Madras HC Allows Re-Export of Misclassified Textile Fabric to China Subject to Bond & Bank Guarantee

Gayatri Exim Vs Principal Commissioner of Customs (Chennai-III) (Madras High Court)

The Madras High Court, in the case of Gayatri Exim Vs Principal Commissioner of Customs (Chennai-III), passed an order allowing the petitioner, an importer, to re-export a consignment of textile fabric back to the supplier in China. The goods had been detained and seized by the Customs authorities on grounds of alleged misclassification and undervaluation, leading to a potential confiscation under the Customs Act, 1962.

Background of the Case

The petitioner, Gayatri Exim, imported 798 Bales of Textile Fabric Coated with Plastics from China and filed a warehousing bill of entry dated January 2, 2025, declaring the goods under a specific Customs Tariff Heading (CTH).

Following an investigation, the authorities detained the goods. Samples were sent to the Central Revenue Control Laboratory (CRCL), New Delhi, which determined that the goods were misclassified, and a different CTH was applicable. Based on the CRCL report, the goods were seized on April 4, 2025, on the premise that the misclassification rendered the goods liable for confiscation under the provisions of the Customs Act. The petitioner was also issued summons for an enquiry.

The core grievance of the petitioner was the significant delay in the release of the goods, which had been lying in India since January 2025. Facing this prolonged delay and the prospect of a lengthy adjudication process, the petitioner filed a writ petition seeking a direction to the Customs authorities to permit the re-export of the detained goods to the foreign supplier.

Judicial Precedents and Legal Provisions

The Court noted that the issue at hand had been previously addressed by the Madras High Court itself in an identical matter (W.P.No.33723 of 2025 dated 26.09.2025), the relevant portions of which were extracted and relied upon for the present order.

The judgment discussed the relevant sections of the Customs Act, 1962:

• Section 110 deals with the seizure of goods.
• Section 111(m) pertains to the confiscation of improperly imported goods, which was the alleged violation in this case.
• Section 125 gives the adjudicating authority the option to allow the owner of the confiscated goods to pay a fine in lieu of confiscation.

To reach its conclusion, the Court considered several key judicial precedents:

1. Siemens Ltd. Vs. Collector of Customs (1999 (113) ELT 776): This Supreme Court judgment was relied upon in a previous Madras High Court case to support the view that re-export could be permitted.

2. Sankar Pandi Vs. Union of India (2002 (141) ELT 635): In this case, a learned Single Judge of the Madras High Court permitted the re-export of articles, albeit after requiring the payment of a retention fine as imposed by the authorities, and ultimately reducing the penalty.

3. Assistant Commissioner of Customs (Imports), Tuticorin Vs. Mahadev Enterprises (2023 (3) CENTAX 8): A Division Bench of the Madurai Bench of the Madras High Court had permitted the re-export of goods after the importer executed a bond to cover the value of the goods, pending the final adjudication of the case.

The Court also acknowledged other High Court views that directed the execution of a bank guarantee for a percentage of the potential customs duty leviable on the re-determined value.

Court’s Reasoning and Conclusion

The Madras High Court recognised that the ultimate outcome of the adjudication proceedings would likely be an order directing the petitioner to pay the differential duty, a fine in lieu of confiscation, and a penalty. The Court reasoned that retaining the goods in India was not essential for the purpose of concluding the logical end of the adjudication process.

Furthermore, acknowledging the fact that the goods had been lying in India since January 2025 and that the supplier in China had agreed to take the goods back, the Court sought to strike a balance between the Customs Department’s interest in securing the potential financial liability and the importer’s right to mitigate losses and avoid the continued storage of the goods.

By adopting a pragmatic approach, the Court concluded that re-export could be permitted subject to the imposition of certain conditions to secure the financial interests of the revenue pending the final decision on the alleged misclassification and undervaluation.

Holding and Conditions

The Court disposed of the writ petition, permitting the re-export of the goods subject to the following strict conditions, which were consistent with the precedent set in W.P.No.33723 of 2025:

1. Execution of a Bond: The petitioner is required to execute a bond for the total value of the differential duty payable by them.

2. Furnishing of Bank Guarantee: The petitioner must furnish a bank guarantee equivalent to 20% of the re-determined value of the goods.

The Court directed that upon the petitioner fulfilling these two conditions, they shall be permitted to re-export the goods within a period of twelve (12) days from the date of compliance. The order thereby facilitated the return of the misclassified/undervalued goods while ensuring the revenue department’s financial interests remain protected during the ongoing investigation and adjudication process.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

This writ petition has been filed seeking issuance of a Writ of Mandamus directing the respondents herein to permit the petitioner to re­export the goods viz., 798 Bales of Textile Fabric Coated with Plastics imported vide Bill of Entry No.7580360, dated 02.01.2025 and Bill of Lading No.A92EX26881..

