The Delhi High Court has upheld a customs adjudication order confirming a differential duty demand of approximately ₹20.18 crore, ruling that the statutory limitation period under Section 28(9) of the Customs Act, 1962, must be calculated from the date on which the circumstance preventing adjudication ceased to exist.
The Bench of Justice Anil Kshetrapal and Justice Shail Jain has observed that where adjudication remained deferred because of pending writ proceedings and an interim court order, Section 28(9A) permits the statutory clock to begin from the date that impediment ends.
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The petitioners/assessee had argued that the customs adjudication was completed beyond the limitation period prescribed under Section 28(9). The High Court, however, found that the adjudication order was passed within one year of the dismissal of the earlier writ petition, which had prevented the proper officer from making a final determination.
The petitioner companies were engaged in importing duty-free electrolytic copper rods and manufacturing copper wires and power cables for export.
For this purpose, they obtained Advance Authorisation Licences from the Directorate General of Foreign Trade under Customs Notification No. 18/2015-Cus dated April 1, 2015.
Four licences were issued to one petitioner between December 2019 and June 2020, while five licences were issued to the other between March and August 2020. Under the licence conditions, the raw material was required to be imported within one year and the finished goods manufactured from those inputs were required to be exported within 18 months.
The importers were also required to execute bonds undertaking to fulfil the export obligations and submit proof of compliance within the prescribed period.
Following information received by the Customs Preventive Commissionerate, Delhi, an investigation was initiated. The authorities alleged that the companies had not used the duty-free imported copper rods to manufacture goods for export. Instead, the imported material was allegedly diverted into the domestic market under the guise of job work.
The investigation reportedly found that the firms to which the goods were claimed to have been sent for job work existed only on paper. Statements recorded under Section 108 of the Customs Act were also stated to contain admissions that the imported material had not been used for manufacturing export goods and that the corresponding export obligations had not been fulfilled.
Customs authorities treated this conduct as a breach of the “actual user” condition under the exemption notification.
A show-cause notice dated June 24, 2022, was issued under Section 28(4), read with Section 28AAA of the Customs Act.
The notice proposed the recovery of differential customs duty amounting to ₹11.11 crore from the first company and ₹9.06 crore from the second company. The combined proposed demand was approximately ₹20.18 crore, apart from applicable interest, redemption fines and penalties.
The Order-in-Original dated November 29, 2024, confirmed the differential customs duty demand under Sections 28(4), 28AA and 28AAA of the Customs Act.
The petitioners subsequently submitted representations seeking recall of the order. They contended that the show-cause notice had already become non-existent because the adjudication had not been concluded within the prescribed limitation period.
Before the issuance of the show-cause notice, the petitioners had approached the Delhi High Court regarding the same Advance Authorisation Licences and the associated export obligations.
In the first petition, they sought permission from the DGFT to complete their export obligations by purchasing copper of the same grade from the open market. They also sought an extension of the validity of the licences.
That petition was withdrawn on March 23, 2021, with liberty to submit a representation to the DGFT.
The petitioners subsequently filed another writ petition seeking a further 12-month extension of the export obligation period due to the COVID-19 pandemic and the resulting force majeure circumstances. They also sought protection against coercive recovery and permission to procure copper from the domestic market to compensate for the alleged shortage in raw material.
On June 3, 2021, the High Court directed the DGFT not to initiate coercive action until a final decision was taken. The DGFT later rejected the petitioners’ representations on June 23, 2021.
The second writ petition was ultimately dismissed on December 8, 2023. The High Court held that the request to procure copper from the domestic market had been correctly rejected because of the actual-user condition attached to the Advance Authorisations.
In the present proceedings, the petitioners did not challenge the customs demand on its substantive merits. Their case was confined to the question of limitation under Sections 28(9) and 28(9A) of the Customs Act.
They argued that since the show-cause notice was issued on June 24, 2022, it was required to be adjudicated within one year, by June 24, 2023.
According to them, the eight-month extension granted by the competent authority was invalid because they were neither given an opportunity to be heard nor informed of the reasons that prevented adjudication within the original period.
They further submitted that even if the extension were treated as valid, the extended period had expired before the Order-in-Original was passed on November 29, 2024.
