Customs Act | Voluntary Deposit Made During Investigation Can Be Appropriated Towards Time-Barred Duty Liability: Delhi High Court

"The limitation under Section 28 of the Customs Act restricts the Department's statutory power to issue a demand beyond the prescribed period, but such limitation does not prevent the importer from voluntarily paying the duty liability."

Delhi High Court, in a judgment dated September 16, 2026, held that once an importer has voluntarily deposited an amount during an investigation and requested its adjustment toward duty liability, the Settlement Commission is empowered to appropriate such funds even against demands that would otherwise be time-barred under Section 28 of the Customs Act, 1962.

A bench of Justice Anil Kshetarpal and Justice Shail Jain observed that the statutory bar on recovery does not extinguish the underlying liability where the payment was made voluntarily and without retraction of the admission of liability.

The petitioner, a proprietary concern, was investigated by the Directorate of Revenue Intelligence (DRI) for alleged under-invoicing and misdeclaration of confectionery items, leading to a differential duty demand of Rs. 1,15,88,712. During the probe, the petitioner’s proprietor voluntarily deposited Rs. 85,00,000 and explicitly requested, via recorded statements, that the amount be adjusted against the total differential duty liability. When the matter reached the Settlement Commission, the petitioner sought to settle only the portion within the five-year limitation period under Section 28 of the Customs Act, while disputing the remaining amount as time-barred.

The primary question before the court was whether the Settlement Commission could lawfully permit the appropriation of a voluntary deposit toward differential duty liability that fell beyond the five-year limitation period prescribed under Section 28 of the Customs Act. The court was further tasked with determining whether such appropriation constituted an impermissible recovery of a time-barred demand, and if the Settlement Commission’s reliance on the proprietor's recorded statements was sustainable in the face of the petitioner's subsequent dispute.

Distinguishing Voluntary Payment from Statutory Demand

The High Court emphasized that the case did not involve the Revenue initiating fresh recovery proceedings after the expiry of the limitation period. Instead, it concerned the treatment of funds already lying with the department, which the petitioner had voluntarily relinquished. The court clarified that the statutory limitation under Section 28 acts as a bar on the "remedy" of forced recovery, but it does not invalidate the underlying liability when the assessee itself offers to discharge it voluntarily.

No Absolute Right to Retract Admissions

The bench noted that the proprietor’s statements, in which he admitted to the evasion and requested the adjustment of the deposit, were never retracted during the proceedings. The court observed that the petitioner failed to place the retraction of these statements on record or file a rejoinder to the Revenue's counter-affidavit. Therefore, the factual findings of the Settlement Commission regarding the voluntary nature of the deposit remained unassailable.

Court's Conclusion on Statutory Bar

The court rejected the petitioner's reliance on C.J. Shah & Co. v. Union of India, distinguishing it by noting that in the present case, the deposit was not made "under protest" or "without prejudice" but was specifically directed by the importer to be adjusted against the differential duty. The court held that the Settlement Commission's appropriation was a logical exercise of its settlement powers based on the factual record.

Bold Pull-Quote on Scope of Settlement

"The Settlement Commission did not determine the liability by issuing a fresh demand under Section 28 in the Impugned Order. Rather, it dealt with an amount which had already been deposited by the Petitioner during investigation and considered its appropriation in light of the admission and request recorded in the statement of the proprietor."

Finality of Settlement Proceedings

The High Court reiterated that while it possesses the power of judicial review under Article 226 of the Constitution of India, such jurisdiction cannot be invoked as an appellate mechanism to re-appreciate factual findings. The court affirmed that as the petitioner had invoked the Settlement Commission's jurisdiction, it was bound by the finality of the order under Section 127J of the Customs Act, absent any jurisdictional error or violation of natural justice.

The petition was dismissed, with the court concluding that the appropriation of the deposit did not amount to bringing a time-barred demand through the "back door," as it merely gave effect to the importer's own voluntary request for adjustment.

Date of Decision: 16 September 2026