The Delhi High Court has recently ruled that customs authorities cannot deny preferential duty rates or detain imported goods without forming a reasonable belief or opinion of forgery or non-compliance in import documentation. The court thus quashed detention orders against two companies importing platinum alloy sheets under the India-UAE Comprehensive Economic Partnership Agreement ( CEPA ).
Under the India-UAE CEPA, certain goods, including platinum alloy sheets, are eligible for preferential tariff treatment, provided they meet the origin criteria and are accompanied by valid COO certificates. The petitioners had fulfilled these requirements but faced detention and additional conditions imposed by customs authorities without specified reasons.
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The petitioners challenged the actions of customs officials who detained their consignments and imposed conditions for release, including the submission of a Provisional Duty (PD) bond equivalent to 100% of the assessable value and a bank guarantee covering the differential duty of 10.712%.
The companies argued that the customs authorities acted arbitrarily by not providing any reasons suggestive of a reasonable belief that the Country-of-Origin (COO) certificates or the imported goods were non-compliant with statutory requirements.
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It was pointed out that the authorities failed to follow the procedures outlined in Section 28DA of the Customs Act, 1962, the Customs Tariff (Determination of Origin of Goods under the India-UAE CEPA) Rules, 2022, and the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR).
The court agreed with the petitioners’ contentions, stating that the detention orders lacked any recorded reasons or evidence indicating that the proper officer had formed the necessary opinion to detain the goods or doubt the authenticity of the COO certificates.
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“It becomes apparent from a reading of those provisions that the detention of the goods or stalling the process of importation and completion of procedures connected therewith must be preceded by a requisite formation of opinion,” the bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja noted.
The bench remarked that the power to initiate a verification process is neither unbridled nor unfettered. The proper officer must have a reasonable belief based on material evidence and must record the reasons for such belief. The court found that the customs authorities did not initiate any verification process as prescribed under the CEPA Rules or CAROTAR and failed to utilise available mechanisms for online verification of the COO certificates.
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The Delhi High Court thus quashed the impugned orders dated July 31, 2024, and directed the customs authorities to reconsider the release of the imported goods expeditiously, bearing in mind the observations made in the judgement.
“We have no hesitation in holding that it was incumbent upon the concerned officer while framing an order to ensure that the same reflected and embodied reasons, howsoever briefly or succinctly noted, and which formed the basis for the formation of its opinion,” the court stated.
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The bench also cautioned customs officials against imposing onerous conditions for the provisional release of goods, referencing the earlier case of Bullion and Jewellers Association (Regd.) vs. Union of India. The court highlighted that demanding excessive bank guarantees or securities without proper justification is not permissible.
This ruling reinforces the necessity for customs authorities to strictly adhere to statutory procedures when detaining goods or denying preferential duty rates under trade agreements like the India-UAE CEPA. Importers can expect that any verification of COO certificates or detention of goods must be based on well-substantiated grounds with proper application of mind by the authorities, as upheld by the Delhi High Court here.
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