The Supreme Court has dismissed the Customs authorities’ challenge to an Allahabad High Court judgment that held the continued retention of ₹25.20 lakh in seized cash unlawful and imposed ₹1 lakh in costs on the respondent DRI authorities.

A Bench of Justice Manoj Misra and Justice Vijay Bishnoi has observed that the department had attempted to overreach and defeat the pending proceedings. After expiry of the statutory period, the Court observed, the DRI held the petitioners’ property in trust and lacked surviving jurisdiction to retain it on the asserted basis.

Buy Now: Indirect Tax Judgments E-Compilation – October 2026

The dispute concerned the failure to issue a show cause notice concerning the cash or communicate a valid extension within six months, followed by the money’s transfer to Income Tax authorities while its release was under judicial consideration.

Condoning the delay in filing, the Supreme Court held that it found no good ground to interfere with the impugned judgment in the exercise of its jurisdiction under Article 136 of the Constitution. It accordingly dismissed the special leave petition.

The Supreme Court did not deliver a separate substantive ruling interpreting Section 110(2) of the Customs Act, 1962. The detailed findings on unlawful retention, defective approval and the transfer of cash were recorded by the High Court and remained undisturbed after dismissal of the challenge.

The case arose from the seizure of ₹25.20 lakh during searches at business premises in Bareilly on August 20, 2025.

According to the investigation note reproduced in the judgment, the searches followed a case involving the seizure of 1,497.3 grams of gold on August 13, 2025. Although a show cause notice in the gold case was issued on February 12, 2026, the High Court recorded that no notice had been issued concerning the separately seized cash even when the release petition was considered.

The petitioners approached the High Court on April 7, 2026. They contended that the six-month period had expired on February 19, 2026, without a show cause notice or an extension order being communicated to them.

The DRI relied on a note describing it as an order extending the period for investigation and issuance of a show cause notice.

The document referred to the incomplete inquiry into the cash and a separate recovery of eight suspected counterfeit ₹500 notes during searches in September 2025. It sought a further six months for investigation and issuance of a notice.

The High Court Bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla found that the document did not establish a legally compliant approval by the competent authority.

The Court noted that the Additional Director General’s signature appeared beneath the proposal without any remark demonstrating application of mind, recorded reasons or approval of the proposal in its entirety. It characterised the signature as a mechanical endorsement.

Referring to judicial precedents, including Chhugamal Rajpal v. S.P. Chaliha, the High Court stressed that statutory approval requires meaningful consideration by the approving authority.

The High Court identified a further decisive defect: the note relied upon as an extension order had admittedly never been communicated to the petitioners before expiry of the six-month period.

Section 110(2) provides for return of seized goods where the notice contemplated under Section 124(a) is not given within six months. Its first proviso permits an extension of up to another six months for reasons recorded in writing and requires the person concerned to be informed before expiry of the specified period.

The Court held that neither a valid approval nor timely communication had been established.

Consequently, the petitioners had acquired a right to return of the entire ₹25.20 lakh upon expiry of six months. The High Court held that retention from February 20 to May 20, 2026, was illegal and without jurisdiction.

It further observed that the money should have been returned without requiring the petitioners to make an application.

During the High Court proceedings, the Income Tax authorities issued a requisition dated May 19, 2026, under Section 248(1) of the Income Tax Act, 2025. The DRI handed over the cash on May 20, 2026.

The Customs authorities subsequently cited this transfer as the reason they could no longer return the money.

The High Court rejected that explanation. It noted that no Income Tax requisition existed when the petitioners’ right to return of the cash arose in February.

The Court also criticised the DRI for transferring the money without informing it, despite knowing that the legality of retention and the request for release were under active judicial consideration.

The High Court initially assessed costs of ₹10 lakh in the portion of its order orally pronounced on May 22, 2026.

The authorities subsequently applied for a reduction. An affidavit filed by the Joint Director, DRI, Lucknow, tendered an unconditional apology and asserted that the officers had acted under a bona fide understanding of their official duties.

The authorities also placed an office order before the Court directing officers to verify the status of pending judicial proceedings before taking action and to seek permission or clarification wherever required.

Taking account of these assurances, the High Court reduced the costs to ₹1 lakh in its final judgment dated May 27, 2026.

Nevertheless, it maintained that the petitioners had suffered loss because their money had been retained for three months beyond the statutory period.

The costs were imposed against the respondent DRI authorities. The judgment did not direct personal recovery from a named officer.

The High Court recognised that the petitioners had become entitled to return of the cash following the Customs authorities’ statutory default.

However, because the money had already been transferred, it observed that the petitioners might now be entitled to seek its return from the Income Tax authorities in accordance with law.

The High Court did not order unconditional release by the Income Tax authorities or separately determine the validity of their requisition. It held that the DRI’s unlawful actions had forced the petitioners into further proceedings and awarded costs for that conduct.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: GST Composition Scheme Gets New Category, REG-14 Update Facility: Key FAQs Explained