High Court reverses Tribunal order on provisional release of seized gold diverted from export manufacturing

The HC set aside the Tribunal's order directing provisional release of seized gold under section 110A of the Customs Act, 1962. The gold was imported duty-free for manufacturing export jewelry but was diverted to domestic market in violation of conditions. The court held that such prohibited goods under section 2(33) cannot be provisionally released per Circular No.35/2017-Customs. However, the court permitted provisional release upon deposit of the gold's current value and compliance with export obligations, allowing the appellant to impose additional conditions as necessary.

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Issues Involved:
1. Whether CESTAT erred in setting aside the Order in F.No.GEN/ADJ/COMM/295/2022-ADJN dated 25.10.2022 by applying section 110A of the Customs Act, 1962.
2. Whether CESTAT properly applied clause (i) of Para 2 of Circular No.35/2017-Customs dated 16.08.2017 regarding the provisional release of prohibited goods.

Detailed Analysis:

Issue 1: Application of Section 110A of the Customs Act, 1962
The Revenue contended that CESTAT erred in setting aside the order dated 25.10.2022 by misapplying Section 110A of the Customs Act, 1962. The section uses the term "may" and not "shall," indicating that the release of seized goods is a discretionary power vested in the adjudicating authority. The Revenue argued that the seized gold was prohibited and involved in fraudulent activities, hence not eligible for provisional release. They relied on precedents such as Sheikh Mohd. Omer vs. Collector of Customs and Om Prakash Bhatia vs. Commissioner of Customs to emphasize the discretionary nature of provisional release and the implications of fraudulent activities on national economy and public interest.

The Tribunal, however, directed the provisional release of the seized goods on the condition that the respondent furnish a bond for the full value of the seized goods and a Bank Guarantee for 30% of the value, allowing inspection by the Revenue. The Tribunal's decision was based on its coequal powers with the adjudicating authority and similar precedents like the Delhi High Court's decision in Additional Director General (Adjudication) vs. Its My Name Pvt Ltd.

Issue 2: Application of Circular No.35/2017-Customs
The Revenue argued that CESTAT failed to apply clause (i) of Para 2 of Circular No.35/2017-Customs, which states that provisional release shall not be allowed for prohibited goods as defined under Section 2(33) of the Customs Act, 1962. The seized gold, being prohibited and involved in fraudulent activities, should not have been released provisionally. The Revenue emphasized that the goods were part of a wider conspiracy to defraud the exchequer and did not fulfill statutory obligations.

The Tribunal's decision to provisionally release the goods was contested by the Revenue, which argued that the Tribunal ignored the specific guidelines and statutory definitions of prohibited goods. The Tribunal's reliance on the Delhi High Court's decision was deemed inappropriate as it did not consider the specific illegalities and irregularities in the present case.

Judgment:
The High Court concluded that the Tribunal erred in exercising discretion under Section 110A of the Customs Act for provisional release of the seized goods. The Tribunal failed to consider the nature of violations and the specific guidelines under Circular No.35/2017-Customs. The High Court emphasized that the goods were prohibited and involved in fraudulent activities, making them ineligible for provisional release. The Tribunal's decision was set aside, and the appeal was allowed in favor of the Revenue.

However, the respondent was given the liberty to deposit the current value of the seized gold for provisional release, subject to conditions imposed by the appellant, ensuring compliance with export obligations and other statutory requirements.

Conclusion:
The appeal was allowed, setting aside the Tribunal's order for provisional release of the seized goods. The respondent was permitted to deposit the current value of the seized gold for provisional release, subject to conditions ensuring compliance with statutory and export obligations.

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