arguing “errors apparent on the face of the record” in the 2021 judgment, including failure to consider Sections 3, 4, and 5 of the Customs Act, and key notifications like No. 40/2012-Customs (N.T.) dated May 2, 2012. The review was heard by a bench comprising Justices J.B. Pardiwala, Manoj Misra, and Pankaj Mithal.

In the November 7, 2024, judgment, the Court allowed the review, overturning the 2021 ruling. Key analyses included:

• Proper Officer Definition: Under Section 2(34), DRI officers, appointed as customs officers via notifications (e.g., No. 17/2002-Cus. (N.T.) dated March 7, 2002), are inherently “proper officers” without needing Section 6 entrustment, as they fall within the customs cadre.
• Interplay of Sections 17 and 28: The Court decoupled these sections, holding that Section 28 (recovery) is independent of Section 17 (assessment). Post-2011 amendments introduced self-assessment, limiting officers’ roles to verification and re-assessment, allowing DRI to issue SCNs without initial assessment involvement.
• Validity of Amendments: Section 97 of the Finance Act, 2022, was upheld as clarificatory and not arbitrary, validating past SCNs. The Court rejected challenges under Article 14, noting it prevented chaos from multiple agencies issuing notices.
• Retrospective Application: Section 28(11), introduced by the Customs (Amendment and Validation) Act, 2011, was affirmed, ensuring no time bar for pre-2011 notices.

The judgment referenced conflicting High Court decisions, upholding Sunil Gupta v. Union of India (Bombay HC, 2014) over Mangali Impex Ltd. v. Union of India (Delhi HC, 2016). No dissenting opinions were noted.

Key Holdings

1. DRI’s Jurisdiction Affirmed: DRI officers are proper officers under Sections 17 and 28, empowered to scrutinize self-assessed imports and issue SCNs for duty recovery.
2. No Mandatory Linkage: Assessment (Section 17) and recovery (Section 28) are distinct; any proper officer can initiate recovery without prior assessment involvement.
3. Notifications Valid: Circulars and notifications (e.g., No. 44/2011-Cus. (N.T.) dated July 6, 2011) conferring powers on DRI were upheld, rejecting claims of ultra vires.
4. Constitutional Validity: Amendments via Finance Act, 2022, were deemed reasonable, ensuring uniformity in enforcement.
5. Procedural Safeguards: Pending cases quashed on jurisdictional grounds were revived for adjudication, with timelines for appeals to CESTAT.

Cited statutes included Sections 2(34), 3, 4, 5, 6, 17, 28, and 28(11) of the Customs Act, 1962; Finance Act, 2011 and 2022; and Article 14 of the Constitution. Key cases cited: Commissioner of Customs v. Sayed Ali (2011), Mangali Impex Ltd. v. Union of India (2016), Sunil Gupta v. Union of India (2014), Girdhari Lal Gupta v. D.H. Mehta (1971), and Col. Avtar Singh Sekhon v. Union of India (1980).

Implications for Electronic Equipment Imports

For sectors like electronics—encompassing cameras, smartphones, laptops, and components—the judgment bolsters DRI’s role in post-clearance audits under the Risk Management System (RMS). Importers may face heightened scrutiny for:

• Misclassification and Exemptions: As in Canon’s case, disputes over tariff headings (e.g., HS Code 8525 for cameras) could lead to more SCNs.
• Undervaluation and Evasion: DRI can probe transfer pricing or smuggling in high-tech imports, impacting companies like Apple, Samsung, or domestic assemblers.
• Compliance Burden: While facilitating trade via self-assessment, importers must maintain robust records, as re-assessments can occur up to five years post-clearance in willful default cases.
• Litigation Revival: Thousands of quashed SCNs, including those for electronic goods worth INR 20,000+ crores, are revived, potentially increasing duty liabilities.

This aligns with India’s push for self-reliance in electronics under schemes like PLI (Production Linked Incentive), deterring evasion while encouraging compliant imports.

Broader Impact on Customs Enforcement

The ruling restores equilibrium between trade facilitation and revenue protection, empowering DRI amid rising imports (India’s total imports hit USD 675 billion in FY 2024-25). It resolves jurisdictional turf wars between DRI, customs appraisers, and other agencies, reducing “chaos” from overlapping notices. However, critics argue it may lead to overreach, prompting calls for clearer guidelines. As of August 2025, no further appeals or amendments have altered this stance, though related cases continue in tribunals.

Conclusion

The 2024 review judgment in the Canon India case is a pivotal development in Indian customs jurisprudence, reinforcing DRI’s investigative powers while upholding legislative amendments. For electronic equipment importers, it underscores the need for meticulous compliance in a self-assessment era. This decision not only safeguards government revenue but also promotes fair trade practices, setting a precedent for future enforcement in dynamic sectors like technology.