2025 (10) TMI 76 - HC - Customs

Petitioner allowed to re-export goods to supplier in China; pay penalty and differential duty, execute bond and 20% bank guarantee

M/s. Aashi Creations, rep. by its Proprietor Mr. Shravan Kumar Tripati Versus The Principal Commissioner of Customs (Chennai-III), The Additional Director General, Directorate of Revenue Intelligence, New Delhi

HC permitted the petitioner to re-export the goods to the supplier in China subject to conditions, noting retention in India was unnecessary to adjudicate ... Permission to re-export the goods to the supplier at China since the supplier had also agreed to take back the goods - Undervaluation - Mis-classification of goods under CTH 59039090 instead of classifying the goods under CTH 54075290, 58013690, 55162200, 60063200 and 60063400 - HELD THAT:- The logical end to the adjudication proceedings will result in directing the petitioner to pay the fine/penalty and differential duty. For this purpose, it is not necessary to retain the goods in India. Therefore, to strike a balance, considering the fact that the goods are lying in India from January 2025, certain conditions can be imposed on the petitioner and on fulfilment of the conditions so imposed, the petitioner can be permitted to re-export the goods. This view has been taken by this Court and other High Courts while granting such a relief. The petitioner shall execute a bond for the total value of the differential duty payable by them - The petitioner shall furnish a bank guarantee equivalent to 20% of the redetermined value - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether goods detained/seized under Section 110 of the Customs Act, 1962 pending investigation and possible confiscation under Section 111 can be permitted to be re-exported before adjudication. 2. If re-export is permissible, what conditions (bond, bank guarantee, time-limit or other security) are appropriate to protect revenue interests pending adjudication and possible levy of differential duty, fine or confiscation under Sections 111 and 125 of the Act. 3. Whether precedents permitting provisional release/re-export on security and/or payment of retention fine are applicable where CRCL test report alleges misclassification and undervaluation. ISSUE-WISE DETAILED ANALYSIS Issue 1: Permissibility of re-export of seized/detained imports pending investigation/adjudication Legal framework: Section 110 authorises seizure of goods; Section 111 deals with confiscation of improperly imported goods; Section 125 permits imposition of a fine in lieu of confiscation. Adjudication determines classification, valuation, duty liability and whether confiscation or penalty applies. Precedent treatment: The Court considered prior decisions (including appellate and High Court orders) that have allowed re-export or provisional release subject to conditions (such as payment of retention fine, execution of bond, or furnishing bank guarantees). Those authorities were treated as supporting the proposition that goods need not necessarily remain in the country for the sole purpose of securing revenue recovery. Interpretation and reasoning: The Court emphasises that the ultimate adjudicatory outcome will likely require payment of differential duty and possibly a fine; the physical retention of goods in India is not essential to ensure recovery. Where the revenue can be adequately protected by alternative securities, re-export may be permitted. The Court noted the completion of investigation and existence of a CRCL test report alleging misclassification and undervaluation, but held that these do not, by themselves, mandate continued detention if adequate safeguards are imposed. Ratio vs. Obiter: Ratio - Where seizure is under Section 110 and adjudication may lead to differential duty/penalty under Sections 111/125, re-export can be permitted prior to final adjudication provided sufficient security is furnished to protect revenue; retention of goods is not an indispensable precondition for recovery of dues. Obiter - Observations on the desirability of early adjudication and commercial loss due to deterioration of goods. Conclusion: The Court concluded that re-export is permissible subject to appropriate securities and conditions designed to protect the revenue. Issue 2: Appropriate security and procedural conditions when permitting re-export pending adjudication Legal framework: The Court relied on the statutory architecture permitting confiscation and imposition of fines (Sections 111 and 125) and the customs regime's objective of securing duty and penalties pending determination. It recognised judicially-evolved remedies (retention fines, bonds, bank guarantees) as instruments to balance commercial prejudice and revenue protection. Precedent treatment: Decisions allowing re-export on execution of bonds, payment of retention fines, or furnishing of bank guarantees were followed as persuasive authority for imposing conditional security rather than absolute withholding of goods. The Court referred to both single-judge and divisional-bench authorities that approved bonds/bank guarantees and quantified security as a percentage of estimated duty/value. Interpretation and reasoning: The Court reasoned that a combination of a bond for the total value of differential duty and a bank guarantee for a percentage of the redetermined value provides a two-fold protection: (a) the bond creates an enforceable obligation for payment of duty/penalty/differential; and (b) the bank guarantee offers immediate liquid security to meet at least part of the revenue demand if required. The selection of 20% as the bank guarantee percentage and a specified time window for re-export (12 days after compliance) reflects the Court's effort to strike a balance between preventing flight of liability and mitigating commercial loss from prolonged detention. Ratio vs. Obiter: Ratio - Where re-export is allowed pending adjudication, the Court may impose conditions including (i) execution of a bond for the full amount of differential duty and (ii) furnishing of a bank guarantee for a quantified percentage of the redetermined value; re-export can be permitted upon compliance within a limited timeframe. Obiter - Specific numeric percentages and time periods are fact-specific and may be varied in other cases; the Court's adoption of 20% and 12 days is a direction tailored to the facts before it rather than a universally prescriptive formula. Conclusion: The Court imposed the following conditions to permit re-export: execution of a bond for the total value of differential duty; furnishing of a bank guarantee equal to 20% of the redetermined value; and permitted re-export within 12 days upon compliance. These conditions were held sufficient to protect revenue pending adjudication. Issue 3: Effect of alleged misclassification and undervaluation based on CRCL report on the decision to allow re-export Legal framework: Classification and valuation determine customs duty and potential confiscation; CRCL reports form part of the evidentiary basis for allegation of misclassification/undervaluation, which can lead to action under Sections 110/111 and imposition of fines under Section 125. Precedent treatment: Earlier authorities recognising that a test report or allegation of misclassification does not ipso facto mandate continued custody of goods if revenue can be secured by other means were followed. Such precedents were used to distinguish between cases where goods must be retained (risk of dissipation of value or flight) and cases where security suffices. Interpretation and reasoning: The Court acknowledged the seriousness of CRCL findings but held that the existence of such findings is a reason to require robust security rather than an absolute bar to re-export. The decision balanced the revenue's interest (potential differential duty and fine) against commercial prejudice (deterioration and loss), concluding that security instruments can adequately address revenue risk even where CRCL alleges misclassification and undervaluation. Ratio vs. Obiter: Ratio - CRCL allegations do not automatically preclude re-export; instead they necessitate appropriate securities to ensure recovery of duties/penalties. Obiter - The Court's assessment of commercial deterioration and supplier willingness to accept return are fact-specific considerations supporting relief. Conclusion: Despite the CRCL report alleging misclassification/undervaluation, the Court permitted conditional re-export subject to the bond and bank guarantee, finding that such measures sufficiently protect revenue pending adjudication. Cross-references and Practical Outcome The Court applied statutory provisions (Sections 110, 111, 125) together with judicial precedent permitting provisional release/re-export on security; it followed the principle that retention of goods is not essential where the revenue can be protected by enforceable securities. The operative relief directed immediate procedural steps (bond and bank guarantee) and a 12-day re-export window upon compliance, thereby resolving the core dispute between commercial prejudice and revenue protection.