Customs duty and differential-duty bank guarantee cannot be demanded before SEZ-to-DTA clearance.

H R Enterprises imported “leftover tarpaulin fabric for pavilion and tent purposes in mixed colours” through 21 SEZ Bills of Entry between February and April 2025.

The goods were intended to be warehoused at M/s Cargo Care Agency, an FTWZ unit in Kandla SEZ, which had approval to undertake authorised operations including cutting, trimming and stitching.

Following intelligence that multiple varieties of fabric had been imported under the description “tarpaulin,” the goods were examined, tested and seized on the allegation of misdeclaration.

The Assistant Commissioner, with the Commissioner’s approval, ordered provisional release under Section 110A of the Customs Act, 1962, subject to a bond of Rs. 2,82,20,472, equivalent to the approximate value of the goods, and a bank guarantee of Rs. 29,24,465, representing 50% of the alleged differential duty for DTA clearance.

The appellant challenged the bank-guarantee condition, contending that the goods were intended for authorised operations in the SEZ and had not yet been cleared into the Domestic Tariff Area (DTA).

1. Whether customs duty liability arises on goods imported into or intended to be warehoused in an SEZ/FTWZ before their clearance from the SEZ to the DTA

2. Whether the condition requiring a bank guarantee of Rs. 29,24,465, calculated as 50% of the alleged differential duty on the imported goods, was legally sustainable for provisional release under Section 110A of the Customs Act, 1962

3. Whether the bond equal to the value of the seized goods could be retained as a condition of provisional release

Section 110A of the Customs Act, 1962 empowers the competent authority to release seized goods provisionally subject to appropriate conditions.

Section 26(1)(a) of the Special Economic Zones Act, 2005 exempts goods imported into an SEZ for carrying out authorised operations from customs duty, subject to the statutory scheme.

Under Section 30(a) of the SEZ Act, goods removed from an SEZ to the DTA are chargeable to customs duties as leviable on such goods when imported, while Section 30(b) fixes the applicable rate and tariff valuation with reference to the date of removal or payment of duty.

The Tribunal relied on Adani Power Ltd. v. Union of India, 2015 (11) TMI 1466 (Guj.), affirmed by the Supreme Court in Adani Power Ltd. v. Union of India, 2026 (1) TMI 224 (SC), for the principle that Section 30 is a parity provision governing SEZ-to-DTA clearances and does not create a customs levy before such clearance.

The Tribunal also referred to B.I.F.R. v. Lunar Diamond Ltd., 2020 (371) E.L.T., GMR Aerospace Engineering Ltd. v. Union of India, 2019 (31) G.S.T.L. 596, and AIE Fiber Resource & Trading (India) (P) Ltd., 2021 (12) TMI 1265 (AAR, Telangana), concerning the treatment of goods warehoused in an FTWZ.

The Tribunal found that the imported goods were either yet to be warehoused in the FTWZ or were already lying there, and that the approved authorised operations—cutting, trimming and stitching—had not yet been undertaken.

The goods imported as fabric and the goods ultimately manufactured after the authorised operations would be distinct; customs duty would therefore be assessed on the manufactured goods when cleared from the SEZ to the DTA, at the rate and valuation applicable at that stage.

Applying Sections 26 and 30 of the SEZ Act and the principle in Adani Power, the Tribunal held that no customs-duty liability had crystallised on the imported goods merely because they had been seized or provisionally released.

Consequently, computation of a bank guarantee based on alleged differential duty on the imported goods was premature and legally unsustainable.

However, the Tribunal considered the bond equal to the value of the goods an appropriate condition for provisional release and directed that the goods be used only for authorised operations in the FTWZ.

The Tribunal retained the condition requiring H R Enterprises to furnish a bond of Rs. 2,82,20,472, being the value of the goods, but set aside the requirement to furnish a bank guarantee of Rs. 29,24,465.

The goods were ordered to be released provisionally only for use in authorised operations in the FTWZ.

The appellant would be liable to pay the appropriate customs duty on the manufactured goods, if and when they were cleared from the SEZ to the DTA.