The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that an Actual User Condition cannot be imposed on imports made under a transferable Duty Free Import Authorization (DFIA) merely through a DGFT Public Notice.
The bench of Ashok Jindal (Judicial Member) and K.Anpazhakan (Technical Member) ruled that a restriction, affecting substantive rights under the Foreign Trade Policy, can only be imposed through a properly notified statutory instrument published in the Official Gazette.
The Tribunal set aside the denial of customs duty exemption on imported Citric Acid and directed Customs authorities to facilitate revalidation of expired DFIAs affected by the litigation.
The appellant imported 27 metric tonnes of Citric Acid and filed a Bill of Entry claiming exemption from Basic Customs Duty under Customs Notification No. 25/2023-Cus by utilizing a transferable DFIA licence issued on a post-export basis. The DFIA had been originally granted against exports of assorted confectionery products under Standard Input Output Norm (SION) E-1.
During faceless assessment, Customs authorities denied the benefit of the exemption and reassessed the Bill of Entry at normal duty rates. The department relied upon Public Notice No. 41 dated 2 November 2016 issued by the Directorate General of Foreign Trade (DGFT), which imposed Actual User Conditions on certain inputs under SION E-1.
The importer argued that the DFIA was transferable and issued after completion of exports, and therefore no Actual User Condition could be enforced against a transferee licence holder.
The principal question before the Tribunal was whether DGFT could impose an Actual User Condition through a Public Notice in respect of transferable DFIAs issued under a post-export benefit scheme and whether Customs authorities could deny duty exemption on that basis.
The Tribunal noted that the Rajasthan High Court in Nrapen Shankar Acharya v. Union of India had categorically held that imposing pre-import or Actual User Conditions constitutes a policy decision and therefore can only be effected through a Notification published in the Official Gazette, not through a Public Notice issued by DGFT.
The Bench also relied upon the Supreme Court’s decision in Viraj Impex Pvt. Ltd. v. Union of India, where the Court emphasized that delegated legislation becomes enforceable only upon publication in the Official Gazette. The Supreme Court observed that publication is not a mere procedural formality but a mandatory requirement that transforms an executive decision into enforceable law.
According to the Tribunal, since the Actual User Condition had been introduced only through a Public Notice and not through a valid statutory notification, the restriction lacked legal force and could not be enforced against the importer.
The Tribunal further highlighted the fundamental distinction between Advance Authorisation and DFIA schemes.
It observed that DFIA is a post-export incentive scheme under which exports are completed first and authorisations are issued later. Once issued, the DFIA becomes transferable, and therefore the transferee importer cannot be subjected to the same Actual User obligations applicable to pre-export authorisation schemes.
Relying on the Bombay High Court’s ruling in Shah Nanji Nagsi Exports Pvt. Ltd., the Bench reiterated that there is no inbuilt Actual User Condition in the DFIA framework. The Court had previously recognized that a transferable DFIA functions differently from Advance Authorisation and does not require the transferee to establish actual consumption of imported goods.
The Tribunal also referred to its earlier decision in Frunuts Exim LLP, where it had held that applying Actual User restrictions to transferable post-export DFIAs would defeat the very purpose of the scheme and lacks statutory backing.
During the proceedings, the appellant relied upon the Supreme Court’s landmark judgment in L. Chandra Kumar v. Union of India to argue that tribunals possess jurisdiction to examine the validity of subordinate legislation and executive instruments.
Accepting the contention, the Tribunal held that it was competent to examine whether the Public Notice imposing Actual User Conditions had legal validity and could test the enforceability of such delegated legislative measures.
Apart from allowing the customs exemption claim, the Tribunal addressed the appellant’s grievance that several DFIAs had expired during the pendency of litigation and could not be utilized because Customs authorities had refused duty-free clearance.
Relying on decisions of the Punjab & Haryana High Court and earlier Tribunal precedents, the Bench held that importers should not suffer due to delays caused by departmental action and prolonged litigation.
Accordingly, the Tribunal directed the Customs Department to issue a certificate to the DGFT within two weeks confirming the circumstances that prevented utilization of the licences. This certificate would enable the importer to seek revalidation of the expired DFIAs under the applicable provisions of the Handbook of Procedures.
Allowing the appeal, the CESTAT held that an Actual User Condition cannot be imposed through a DGFT Public Notice. Such restrictions require a valid notification published in the Official Gazette. Transferable DFIAs issued on a post-export basis do not carry an enforceable Actual User Condition. Customs authorities were not justified in denying the claimed duty exemption on Citric Acid imports. Customs must issue a certificate enabling the importer to seek revalidation of expired DFIAs.
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