100% EOU wins release of detained export goods with reduced security requirement

The Calcutta HC allowed a 100% EOU's petition for immediate export of detained goods. The court held that export goods detained for testing should be released expeditiously unless found to be prohibited items under Customs Act 1962. The HC found the Rs. 3 crore bank guarantee requirement excessive compared to goods value and directed authorities to reconsider the security amount within seven days per applicable circulars. The court stayed detention charges during investigation, ordered test results to be shared with petitioner within seven days, and granted provisional export subject to reasonable security and cooperation with enquiry.

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1. ISSUES PRESENTED and CONSIDERED

- Whether the petitioner, a 100% Export Oriented Unit (EOU), is entitled to immediate export of goods covered under the Shipping Bill No. 7083124 dated 07.01.2025, which were detained by customs authorities pending examination and testing.

- Whether the customs authorities acted lawfully in sealing the petitioner's containers, drawing samples, and withholding the Let Export Order (LEO) without timely determination.

- Whether the provisional release of the detained goods by customs was justified and on what conditions such release should be granted, including the quantum of security or bank guarantee to be furnished by the petitioner.

- The legal validity and reasonableness of the customs authorities' demand for a bank guarantee of Rs. 3 crores, which significantly exceeds the Free on Board (FOB) value of the goods (Rs. 1,98,85,906.26).

- The applicability and interpretation of relevant Customs circulars and regulations regarding provisional release of goods, security requirements, and the treatment of demurrage/detention charges during the pendency of investigation.

- The extent of the petitioner's obligation to cooperate with the customs authorities during the enquiry and the procedural fairness in handling the export clearance process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to export goods and legality of detention

The petitioner, operating as a 100% EOU, filed the shipping bill for export of areca nut powder with the expectation of obtaining the Let Export Order (LEO) promptly. However, customs officials detained the goods for examination and drew samples on 7th and 8th January 2025, without concluding the enquiry or issuing the LEO. The petitioner's request for provisional export permission remained pending.

The Court noted that while the customs authorities are empowered to examine and test goods under the Customs Act, the petitioner must not be unduly delayed in exporting goods unless they fall under prohibitory categories. The authorities had not demonstrated that the goods were prohibited for export. The petitioner's bona fide belief in the urgent export and contractual obligations was recognized. The Court directed the customs authorities to expeditiously decide on the petitioner's application for provisional export, emphasizing procedural fairness and the need for timely resolution.

Relevant legal framework and precedents: Customs Act, 1962 provisions on examination and provisional release; Circulars dated 4th January 2011 (No. 01/2011-Cus) and 16th August 2017 (No. 35/2017-Cus) guiding provisional release of seized goods.

Court's reasoning: The Court balanced the customs authorities' duty to verify goods with the petitioner's right to export without unnecessary delay, especially since no prohibitory status was established.

Issue 2: Provisional release conditions and quantum of bank guarantee/security

Upon provisional release, the customs authorities demanded a bank guarantee of Rs. 3 crores, exceeding the FOB value of the goods. The petitioner challenged this as excessive and sought reduction to 25% of the goods' value, relying on precedents and circulars that permit security to be fixed at 25% of value in provisional release scenarios.

The customs authorities justified the higher security on the basis that the goods were duty-free imports under an export obligation, and the security was intended to cover potential fines and penalties if misdeclaration was confirmed. They cited Circular No. 01/2011-Cus which requires bonds equal to the goods' value plus security to cover potential confiscation and penalties.

The Court analyzed both positions and the relevant circulars. It observed that the provisional release order did not specify reasons for fixing the security at Rs. 3 crores, nor was there any indication that confiscation proceedings were contemplated. The Court emphasized that security should be "appropriately reduced in accordance with law" and directed the customs authorities to reconsider the quantum of bank guarantee within seven days, applying the principles in the circulars and taking into account the absence of confiscation proceedings.

Relevant precedents: Judgment in Commissioner of Customs (Preventive), Kolkata v. M/s J.S. Jewels Pvt. Ltd., which upheld a bond plus 25% bank guarantee security; Priyanka Maurya v. Commissioner of Customs (Preventive), Kolkata, which applied Circular No. 686/2/2003-CX for provisional release security fixed at 25% of goods' value.

Court's interpretation: The Court distinguished the present case from J.S. Jewels as it involved export goods provisionally released, not imported goods. It underscored the need for reasoned determination of security amount, aligned with statutory and circular guidelines.

Issue 3: Treatment of demurrage/detention charges during investigation

The petitioner sought relief from container demurrage and detention charges arising from delayed export due to customs examination. The Court referred to Notification No. 26/2009-Cus (Handling of Cargo in Customs Areas Regulations, 2009) and Notification No. 38/2018-Cus (Cargo Manifest and Regulation 2018), which prohibit charging rent or demurrage on goods detained by customs during verification, provided entries are found to be correct.

The Court held that demurrage/detention charges should be stayed during the investigation, subject to the petitioner's cooperation and the outcome of enquiry. It allowed the customs authorities to obtain appropriate bond/security to cover any future liability but restrained them from saddling the petitioner with demurrage charges at this stage.

Application of law to facts: Since the goods were detained for testing and not found prohibited, and the petitioner was cooperating, imposing demurrage charges would be unjust.

Issue 4: Obligation to cooperate and procedural fairness

The Court emphasized that the petitioner must cooperate with the customs enquiry, including allowing sample testing and providing information. The customs authorities are required to provide the petitioner with the test results within seven days of receipt, ensuring transparency and procedural fairness.

The Court's directions aimed at expediting resolution and minimizing prejudice to the petitioner while safeguarding customs' regulatory interests.

3. SIGNIFICANT HOLDINGS

"A conjoint perusal of the aforesaid Circulars would demonstrate that in case of mis-declaration and pending confirmation of such mis-declaration by test, ordinarily, the export goods detained for the purpose of test must be dealt with on priority basis and the export should be allowed expeditiously unless the same is found to be prohibitory items under the Customs Act 1962."

"Although Mr. Dey, learned advocate representing the respondents has submitted that the same is likely to cover the redemption fine and penalty in case the goods are liable to be confiscated, the documents as available on record do not disclose that the steps taken by the respondents contemplate confiscation of the said goods."

"I direct the concerned authorities to take a decision only on the aspect of determining the amount of bank guarantee in the light of the Circulars dated 4th January, 2011 and 16th August, 2017. Having regard to the fact that no confiscation at this stage is contemplated, the security may be appropriately reduced in accordance with law."

"Having regard to the aforesaid, I am of the view that the detention charges for the time being subject to the investigation to be made by the concerned respondents be not saddled on the petitioner, though appropriate bond/security may be obtained in this regard."

Core principles established:

• Export goods detained for examination must be dealt with expeditiously unless prohibited by law.
• Provisional release of goods requires furnishing security, but the quantum must be reasonable, proportionate, and justified by law and facts.
• Security demand exceeding the value of goods without clear basis or confiscation proceedings is not sustainable.
• Demurrage and detention charges should not be imposed on detained goods during investigation if entries are found correct, subject to cooperation and bonds.
• Customs authorities must provide timely communication of test results and ensure procedural fairness.

Final determinations:

• The petitioner is entitled to provisional export of goods pending enquiry, subject to cooperation and reasonable security.
• The customs authorities must reconsider and fix the bank guarantee amount in accordance with applicable circulars and the absence of confiscation proceedings.
• Demurrage/detention charges are stayed during the investigation period.
• The petitioner must be provided with test results promptly and cooperate with the enquiry.

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