ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 14.03.2026
Understanding Section 135, GIR, and the Legal Implications of the Bombay High Court Judgment
This Article has been written by Advocate Ravi Shekhar Jha-BALLB & LLM (Constitutional Law) based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com or on his Mobile +91-9999005379.
The Customs Act, 1962, is a pivotal legislation in India that governs the import and export of goods, ensuring compliance with customs duties and preventing illegal activities such as smuggling. One of the most significant provisions under this Act is Section 135, which deals with penalties for offences related to customs violations. Recently, the Bombay High Court delivered a landmark judgment that delved into the procedural aspects of investigations under the Customs Act, particularly in relation to Section 135 and the General Interpretative Rules (GIR) for classification of goods.
Section 135 of the Customs Act, 1962: An Overview
Section 135 of the Customs Act lays down penalties for offences such as misdeclaration of value, fraudulent evasion of duty, and dealing with prohibited goods. The section is divided into two parts:
- Section 135(1): This subsection prescribes penalties for individuals who:
- Misdeclare the value of goods or fraudulently evade or attempt to evade customs duty.
- Acquire possession of goods liable for confiscation under Sections 111 or 113 of the Customs Act.
- Attempt to export goods that are liable for confiscation under Section 113.
The penalties under Section 135(1) are categorized based on the severity of the offence:
- If the market price of the goods exceeds ₹1 crore, or the evasion of duty exceeds ₹30 lakh, or the goods are prohibited as notified by the Central Government, the offence is punishable with imprisonment for up to 7 years and a fine. The minimum imprisonment is one year unless special reasons are recorded.
- For other cases, the punishment may extend to 3 years of imprisonment, a fine, or both.
- Section 135(2): This subsection deals with repeat offenders. If a person convicted under Section 135 or Section 136(1) is convicted again for a similar offence, they may face imprisonment for up to 7 years and a fine, with a minimum imprisonment of one year unless special reasons are recorded.
General Interpretative Rules (GIR) and Classification of Goods
The General Interpretative Rules (GIR) are a set of guidelines used for the classification of goods under the Harmonized System of Nomenclature (HSN). These rules are critical for determining the correct classification of goods for customs purposes, which directly impacts the applicable duty rates.
The GIR consists of six rules:
- Rule 1: Classification is determined according to the terms of the headings and any relevant section or chapter notes.
- Rule 2: Covers incomplete or unfinished goods and mixtures or combinations of materials.
- Rule 3: Provides guidance for classifying goods that could fall under multiple headings.
- Rule 4: States that goods not specifically covered by any heading should be classified under the heading most akin to them.
- Rule 5: Deals with cases where goods are sold in sets or containers.
- Rule 6: Specifies that classification should be determined at the subheading level.
The GIR plays a crucial role in ensuring uniformity and consistency in the classification of goods, which is essential for the proper implementation of customs laws, including Section 135.
The Bombay High Court Judgment: Key Legal Principles
The Bombay High Court judgment in the case involving Adani Power Limited and the Directorate of Revenue Intelligence (DRI) provides significant insights into the procedural requirements for investigations under the Customs Act. The case revolved around allegations of overvaluation of Indonesian coal imports by Adani Group companies, which allegedly led to the evasion of customs duties and manipulation of power tariff compensation.
Key Allegations
The DRI alleged that Adani Group companies:
- Overstated the import value of Indonesian coal compared to its actual export value.
- Misdeclared the grade and value of coal to evade customs duties.
- Benefited from concessional duty rates under the ASEAN-India Free Trade Agreement (AIFTA) while overstating the value of imported coal.
The DRI sought to issue Letters of Rogatory (LRs) under Section 166A of the CrPC to collect evidence from foreign jurisdictions, including Singapore, UAE, Hong Kong, and the British Virgin Islands.
Legal Issues Addressed
The court examined whether the DRI had legally and validly commenced its investigation into the alleged offences under Section 135 of the Customs Act and whether it was entitled to invoke Section 166A of the CrPC for issuing Letters of Rogatory.
Court’s Observations
- Procedural Safeguards Under CrPC: The court emphasized that the Customs Act does not provide a specific procedure for initiating investigations into cognizable or non-cognizable offences. Therefore, the procedural safeguards under Chapter XII of the CrPC, including Sections 154 and 155, must be followed.
- Non-Obstante Clause in Section 166A: The court clarified that the non-obstante clause in Section 166A of the CrPC does not override the mandatory procedural safeguards in Chapter XII of the CrPC. Section 166A can only be invoked during a valid investigation initiated under Sections 154 or 155.
- Customs Act as a Special Law: While the Customs Act is a special law, it does not provide a comprehensive procedure for initiating investigations. In the absence of such provisions, the procedural framework of the CrPC must be followed.
- Invalidity of Letters of Rogatory: The court held that the Letters of Rogatory issued by the Magistrate were invalid because the investigation was not initiated in compliance with the mandatory procedural requirements of the CrPC.
Impact on Section 135 and GIR
The judgment highlights the importance of adhering to procedural safeguards when investigating offences under Section 135 of the Customs Act. Misdeclaration of goods, as alleged in this case, often involves complex issues of classification under the General Interpretative Rules (GIR). Accurate classification is crucial to determine the correct duty rates and avoid penalties under Section 135.
Conclusion
The Bombay High Court judgment underscores the interplay between the Customs Act, the CrPC, and the General Interpretative Rules (GIR). It establishes that procedural safeguards under the CrPC must be followed for investigations under the Customs Act, even when the Act classifies offences as cognizable or non-cognizable. The judgment also highlights the critical role of GIR in ensuring accurate classification of goods, which is essential for compliance with customs laws and avoiding penalties under Section 135.
Source: Bombay High Court
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