Delhi High Court Quashes DRI Show Cause Notice

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 23.05.2026

Delhi High Court Quashes DRI Show Cause Notice

The Delhi High Court recently delivered a significant judgment in the case of Swatch Group India Pvt Ltd & Ors. vs. Union of India & Ors., addressing crucial issues related to customs law, procedural timelines, and the powers of the Directorate of Revenue Intelligence (DRI). This article provides a detailed overview of the case, the legal arguments, and the implications of the court’s decision.

Background of the Case

Swatch Group India Pvt Ltd, an importer and exclusive distributor of luxury Swiss watches, faced a show cause notice (SCN) from the DRI. The notice alleged mis-declaration of retail sale prices (RSP) to evade customs duties, leading to the detention and seizure of watches valued at over ₹45 crore. The DRI sought recovery of customs duty, interest, penalties, and confiscation of the seized goods under various sections of the Customs Act, 1962.

Key Legal Issues Raised

The petitioners challenged the SCN on two main grounds:

1. Jurisdiction of DRI Officers:
   • The petitioners argued that the DRI was not a “proper officer” under Section 2(34) of the Customs Act for assessment and re-assessment of goods, referencing the Supreme Court’s decision in Canon India Pvt Ltd v. Commissioner of Customs.
2. Limitation Period for Adjudication:
   • The petitioners contended that the SCN, issued in February 2018, was not adjudicated within the statutory 12-month period as required by Section 28(9) of the Customs Act, rendering any further adjudication time-barred.

Arguments by the Respondents

The government countered that:

• The SCN was issued before amendments to Section 28(9) (effective from 29 March 2018), and the earlier, more flexible timeline applied.
• Efforts were made to adjudicate the SCN, but delays occurred due to correspondence, hearings, and procedural requirements.
• The DRI’s status as a proper officer was under review by the Supreme Court, and legislative amendments had since clarified their authority.

The Court’s Analysis and Findings

1. Applicability of Limitation Period

• The court focused on whether the SCN had lapsed due to non-adjudication within the prescribed period under the unamended Section 28(9).
• The phrase “where it is possible to do so” in the old law allowed some flexibility, but not indefinite delay. The onus was on the department to prove it was genuinely not possible to adjudicate within the period.
• The court reviewed a detailed timeline of correspondence and hearings, noting a 17-month period of inaction by the department.

2. Departmental Lethargy vs. Genuine Impossibility

• The court held that mere exchange of letters and repeated adjournments did not justify the delay.
• No substantial reason was provided for not concluding hearings or determining duty within the statutory period.
• The court emphasized that statutory timelines are mandatory and cannot be ignored due to departmental indifference.

3. Effect of Subsequent Amendments

• Amendments to Section 28(9) and the introduction of Section 28(9A) (post-2018) did not apply retroactively to SCNs issued before 29 March 2018.
• The court clarified that only SCNs issued after the amendment could benefit from the extended timelines under the new law.

Judgment and Outcome

The Delhi High Court allowed the writ petition, holding that:

• The SCN issued to Swatch Group India had lapsed due to non-adjudication within the prescribed period under the unamended law.
• The department’s failure to act within the statutory timeline could not be excused without valid justification.
• The SCN could not be adjudicated, and the proceedings were quashed.

Implications of the Judgment

1. Strict Enforcement of Statutory Timelines:
   • The judgment reinforces that customs authorities must adhere to statutory deadlines for adjudication of SCNs, ensuring procedural fairness and certainty for taxpayers.
2. Departmental Accountability:
   • The court’s stance discourages administrative delays and holds authorities accountable for inaction.
3. Clarity on Applicability of Amendments:
   • The decision clarifies that amendments to procedural laws do not apply retroactively unless expressly stated.
4. Guidance for Future Cases:
   • The judgment serves as a precedent for similar disputes involving delayed adjudication of SCNs and the powers of DRI officers.

Conclusion

The Swatch Group India case is a landmark in customs jurisprudence, highlighting the importance of timely adjudication and the limits of departmental discretion. Importers and legal practitioners should take note of the court’s insistence on procedural discipline and the protection of taxpayer rights under the law.

Source: Delhi High Court

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