HC Reaffirms Strict Compliance With Value Addition Norms for Duty-Free Imports Under EXIM Policy

In a significant ruling clarifying the scope of duty exemption under export incentive schemes, the Karnataka High Court has held that failure to achieve the mandatory minimum value addition disentitles an exporter from customs duty exemption, even if assembly and testing activities are undertaken in India. The bench of Justice D K Singh and Justice Venkatesh Naik set aside a 2003 order of the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), which had granted relief to an exporter in a dispute concerning imports made under advance licences issued by the Directorate General of Foreign Trade (DGFT). The dispute arose from imports of medical equipment made under the Duty Exemption Entitlement Certificate (DEEC) scheme for fulfilling an export contract involving supply of electronic ventilation systems to hospitals in Russia. The advance licences permitted duty-free import of components, subject to compliance with the Export-Import (EXIM) Policy, including a minimum value addition of 33% for exports made against payment in Indian Rupees. While the first consignment was exported without objection, the second consignment was intercepted by the Directorate of Revenue Intelligence (DRI), which initiated an investigation into whether the imports genuinely involved manufacture in India or merely cosmetic processing. The investigation concluded that complete equipment had effectively been imported in CKD/SKD condition and exported after minimal assembly, testing and repacking. According to the Customs Department, the activities undertaken did not result in any meaningful enhancement of the intrinsic value of the goods. A show-cause notice was issued alleging misrepresentation before the licensing authority and violation of licence conditions. The adjudicating authority found that the actual value addition achieved was only about 5.18%, far below the 33% threshold mandated under paragraph 11.7 of the EXIM Policy. On this basis, the Customs Commissioner ordered confiscation of the imported goods, confirmed substantial duty demands with interest, and imposed penalties under various provisions of the Customs Act, 1962. On appeal, the CEGAT overturned the Commissioner’s order, holding that the assembly, testing and calibration activities constituted “manufacture” under the EXIM Policy. The Tribunal relied on the Supreme Court’s decision in Titan Medical Systems and granted consequential relief, including waiver of penalties. The High Court initially declined to entertain the Department’s challenge on maintainability grounds. However, the Supreme Court later clarified that disputes concerning breach of exemption conditions are within the High Court’s jurisdiction and remitted the matter for fresh adjudication on merits. Upon reconsideration, the High Court held that the Tribunal had erred in granting exemption despite its own finding that the intrinsic value addition was only 5.18%. The Bench observed that enhancement of FOB value due to currency conversion under the rupee–rouble mechanism could not be equated with real value addition through manufacturing or processing. The Court emphasised that exemption notifications and export incentive schemes must be strictly construed, and any assessee seeking their benefit must scrupulously comply with all prescribed conditions. Relying on multiple Supreme Court precedents, the Bench reiterated that eligibility conditions cannot be diluted through liberal interpretation. The Court further noted that misrepresentation before the DGFT in securing advance licences vitiated the entire transaction and attracted confiscation under Sections 111(m) and 111(o) of the Customs Act. Case Details Case Title: The Principal Commissioner Of Customs Versus M/S. Lucky Exports Case No.: Civil Petition No. 1142 Of 2003 Date: 12/12/2025 Counsel For Petitioner: Akash.B.Shetty, Advocate Counsel For Respondent: Lakshmikumaran And Sriharan, Advocate Click Here To Read Order Read More: HC Upholds COFEPOSA Detention in Rs. 12.56 Crore Gold Smuggling Case

HC Reaffirms Strict Compliance With Value Addition Norms for Duty-Free Imports Under EXIM Policy

Membership Required

Latest articles

EDCT Machine Rentals Attract VAT as ‘Transfer of Right to Use Goods’: Karnataka High Court

SHIS Benefit Can’t Be Denied by Treating Capital Goods as Mere Parts; CESTAT Quashes Rs. 1.30 Crore Customs Demand

No Social Welfare Surcharge Payable Where Basic Customs Duty Is Fully Exempt Under MEIS/SEIS Schemes: CESTAT

Registry Can’t Decide Complex Legal Issues: GSTAT Refers Appeal Over Pre-Deposit Linked to Amalgamated Entity

More like this

EDCT Machine Rentals Attract VAT as ‘Transfer of Right to Use Goods’: Karnataka High Court

SHIS Benefit Can’t Be Denied by Treating Capital Goods as Mere Parts; CESTAT Quashes Rs. 1.30 Crore Customs Demand

No Social Welfare Surcharge Payable Where Basic Customs Duty Is Fully Exempt Under MEIS/SEIS Schemes: CESTAT

About us

Company

Categories