Preferential customs duty and certificate of origin cannot be denied on mere suspicion without prescribed verification.

Customs authorities could not insist on a 100% bank guarantee for provisional release of goods imported under AIFTA preference without first following the prescribed procedure for rejecting the certificate of origin and undertaking retroactive verification. A certificate of origin could not be ignored on mere suspicion, and any suspension of preferential treatment had to remain within the statutory framework. The court held that the demand for full security was arbitrary and unsustainable, set aside the impugned communication, and permitted release of the goods on payment of 30% duty and a surety bond for the balance, subject to final assessment under Section 18.

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Issues: Whether the Customs authorities could insist on a bond and 100% bank guarantee as a condition for provisional release of goods imported under AIFTA preference; and whether the impugned communication was sustainable when the prescribed procedure for denial of preferential treatment and retroactive verification was not followed.

Analysis: The import was covered by the preferential tariff regime under the AIFTA framework, and the Rules prescribed a specific mechanism for dealing with a certificate of origin, including acceptance, rejection, notification of grounds, and retroactive verification. A certificate of origin could not be disregarded on mere suspicion without following the procedure under the Rules. Rule 16 permitted suspension of preferential treatment and release of goods subject to necessary administrative measures only while verification was undertaken, but the power had to be exercised within the statutory framework. The authorities had not initiated the prescribed verification within the relevant time and had instead demanded full security on an all-India alert basis. Such a condition was held to be arbitrary and beyond the procedure contemplated by the Rules and the Regulations.

Conclusion: The demand for 100% bank guarantee was unsustainable and the impugned communication was set aside. The goods were directed to be released on payment of 30% duty and furnishing a surety bond for the balance, subject to the final determination under Section 18.

Final Conclusion: The writ petitions succeeded in substance, with the challenged revenue action quashed and interim release of the imported goods permitted on restricted security conditions pending final assessment.

Ratio Decidendi: Where preferential duty entitlement is supported by a certificate of origin, the Customs authorities cannot impose onerous security conditions on the basis of mere suspicion without first following the prescribed procedure for rejection and verification under the governing rules.

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