Diversion of Duty-Free Raw Cashew Nuts Violates ‘Actual User’ Condition Under Advance Authorisation: Madras High Court

The Madurai Bench of the Madras High Court has ruled that diversion of duty-free imported Raw Cashew Nuts (RCN) to unauthorised units and sale in the local market amounts to a clear violation of the ‘Actual User’ condition under the Advance Authorisation Scheme. The Bench of Justice G.K. Ilanthiraiyan and Justice R. Poornima has observed that the authorised factory addresses were clearly mentioned in the licence conditions and that no co-licensee was declared. Despite this, the imported RCN were admittedly sent directly to units belonging to M/s. Regin Agency without prior permission or proper compliance. The dispute arose from seven Advance Authorisations obtained by M/s. Regin Exports, a proprietorship concern based in Kanyakumari District, between March and May 2016. Under these licences, the firm was permitted to import Raw Cashew Nuts without payment of customs duty, subject to the condition that the imported goods would be used for processing and export of cashew kernels. Between April and July 2016, the firm imported 3,073.331 metric tonnes of RCN valued at over Rs. 31.85 crore through Tuticorin Port, availing exemption under Notification No. 18/2015-CUS dated 01.04.2015. However, based on intelligence inputs, the Directorate of Revenue Intelligence (DRI) conducted searches in July and August 2016. Investigations revealed that large quantities of the duty-free imported RCN were not found at the authorised premises specified in the Advance Authorisation licences. According to the Department, instead of being processed at the declared factory addresses, the imported RCN were directly transported from Tuticorin Port to various units controlled by M/s. Regin Agency, a separate concern owned by the husband of the proprietrix of M/s. Regin Exports. Statements recorded from the proprietrix, her husband, managers of processing units, and customs brokers indicated that the imported RCN were dispatched directly to multiple commission agents and job workers without proper authorisation. No statutory registers were maintained for consumption and stock of duty-free imports. Around 225 metric tonnes of RCN were sold in the local market. Only a small portion of the imported goods was utilised at the authorised premises. A substantial quantity was allegedly diverted in violation of the Foreign Trade Policy (FTP) 2015–2020 and Notification No. 18/2015. The adjudicating authority confirmed a customs duty demand of ₹2.71 crore, ordered confiscation of seized goods, and imposed penalties including ₹25 lakh on Mr. P. Regin and ₹5 lakh each on customs brokers M/s. Zion Logistics and M/s. Daniel and Samuel Logistics Pvt. Ltd. The CESTAT, by its common order dated 17.09.2018, allowed the appeals filed by the exporters and set aside the adjudication order. Aggrieved by this, the Customs Department approached the High Court under Section 130 of the Customs Act, 1962. The principal question before the Court was whether diversion of RCN imported duty-free under Advance Authorisation to unauthorised units and local sale was permissible under the FTP 2015–2020 and the relevant customs notification. The High Court examined the conditions attached to the Advance Authorisation and the relevant provisions of the Foreign Trade Policy. The Bench emphasised that Advance Authorisation imports are subject to the “Actual User” condition under Para 4.16 of FTP 2015–2020. The imported materials must be utilised strictly in the manner and at the premises specified in the authorisation. The authorisation and the imported materials are non-transferable. Transfer to job workers is permissible only in compliance with prescribed procedures and subject to proper documentation and permissions. The Court observed that the proprietrix admitted she was not managing the business and that the operations were effectively handled by her husband, who controlled both concerns. The failure to maintain proper accounts of duty-free imports further strengthened the Department’s case. In the appeal relating to customs brokers, arguments were raised regarding the monetary limit for filing appeals and the scope of liability under the Customs Brokers Licensing Regulations, 2013. The Department contended that the brokers facilitated dispatch of imported goods to unauthorised units based on instructions received. The Court examined the role played by the brokers in clearance and transportation of goods and the statutory framework governing their obligations. The High Court held that diversion of duty-free imported goods to unauthorised units and local sales, without adherence to statutory conditions, constituted a violation of the Advance Authorisation scheme and the ‘Actual User’ requirement. The Court concluded that the CESTAT erred in granting relief to the respondents and that the adjudicating authority was justified in confirming duty demand and penalties. Case Details Case Title: The Commissioner of Customs Versus Shri Regin.P Case No.: C.M.A(MD)Nos.571, 572, 573 & 574 of 2020 Date: 10/02/2026 Counsel For Appellant: N.Dilip Kumar Counsel For Respondent: Senior Counsel Isaac Mohanlal Click Here To Read Order

Diversion of Duty-Free Raw Cashew Nuts Violates ‘Actual User’ Condition Under Advance Authorisation: Madras High Court

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