2025 (10) TMI 16 - HC - Customs

Provisional release conditions eased for viscose knitted fabric; applicant must remit full declared duty and pay 50% differential duty

M/s. K.P. Impex, Rep. By its Proprietor Shri Rakesh Ranawat Versus The Principal Commissioner of Customs (Preventive), The Additional Commissioner of Customs, O/o. The Principal Commissioner of Customs, Chennai

HC modified provisional release conditions for viscose knitted fabric where the Department alleges misclassification and undervaluation and has commenced ... Seeking provisional release of goods without insisting for payment of duty on the re-determined value and without insisting furnishing of Bank Guarantee - imposition of onerous conditions - HELD THAT:- In the case in hand, the goods that are involved are Viscose Knitted Fabric, which according to the Department has been misclassified and undervalued. Therefore, the Department is proceeding further with the adjudication proceedings. Pending the same, the impugned provisional release order has been passed. Taking into consideration the facts and circumstances of the case and considering the grounds raised in the writ petition and also taking into consideration of the earlier orders passed by this Court, this Court is inclined to modify the conditions imposed in the provisional release order - the petitioner is directed to remit the entire duty as declared by them - the petitioner is directed to pay 50% of the differential duty for the total value arrived at by the Department - petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a provisional release order under Section 110 of the Customs Act can lawfully impose onerous conditions including payment of re-determined duty, execution of a large bond and furnishing of a bank guarantee pending adjudication. 2. Whether reliance on administrative guidelines (CBIC Circular) that prescribe conditions for provisional release is determinative where such guidelines have been judicially challenged. 3. Whether a bank guarantee requirement for an amount directed as security for potential duty, fine or penalty is reasonable, or can be substituted by an indemnity bond, having regard to the respondent-Department's interest in recovery and the importer's interest in access to goods pending adjudication. 4. What quantum or form of security (if any) is appropriate as a condition for provisional release where valuation/classification disputes result in alleged differential duty. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Lawful scope of conditions in provisional release under Section 110 Legal framework: Provisional release of seized/imported goods pending adjudication is governed by Section 110 of the Customs Act (and related provisions permitting provisional measures). The Department may impose conditions intended to protect revenue where adjudication is pending. Precedent treatment: Earlier orders of this Court (single judge and Division Bench) have approved conditional provisional release involving payment of duty, part payment of differential duty and execution of bonds; they have also modified bank guarantee requirements into bonds where the requirement for BG was considered harsh. Interpretation and reasoning: The Court refrains from adjudicating the merits of classification or valuation but assesses the reasonableness of the conditions imposed for provisional release. The Department's legitimate interest in securing potential recoveries from adjudication must be balanced against the importer's right to reasonable access to goods. Conditions that secure revenue without imposing unduly harsh, immediate cash or BG demands are preferred. Prior judicial practice supports requiring payment of declared duty, part payment of assessed differential, and bonds to secure remaining exposure. Ratio vs. Obiter: Ratio - it is permissible for a provisional release order to require payment of declared duty and security for assessed differential duty; however, demanding a bank guarantee for prospective penalties/fines before adjudication may be disproportionate and capable of being substituted by an appropriate bond. Obiter - observations on the particular amounts fixed in other cases. Conclusions: Conditions requiring payment of the entire duty declared by the importer and part (50%) of the differential duty assessed, together with binding bonds for the balance, are reasonable to protect revenue while enabling release; requiring a separate bank guarantee for prospective penalties/fines is not necessary in all cases and may be converted into a bond. Issue 2 - Reliance on administrative circulars/guidelines to justify conditions Legal framework: Administrative circulars and CBIC guidelines may inform departmental practice but cannot override statutory provisions or binding judicial pronouncements. Where circulars have been subject to judicial scrutiny, their applicability depends on the judicial outcome and the scope of judicial review undertaken. Precedent treatment: The petitioner relied on a judgment holding a particular circular contrary to Section 110A and void; the respondents relied on a Supreme Court dismissal of an SLP where the apex court limited its consideration and modified only the quantum of BG without ruling on the circular's validity. Interpretation and reasoning: The Court notes that the Apex Court, in the