Customs Dept vs GST dept: Delhi HC to examine Customs Authority's Power over IGST Refund Recovery [Read Order]

In the recent ruling, Delhi High Court examined whether Customs officers have the authority to recover IGST refunds from exporters and directed Customs and CGST Departments to clarify who qualifies as the ‘proper officer’ for such demands and allowed the exporter to pursue appellate remedy on the classification dispute.

The Petitioner, M/S Talbros Sealing Material Private Limited, engaged in the business of export of sealing material such as rubberised cork gaskets, rubber gaskets and also components of machinery and motor vehicles, challenged the Order-in-Original dated 25th June, 2025 passed by the Office of the Commissioner of Customs (Export).

The Petitioner had deposited Integrated Goods and Services Tax (IGST) for some of its exports and had also obtained a refund of the same. A Show Cause Notice (SCN) was issued on August 6, 2024, alleging incorrect product classification (HSN 40169340 instead of HSN 45041010) for shipping bills dated May 18, 2023, and June 1, 2023, leading to inadmissible drawback and export benefits.

The impugned order rejected the Petitioner's classification, reclassified the goods, confiscated them, imposed redemption fines of Rs. 2,50,000/- and Rs. 30,000/-, and ordered the recovery of IGST amounts (Rs. 5,12,006.55/- and Rs. 61,642.94/-), Drawback (Rs. 20,206/- and Rs. 4,452/-), and RoDTEP (Rs. 28,443 and Rs. 3,424). Additionally, penalties of Rs. 3,00,000/- each were imposed under Sections 114(iii) and 114AA of the Customs Act, 1962.

The section 114(iii) of the Customs Act, 1962 explained that: Penalty for attempt to export goods improperly, etc

“in the case of any other goods, to a penalty not exceeding the value of the goods, as declared by the exporter or the value as determined under this Act, whichever is the greater.”

Whereas section 114AA of the Customs Act, 1962 of the Customs Act, 1962 explained that: Penalty for use of false and incorrect material.

“If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods.”

The two main issues raised before the court were, firstly, relating to classification of the goods and secondly, the jurisdiction of the Customs Department to issue the SCN for IGST and export benefits, arguing that only the GST Department could do so under the IGST Act and CGST Act.

The Counsel for the Petitioner argued that demands and recovery under the IGST Act would be governed by the provisions of the Central Goods and Services Tax Act, 2017. Thus, under Section 73 of the CGST Act, only a proper officer notified under Section 73 of the CGST Act can raise any demand or seek to recover.

The Section 73 of the Central Goods and Services Tax Act, 2017 explained that: Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts.

“Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.”

The Counsel for the Respondent submitted that Customs Officers are "proper officers" under Section 2(2) of the Customs Act, 1962 and the impugned order was an appealable order.

The Two-Member Bench consisted of Justice Prathiba M. Singh and Justice Shail Jain, heard and reviewed the matter filed by the Petitioner.

After considering the submissions, the High Court allowed the Petitioner to file an appeal regarding the classification within 30 days, waiving the limitation period. However, recognizing the legal question concerning the "inter-play" between the Customs Act, IGST Act, and CGST Act regarding the "proper officer" for such demands, the Court issued notice and directed the Customs Department and the CGST Department to file a joint affidavit on this matter within four weeks.

Thus, the case was listed before the Joint Registrar on January 8, 2026, and before the Court on February 24, 2026.