Gujarat High Court Sets Aside ₹30,000 Customs Penalty On Zaveri & Co. For Wrong Regulatory Action

The Gujarat High Court on 24 February set aside a penalty imposed on Zaveri and Co. Pvt. Ltd. for alleged violations of warehousing regulations, holding that the customs authorities had initiated proceedings under the wrong regulatory framework and failed to provide the audit report that formed the basis of the action.

A Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi passed the ruling while allowing a writ petition filed by the company challenging the penalty order dated 30 December 2025 issued by the Customs Department of India.

The Bench held:

"Special Warehouse Regulations were issued vide notification No.69/2016-Customs (N.T.) dated 14.05.2016 in exercise of the powers conferred under section 157 read with section 58A and sub-section (2) of section 73A of the Act. Thus, the license as well as activities undertaken by the petitioner would be governed by the Special Warehouse Regulations."

Zaveri and Co. was engaged in the import and processing of precious metals and had been granted a Special Warehouse licence under Section 58A of the Customs Act, 1962, on 10 June 2016.

The licence was later surrendered by the company and accepted by customs authorities on 8 March 2019. Nearly five years later, the Assistant Commissioner of Customs issued a show cause notice dated 1 February 2024 alleging violations of Regulation 11 of the Warehouse (Custody and Handling of Goods) Regulations, 2016.

The notice relied on an audit report and alleged that the company failed to maintain digital records, obtain a digital signature for the warehouse keeper, and renew the solvency certificate and risk insurance policy annually.

Despite the company requesting a copy of the audit report to effectively respond to the allegations, the authorities did not provide it and eventually imposed a penalty of Rs. 30,000 through an order dated 30 December 2025.

The High Court found that the petitioner held a licence for a Special Warehouse under Section 58A, which meant its operations were governed by the Special Warehouse (Custody and Handling of Goods) Regulations, 2016, and not the general Warehouse Regulations relied upon by the department.

The Bench held that initiating proceedings under regulations that did not apply to the petitioner rendered the entire action legally unsustainable.

The Bench opined:

"If the intention of the framers of the regulations was to invoke either of the regulations, as canvassed before us, there was no need to issue two separate regulations governing the warehouses. The framers of the regulations were conscious of the fact that in the statutory provisions of Sections 57, 58 and 58A of the Act, different categories of warehouses are prescribed."

The Court also observed that the authorities failed to provide the audit report that formed the basis of the show cause notice, thereby depriving the petitioner of an effective opportunity to defend itself.

Additionally, the Bench noted that the penalty proceedings were initiated almost five years after the surrender of the warehouse licence, and the department had not adequately explained the basis for determining the penalty amount of ₹30,000.

Accordingly, the High Court held that the penalty order was illegal and unsustainable and allowed the petition.

For Petitioner: Advocates, Jaimin R Dave, Hirva R Dave, Manvi A Damle

For Respondent: Advocate, Param V Shah