DFIA Imports of Inshell Walnuts: CAAR Mumbai Clarifies Scope of Exemption and ITC HS Correlation

Overview of the Advance Ruling

The Customs Authority for Advance Rulings (CAAR), Mumbai, in the matter of In re K. S. Enterprises, dealt with a detailed application concerning import of Inshell Walnuts under transferable Duty Free Import Authorisations (DFIAs). The assessee sought clarity on two specific aspects:

  1. Whether imports of Inshell Walnuts under valid transferable DFIA would be eligible for exemption from Basic Customs Duty (BCD) under Notification No. 25/2023-Customs dated 01.04.2023.
  2. Whether it is mandatory to match the ITC (HS) classification indicated in the DFIA with that of the imported Inshell Walnuts for claiming the above exemption.

The DFIAs in question were proposed to be purchased against exports of products such as assorted confectionery, biscuits, vegetable pickles and namkeens/mixtures/savouries, all covered under specific Standard Input Output Norms (SIONs).

CAAR Mumbai examined the Foreign Trade Policy (FTP), the DFIA scheme framework, SION provisions, relevant CBIC and DGFT circulars, and a series of judicial precedents before returning comprehensive findings on both issues.

Applicant’s Business Profile and Proposal

Basic Facts About the Applicant

  • The assessee, M/s. K. S. Enterprises, is a proprietorship concern holding:
    • GST registration
    • PAN of the proprietor
    • Import-Export Code (IEC No. 0307001873) issued under Section 7 of the **Foreign Trade Development & Regulation Act, 1992`.
  • The assessee qualified as an “applicant” under Section 28E(c) of the **Customs Act, 1962and approached CAAR underSection 28H` for an advance ruling.

Nature of the Proposed Imports

The assessee proposed to import Inshell Walnuts against transferable DFIAs issued post-export under Paragraph 4.24 and Paragraph 4.26 of the Foreign Trade Policy, 2023, subject to conditions specified therein.

The DFIAs were proposed to be sourced against exports under the following SIONs:

  1. SION E-1 – Exports of Assorted Confectionery Products (covering “Other Confectionery” at Sr. No. 7).
  2. SION E-5 – Exports of Biscuits, including entitlement for:
    • Dietary Fibre (Sr. No. 4(viii))
    • Food Flavour/Flavouring Agent (Sr. No. 4(iii))
  3. SION E-126 – Exports of Vegetable Pickles with entitlement to “Relevant Food Additives” (Sr. No. 2).
  4. SION E-132 – Exports of Namkeens/Mixtures/Savouries with entitlement to “Relevant Flavours” (Sr. No. 4).

The assessee contended that Inshell Walnuts were appropriately covered under generic input descriptions such as:

  • “Nut and Nut Products”
  • “Dietary Fibre”
  • “Food Flavours”
  • “Relevant Food Additives”
  • “Relevant Flavours”

Accordingly, they argued that Inshell Walnuts qualified as permissible inputs under the above SIONs, and that DFIA-based BCD exemption under Notification No. 25/2023-Customs was available for such imports.

1. Customs Exemption – Notification No. 25/2023-Cus

The assessee’s claim hinged on Notification No. 25/2023-Cus dated 01.04.2023, issued under Section 25(1) of the **Customs Act, 1962. This notification grants **full exemption from BCD** on materials imported against a valid DFIA issued under Paragraphs 4.24and4.26` of the FTP, subject to specified conditions, including:

  • Production of the DFIA before the proper officer at the time of clearance.
  • Endorsement on the DFIA of:
    • SION number
    • Description, quantity and FOB value of the resultant exported product
    • Shipping bill number(s) and date(s)
  • The description, value and quantity of imported materials being mentioned in the authorisation and remaining within the authorised limits.
  • Additional specific provisos:
    • For inputs covered under Paragraphs 4.12(i) and 4.12(ii) of FTP – the DFIA imports must be of the same specific input name/description or quantity as declared in the shipping bill.
    • For inputs listed under Paragraph 4.29 of FTP (sensitive inputs) – the DFIA imports must match the same quality, technical characteristics and specifications as those actually used in the exported products.

2.