ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 03.12.2025
CESTAT Chennai Sets Aside Duty Demand on DFIA License Utilization
This Article has been written by Shri Ravi Shekhar Jha, Advocate based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com or on his Mobile +91-9999005379.Β β
In a significant judgment, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai, has ruled in favor of Indras Agencies Pvt. Ltd., setting aside a duty demand of βΉ25,12,280/- along with applicable interest. β The case revolved around the utilization of Duty-Free Import Authorization (DFIA) licenses that were transferred to the appellant, Indras Agencies Pvt. β Ltd., by M/s. β Pan Parag India Ltd., Kanpur. β
Background of the Case
The dispute originated from the import of patchouli oil by Indras Agencies Pvt. Ltd. during 2012 and 2013 using DFIA licenses that were initially issued to M/s. β Pan Parag India Ltd. for the export of pan masala/gutkha. β These licenses were validly transferred to Indras Agencies Pvt. Ltd. However, investigations revealed that the original exporter, M/s. β Pan Parag India Ltd., allegedly obtained the DFIA licenses through misrepresentation and suppression of facts. β Consequently, the customs department issued a Show Cause Notice (SCN) to Indras Agencies Pvt. Ltd. in December 2014, demanding the recovery of import duty foregone under the transferred DFIA licenses.
The appellant contested the demand, arguing that they had purchased the DFIA licenses in good faith and were not involved in any misrepresentation or suppression of facts. β They further contended that the extended period of limitation under Section 28(4) of the Customs Act, 1962, could not be invoked against them as they were not party to the alleged fraud. β
Tribunalβs Observations
The Tribunal carefully examined the case and noted the following key points:
- No Allegation Against the Appellant: The SCN did not allege any misrepresentation, suppression of facts, or collusion by Indras Agencies Pvt. β Ltd. The appellant had purchased the DFIA licenses in the normal course of trade and utilized them for duty-free imports after proper scrutiny by customs officials.
- Extended Period of Limitation: The Tribunal observed that the extended period of limitation under Section 28(4) of the Customs Act, 1962, can only be invoked in cases of collusion, wilful misstatement, or suppression of facts by the importer or exporter. β Since no such allegations were made against the appellant, the invocation of the extended period was deemed unsustainable. β
- Validity of DFIA Licenses: The Tribunal emphasized the distinction between forged licenses and validly issued licenses obtained through misrepresentation. β It held that validly issued licenses remain enforceable until they are canceled. β In this case, there was no evidence of the DFIA licenses being canceled ab initio or any concrete findings proving the allegations against the original exporter. β
- Precedents: The Tribunal relied on several judicial precedents, including the decisions in Commissioner of Customs, Amritsar v. Vallabh Design Products and Commissioner of Customs, Amritsar v. Gopi Chand Krishna Kumar Bhatia, which established that bona fide transferees of duty credit scrips cannot be held liable for fraud committed by the original exporters. β
Final Verdict
The Tribunal concluded that the duty demand and interest imposed on Indras Agencies Pvt. Ltd. were unsustainable. β It set aside the impugned order and allowed the appeal with consequential reliefs. β
Key Takeaways
This judgment underscores the importance of distinguishing between forged licenses and validly issued licenses obtained through misrepresentation. β It also highlights the principle that bona fide transferees of such licenses cannot be penalized for the alleged fraud of the original license holders. Furthermore, the ruling reiterates that the extended period of limitation under Section 28(4) of the Customs Act, 1962, cannot be invoked without concrete evidence of collusion, misrepresentation, or suppression of facts by the importer. β
The decision is a significant win for Indras Agencies Pvt. Ltd. and sets a precedent for similar cases involving duty-free imports under transferred DFIA licenses. It reinforces the need for clear and substantiated allegations before invoking extended periods of limitation and demanding duty recovery.
Source: CESTAT Chennai
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