The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chandigarh has affirmed that the statutory right to provisional release under Section 110A of the Customs Act, 1962 cannot be denied merely because goods are classified as restricted, even where alleged misclassification suggests intent to circumvent trade policy. This ruling reinforces that provisional release is an interim safeguard, not a final determination of legality.
Background & Facts
The Dispute
M/s Tushar Jewellers imported two consignments of 92.5% silver jewellery studded with synthetic cubic zirconia and synthetic ruby from Thailand, declaring them under Customs Tariff Item (CTI) 71131145. The Department of Customs, relying on intelligence from the Directorate of Revenue Intelligence (DRI), Ahmedabad, reclassified the goods under CTI 71131149, which is subject to import restrictions under DGFT Notification No. 34/2025-26 dated 24.09.2025. The goods, with a total net weight of 12,22,860 gm and a declared value of Rs 25,16,49,066, were seized on 07.01.2026. The appellant sought provisional release, which was denied by the lower authority on 15.03.2026 and upheld by the Commissioner (Appeals) on 08.05.2026 on the ground that the goods were "restricted" and therefore ineligible for release.
Key Facts
- The imported goods were consistently declared as silver jewellery with synthetic stones, with no allegation of misdeclaration of quantity, value, or concealment.
- Laboratory reports from the Indian Diamond Institute, Surat, confirmed the presence of synthetic cubic zirconia and synthetic ruby, not natural precious or semi-precious stones.
- The appellant had previously imported identical goods under CTI 71131149 before the DGFT restriction came into effect on 24.09.2025.
- The DRI, in its communication dated 02.03.2026, opined that the change in classification post-notification appeared to be a deliberate attempt to circumvent policy restrictions.
- The appellant submitted representations for provisional release on 14.01.2026 and 21.01.2026, both rejected without supply of the test reports.
- The test report dated 23.12.2025 was not provided to the appellant until after the Show Cause Notice dated 14.05.2026, violating Circular No. 30/2017 dated 18.07.2017.
- The appellant’s own prior declarations under CTI 71131149 were cited by the Department as evidence of mens rea.
Procedural History
- 02.12.2025: Bills of Entry No. 6042250 and 6042246 filed for import of silver jewellery with synthetic stones.
- 07.01.2026: Goods seized by Customs authorities.
- 14.01.2026: First representation for provisional release submitted by appellant.
- 21.01.2026: Second representation for provisional release submitted.
- 15.03.2026: Lower authority denied provisional release.
- 24.04.2026: Personal hearing granted to appellant.
- 08.05.2026: Commissioner (Appeals) upheld denial of provisional release.
- 03.07.2026: Hearing before CESTAT Chandigarh.
- 15.07.2026: Final order passed by CESTAT.
The Parties' Positions
Appellant (M/s Tushar Jewellers): Argued that the dispute is purely one of tariff classification, not smuggling or fraud. Emphasized that synthetic stones are not prohibited, merely restricted under policy. Contended that denial of test reports violated procedural fairness. Relied on judicial precedents holding that provisional release cannot be denied merely because goods are classified as restricted.
Respondent (Commissioner of Customs, Jammu): Maintained that the change in classification from CTI 71131149 to 71131145 after the DGFT restriction was a deliberate attempt to evade policy. Cited DRI’s opinion and prior declarations as proof of mens rea. Argued that restricted goods under policy cannot be released under Section 110A, relying on CBIC Circular No. 35/2017 and Raj Grow Impex.
Relief Sought
The appellant sought:
- Immediate provisional release of the seized goods valued at Rs 25,16,49,066.
- Permission to re-export the goods to mitigate mounting demurrage, detention, and storage charges.
- Direction to the Department to permit re-export, as DRI had previously indicated no objection.
The Legal Issue
Can the authorities deny provisional release of seized goods under Section 110A of the Customs Act, 1962 solely on the ground that the goods are classified as "restricted" under foreign trade policy, even in the absence of final adjudication and where no allegation of concealment or fraud is substantiated?
