Delhi High Court Urges Customs Reform To Protect MSME Startups From Excessive Demurrage Costs - 2025-09-01

Delhi High Court Urges Customs Reform To Protect MSME Startups From Excessive Demurrage Costs

In a significant ruling aimed at protecting Micro, Small, and Medium Enterprises (MSMEs), the High Court of Delhi has directed the customs authorities to release imported consignments belonging to a startup within 24 hours. The bench, comprised of Justice Prathiba M. Singh and Justice Shail Jain, underscored that administrative delays in the customs clearance process can be catastrophic for small businesses, often resulting in crippling demurrage and storage costs that far exceed the value of the goods themselves.

Background of the Dispute

The petitioner, Mitraj Business Private Limited, an MSME-recognized startup operating under the 'Fabie Baby' brand, imported packaging materials for baby care products. Upon arrival at the Tughlakabad Inland Container Depot (ICD), customs officials identified a discrepancy in the weight and quantity of the goods compared to the declared Bill of Entry.

While the petitioner acknowledged the discrepancies and agreed to pay the differential duty and applicable penalties, the goods remained impounded for weeks. By the time the matter reached the High Court, the petitioner had incurred approximately ₹3,88,000 in demurrage charges for a consignment valued at only ₹4,00,000.

Legal Arguments and Judicial Scrutiny

The petitioner argued that despite their cooperation and willingness to resolve the discrepancy, the Customs Department’s delay in passing the Order-in-Original created an avoidable financial burden. The Customs Department, conversely, contended that the importer had provided incomplete documents and failed to present the goods for inspection promptly.

The High Court expressed deep dissatisfaction with the procedural lethargy shown by the department. Justice Prathiba M. Singh remarked that while accurate declarations are mandatory, the nature of the goods—non-prohibited items like cosmetic bottle caps—did not justify the lengthy detention.

Key Observations

The Court’s judgment highlighted a fundamental disconnect between the government’s policy of encouraging startups and the operational reality faced by small importers:

• "Considering the prevailing policy in India to encourage start-ups and MSMEs, the Customs Department also needs to be sensitized to ensure that such parties are given some consideration, especially, when the goods are not prohibited goods."
• "The Order-in-Original itself recognises the fact that the Petitioner had agreed for the classification which was given by the Customs Department on 30th July, 2025. Despite that... there was no reason for the Customs Department to delay in passing of the Order-in-Original by almost a month."
• "A perusal of Section 110 of the Customs Act, 1962 would show that the timelines prescribed in the said provision are six months plus an additional six months. The said timeline would be too long in cases involving small businesses, especially, when there are no prohibited goods which are involved."

Court’s Decision and Future Implications

The High Court ordered the immediate release of the goods upon payment of the differential duty of ₹24,249, granting the petitioner a waiver on the immediate payment of the redemption fine and penalty pending further litigation.

Crucially, the Court directed the Central Board of Indirect Taxes and Customs (CBIC) and the Commissioner of Customs to examine whether preferential, time-bound procedures should be implemented for MSMEs and startups regarding the release of low-value, non-prohibited consignments. This decision marks a potential turning point for how customs authorities handle procedural compliance, pushing for a more supportive framework for India’s growing entrepreneur ecosystem. The matter is next scheduled for hearing on October 28, 2025.