Investigators should avoid taking coercive action, the Bombay High Court said on Thursday in a matter related to the Directorate of Revenue Intelligence (DRI) issuing summons to a foreign director of ZT Systems India.
The court’s direction is also set to benefit other foreign directors of multinational companies who may have been summoned by the DRI for similar matters, said legal experts.
ZT Systems India is among the companies the DRI is investigating for possible evasion of customs duty by undervaluing the goods they import.
The DRI had issued a summons to a foreign director of the company and asked her to appear before the investigators for questioning.
The US-headquartered company had then filed a writ petition in the Bombay High Court challenging the summons.
“The intention of the parliament and the government has been very clear to issue summons only under exceptional circumstances, and this must be followed, especially when such summons are issued to top management and foreign directors,” said Abhishek A Rastogi, partner at Khaitan & Co, who is arguing multiple writs against the issuance of summons to top management and foreign directors.
The company had said that the foreign director was willing to give a video submission to the investigators in the case.
Lawyers representing the government and DRI have sought four weeks’ time to file a reply in this regard and it has been accepted by the court.
The court said on January 11 that “the respondents (government, DRI) shall not take any coercive steps against the directors of the petitioner pursuant to the impugned summons described in the prayer…”
Khaitan & Co’s Rastogi said, “Any coercive measure to recover money after the issuance of summons but without fair process of adjudication will always be a subject matter of dispute before the courts.”
The DRI has been investigating several companies for customs valuation.
It had also issued three show-cause notices to Chinese smartphone maker Xiaomi India for demand and recovery of duty amounting to Rs 653 crore, ET had reported on January 6.
The Income Tax Department had also conducted searches at Oppo and its partners’ premises across various states.
The department had earlier said the two companies could be fined Rs 1,000 crore for non-compliance with the law pertaining to non-disclosure of related-party transactions, among other violations.
ET had reported that the firms were Chinese handset makers.