2. The case of the petitioner is that they imported Textile fabric coated with Plastics from China. These goods were shipped from M/s. Shaoxing Keqiao Hailong Textiles Co., Ltd., China through invoice dated 15.12.2024 and filed warehousing bill of entry dated 02.01.2025 for SEZ import Z type respectively and claimed for clearance of the goods.

3. The investigation authorities informed the petitioner that investigation is being done and later, it was found that the goods declared under CTH 59039090 and the same has been classified under different CTH. Thereafter, the petitioner was informed that the samples were taken and it has been sent to CRCL, New Delhi, for testing and thereafter, the goods have been detained. The goods were seized under seizure memo dated 04.04.2025 stating that all the goods were found to be mis-classified on the basis of CRCL test report and it is further stated that the CTH ascertained that the goods have been misclassified and different CTH have been ascertained on the basis of the CRCL test report.

4. The petitioner was thereafter issued with summons for appearance before the investigating officer at New Delhi. The petitioner also attended the enquiry. The intelligence officer of DRI, informed that since the goods imported was found to be misclassified. The goods are liable for confiscation under the provisions of the Customs Act.

5. The grievance of the petitioner is that there is long delay in the release of the goods and therefore, the petitioner is seeking for re­export of the goods. However, no decision has been taken till date and it is under these circumstances, the present writ petition came to be filed before this Court.

6. The issue involved in the present writ petition has already been dealt with by this Court in W.P.No.33723 of 2025 dated 26.09.2025 and the relevant portions are extracted hereunder:

“7. Section 110 of the Act deals with seizure of goods. Section 111 deals with confiscation of improperly imported goods.

8. The learned counsel for the petitioner submitted that in the case in hand, at best, the goods may fall under Section 111(m) of the Act and that even in such an event, Section 125 gives an option to pay the fine in lieu of confiscation, which will be decided after adjudication.

9. The learned counsel for the petitioner placed reliance upon the judgment of the Hon’ble Apex Court in the case of Siemens Ltd.Vs. Collector of Customs [reported in 1999 (113) ELT 776].

10. By relying upon the said judgment of the Hon’ble Apex Court, a learned Single Judge of this Court passed an order in the case of Sankar Pandi Vs. Union of India [reported in 2002 (141) ELT 635] wherein it was held that the petitioner therein was entitled to re-export the articles in question and that it was necessary for him to pay retention fine as imposed by the Authorities. This Court ultimately held that at best, penalty could be imposed. This Court also reduced the penalty and a direction was given to the petitioner therein to pay the reduced penalty.

11. The learned counsel for the petitioner also brought to the notice of this Court a Division Bench judgment of the Madurai Bench of this Court in Assistant Commissioner of Customs (Imports), Tuticorin Vs. Mahadev Enterprises [reported in 2023 (3) CENTAX 8] wherein this Court permitted the re-export of goods after executing a bond to cover the value of the goods pending adjudication.

12. The learned counsel for the petitioner further brought to the notice of this Court the other views taken by different High Courts wherein a bank guarantee can be directed to be executed for some percentage of the customs duty that may be leviable on the re-determined value of the goods.

13. In the case in hand, the investigation has already been completed and based on the CRCL test report, it is alleged that there was a misclassification of the goods and that the goods were undervalued. This may result in confiscation under Section 111 of the Act and ultimately, the Adjudicating Authority can also give an option to the petitioner to pay the fine in lieu of confiscation.

14. The crux of the issue is as to whether the goods will have to remain in India or the petitioner can be permitted to re-export the goods to the supplier at China since the supplier had also agreed to take back the goods.

15. The logical end to the adjudication proceedings will result in directing the petitioner to pay the fine/penalty and differential duty. For this purpose, it is not necessary to retain the goods in India. Therefore, to strike a balance, considering the fact that the goods are lying in India from January 2025, certain conditions can be imposed on the petitioner and on fulfilment of the conditions so imposed, the petitioner can be permitted to re­export the goods. This view has been taken by this Court and other High Courts while granting such a relief.

16. In the light of the above discussions, the writ petition is disposed of in the following terms :

(i) The petitioner shall execute a bond for the total value of the differential duty payable by them;

(ii) The petitioner shall furnish a bank guarantee equivalent to 20% of the re-determined value; and

(iii) On the petitioner fulfilling the above two conditions, they shall be permitted to re-export the goods within a period of 12 days from the date of compliance of the above conditions as imposed by this Court.

No costs. Consequently, the connected WMP is closed.”

7. In view of the above, the writ petition is disposed of in the following terms :

(i) The petitioner shall execute a bond for the total value of the differential duty payable by them;

(ii) The petitioner shall furnish a bank guarantee equivalent to 20% of the re­determined value; and

(iii) On the petitioner fulfilling the above two conditions, they shall be permitted to re- export the goods within a period of twelve (12) days from the date of compliance of the above conditions as imposed by this Court.

No costs. Consequently, the connected miscellaneous petition is closed.