The Customs, Excise and Service Tax Appellate Tribunal, Chandigarh Regional Bench, has set a significant precedent by invalidating the imposition of an onerous bank guarantee as a condition for provisional release of seized goods, where the classification and safety determination relied on non-expert, non-regulatory test reports. The order reinforces the primacy of FSSAI-certified laboratories and the legal framework for tariff classification under the Customs Act, 1962.
Background & Facts
The Dispute
The appellant, M/s Savirama Traders, imported 27,000 kilograms of areca nuts from Sri Lanka under Bill of Entry No. 8008083 dated 25.01.2025, declaring the goods as "Areca Nuts" classified under CTH 08028090 to avail preferential duty benefits under the India-Sri Lanka Free Trade Agreement (ISFTA). The Department of Customs suspected mis-declaration, alleging the goods were actually "Roasted Areca Nuts" requiring classification under CTH 2008, which does not qualify for duty exemption. The goods were seized on 01.09.2025 under Section 110 of the Customs Act, 1962, on grounds of alleged mis-declaration and unfitness for human consumption.
Key Facts
- The imported goods were declared as "Areca Nuts" under CTH 08028090 with an assessable value of Rs. 1,51,63,762 and duty of Rs. 7,58,188.
- The Certificate of Origin from Sri Lanka, dated 14.05.2025, was verified and accepted.
- Samples were drawn on 02.05.2025 and sent to CRCL, New Delhi for analysis under Test Memo No. 1273856.
- CRCL’s report dated 04.07.2025 concluded the goods were "roasted areca nuts" and "unfit for human consumption" based on visual inspection and moisture content.
- The appellant challenged the CRCL report on 09.07.2025 and requested re-testing at an FSSAI-notified lab.
- Fresh samples were sent on 06.10.2025: one part to CRCL (Test Memo No. 1303585) and another to National Food Laboratory, Ghaziabad (Test Memo No. CUS/28/25-26).
- CRCL’s second report dated 06.11.2025 reiterated the "roasted areca nut" classification based on appearance.
- National Food Laboratory’s report dated 13.10.2025 concluded the samples were "fit for human consumption" and conformed to FSSR 2011.
- A show cause notice dated 11.12.2025 proposed reclassification under CTH 2008, duty demand of Rs. 74,24,178, and penalties under Sections 112(a)(ii), 114A, and 117.
- The appellant requested provisional release on 30.12.2025, citing perishability and financial hardship.
Procedural History
- 25.01.2025: Bill of Entry filed for import of areca nuts.
- 02.05.2025: First sample drawn and sent to CRCL, New Delhi.
- 04.07.2025: CRCL report issued declaring goods as roasted and unfit for consumption.
- 09.07.2025: Appellant requests re-testing at FSSAI lab.
- 06.10.2025: Fresh samples sent to CRCL and National Food Laboratory, Ghaziabad.
- 13.10.2025: National Food Laboratory reports goods are fit for human consumption.
- 06.11.2025: CRCL re-confirms "roasted areca nut" classification.
- 01.09.2025: Goods seized under Section 110 of Customs Act.
- 11.12.2025: Show cause notice issued.
- 30.12.2025: Request for provisional release made.
- 16.01.2026: Provisional Release Order issued requiring bond of Rs. 1,51,63,762 and bank guarantee of Rs. 1,63,64,732.
- 25.02.2026: Hearing before CESTAT Chandigarh.
- 10.04.2026: Final order passed.
The Parties' Positions
Appellant (M/s Savirama Traders): Argued that the goods are raw areca nuts under CTH 08028090, as roasting is not a permitted process under Chapter 8 notes; CRCL’s report is invalid as the Chemical Examiner is not a food analyst and relied on visual inspection alone; National Food Laboratory’s FSSAI-compliant report should prevail; the bank guarantee is arbitrary and renders Section 110A ineffective.
Respondent (Principal Commissioner of Customs): Contended that the provisional release conditions are discretionary under CBIC Circular No. 35/2017-Cus; the CRCL report is reliable; the goods are mis-declared and liable for confiscation; the bank guarantee safeguards revenue.
Relief Sought
The appellant sought: (i) quashing of the Provisional Release Order dated 16.01.2026; (ii) release of goods without the bank guarantee; (iii) direction to rely on the National Food Laboratory’s report; and (iv) clarification that classification must follow General Rules of Interpretation and Chapter Notes, not visual assessment.
The Legal Issue
The central question was whether the Customs Department can impose a bank guarantee as a condition for provisional release of seized perishable goods under Section 110A of the Customs Act, 1962, when the classification and safety determination are based on non-expert visual analysis by CRCL, contradicting a report from an FSSAI-approved laboratory.