reported disposition, did not address the validity of the impugned guideline but only modified the security quantum in that specific appeal. Thus, the administrative circular cannot be treated as conclusively authorising onerous conditions where judicial authorities have read down or substituted less onerous measures. The validity of a circular that prescribes conditions contrary to statutory protections must be assessed on the facts and by reference to existing judicial precedents. Ratio vs. Obiter: Ratio - administrative circulars cannot operate to justify conditions that are unreasonable or inconsistent with earlier judicial orders; obiter - the precise interplay of the Apex Court order with all facets of the circular is fact-sensitive. Conclusions: Reliance solely on the circular to justify imposing a bank guarantee and other onerous conditions is misplaced where prior judicial decisions have limited such practices; departmental action must conform to statutory framework and judicial precedent. Issue 3 - Appropriateness of bank guarantee vs. bond as security pending adjudication Legal framework: Security in provisional release can take forms such as payment, bond, bank guarantee or indemnity, subject to reasonableness and the need to safeguard revenue. The tribunal/court may modify conditions to align with prior judicial decisions and proportionality principles. Precedent treatment: This Court's prior orders converted bank guarantee requirements into bonds in cases involving both prohibited and non-prohibited goods where the show-cause notice was yet to be adjudicated and where a BG was considered harsh. Interpretation and reasoning: A bank guarantee imposes immediate financial encumbrance and may be disproportionate before adjudication, particularly where other adequate securities (part payment, bond) are available. Bonds provide a legally enforceable undertaking that secures revenue interest while avoiding onerous immediate cash or banking burdens. Given the Department's ability to pursue recovery after adjudication, a combination of full payment of declared duty, 50% of differential duty, and bonds for the balance reasonably balances interests. The Court applied this principle to modify the provisional release order: substituted the directed BG of Rs. 12,00,000 with an equivalent indemnity bond for the same sum and retained a separate bond for the larger sum indicated by the Department. Ratio vs. Obiter: Ratio - where adjudication is pending, a bank guarantee for potential fines/penalties can be converted into an executed bond of equivalent amount; such substitution is within judicial power to prevent disproportionate hardship while protecting revenue. Obiter - assessment of quantum and precise mix of securities remains fact-sensitive. Conclusions: A bank guarantee requirement for Rs. 12,00,000 was modified into an executed bond of the same amount; the other bond and payment obligations were upheld, and goods were ordered released on compliance, reflecting the Court's balancing approach. Issue 4 - Appropriate quantum of immediate payment and form of security for differential duty arising from alleged misclassification/undervaluation Legal framework: There is no rigid formula in the statute for quantum of immediate payment in provisional release cases; courts have endorsed pragmatic allocations (e.g., full declared duty plus 50% of the differential) to secure revenue without unduly crippling importers. Precedent treatment: This Court in earlier judgments directed remittance of declared duty, payment of 50% of differential duty, and execution of bonds for the remainder; Division Bench decisions have confirmed and applied similar formulas, while modifying BGs to bonds where appropriate. Interpretation and reasoning: The Court adopts the established approach in similar cases involving classification/valuation disputes: require the importer to remit the declared duty in full, pay half of the differential duty assessed by the Department, and execute bonds for the residual exposure. This allocation secures revenue to a significant degree while allowing business continuity and ensuring enforceable remedies for the Department if adjudication ultimately finds in its favour. Ratio vs. Obiter: Ratio - ordering payment of declared duty plus 50% of differential duty, coupled with bonds for remaining obligations, is an acceptable and proportionate condition for provisional release in valuation/classification disputes. Obiter - percentage split (50%) is pragmatic rather than sacrosanct and may be varied by courts on case specifics. Conclusions: The Court modified the provisional release conditions to require (a) remittance of the entire declared duty, (b) payment of 50% of the differential duty assessed by the Department, (c) execution of a bond for Rs. 41,00,000, and (d) execution of a further bond for Rs. 12,00,000 in place of a bank guarantee; on compliance, goods to be released within seven days and adjudication to proceed expeditiously. Cross-references Prior orders of this Court involving both non-prohibited and prohibited goods (discussed above) were followed and applied to the facts: the substitution of bank guarantee by bond aligns with earlier decisions; the payment of declared duty plus 50% of differential duty follows the Court's established practice in provisional release matters.