HC Quashes Rs. 30,000 Customs Penalty as Proceedings Invoked Wrong Warehouse Regulations

Zaveri and Co. Pvt. Ltd., engaged in importing and processing precious metals, was granted a Special Warehouse licence under Section 58A of the Customs Act, 1962. The licence was surrendered and accepted by the Principal Commissioner of Customs,. Five years later, the customs authorities issued a show cause notice alleging violations of Regulation 11 of the Warehouse (Custody and Handling of Goods) Regulations, 2016 based on an audit report, including failure to maintain digital records and renew solvency and insurance documents.

The petitioner replied that the proceedings were unsustainable since it held a licence under Section 58A governed by the Special Warehouse Regulations, 2016 and not the general Warehouse Regulations invoked in the notice.  The authority passed an order imposing a penalty of Rs. 30,000, leading to the petitioner to approach the High Court.

Issue Raised: Whether penalty proceedings under the Warehouse (Custody and Handling of Goods) Regulations, 2016 could be sustained against a holder of a Special Warehouse licence under Section 58A when the applicable regulations were the Special Warehouse Regulations, 2016 and the audit report relied upon was not supplied.

HC Decided: The Hon’ble High Court allowed the writ petition and quashed the penalty order. The Court held that warehouses licensed under Section 58A are governed by the Special Warehouse (Custody and Handling of Goods) Regulations, 2016. Since the proceedings were initiated under the general Warehouse Regulations applicable to other categories of warehouses, the action was legally unsustainable.

The Court also noted that the audit report forming the basis of the show cause notice was not supplied to the petitioner, violating principles of natural justice. The Court refused to remand the matter and set aside the penalty order.

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