Gujarat HC Upholds Duty-Free Walnut Imports Under DFIA Scheme, Classifies as ‘Dietary Fibre’

Court Rules HS Code Endorsement Not Mandatory; Customs Authority Cannot Deny Exemption on Technical Grounds Alone

AHMEDABAD — In a significant ruling for exporters and importers under the Duty-Free Import Authorization (DFIA) scheme, the Gujarat High Court has dismissed an appeal by the Commissioner of Customs, Kandla, and upheld a ruling by the Customs Authority for Advance Rulings (CAAR) that allows duty-free import of in-shell walnuts by treating them as ‘dietary fibre’.

The Case Background

The respondent, M/s Devam Impex, sought an advance ruling under Section 28H of the Customs Act on whether in-shell walnuts could be imported duty-free under transferable DFIAs issued against exports of Assorted Confectionary Products (SION E-1) and Biscuits (SION E-5), claiming coverage as “Nut and Nut Products,” “Other Confectionary Ingredients,” and “Dietary Fibre”.

The respondent-assessee is a transferee of Duty-Free Import Authorisations issued against the export of Assorted Confectionary Products and Biscuits. When the CAAR ruled in favor of the importer, the Customs Commissioner challenged the decision on procedural and technical grounds.

Key Legal Question

The central question of law before the High Court was whether exemption under Notification No.25/2023-Cus can be denied on the ground that the specific ITC (HS) code was not endorsed and that technical correlation with the exported goods was allegedly absent.

The Revenue’s contention was that specific Harmonised System (HS) code endorsement was mandatory and that in-shell walnuts lacked technical correlation with the exported confectionery products and biscuits.

Court’s Landmark Ruling

The Gujarat High Court dismissed the appeal and upheld the CAAR ruling, holding that DFIA imports are governed by input descriptions and group classifications under the Standard Input Output Norms (SIONs), not strict HS code matching, and no such requirement exists under the Foreign Trade Policy (FTP) or the notification.

The Court established several critical principles:

1. Broad Classification Sufficient: Relying on the precedent of VKC Nuts Pvt. Ltd., the Court affirmed that in-shell walnuts fall within “Dietary Fibre” and “Nut and Nut Products”, rejecting the need for narrow, restrictive interpretation of permissible imports under DFIA.

2. No Technical Evidence from Revenue: The Court noted the absence of any technical evidence from the Revenue to rebut the position that walnuts qualify as dietary fibre and confectionery ingredients.

3. CBIC Circular Clarification: The Court relied on CBIC Circular No.20/2025-Cus clarifying that technical correlation is required only for inputs specified under Paragraph 4.29 of the FTP, which did not cover in-shell walnuts.

Implications for Trade

The ruling provides much-needed clarity for exporters using the DFIA scheme, particularly those in the food processing and confectionery sectors. It establishes that:

• Customs authorities cannot deny DFIA exemptions solely based on absence of specific HS code endorsement
• Input descriptions and group classifications under SIONs take precedence over strict technical correlations
• The burden lies on Revenue to provide technical evidence when challenging broad categorizations accepted under the FTP

DFIA Scheme Context

The Duty-Free Import Authorization scheme is a key export promotion measure under India’s Foreign Trade Policy, allowing exporters to import inputs duty-free for use in products destined for export. The scheme is designed to enhance India’s export competitiveness by reducing the cost burden of imported raw materials and ingredients.

The Court declined to frame any substantial question of law and dismissed the appeal, bringing finality to the matter and providing a favorable precedent for similar cases across the country. This judgment reinforces the principle that export promotion schemes should be interpreted liberally to facilitate trade, while ensuring that procedural requirements do not become insurmountable barriers for legitimate importers.