Arguments Presented
For the Appellant
The appellant relied on multiple judicial precedents to argue that Section 110A confers a statutory right to seek provisional release, irrespective of whether goods are classified as prohibited or restricted. Cited Its My Name Pvt Ltd (2020) and Shanus Impex (2024) to establish that CBIC Circular No. 35/2017, which bars provisional release of restricted goods, is ultra vires and void. Emphasized that classification disputes are not grounds for denial of release at the interim stage. Highlighted that the Department had itself acknowledged in its communication dated 02.03.2026 that re-export was permissible under Union of India v. Raj Grow Impex LLP. Argued that denial of test reports violated principles of natural justice and Circular No. 30/2017.
For the Respondent
The Respondent contended that the appellant’s change in classification after the DGFT restriction demonstrated fraudulent intent, rendering the goods liable for confiscation under Section 11 of the Customs Act. Relied on Raj Grow Impex to argue that goods imported in violation of policy restrictions should not enter the domestic market. Asserted that provisional release is not a right but a privilege, and that Circular No. 35/2017, though partially struck down, still permits denial where goods are restricted. Claimed that the test reports were part of seizure documents and thus available, and that the appellant had been given a personal hearing.
The Court's Analysis
The Tribunal conducted a comprehensive review of the statutory framework under Section 110A, emphasizing that the provision grants discretionary power to release "any goods, documents or things seized" pending adjudication, without any express exclusion for restricted goods. The Court noted that the Department’s reliance on Circular No. 35/2017 was legally unsustainable, as it had been declared ultra vires by the Delhi High Court and affirmed by the Supreme Court.
"Section 110A explicitly permits the release of 'any goods, documents or things seized'... the Circular cannot artificially curtail this statutory scope by excluding certain categories of goods from eligibility."
The Tribunal rejected the argument that prior classification under CTI 71131149 amounted to fraud, holding that classification disputes are inherently interpretative and cannot be treated as conclusive at the provisional release stage. The Court observed that the Department’s own communication from DRI, Ahmedabad, acknowledged no objection to re-export, thereby undermining its own position.
The Tribunal further cited Sidharth Vijay Shah (2021), Tasha Gold Pvt Ltd (2024), and Modern Insecticides Limited (2021) to reinforce that provisional release is an interim measure designed to protect commercial interests, not a pre-judgment of guilt. The Court held that the very purpose of adjudication is to determine the final status of goods, and denying release at the interim stage defeats the legislative intent behind Section 110A.
The Court also noted the financial hardship faced by the appellant, with goods lying in customs custody for over six months, incurring substantial demurrage and storage charges. It found no public interest justification for withholding release, particularly where re-export was a viable and previously acknowledged alternative.
The Verdict
The appeal was partly allowed. The Tribunal directed the provisional release of the imported goods, valued at Rs 25,16,49,066, for the purpose of re-export, subject to the appellant furnishing a bond equal to the full value of the goods. The order was to be complied with within 7 days of the date of the order (15.07.2026). The Tribunal explicitly held that the Department must permit re-export, as it aligns with the policy objective of restricting domestic consumption without causing undue commercial harm.
What This Means For Similar Cases
Provisional Release Is Not Conditional on Final Classification
- Practitioners must now argue that Section 110A applies to all seized goods, regardless of whether they are classified as prohibited, restricted, or dutiable.
- Denial of provisional release based solely on policy restrictions is legally untenable post-Its My Name and Shanus Impex.
- Authorities cannot treat classification disputes as conclusive grounds for withholding release.
Re-export Must Be Considered as a Viable Alternative
- Where the Department admits no objection to re-export (as in DRI’s letter), denying such an option is arbitrary and contrary to public interest.
- Re-export should be treated as a legitimate remedy to mitigate financial loss while preserving policy integrity.
- Customs authorities must record reasons if they reject re-export, especially when the importer demonstrates commercial hardship.
Procedural Fairness in Test Report Disclosure Is Non-Negotiable
- Failure to supply test reports before denial of release violates Circular No. 30/2017 and principles of natural justice.
- Any order denying provisional release based on undisclosed evidence is liable to be set aside.
- Practitioners should immediately raise this defect in any similar case where test reports are referenced but not shared.
