The Delhi High Court has declined to interfere with customs adjudication proceedings arising from a Directorate of Revenue Intelligence (DRI) investigation into alleged misdeclaration and undervaluation of imported goods, holding that two separate show cause notices (SCNs) issued from the same investigation continued to retain their independent legal identity.

The Bench of Justice Anil Khetarpal and Justice Shail Jain has observed that merely because the two SCNs arose from a common DRI investigation, were assigned to the same adjudicating authority and were heard together for administrative convenience, one proceeding could not automatically become dependent upon the other.

The dispute originated from a DRI investigation initiated in 2016 concerning the petitioners’ imports of signage materials, principally from China and Taiwan. The investigation was based on allegations of misdeclaration and undervaluation of imported goods. During the investigation, searches were conducted at the petitioners’ residential and business premises, certain goods were seized and statements of various persons were recorded. The seized goods were subsequently provisionally released against the requisite bond and bank guarantee.

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Following the investigation, the DRI issued two SCNs at different points of time.

The First SCN, dated March 27, 2017, concerned goods seized during the investigation and proposed their confiscation along with consequential penalties.

The Second SCN, dated May 11, 2020, was issued approximately three years later and concerned earlier imports. It proposed recovery of customs duty, interest and penalty under Section 28 of the Customs Act, 1962.

Both notices were ultimately placed before the same adjudicating authority and were taken up together for adjudication.

The petitioners approached the High Court challenging the continuation of proceedings pursuant to the Second SCN as well as the adjudication order passed in respect of the First SCN.

One of their principal arguments was that both SCNs arose from the same investigation, involved substantially overlapping allegations and had been treated by the department as part of a common adjudication process. Therefore, according to the petitioners, once the High Court stayed further proceedings pursuant to the Second SCN on December 14, 2023, the adjudicating authority could not have proceeded separately with the First SCN.

The petitioners also alleged violation of the principles of natural justice. They claimed that relied-upon documents had not been supplied despite repeated requests and that adjournments were necessitated by the serious medical condition of the proprietor as well as the COVID-19 pandemic.

They further challenged the continuation of the Second SCN on limitation grounds, relying on Section 28(9) of the Customs Act. According to them, the prescribed period for adjudication had expired and the proceedings could not be kept alive merely through the Call Book mechanism or a subsequent extension.

The department opposed the writ petitions, maintaining that the adjudication proceedings had been conducted in accordance with the statutory framework.

According to the department, the petitioners had been given several opportunities of personal hearing but had repeatedly sought adjournments and failed to participate effectively in the proceedings. The Revenue also argued that after the matters were transferred to the Call Book pursuant to a CBIC instruction dated March 17, 2021, they were subsequently withdrawn following amendments introduced by the Finance Act, 2022.

The department contended that a fresh period for adjudication became available under Section 28(9A) of the Customs Act and that the competent authority had validly extended the period for adjudication on March 6, 2023.

The department further argued that the High Court’s December 14, 2023 interim order had expressly stayed only proceedings pursuant to the Second SCN. It did not restrain the adjudicating authority from proceeding with the First SCN.

Rejecting the petitioners’ principal challenge concerning the First SCN, the High Court emphasized that the two notices had distinct statutory foundations.

The Bench noted that the First SCN dealt with seized goods and proposed confiscation and penalties, whereas the Second SCN related to earlier imports and proposed recovery of customs duty, interest and penalty under Section 28.

Accordingly, the Court held that each SCN gave rise to a separate adjudicatory proceeding.

The Court observed that the fact that both notices originated from the same investigation did not merge them into a single legal proceeding. Likewise, assigning them to the same adjudicating authority and hearing them together for administrative convenience did not destroy their independent statutory character.

The Bench found that no provision of the Customs Act had been brought to its notice requiring such notices to necessarily culminate in one composite order or prohibiting independent adjudication of one SCN while the other was stayed.

A significant aspect of the ruling concerned the scope of the High Court’s earlier interim order.

