Penalty Under Wrong Warehouse Rules Invalid: Gujarat High Court Quashes ₹30,000 Customs Fine on Zaveri & Co
Penalty Under Wrong Warehouse Rules Invalid: Gujarat High Court Quashes ₹30,000 Customs Fine on Zaveri & Co
Introduction
The Gujarat High Court has set aside a penalty of ₹30,000 imposed on Zaveri and Co. Pvt. Ltd. for alleged violations of customs warehousing regulations. A Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi held that the customs authorities had initiated proceedings under an incorrect regulatory framework and had failed to provide the audit report that formed the basis of the action, thereby rendering the penalty legally unsustainable.
Factual Background
Zaveri and Co. Pvt. Ltd. was engaged in the import and processing of precious metals and had obtained a Special Warehouse licence under Section 58A of the Customs Act, 1962 on June 10, 2016. The licence allowed the company to operate a special warehouse for storage and handling of imported goods under the Special Warehouse regulatory framework. The company subsequently surrendered its warehouse licence, which was accepted by the customs authorities on March 8, 2019.
Procedural Background
Nearly five years after the surrender of the licence, the Assistant Commissioner of Customs issued a show cause notice dated February 1, 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 had failed to maintain digital records, obtain a digital signature for the warehouse keeper, and renew the solvency certificate and risk insurance policy annually. Despite requests by the petitioner to obtain a copy of the audit report in order to effectively respond to the allegations, the authorities did not provide the document. Subsequently, an order dated December 30, 2025 imposed a penalty of ₹30,000 on the company. Aggrieved by this order, the petitioner approached the Gujarat High Court through a writ petition.
Issues
1. Whether the customs authorities had invoked the correct regulatory framework applicable to the petitioner’s warehouse licence.
2. Whether failure to provide the audit report forming the basis of the show cause notice violated principles of natural justice.
3. Whether the penalty imposed by the customs authorities was legally sustainable.
Contentions of the Parties
The petitioner contended that it operated under a Special Warehouse licence issued under Section 58A of the Customs Act and therefore its operations were governed by the Special Warehouse (Custody and Handling of Goods) Regulations, 2016. It argued that the customs department had incorrectly invoked the general Warehouse (Custody and Handling of Goods) Regulations, 2016, which were not applicable to its operations.
The petitioner also submitted that the authorities failed to provide the audit report relied upon in the show cause notice, thereby denying it a fair opportunity to respond to the allegations.
The customs authorities defended the penalty proceedings and maintained that the company had committed regulatory violations related to record maintenance and compliance obligations under warehouse regulations.
Reasoning and Analysis
The High Court observed that the petitioner held a Special Warehouse licence under Section 58A of the Customs Act. Accordingly, the applicable regulatory framework governing its operations was the Special Warehouse (Custody and Handling of Goods) Regulations, 2016.
The Court held that the customs authorities had wrongly initiated proceedings under the general Warehouse Regulations instead of the Special Warehouse Regulations. The Bench noted that the legislature had consciously created separate regulatory frameworks for different categories of warehouses under Sections 57, 58, and 58A of the Act.
Consequently, invoking the wrong set of regulations rendered the entire proceedings legally untenable. The Court further held that the authorities had failed to provide the audit report relied upon in the show cause notice, which deprived the petitioner of a meaningful opportunity to defend itself and violated principles of natural justice. Additionally, the Bench noted that the penalty proceedings had been initiated nearly five years after the petitioner had surrendered its warehouse licence and that the department had not provided a clear basis for determining the penalty amount of ₹30,000.
Decision
The Gujarat High Court allowed the writ petition and set aside the penalty order dated December 30, 2025 imposed on Zaveri and Co. Pvt. Ltd., holding that the proceedings were initiated under the wrong regulatory framework and were therefore unsustainable in law.
In this case the petitioner was represented by Advocates, Jaimin R Dave, Hirva R Dave, Manvi A Damle. Meanwhile the respondent was represented by Advocate, Param V Shah.
