2025 (10) TMI 164 - HC - Customs

Misclassified goods may be reexported on executing bond for differential duty and furnishing 20% bank guarantee within 12 days

HC held that goods found misclassified by CRCL tests could be reexported subject to conditions rather than being retained. The petitioner was directed to ... Permission to reexport the imported goods - 702 packages of Textile Fabric Coated with Plastics - long delay in the release of the goods - As per the investigation all the goods were found to be misclassified on the basis of CRCL test report and it is further stated that the CTH ascertained that the goods have been misclassified and different CTH have been ascertained on the basis of the CRCL test report. ELD THAT:- The issue involved in the present writ petition has already been dealt with by this Court in M/S. AASHI CREATIONS [2025 (10) TMI 76 - MADRAS HIGH COURT] where it was 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 reexport the goods. This view has been taken by this Court and other High Courts while granting such a relief.' In the present case also, the petitioner shall execute a bond for the total value of the differential duty payable by them - petitioner shall furnish a bank guarantee equivalent to 20% of the redetermined value - On the petitioner fulfilling the above two conditions, they shall be permitted to reexport the goods within a period of twelve days from the date of compliance of the above conditions as imposed by this Court. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether goods alleged to be misclassified and detained/seized under the Customs Act can be permitted to be re-exported pending adjudication. 2. Whether imposition of conditions (bond and bank guarantee) is an appropriate mechanism to balance revenue protection and right to re-export pending adjudication when misclassification/undervaluation is alleged. 3. Whether, in cases where confiscation under Section 111 and/or payment of fine under Section 125 may follow, retention of goods in India is necessary to secure collection of differential duty, fine or penalty. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Permissibility of re-export pending adjudication Legal framework: Sections 110 (seizure) and 111 (confiscation) of the Customs Act govern seizure and confiscation of improperly imported goods; Section 125 provides option to pay fine in lieu of confiscation. Adjudication determines liability, differential duty and penalty. Precedent Treatment: The Court relied on prior decisions permitting re-export in similar factual matrices (including decisions reducing/allowing payment of retention fine and permitting re-export subject to conditions). The approach is consistent with authorities that have allowed re-export where revenue protection can be secured by conditions. Interpretation and reasoning: The Court reasoned that where investigation indicates misclassification/undervaluation, ultimate adjudication may result in payment of differential duty and/or fine; however, physical retention of goods in India is not indispensable to ensure recovery. Given the supplier's willingness to accept return and prolonged detention since January 2025, allowing re-export subject to safeguards strikes a balance between revenue interest and preventing undue stagnation of goods. Ratio vs. Obiter: Ratio - The Court held that re-export can be permitted pending adjudication when adequate financial security is provided to protect revenue. Obiter - Observations on various High Court views and other case-specific factual considerations (e.g., supplier's agreement) are persuasive but not binding principles beyond the factual matrix. Conclusions: The Court concluded that the petitioner is entitled to re-export the detained goods pending adjudication subject to conditions that secure the revenue interest. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Appropriateness and quantum of conditions (bond and bank guarantee) Legal framework: The Court has power to permit re-export on terms that safeguard collection of duties and penalties; remedies include execution of bond and providing bank guarantees to cover potential liabilities. Precedent Treatment: The Court cited prior orders where bonds and bank guarantees (including a percentage of re-determined value) were directed to be furnished as preconditions for re-export. These precedents were followed rather than distinguished or overruled. Interpretation and reasoning: To secure recovery of differential duty and potential fine, the Court imposed two cumulative conditions: (i) execution of a bond for the total value of the differential duty payable; and (ii) furnishing of a bank guarantee equivalent to 20% of the re-determined value. The bond ensures primary liability for differential duty; the bank guarantee operates as immediate realizable security for a proportion of the assessed value. The combined mechanism was viewed as adequate to protect revenue without necessitating physical retention of goods. Ratio vs. Obiter: Ratio - Re-export may be permitted upon execution of a bond for the differential duty and provision of a bank guarantee (20% of re-determined value) to protect revenue pending adjudication. Obiter - The specific percentage (20%) and time frame for re-export reflect the Court's exercise of discretion in the present fact-scenario and reliance on comparable High Court practice. Conclusions: The Court directed enforcement of the specified conditions (bond and 20% bank guarantee) as appropriate and sufficient safeguards to permit re-export within a fixed time frame after compliance. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Necessity of retaining goods in India to secure revenue where confiscation/penalty may follow Legal framework: Confiscation under Section 111 and option to pay fine under Section 125 are post-adjudication consequences; authorities may seize goods during investigation. Equitable reliefs (re-export with security) are available subject to conditions ensuring revenue recovery. Precedent Treatment: The Court relied on earlier orders (including a Single Judge and Division Bench pronouncements) which recognized that retention is not invariably necessary and that financial securities can suffice to protect revenue rights pending adjudication. Interpretation and reasoning: The Court observed that the logical end of adjudication is monetary liability (differential duty/fine); physical custody of goods is not the only means to secure such liability. Because the supplier agreed to accept return and the goods had been detained for an extended period, demanding continued retention served no necessary revenue-protection purpose if appropriate securities are furnished. Hence, retention in India is not mandatory when equivalently effective safeguards are available. Ratio vs. Obiter: Ratio - Retention of goods in India is not necessary to protect revenue where adequate bonds/guarantees can be imposed to secure the revenue consequences of adjudication. Obiter - Remarks on fairness to importers and delays in administrative action contextualize the ratio but are not binding rules beyond the facts. Conclusions: The Court concluded that physical retention is unnecessary provided sufficient financial securities are furnished, and thus permitted conditional re-export instead of continued detention. Cross-references and Practical Directives Cross-reference: Issues 1-3 are interrelated; the permissibility of re-export (Issue 1) is conditioned on the financial security mechanism (Issue 2) because retention is not necessary where such security protects revenue (Issue 3). Practical directive issued by the Court: Execute bond for total value of differential duty; furnish bank guarantee equal to 20% of re-determined value; upon compliance, permit re-export within twelve days from date of compliance.