The petitioners argued that once the Court had stayed proceedings pursuant to the Second SCN, the adjudicating authority should have refrained from proceeding with the First SCN as well.

The High Court rejected that interpretation.

It held that the December 14, 2023 order was expressly confined to further proceedings pursuant to the Second SCN. It neither stayed adjudication of the First SCN nor restrained the adjudicating authority from proceeding with it.

The Bench emphasized that an interim order has to be construed according to its own terms and its scope cannot be enlarged by implication.

Thus, merely because the second proceeding was stayed and the two matters were pending before the same authority, the first proceeding did not automatically become incapable of adjudication.

The Court also rejected the argument that the department’s earlier decision to conduct common hearings created a legal bar against subsequently separating the proceedings.

The Bench held that administrative convenience cannot override the statutory character of independent proceedings.

The appointment of a common adjudicating authority and issuance of common hearing notices could facilitate efficient adjudication, but those administrative arrangements could not create a legal requirement that the two SCNs must always be decided together.

This distinction between administrative consolidation and legal identity formed a central part of the Court’s reasoning.

The petitioners had also attacked the First SCN adjudication order on the ground that relied-upon documents were allegedly not supplied and that they were denied an adequate opportunity of hearing.

The Revenue disputed these allegations, asserting that multiple opportunities had been granted and that the petitioners had repeatedly sought adjournments.

The High Court noted that these competing claims involved disputed questions concerning the actual conduct of the adjudication proceedings. The Court said questions such as whether all relied-upon documents were supplied, whether sufficient opportunity was provided, whether adjournments were justified and whether any prejudice was caused would require examination of the adjudication record.

According to the Bench, such issues were ordinarily matters for examination by the statutory appellate authority.

The High Court placed considerable emphasis on the availability of an effective statutory remedy.

Once the adjudication order dated February 1, 2024 had been passed, the Customs Act provided an appellate remedy before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).

The Court specifically noted that CESTAT would be competent to examine the petitioners’ grievances, including alleged violation of natural justice, non-supply of relied-upon documents, appreciation of evidence and the legality of the adjudicating authority’s findings.

The Court consequently declined to exercise its extraordinary writ jurisdiction under Article 226, observing that no exceptional circumstance had been demonstrated that warranted bypassing the statutory appellate mechanism.

On the Second SCN, the petitioners had raised substantial questions concerning limitation under Section 28 of the Customs Act.

They argued that the statutory period for adjudication had expired and that the matter could not lawfully remain pending in the Call Book. They also questioned the validity of the extension granted on March 6, 2023 and argued that the extension had not been communicated to them.

The Revenue maintained that the proceedings had been validly transferred to the Call Book pursuant to the CBIC instruction of March 17, 2021 and were subsequently revived following the Finance Act, 2022. It contended that Section 28(9A) provided a fresh period for adjudication and that the extension granted by the competent authority was valid.

The High Court, however, deliberately refrained from deciding these questions on merits.

The Bench held that it would not be appropriate to give a conclusive finding on the competing submissions because the adjudication proceedings pursuant to the Second SCN had not yet reached finality.

The Court expressly left open several important legal and factual questions, including the interpretation of the amended Section 28, the scope and effect of Section 28(9A), the legal consequences of transferring matters to and withdrawing them from the Call Book, the validity of the March 6, 2023 extension and the effect, if any, of non-communication of that extension to the noticee.

The Court clarified that these issues could be raised before the appropriate forum in accordance with law.

The Bench also emphasized that any observations made in the present judgment should not prejudice the adjudicating authority’s consideration of the merits.

The High Court declined to interfere with the February 1, 2024 adjudication order and granted the petitioners liberty to pursue their statutory appeal before CESTAT.

The Court further clarified that if an appeal was filed, the petitioners would remain entitled to urge all grounds available to them in law, including the grounds raised before the High Court. Any application for condonation of delay or interim relief would have to be considered by CESTAT on its own merits.

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