Arguments Presented
For the Appellant
The appellant relied on NBG International Private Limited v. Union of India (Bombay HC, 06.03.2026) and Commissioner of Customs v. Shahnaz Commodities International Pvt Ltd (Madras HC, 2023) to argue that FSSAI-certified laboratories are the statutory authority for determining food safety and classification. It contended that CRCL’s Chemical Examiner lacks expertise in food analysis and that visual inspection cannot determine classification under the Harmonized System Nomenclature. The appellant emphasized that Chapter 8 permits heat treatment only for preservation or appearance, not roasting, which is a distinct process under Chapter 20. It further argued that CBIC Circular No. 35/2017-Cus, on which the Department relied, had been struck down by the Delhi High Court in Additional Director General v. Its May Name Pvt Ltd (2021) and cannot justify arbitrary conditions.
For the Respondent
The Respondent contended that Section 110A grants discretionary power to impose conditions to secure revenue, and the bank guarantee was imposed in accordance with CBIC Circular No. 35/2017-Cus. It argued that the CRCL report, though based on visual observation, was corroborated by moisture content and physical characteristics, and that the National Food Laboratory’s report was not conclusive on classification. It maintained that judicial review of such conditions is limited and that the Department is entitled to err on the side of revenue protection.
The Court's Analysis
The Tribunal conducted a rigorous analysis of the statutory framework governing food import, classification, and provisional release. It held that the classification of goods under the Customs Tariff Act is governed by the General Rules of Interpretation, Section Notes, and Chapter Notes - not by subjective visual assessment. The Tribunal emphasized that Chapter 8 permits only moderate heat treatments for preservation or appearance, while roasting, involving high heat and altering chemical composition, falls under Chapter 20. However, the Tribunal found no evidence in the test reports that the goods had undergone roasting.
"The Chemical Examiner of CRCL has no role to play in classification because classification is part of assessment which is an appealable order. The Chemical Examiner should say what the goods are, what is the purity etc."
The Tribunal further held that the National Food Laboratory, Ghaziabad, being an FSSAI-notified laboratory, operated under statutory authority and followed prescribed testing procedures under the Food Safety and Standards Regulations, 2011. Its conclusion that the goods were fit for human consumption carried decisive weight. The CRCL report, by contrast, was rendered legally unreliable because it was prepared by a non-food analyst using non-regulatory methods.
The Tribunal also invalidated the reliance on CBIC Circular No. 35/2017-Cus, noting that it had been set aside by the Delhi High Court and was no longer binding. It cited the Bombay High Court’s reasoning that rejecting FSSAI’s conclusive findings on food safety would render the statutory framework meaningless.
"The FSSAI reports cannot be disregarded, which was made available immediately after the samples of the imported goods were drawn for testing."
The Tribunal concluded that imposing a bank guarantee of Rs. 1,63,64,732 - nearly 108% of the assessable value - was arbitrary, disproportionate, and rendered Section 110A ineffective. The condition served no legitimate purpose where the safety of the goods was confirmed by the statutory authority.
The Verdict
The appeal was allowed. The Tribunal set aside the condition requiring the appellant to furnish a bank guarantee of Rs. 1,63,64,732 under the Provisional Release Order dated 16.01.2026. The goods were directed to be released upon furnishing only the bond of Rs. 1,51,63,762. The Tribunal clarified that this order does not prejudge the merits of the classification or duty demand, which shall be decided independently in adjudication proceedings. The appellant was granted liberty to seek further relief in the pending adjudication.
What This Means For Similar Cases
FSSAI Reports Override Non-Statutory Lab Findings
- Practitioners must now treat FSSAI-notified laboratory reports as conclusive on food safety and fitness for human consumption in customs proceedings.
- Any attempt by Customs to override FSSAI findings based on CRCL or other non-FSSAI labs will be legally unsustainable.
- Importers should insist on FSSAI-compliant testing and cite NBG International and Shahnaz Commodities as binding precedents.
Classification Must Follow HSN Rules, Not Visual Assumptions
- Classification under the Customs Tariff Act cannot be based on physical appearance or subjective judgment by non-experts.
- The General Rules of Interpretation, Chapter Notes, and HSN Explanatory Notes are the only legally valid bases for classification.
- Roasting as a process must be explicitly proven; absence of such evidence mandates classification under Chapter 8.
Arbitrary Bank Guarantees Under Section 110A Are Unlawful
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Conditions for provisional release must be reasonable, proportionate, and tied to actual revenue risk - not blanket demands.
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A bank guarantee exceeding the assessable value is prima facie arbitrary and violates Article 14 of the Constitution.
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CBIC Circulars that conflict with judicial precedents or statutory frameworks cannot be invoked to justify oppressive conditions.
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Practitioners should challenge bank guarantee conditions exceeding 100% of assessable value as disproportionate.
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In perishable goods cases, delay caused by arbitrary conditions may constitute actionable harm under Section 110A.
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Always request FSSAI lab testing and reject CRCL reports for food classification.
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Cite Shahnaz Commodities and NBG International to establish that specific entries prevail over general ones in tariff classification.
