Jurisdiction Dispute: Can Customs Department Demand Recovery of IGST Refund?

Issue

Jurisdiction: Whether the Customs Department has the jurisdiction to issue a Show Cause Notice (SCN) for the recovery of IGST refunds granted on exports, or if such jurisdiction lies exclusively with the GST Department.
Classification: Whether the products (sealing material) fall under HSN 4016 93 40 or 4504 10 10.

Facts

The Business: The petitioner exports sealing materials (gaskets, machinery components, etc.).
The Refund: The petitioner paid IGST on these exports and subsequently claimed and obtained a refund of the same (as per Rule 96 of CGST Rules).
The Dispute: The Customs Department (Office of Commissioner of Customs – Export) issued an SCN alleging that the petitioner had wrongly classified the goods to claim a higher refund/drawback. They proposed to recover the “inadmissible” IGST refund and drawback amounts.
Petitioner’s Plea: The petitioner argued that the Customs Department lacks the jurisdiction to demand recovery of IGST refunds. They contended that under the GST framework, only the GST Department (Proper Officer under CGST/SGST Act) is empowered to issue notices for erroneous GST refunds.

Decision

On Jurisdiction (Customs vs. GST): The High Court held that the petitioner’s challenge regarding the lack of jurisdiction of the Customs Department to recover IGST refunds requires deep legal consideration. Therefore, this specific issue was admitted for hearing and listed for further arguments.
On Classification (HSN Code): Regarding the factual dispute of whether the goods were rubber gaskets or cork gaskets (Classification issue), the Court refused to entertain it in a Writ Petition. The petitioner was relegated to the statutory appellate remedy (Appeal under Section 107) to adjudicate the factual merits of the classification.

Key Takeaways

The Jurisdictional Battle: There is an ongoing legal debate about “Cross-Empowerment.” While Customs officers process IGST refunds at the port (automatically via ICEGATE), courts are examining whether they have the power to initiate recovery proceedings under the GST Act, or if they must refer the matter to the jurisdictional GST officer.

Classification is Factual: Courts rarely decide HSN classification disputes in Writ jurisdiction (Article 226). If your dispute is purely about the nature of the product, you must go through the standard appeal hierarchy (Commissioner Appeals -> Tribunal).

HIGH COURT OF DELHI

Talbros Sealing Material (P.) Ltd.

Additional Commissioner of Customs Export^*

PRATHIBA M. SINGH and SHAIL JAIN, JJ.

W.P.(C) No. 17723 of 2025
CM APPL. Nos. 73164, 73165 and 73166 of 2025

NOVEMBER 21, 2025

Rajat Mittal, Ms. Krati Agrawal, Suprateek Neogi and Priyanshu, Advs. for the Petitioner. Ms. Anushree Narain, SSC and Naman Choula, Adv. for the Respondent.

ORDER

1. This hearing has been done through hybrid mode.

CM APPL. 73165/2025 (for exemption)

2. Allowed, subject to all just exceptions. Application is disposed of.

CM APPL. 73166/2025

3. This is an application seeking permission to file lengthy synopsis and list of dates. For the reasons stated therein, permission is granted.

Application is disposed of.

W.P.(C) 17723/2025, CM APPL. 73164/2025

4. The present petition has been filed by the Petitioner under Article 226 of the Constitution of India, inter alia, challenging the Order-in-Original dated 25^th June, 2025 (hereinafter, ‘impugned order’) passed by the Office of the Commissioner of Customs (Export). Vide the impugned order, certain demands are sought to be raised and recoveries have been directed against the Petitioner.

5. The Petitioner is in the business of export of sealing material such as rubberised cork gaskets, rubber gaskets and also components of machinery and motor vehicles. The Petitioner had deposited Integrated Goods and Services Tax (hereinafter, ‘IGST’) for some of its exports and had also obtained a refund of the same. In respect of the said refund, a Show Cause Notice (hereinafter ‘SCN’) was issued on 6^th August, 2024.

6. The case of the Department was that the Petitioner had wrongly classified the products under HSN 40169340 instead of HSN 45041010.

7. The SCN was also proposed to recover the inadmissible drawback amounts and export benefits which the Petitioner had obtained. Thereafter, replies to the SCN were submitted by the Petitioner and hearing was held. The impugned order dated 25^th June, 2025 was thereafter passed by the Office of the Commissioner of Customs (Export).

