The court ruled that 'actual use' conditions do not apply to post-export authorizations in the DFIA scheme, allowing for exemption from basic customs duty.

PER: C J MATHEW

Much like ‘Back to the seasons of my youth I recall a box of rags that someone gave us And how my mama put the rags to use …..

Mama sewed the rags together Sewin' every piece with love She made my coat of many colors That I was so proud of’ that Dolly Parton penned on the back of a laundry receipt belonging to Porter Wagoner which went on to become the hit ‘Coat of Many Colours’ in 1971, the fabric of this dispute is not a single composition by an adjudicating authority but collated from findings of the first appellate authority supplemented by submissions of Learned Authorized Representative. This is all about two ‘duty free import authorizations (DFIA)’ issued by the Directorate General of Foreign Trade (DGFT) that were presented by the appellant, M/s Frunuts Exim LLP, for availing exemption from ‘basic customs duty (BCD)’ against notification no. 25/2003-CE dated 1^st April 2003, on import of 13,234 kg of ‘dried cranberry’, valued at US$ 44,346, vide bill of entry no. 6882603/26.11.2024; of these under ‘other confectionary ingredients’ enumerated in the relevant Standard Input Output Norm (SION) group, one, [DFIA no. 5611002533 dated 10th January 2024 (at sl. no. 3)] permitting ‘relevant fruit (juice/pulp/puree)’ was adjusted towards discharge of liability for 7464 kg and the other, [DFIA no. 0311030812 dated 7th February 2024 (at sl. no. 8)] permitting ‘fruits and fruit products’ towards discharge of liability on the remaining 5770 kg.

2. The assessing authority raised a query on putative ineligibility of the impugned goods for the exemption and, not satisfied with the response, revised the bills of entry for clearance on payment of duty in full. By impugned order, [order-in-appeal no. 1557(Gr.IIA-B)/2024(JNCH)/Appeals dated 10th December 2024] of Commissioner of Customs (Appeals-III), Mumbai, the denial was affirmed upon examination of the entries as well as the terms in the authorizations and provisions of the Foreign Trade Policy. Aggrieved by the levy of ‘basic customs duty(BCD)’, the appellant is before us seeking consequence of eligibility for exemption and direction to the Commissioner to enable deployment of the impugned authorizations by excluding the period of litigation in computation of period of validity.

3. The essence of the dispute is that ‘dried cranberry’ has not been evidenced as actually utilized in manufacturing the exported goods in pursuance of which the impugned authorizations had been issued to the original holder and that the specific ingredients were entailed with ‘actual use’ condition as well as ‘value cap’ owing to which duty exemptions could not be extended.

4. Learned Counsel for the appellant contends that the authorizations, being ‘post-export’ and transferable, cannot be fastened with condition of actual use. It was further contended that correlation of imported ingredients with deployment in exported product, restricted to few select goods, was not applicable to ‘dried cranberry’ and that ‘actual user’ condition attached only to ‘sensitive items’ specified in the Schedule. Two policy circulars, [circular no. 50 (RE-08)/2004-08 dated 6.01.2009], [circular no. 72 (RE-08)/2004-09 dated 24.03.2009] of Director General of Foreign Trade (DGFT), circular, [circular no. 20/2025-Cus dated 24.07.2025] of Central Board of Indirect Taxes & Customs (CBIC) and public notice, [public notice no. 41/2015-2020 dated 2.11.2016] issued by Director General of Foreign Trade (DGFT) were relied upon in support. Reliance was placed on the decision of the Hon’ble High Court of Bombay in Sha