Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation
Date: 15.06.2026
Delhi HC Ruled on MEIS Benefits: Customs Authorities Cannot Override DGFT Classification for Handcrafted Stone Exporters
This Short Article has been prepared & written by Advocate Ravi Shekhar Jha-Delhi High Court, New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com .
A recent judgment by the Delhi High Court has brought significant clarity to the legal landscape surrounding the classification and export benefits for handcrafted stone articles under the Merchandise Exports from India Scheme (MEIS). This article provides a comprehensive overview of the case, the legal arguments, and the implications for exporters and policymakers.
Background: The Dispute Over Classification and MEIS Benefits
The controversy arose when exporters of handcrafted stone and marble articles, such as rolling boards, mortars, and pestles, faced objections from customs authorities regarding the classification of their products. Exporters had long classified these goods under ITC(HS) 68159990, a residual category for stone articles, and claimed MEIS benefits accordingly. However, a 2019 communication from the Central Board of Indirect Taxes and Customs (CBIC) suggested these products should be classified under CTH 6802, which did not attract MEIS benefits.
This led to audit objections, demands for refund of MEIS benefits, and issuance of summons to exporters, prompting legal challenges by several exporters, including M/s Sharma International and M/s Amit Exports.
Key Legal Issues Examined
1. Classification of Handcrafted Stone Articles
- Exporters argued that their products, being handicrafts, rightfully belonged under ITC(HS) 68159990, which was eligible for MEIS rewards (initially 5%, later increased to 7%).
- Customs authorities contended that these goods should be classified under CTH 6802, which pertains to worked monumental or building stone and does not attract MEIS benefits.
2. Authority to Decide Classification and Benefits
- The court examined whether customs authorities could override the classification accepted by the Director General of Foreign Trade (DGFT) and demand refunds of MEIS benefits.
- The Foreign Trade Policy (FTP) 2015-20 explicitly states that the DGFT’s decision on classification is final and binding.
3. Procedural Fairness and Audit Objections
- The exporters challenged the audit objection letters, arguing they were issued without proper opportunity to be heard and were based on predetermined conclusions.
- The court found that the audit process did not comply with the principles of natural justice or the prescribed audit regulations.
4. Recovery of Benefits Under Customs Act Sections 28 and 28AAA
- The court analyzed whether the recovery of MEIS benefits could be justified under these sections, which require proof of collusion, wilful misstatement, or suppression of facts.
- No such allegations were substantiated against the exporters.
The Court’s Findings and Ruling
- Finality of DGFT’s Classification: The court held that only the DGFT or the licensing authority under the Foreign Trade (Development and Regulation) Act (FTDR Act) has the power to suspend or cancel MEIS certificates. Customs authorities cannot unilaterally question or override the DGFT’s classification or the validity of MEIS scrips.
- Invalid Audit Objections and Summons: The audit objection letters and subsequent summons were quashed. The court found that the process was arbitrary, lacked procedural fairness, and did not follow the statutory requirements for audit and recovery.
- Refund of Amounts Collected: The court directed the authorities to refund amounts collected from the exporters during the disputed proceedings.
- Scope for DGFT Action: While the court did not make a final determination on the correct classification, it clarified that any future action regarding the validity of MEIS certificates must be initiated by the DGFT, not customs authorities.
Implications for Exporters and Policymakers
- Exporters: Those dealing in handcrafted stone articles can rely on the DGFT’s classification for MEIS benefits unless and until the DGFT itself revises its position through due process.
- Customs Authorities: Cannot independently revoke MEIS benefits or demand refunds without a prior determination by the DGFT regarding misrepresentation or fraud.
- Policy Clarity: The judgment reinforces the need for clear, coordinated action between customs and trade authorities to avoid conflicting interpretations and ensure exporters are not subjected to arbitrary demands.
Conclusion
This judgment is a significant precedent for the export sector, especially for handicraft exporters. It upholds the primacy of the DGFT in matters of export classification and benefit eligibility, ensures procedural fairness, and protects exporters from retrospective and arbitrary recovery actions by customs authorities.
The decision also highlights the importance of inter-agency coordination and adherence to statutory processes in the administration of export incentive schemes.
Connected Matter
Source: Delhi High Court
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