8. The operative portion of the impugned order reads as under:

“i) I reject the classification of cork gasket under HSN 84841010 in shipping bill no.1120004 dated 18.05.2023 and classification of rubberized cork gasket under HSN 40169340 in shipping bill no. 1457601 dated 01.06.2023 and hereby order to classify the same under HSN 45041010.

(ii) I hold that the goods entered for exportation by the exporter under Shipping Bill No. 1120004 dated 18.05.2023 and 1457601 dated 01.06.2023 be confiscated under Section 113 of the Customs Act, 1962 and therefore, I impose redemption fine of Rs 2,50,000/-and Rs 30,000/- respectively on the exporter under section 125 of the Customs Act. 1962.

(iii) I order that the claims for 1GST amount of Rs 5,12,006.55/-, Drawback amount of Rs 20,206/- and RoDTEP amount of Rs 28,443 in respect of impugned Shipping Bill No. 1120004 dated 18.05.2023 be rejected and the same be recovered from the exporter (if already disbursed) along with the applicable interest by the concerned jurisdictional authorities;

(iv) I order that the claims for IGST amount of Rs 61,642.94/-, Drawback amount of Rs 4,452/- and RoDTEP amount of Rs 3.424 in respect of impugned Shipping Bill No. 1457601 dated 01.06.2023 be rejected and the same be recovered from the exporter (if already disbursed) along with the applicable interest by the concerned jurisdictional authorities;

(v) I impose a penalty of Rs. 3,00,000/- on M/s. Talbros Sealing Materials Pvt. Ltd. under Section 114 (iii) of the Customs Act, 1962 for acts of wilful omission & commission as discussed in the foregoing paras.

(vi) I impose a penalty of Rs. 3,00,000/- on M/s. Talbros Sealing Materials Pvt. Ltd. under Section 114 AA of the Customs Act, 1962 for acts of wilful omission & commission as discussed in the foregoing paras.

(vii) I hold that any amount sanctioned as drawback or any other export incentives, but pending for disbursal, if any, shall be withheld and adjusted against the recovery of excess export incentives paid as aforesaid under the provisions of the Customs Act, 1962 and rules made thereunder.”

9. The present petition raises two issues:

(i)

Firstly, relating to classification of the goods; and

(ii)

Secondly, ld. Counsel for the Petitioner raises a challenge that the SCN could not have been issued by the Customs Department and it could have only been issued by the GST Department.

In order to buttress this submission, reliance is placed upon Section 2(12), Section 5, Section 7(5) and Section 20 of the Integrated Goods and Services Tax Act, 2017 (hereinafter, ‘IGST Act’).

10. On the basis of the said provisions, it is argued by the ld. Counsel for the Petitioner that demands and recovery under the IGST Act would be governed by the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter, ‘CGST Act’). 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.

11. On the other hand, Ms. Anushree Narain, ld. SSC for the Respondent submits that in terms of Section 2(2) of the Customs Act, 1962, the Customs Officers would also be ‘proper officers’ in order to raise demands of any tax in respect of exports.

12. Ms. Narain, ld. SSC also submits that the impugned order is an appealable order.

13. Heard. Two issues that are raised in the present case are relating to classification and the power of the Commissioner of Customs to issue the SCN. Insofar as classification is concerned, the Petitioner may avail of his appellate remedies. However, insofar as the question as the inter-play between the provisions of the Customs Act, 1962, the IGST Act and CGST Act is concerned, the matter requires consideration.

14. Accordingly, issue notice. Ms. Anushree Narain, ld. Senior Standing Counsel accepts notice.

15. Let the Customs Department and the CGST Department file a joint affidavit in this matter as to who would be the ‘proper officer’ in such a case.

16. The Petitioner is permitted to file the appeal within a period of 30 days in respect of the classification. If the appeal is filed within a period of 30 days, it shall not be dismissed on the ground of limitation and shall be adjudicated on merits.

17. Let a counter affidavit be filed within four weeks. Rejoinder be filed within four weeks, thereafter.

18. List before the Joint Registrar on 8^th January, 2026.

19. List before the Court on 24^th February, 2026.