Bombay HC ruling may shield importers from charges on deteriorated goods

A Bombay HC ruling quashing a customs order after seized goods deteriorated in custody may help importers avoid demurrage and related charges, highlighting systemic issues in customs procedures

A recent judgment by the Bombay High Court (HC) quashing a Customs adjudication order after seized goods deteriorated during a prolonged dispute is expected to provide relief to importers, with experts saying the ruling could set a precedent for waiving demurrage and other charges when goods perish or lose value while in official custody.

 

The order, passed on March 6 by a bench of Justices G S Kulkarni and Aarti Sathe, set aside an order-in-original issued on October 6, 2022, by the Additional Commissioner of Customs in a case involving importer Victory Ventures Inc.

 

Industry representatives say the order underscores that traders should not be burdened with exorbitant costs arising from delays in classification or valuation disputes when imported goods remain detained by Customs authorities for extended periods.

 

 

In such disputes, the financial burden can quickly escalate. Besides contested Customs duty and interest, importers are often liable to demurrage charges to port operators and container detention charges to shipping lines once the free storage period lapses. "These charges can run into several thousand rupees per container per day, and when goods remain under detention for months during litigation, the cumulative costs can easily exceed the value of the consignment," said Abhishek A Rastogi, the importer's counsel and the founder of Rastogi Chambers.

 

The dispute arose after the sole proprietor of the firm imported goods described in the bill of entry as PVC rolls, PVC table covers, and readymade jackets, both branded and unbranded. Customs authorities raised objections regarding the classification and valuation of the imports.

 

The goods were seized on March 1, 2022, and remained in the custody of Customs authorities during the dispute. The importer later approached the HC challenging the adjudication order passed by the department in October 2022.

 

During the proceedings, a joint inspection of the seized goods was conducted on March 4, 2026. The importer’s counsel, Rastogi, informed the court that the goods had completely deteriorated while lying in custody and were no longer saleable in the market.

 

Taking note of the situation, the court observed that the entire import exercise had become futile due to the prolonged dispute.

 

“We are saddened to see the plight of the petitioner… the entire exercise of import is rendered a sheer waste merely on an issue of classification,” the bench noted.

 

The court also observed that such situations are particularly concerning when they involve small entrepreneurs importing relatively small consignments. According to the bench, adopting a rigid approach in such cases may ultimately prove counterproductive both for the importer and for the revenue authorities.

 

“Any hard approach… would not benefit the department as also the importer and more particularly when the importer is a small enterprise,” the court said, adding that authorities should adopt an approach that protects revenue interests while ensuring that trade does not suffer.

 

Since the goods had already deteriorated, the importer informed the court that the department was free to dispose them of through auction or destruction. The court allowed the department to proceed accordingly and directed that any amount realised through auction or sale may be appropriated by the department, while any surplus should be paid to the importer to help clear warehousing charges.

 

The bench also directed Customs authorities to issue a demurrage waiver certificate for the goods covered under the bill of entry dated November 9, 2021, following an earlier order granting provisional release.

 

According to Rastogi, the case reflects a recurring difficulty faced by small importers. “There are several instances where imported goods are subjected to seizure or prolonged detention on valuation or classification disputes, and small businesses often lack the resources to immediately approach the high court for relief,” he said. During such delays, goods with limited shelf life or seasonal demand often deteriorate, resulting in severe commercial hardship.

 

He added that there is a need for the Central Board of Indirect Taxes and Customs (CBIC) to prescribe clear and uniform guidelines for market surveys and valuation exercises to prevent arbitrary practices and protect small importers from irreversible losses.

 

Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises (FISME), said the judgment highlights a systemic issue affecting many small importers.

 

“It is a classic case of how discretionary powers vested in officials without adequate accountability can delay and destroy the economic value of goods,” Bhardwaj said.

 

According to him, the ruling underscores the need for MSME-sensitive Customs procedures, including faster resolution of classification disputes, automatic provisional release of small consignments, and protection from demurrage when goods are detained by authorities.