2025 (10) TMI 337 - HC - Customs

Provisional release allowed for imported knitted fabrics on payment of full duty, 50% differential, and execution of bonds totaling ?5,95,01,438

HC refused to quash the intimation but modified the provisional-release conditions for imported knitted fabrics. The importer must remit the entire duty ... Conditions for provisional release of goods vide an intimation letter - seeking consequential direction to the respondents to provisionally release the subject goods covered by five bills of entries - import of knitted fabrics - exercise of jurisdiction under Section 110A of the Customs Act, 1962 - pending adjudication proceedings - whether the intimation letter that has been put to challenge in the present writ petition does not warrant the interference of this Court? - HELD THAT:- The first respondent has exercised jurisdiction under Section 110A of the Customs Act, 1962. The first respondent has taken into consideration the re-determined value of the goods under the five bills of entries to the total tune of Rs. 3,15,01,438/- and the petitioner is supposed to pay the re-determined duty, which comes to Rs. 1,43,21,357/-. It is stated that the matter is at the stage of issuance of notice to the petitioner and the adjudication is pending. Under such circumstances, this Court must only see as to whether the conditions imposed by the first respondent in the intimation letter require the interference of this Court. The above issue was dealt with by this Court in M/S. SHREE SAI IMPEX, REP. BY ITS PROPRIETRIX MRS. SINU TRIPATI VERSUS THE PRINCIPAL COMMISSIONER OF CUSTOMS (PREVENTIVE), THE ADDITIONAL COMMISSIONER OF CUSTOMS (NDR-FTWZ) O/O. THE PRINCIPAL COMMISSIONER OF CUSTOMS, CHENNAI [2025 (9) TMI 1172 - MADRAS HIGH COURT], this Court held that '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 above yardstick can be applied in the present case also and hence, this Court is inclined to modify the conditions imposed in the impugned intimation letter issued by the first respondent - 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 to the tune of Rs. 3,15,01,438/- - The petitioner shall execute a bond for a sum of Rs. 3,15,01,438/- - The petitioner shall also execute a bond for a sum of Rs. 2,80,00,000/- instead of Bank Guarantee. On compliance, the goods shall be released by the respondents within a period of seven days from the date of compliance of the conditions. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the conditions imposed by the Commissioner in the provisional release/intimation letter (requiring payment of re-determined duty or furnishing of a bank guarantee and bond) warrant judicial interference while adjudication under Section 110A of the Customs Act, 1962 is pending. 2. Whether and to what extent the Court may modify onerous conditions attached to provisional release of imported goods pending adjudication, including (a) requirement to pay re-determined duty, (b) requirement to furnish full bank guarantee versus execution of bonds, and (c) requirement to pay a portion of differential duty. 3. What the appropriate quantum and form of security (payment, bond, bank guarantee) should be for provisional release of goods alleged to be misclassified/undervalued and seized pending departmental adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Judicial scope to entertain challenge to provisional release conditions during pending adjudication under Section 110A Legal framework: The provisional release of imported goods pending adjudication arises in the context of investigation and seizure under customs law, with specific administrative powers exercised under Section 110A of the Customs Act, 1962. Courts generally refrain from deciding the merits of adjudication but may examine the reasonableness of conditions imposed for provisional release. Precedent Treatment: The Court relied on its prior interlocutory jurisprudence allowing judicial scrutiny of onerous conditions imposed for provisional release (including directions in an earlier Single Judge order later affirmed by a Division Bench and another Division Bench decision distinguishing conditions relating to redemption/penalty security). These authorities both permitted modification of conditions without adjudicating underlying departmental findings. Interpretation and reasoning: The Court confined itself to the narrow question of whether the conditions in the impugned intimation letter are reasonable and require interference, noting the adjudication is pending and that it will not decide merits of misclassification or valuation. The Court applied the yardstick from earlier rulings permitting modification of conditions for provisional release - balancing the Revenue's interest (security for duty) against hardship and undue onerousness to the importer where adjudication (and liability) is not finally determined. Ratio vs. Obiter: Ratio - Courts may modify provisional release conditions even while adjudication under Section 110A is pending, limiting review to reasonableness of conditions. Obiter - observations on the administrative practice of requiring full payment or full bank guarantees are contextual and illustrative. Conclusion: The Court will entertain and can modify conditions for provisional release imposed under Section 110A without adjudicating valuation/classification merits, when such conditions are found to be onerous in light of precedent. Issue 2 - Legitimacy of requiring payment of re-determined duty versus partial payment and bond Legal framework: Customs regime allows recovery of duty assessed; for provisional release, conditions may include payment of duty, security by bond or bank guarantee, and indemnity. The administrative demand for payment of re-determined duty rests on the Department's provisional determination of value and duty, subject to adjudication. Precedent Treatment: The Court cited prior orders where provisional release was allowed subject to (i) payment of declared duty by importer; (ii) payment of 50% of differential duty; and (iii) execution of bonds for remaining amounts - a practice upheld and applied in later cases, including modification of bank guarantee requirement into bonds where bank guarantee for redemption/penalty was considered harsh pending adjudication. Interpretation and reasoning: Applying the established yardstick, the Court found it reasonable to require the importer to remit the duty as declared by them (thus preserving declared liability), to pay 50% of the differential duty as a measure of securing Revenue interest without being unduly punitive prior to adjudication, and to require bonds for the balance instead of demanding bank guarantees or immediate full cash payment. The Court balanced Revenue's need to secure potential liability and the importer's interest pending final adjudication. Ratio vs. Obiter: Ratio - It is appropriate to require remittance of declared duty and 50% of differential duty, with bonds for the remaining amounts, as a standard condition for provisional release in valuation/classification disputes pending adjudication. Obiter - comparisons with cases of prohibited goods and specific quantums of bonds in other factual matrices are illustrative. Conclusion: The Court modified the impugned conditions to require (a) remittance of the entire duty as declared by the importer, (b) payment of 50% of the departmental differential duty, and (c) execution of bonds for the remaining sums instead of insisting on bank guarantees or full upfront payment. Issue 3 - Form and quantum of security: bank guarantee versus bond; specific sums in valuation dispute Legal framework: Security for provisional release may take the form of cash, bank guarantee (BG), or bond. The choice affects the importer's liquidity and may be assessed for reasonableness in light of pending adjudication and the nature of alleged violations (e.g., misclassification/undervaluation vs. prohibited goods). Precedent Treatment: The Court relied on prior orders that (i) accepted bonds in lieu of bank guarantees where bank guarantees or cash security towards redemption fine/penalty were held harsh pending adjudication, and (ii) directed specific split of payment and bond guarantees to permit provisional release. Interpretation and reasoning: The Court treated bank guarantees as onerous where adjudication (including potential imposition of fine/penalty) remains undetermined. Consequently, it substituted bank guarantees with bonds for the specified amounts. The Court applied the same ratio to the present facts: it substituted the respondent's demand for a BG of Rs. 2.8 crore and bond equivalent to re-determined value with two bonds - one for the re-determined value and another in lieu of the BG - and required payment of 50% of differential duty, along with remittance of the importer's declared duty. Ratio vs. Obiter: Ratio - Where adjudication is pending, replacing bank guarantees or cash security for potential penalties with bonds (subject to compliance) is an acceptable judicial modification to reduce undue hardship while preserving Revenue's security. Obiter - numerical determinations of bond amounts are fact-specific but follow the principle of securing the entire assessed exposure by combination of payment and bonds. Conclusion: The Court approved substitution of bank guarantee with an equivalent bond and fixed the quantum of securities and payments as a composite arrangement: remittance of declared duty, 50% payment of differential duty, and execution of bonds for remaining amounts - to be complied with before provisional release within a fixed period. Cross-References and Implementation For application of the above principles to analogous cases, see the Court's reliance on earlier orders which established the standard conditions (remittance of declared duty; 50% of differential duty; bonds for balance) and on Division Bench authority modifying security where bank guarantees for redemption/penalty were considered harsh pending adjudication. The Court directed respondents to release the goods within seven days of compliance with the modified conditions.