The Bombay High Court has disposed of a writ petition concerning the proposed continuation of customs adjudication proceedings against carpet exporters after the Directorate of Revenue Intelligence (DRI) informed the Court that it would not take further action until appropriate orders are passed by the Allahabad High Court in connected proceedings.
The Bench of Justice M. S. Karnik and Justice Sandesh D. Patil has not adjudicated the petitioners’ challenge to the customs notice on limitation or any other substantive ground. Instead, it expressly kept all their contentions open for consideration at the appropriate stage, if necessary, after the Allahabad High Court decides the pending proceedings.
The dispute concerns a show cause notice issued by the DRI on September 30, 2016 under Sections 124, 28 and 28AAA of the Customs Act, 1962. The notice related to exports made during periods before and after May 28, 2012 and allegedly involved benefits obtained under export promotion schemes.
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Dr. Sujay Kantawala, on behalf of the petitioners contended that the DRI proceedings were based on allegations that carpets exported from India were subsequently brought back into the country through certain importers after reportedly remaining in transit at Dubai. The authorities allegedly suspected a connection between the exporters and importers involved in the transactions.
The petitioners, however, challenged the proposed continuation of adjudication primarily on the ground that the 2016 show cause notice had not been decided within the period prescribed under the Customs Act. They contended that, under the provisions applicable when the notice was issued, the adjudicating authority was required to determine the matter within one year, where it was possible to do so.
The exporters claimed that replies to the show cause notice had been submitted in November 2017 and that several rounds of personal hearings and cross-examination had taken place between July 2017 and September 2018. A fresh hearing was also reportedly conducted in April 2019, but no final adjudication order followed.
The proceedings subsequently became entangled with the litigation arising from the Supreme Court’s earlier judgment in Canon India Private Limited v. Commissioner of Customs, which had questioned the authority of DRI officers to issue notices under Section 28 of the Customs Act. The petitioners had relied upon that ruling to file an earlier writ petition before the Bombay High Court.
During the pendency of those proceedings, the Supreme Court reviewed its decision in the Canon India case. Following that development, the Bombay High Court disposed of the petitioners’ earlier writ proceedings in November 2024 and granted them liberty to submit an additional reply. The department was directed to conclude the adjudication by June 30, 2025.
The DRI thereafter sought modification of the timeline because related proceedings had been initiated by the Directorate General of Foreign Trade. On June 24, 2025, the Bombay High Court allowed an interim application connected with the adjudication timeline, enabling the customs proceedings to be taken up in accordance with the outcome of the DGFT action.
Meanwhile, the Joint Director General of Foreign Trade, Varanasi, had issued a separate show cause notice on January 8, 2025 concerning export incentive scrips associated with shipping bills from 2011 to 2016. The DGFT passed its adjudication order on July 21, 2025.
The exporters challenged the DGFT order before the Allahabad High Court. They questioned both the jurisdiction of the DGFT and the legality of reopening export promotion licences that, according to them, had already expired several years earlier.
Before the Allahabad High Court, the petitioners argued that the licences had a limited validity period and had lapsed by 2018. They submitted that the DGFT could not issue proceedings in 2025 to retrospectively cancel licences that were no longer in force.
It was also contended that allegations of fraud were premature because the customs proceedings initiated through the DRI notice were yet to be finally adjudicated. The petitioners further argued that recovery of customs duty based on an allegedly improper export incentive instrument could be initiated only by the competent customs officer under Section 28AAA of the Customs Act.
Another ground raised was that the DGFT order allegedly imposed duty and penalty even though the show cause notice had not specifically proposed the creation of such demands. The petitioners also complained that they had not been confronted with all the documents relied upon by the authorities.
In its interim order, the Allahabad High Court observed that the matter required “serious consideration.” The Court noted the existence of jurisdictional issues relating not only to limitation but also to the basic competence of the DGFT proceedings. It further raised the question of whether duty or penalty could be demanded without a show cause notice specifically proposing such liability.
Consequently, the Allahabad High Court stayed the operation and effect of the DGFT order while directing the respondents to file their counter-affidavits.
The continued stay of the DGFT order gave rise to apprehension that the DRI might nevertheless proceed with adjudication of the 2016 customs notice. The exporters therefore approached the Bombay High Court, seeking protection against further customs proceedings.
When the matter came before the Bombay High Court, counsel appearing for the DRI informed the Bench that the Allahabad High Court had stayed the action arising from the show cause notice adjudicated by the DGFT.
On instructions, the DRI’s counsel further stated that the agency would take appropriate action in terms of the Bombay High Court’s June 24, 2025 order only after the Allahabad High Court passes appropriate orders in the pending litigation.
Recording this statement, the Bombay High Court held that the petitioners’ apprehension was not well-founded at the present stage.
“In the light of the stand of DRI, the apprehension of the petitioner, at this stage, is not well founded,” the Division Bench observed.
With these observations, the Bombay High Court disposed of the writ petition.
The exporters were represented by Dr. Sujay Kantawala a/w. Mr. Anupam Dighe.
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