The petitioners also questioned the transfer of the proceedings to the Call Book on August 18, 2023. They argued that they had not been separately informed of the transfer in accordance with the applicable CBIC circular and had not been formally informed of the reason for non-determination, as contemplated under Section 28(9A).
The Customs Department opposed the writ petition, pointing to the availability of a statutory appellate remedy.
It submitted that the earlier writ proceedings and the interim order restraining coercive action prevented the proper officer from completing the adjudication. The petitioners themselves had brought those proceedings to the Department’s attention and sought deferment of the adjudication.
The Department contended that Section 28(9A) became applicable and the limitation period commenced only after the earlier writ petition was dismissed on December 8, 2023. The Order-in-Original dated November 29, 2024, was therefore passed within the permissible period.
It was also argued that the petitioners were given several opportunities for personal hearings but either failed to appear or sought adjournments.
The High Court explained that Section 28(9A) is a non-obstante provision covering situations where the proper officer is unable to determine the amount of duty or interest because of specified circumstances, including an interim order passed by a court.
The Court clarified that an administrative decision to transfer proceedings to the Call Book does not itself extend the statutory limitation period. The legal consequence arises from the existence of one of the circumstances expressly recognised under Section 28(9A).
In the present case, the petitioners had submitted a written reply dated August 14, 2023, seeking deferment of adjudication because their earlier writ petition was pending and the interim order dated June 3, 2021, remained operative.
They had also reserved their right to submit a detailed reply after the disposal of that petition. The proceedings were consequently transferred to the Call Book on August 18, 2023.
The High Court found that the issue in the earlier writ petition was directly relevant to the customs adjudication. The petitioners’ liability depended upon whether they had complied with the conditions governing the Advance Authorisations and whether they could obtain an extension of the export obligation period.
The pending writ proceedings and the interim protection therefore constituted a circumstance preventing final determination under Section 28(8).
The Court acknowledged that Section 28(9A) ordinarily requires the proper officer to inform the noticee of the reason for non-determination.
However, it found that the purpose of this requirement had been fully satisfied because the petitioners themselves had identified the pending writ petition and interim order as the grounds for seeking deferment.
The Court observed that this was not a case where the Department relied upon an undisclosed circumstance or kept the adjudication dormant for several years without informing the noticee.
The circumstance relied upon by the Department had been specifically raised by the petitioners. They were consequently fully aware of the reason that prevented the adjudicating authority from proceeding.
An administrative circular governing Call Book transfers could not override the statutory consequence arising under Section 28(9A), the Bench added.
The High Court held that the circumstance preventing adjudication ceased to exist on December 8, 2023, when the earlier writ petition was dismissed.
Consequently, the limitation period under Section 28(9) had to be reckoned from that date. The one-year period applicable to notices issued under Section 28(4) would have expired on December 8, 2024.
Since the Order-in-Original was passed on November 29, 2024, it was within the base statutory period. The Court therefore found it unnecessary to decide whether the earlier eight-month extension would also attach to the freshly calculated period.
“The statutory clock, properly computed, commenced only upon cessation of that circumstance on 08.12.2023,” the Court observed while rejecting the limitation challenge.
The High Court also considered the petitioners’ conduct as an independent ground for declining discretionary relief under Article 226 of the Constitution.
It noted that the petitioners had not challenged the substantive findings concerning the diversion of duty-free imported material, breach of the Advance Authorisation conditions and alleged fraudulent evasion of customs duty.
Although the petitioners had reserved their right to file a substantive reply after the earlier writ petition was decided, no such reply was submitted after its dismissal.
The Court also noted that the petitioners did not inform the adjudicating authority that the earlier writ petition had been dismissed. The Department reportedly discovered the dismissal during its own review of cases pending in the Call Book.
The Bench held that a party cannot seek deferment based on pending proceedings and subsequently attempt to obtain an equitable advantage from the passage of time caused by that very deferment.
Finding that the Order-in-Original was not barred by limitation, the High Court dismissed the petition. It nevertheless granted the petitioners liberty to pursue the statutory appellate remedy and raise all available grounds on the merits of the customs demand.
The Court clarified that its observations would not prejudice consideration of those grounds by the competent appellate authority.
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