CESTAT Orders Provisional Release of Seized Drone Components, Rejects ‘CKD Import’ Allegation Without Proof

April 21, 2026 : The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has directed the provisional release of seized drone components, holding that Customs authorities cannot treat multiple consignments of parts as complete drones without establishing a clear one-to-one correlation or proving that the components can be assembled into functional units.

The ruling came in M/s IZI & Anr. v. Commissioner of Customs, Nhava Sheva, where a Bench of Dr. Suvendu Kumar Pati (Judicial Member) and M.M. Parthiban (Technical Member) set aside the Commissioner’s order denying provisional release.

Background of the Case

The dispute arose after Customs authorities seized drone components and certain fully built units imported by the appellants, alleging violation of DGFT Notification No. 54/2015-20. The Department claimed that the importers had brought in drones in completely knocked-down (CKD) or semi-knocked-down (SKD) condition by splitting consignments across multiple Bills of Entry to bypass restrictions.

The appellants, however, maintained that they had imported only parts and components, which are freely importable under the notification. They also argued that several key components were sourced domestically, making it impossible to treat the imported goods alone as complete drones.

Tribunal’s Key Findings

After examining the record, the Tribunal found significant gaps in the Department’s case. It noted that the components were imported in uneven quantities, with some items numbering as few as 30 units and others exceeding 900 units. This inconsistency undermined the allegation that the consignments collectively constituted complete drones.

The Bench made it clear that merely importing parts across multiple consignments does not automatically amount to importing a complete product in CKD or SKD condition. It stressed that a “one-to-one correlation” between components and finished units must be established, which was absent in this case.

The Tribunal also observed that there was no conclusive evidence to show that the imported parts, either individually or collectively, were capable of being assembled into fully functional drones. It further pointed out uncertainties in the Chartered Engineer’s report, particularly whether the assessment covered only imported parts or included domestically sourced components.

On DGFT Notification and Tariff Rules

Addressing the alleged violation of DGFT norms, the Tribunal reiterated that import of drone components is permitted. It cautioned against mechanically applying Rule 2(a) of the General Rules for Interpretation of the Customs Tariff to policy restrictions without a proper factual basis.

The Bench relied on settled legal principles that tariff interpretation rules cannot override or expand the scope of Foreign Trade Policy conditions unless supported by clear evidence.

National Security Argument Rejected

The Department had argued that allowing release of the goods could pose risks to national security and public safety. The Tribunal found no material to support this claim.

On the contrary, it noted that the appellants were recognised drone manufacturers supplying to defence and government agencies. Their operations, the Tribunal observed, would strengthen rather than threaten national security.

CBIC Circular Not Applicable

The Tribunal also rejected reliance on CBIC Circular No. 35/2017-Customs to deny provisional release. It noted that the restrictive portion of the circular had already been declared contrary to law by judicial decisions and therefore could not be used to deny relief.

Final Direction

Taking into account the nature of the goods, including perishable electronic components and batteries with limited shelf life, along with the appellants’ contractual obligations, the Tribunal held that denial of provisional release was unjustified.

It accordingly allowed the appeals and directed immediate provisional release of the seized goods upon execution of an indemnity bond and a surety bond of equivalent value.