CESTAT Scales Down Onerous Bank Guarantee For Provisional Release, Says Customs Conditions Must Not Be Punitive In Fabric Import Dispute
Pranav B Prem
The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has partly intervened in a customs dispute involving alleged mis-declaration and undervaluation of imported fabrics, holding that while provisional release of seized goods was justified, the onerous conditions imposed by Customs authorities could not be sustained at the pre-adjudication stage. The Tribunal observed that provisional release conditions must strike a balance between safeguarding revenue interests and ensuring business viability, and must not reflect a pre-determined view of liability.
The Bench comprising S. S. Garg, Judicial Member, and P. Anjani Kumar, Technical Member, noted that investigation was still ongoing, no show cause notice had been issued, and the liability of the importer had not yet crystallised. In such circumstances, the Tribunal held that imposing excessively harsh financial conditions for provisional release was unwarranted.
The dispute arose from the import of mixed lots of polyester woven fabrics with heat-pressed thermoplastic polyurethane (TPU) film from a Chinese supplier. The imports were covered under seven bills of entry filed between April 29 and May 2, 2025. Although the consignments were initially cleared through the EDI system, the Special Intelligence and Investigation Branch (SIIB) subsequently initiated an inquiry, drew samples, and seized the goods based on test reports issued by the Central Revenue Control Laboratory (CRCL), New Delhi.
The importer challenged the very foundation of the proceedings, contending that the sampling methodology adopted by Customs was fundamentally flawed. It was argued that the goods comprised heterogeneous stock-lots, yet only a limited number of samples were drawn. The importer further submitted that CRCL lacked the requisite infrastructure to conduct comprehensive tests necessary to conclusively identify TPU coatings and that mandatory Indian Standards, ASTM and ISO-prescribed tests had not been carried out. On this basis, it was contended that the test reports could not be treated as reliable or determinative.
The Tribunal took note of the importer’s reliance on the Harmonised System of Nomenclature (HSN) Explanatory Notes, which clarify that coating or impregnation under Heading 59.03 of the Customs Tariff is not always visible to the naked eye. Accepting this submission, the Bench observed that “sense-perceptible appearance cannot be the sole determinative factor” for classification and that fabrics with invisible coatings may still fall within Chapter 59. It also recorded inconsistencies in the CRCL reports, where some samples were described as “laminated” while others were marked as “NA” or “others”, without any clear explanation as to whether invisible coatings had been examined using appropriate scientific methods.
Another significant aspect of the case related to valuation. Customs authorities enhanced the value of the seized goods based on a report of a Chartered Engineer, who assessed the total value at more than ₹8.06 crore and estimated a potential duty liability exceeding ₹4.15 crore. The importer challenged this valuation, arguing that the Chartered Engineer lacked technical expertise in textile valuation and had failed to disclose any scientific methodology, contemporaneous import data or market comparables to justify the enhanced value.
The importer further contended that CBIC circulars permit the engagement of Chartered Engineers primarily for valuation of old and used machinery, and not for textile stock-lots. It was also argued that similar imports by other traders had not been subjected to such drastic valuation enhancements, indicating discriminatory treatment.
While examining the legality of the provisional release conditions, the Tribunal acknowledged the power of Customs authorities under Section 110A of the Customs Act, 1962 to order provisional release of seized goods. However, it emphasised that such power must be exercised judiciously and not in a punitive or mechanical manner. In the present case, the Commissioner had directed the importer to execute a bond equal to the assessable value of the goods and to furnish a bank guarantee of ₹9.12 crore, which covered not only the potential duty but also prospective fine and penalty.
The Tribunal held that such a requirement was excessive and unjustified at a stage where adjudication had not commenced and allegations were yet to be established. It underscored that bank guarantees should not be used as tools of coercion, particularly in disputes centred on classification and valuation, where issues are often interpretational and require detailed examination.
Relying on settled principles laid down by the Supreme Court and various High Courts, the Bench reiterated that provisional release conditions must be reasonable, proportionate and non-oppressive. They should secure the interests of the Revenue without effectively crippling the importer’s business or pre-judging the outcome of the proceedings. In view of these findings, the Tribunal scaled down the provisional release conditions, holding that the impugned order required modification to ensure fairness and proportionality. While permitting provisional release of the goods, the Tribunal directed that the financial conditions be suitably relaxed, thereby providing relief to the importer without undermining the ongoing investigation.
Cause Title: M/s Goyal Impex and Industries Ltd. Versus Commissioner of Customs, Ludhiana
Case No: Customs Appeal No. 61150 of 2025
Coram: S. S. Garg, Judicial Member, and P. Anjani Kumar, Technical Member
