Madras High Court Quashes Arbitrary Bank Guarantee Demand for Provisional Release of Goods Pending Customs Adjudication

In the realm of cross-border trade, the provisional release of imported goods often becomes a battleground between the revenue-protecting measures of the Customs Department and the working capital constraints of the assessee. A recent judicial pronouncement by the Madras High Court in the case of ASC Impex Vs Commissioner of Customs (Imports - Gr.3) has provided significant relief to importers facing stringent financial conditions during the provisional clearance of goods.

The High Court ruled that the Customs authorities cannot rigidly insist on a bank guarantee for the provisional release of goods when the final duty liability remains undetermined and is still subject to adjudication. This decision underscores the principle that conditions attached to the provisional release of cargo must be reasonable, proportionate, and not unduly burdensome to the assessee.

The Factual Matrix of the Dispute

The controversy originated when the assessee, ASC Impex, imported a consignment of Polyester Woven Fabric with PVC Coating. The import was formally declared under Bill of Entry No. 2565459 dated 10.06.2025. Upon the arrival of the consignment at the Chennai port, the Customs authorities intercepted and withheld the clearance of the goods. The primary objection raised by the department was an alleged incorrect classification of the imported fabric, which inherently triggers a dispute regarding the applicable rate of customs duty.

Faced with the detention of their cargo, the assessee submitted a detailed representation on 25.09.2025, seeking the provisional release of the goods so that their business operations would not be paralyzed while the classification dispute was being resolved. When the department failed to act promptly, the assessee approached the Madras High Court by filing a writ petition, numbered as WP No. 5424 of 2026.

Disposing of this initial petition on 13.02.2026, the High Court directed the Customs authorities to formally consider and pass orders on the assessee's pending representation. Complying with this judicial directive, the third respondent (Customs Department) issued an order dated 15.06.2026. While this order permitted the provisional release of the goods, it came with a highly restrictive caveat outlined in paragraph 5(a).

The department demanded that the assessee furnish a bank guarantee equivalent to the entire total differential duty involved, plus an additional 20% of the assessable value of the goods. Aggrieved by this onerous financial condition, the assessee filed the present writ petition (WP No. 25055 of 2026), challenging the stipulation as arbitrary, disproportionate, and legally unsustainable.

The Department's Justification

During the legal proceedings, the counsel representing the Customs Department strongly defended the conditions imposed in the order dated 15.06.2026. The primary defense rested on the administrative guidelines issued by the Central Board of Indirect Taxes and Customs (CBIC).