Provisional Release Allowed for Perishable Goods with Bond and Bank Guarantee Under Customs Rules

The HC allowed provisional release of seized perishable goods subject to conditions: execution of a bond for the entire duty amount and a bank guarantee for 50% of the differential duty. The court held that paragraph 2 of Circular No. 35/2017-Customs, limiting the Adjudicating Authority's discretion, was void and could not justify perpetual seizure. Since the question of under-declaration remained undecided, the goods could not be detained indefinitely, especially given their perishable nature and potential impact on imports. The department was directed to file a counter affidavit within four weeks, with the matter listed for further hearing on the specified date.

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1. ISSUES PRESENTED and CONSIDERED

1. Whether the provisional release of seized imported goods, particularly perishable food products, should be permitted pending adjudication under the Customs Act, 1962.

2. Whether the conditions imposed for provisional release, including execution of bond for the full value of the seized goods and furnishing of bank guarantee/security deposit for differential duty, fine, and penalty, are reasonable or require relaxation.

3. Whether the Circular No. 35/2017-Customs dated 16.08.2017, specifically paragraph 2 prescribing mandatory conditions for provisional release, is legally valid or ultra vires the Customs Act, 1962.

4. Whether the voluntary payment of Rs. 3.75 crores made by the petitioner under protest should be considered and adjusted against the conditions for provisional release.

5. Whether the existence of alleged under-declaration and related arrangements affecting assessable value and customs duty payable impact the provisional release decision at this stage.

6. Whether future consignments of the same goods from the same manufacturer should be subjected to similar provisional release conditions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Provisional Release of Seized Perishable Imported Goods

- Legal Framework: Section 110A of the Customs Act, 1962 empowers provisional release of seized goods pending adjudication. The goods in question are perishable food products imported in June 2025.

- Court Reasoning: Recognizing the perishable nature of the goods, the Court emphasized the necessity to avoid perpetual detention that could disrupt imports and business operations. The Court directed the Customs Authority to decide the provisional release application promptly and impose lawful conditions.

- Application of Law to Facts: The Court acknowledged the petitioner's continuous engagement in import and distribution of the products and the potential adverse impact of prolonged detention on business continuity.

- Conclusion: Provisional release is appropriate, subject to lawful conditions, to prevent undue hardship and disruption due to the perishable nature of goods.

Issue 2: Reasonableness and Relaxation of Conditions Imposed for Provisional Release

- Legal Framework: Circular No. 35/2017-Customs (16.08.2017) prescribes conditions for provisional release, including execution of bond for full value of seized goods and bank guarantee/security deposit covering differential duty, fine, and penalty.

- Court's Interpretation: While the Circular mandates stringent conditions, the Court recognized that such conditions are discretionary and may be relaxed considering the facts and circumstances. The Court referred to precedents where reduced bank guarantees were accepted to balance departmental interests and petitioner's business viability.

- Key Evidence: The provisional release order required a bond of Rs. 43.21 crores and a bank guarantee of Rs. 21 crores, which the petitioner argued was onerous and jeopardized their business.

- Treatment of Competing Arguments: The Customs Department relied on the Circular for imposing conditions, while the petitioner cited decisions advocating relaxation of conditions to prevent business disruption.

- Conclusion: The Court reduced the bank guarantee/security deposit to 50% of the differential duty while maintaining the bond for the full value. The amount voluntarily deposited (Rs. 3.75 crores) was to be retained in fixed deposit by Customs. This balanced approach protects revenue interests while mitigating hardship.

Issue 3: Validity of Circular No. 35/2017-Customs and Its Mandatory Conditions

- Legal Framework and Precedents: The Circular's paragraph 2, prescribing mandatory conditions for provisional release, was challenged as curtailing adjudicating authority discretion. Coordinate Benches of the Court declared this paragraph ultra vires and void to the extent it limits discretion.

- Court's Reasoning: The Court relied on recent authoritative decisions setting aside paragraph 2 of the Circular, holding that discretion to impose conditions cannot be ousted by the Circular.

- Application to Present Case: The provisional release order relied on the Circular's paragraph 2, which is invalid to the extent it curtails discretion. Hence, the Court held that conditions must be imposed with due discretion rather than rigidly.

- Conclusion: The Circular's mandatory conditions are not binding; discretion must be exercised in imposing conditions for provisional release.

Issue 4: Consideration of Voluntary Payment Made by Petitioner

- Facts: The petitioner made a voluntary payment of Rs. 3.75 crores under protest prior to provisional release application.

- Court's Reasoning: The Court acknowledged the payment and directed that the amount be retained by the Customs Department in a fixed deposit, thus recognizing the petitioner's effort and ensuring the amount is accounted for.

- Conclusion: The voluntary payment is to be considered and retained appropriately, reflecting fairness in provisional release conditions.

Issue 5: Alleged Under-Declaration and Impact on Provisional Release

- Customs Department's Submission: Alleged under-declaration due to marketing expense payments to a related Indian subsidiary should be added to assessable value for duty calculation.

- Court's Approach: The Court noted that the question of under-declaration is yet to be adjudicated and does not affect the provisional release decision at this stage.

- Conclusion: Provisional release is independent of pending adjudication on valuation and under-declaration issues.

Issue 6: Provisional Release Conditions for Future Consignments

- Precedents: The Court referred to decisions allowing provisional release of future consignments of the same goods from the same manufacturer on furnishing a provisional duty bond and bank guarantee for a percentage of differential duty, excluding anticipated fines and penalties.

- Court's Directions: Future consignments shall be released on conditions of bond for assessable value and bank guarantee for 50% of differential duty, ensuring continuity of imports while safeguarding revenue.

- Conclusion: Provisional release framework extends to future shipments with reasonable conditions to avoid disruption.

Additional Observations

- The Court emphasized the importance of timely decisions on provisional release applications, especially for perishable goods, to prevent unnecessary hardship.

- The Court directed filing of counter affidavit within four weeks and scheduled further hearing, indicating ongoing judicial supervision.

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