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Cost of Non-Compliance in Trade Compliance
ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 23.03.2026

Cost of Non-Compliance in Trade Compliance

Adv Ravi Shekhar Jha

This Article has been written by Advocate Ravi Shekhar Jha-BALLB & LLM (Constitutional Law) 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.

Trade compliance is a critical aspect of international business, ensuring adherence to regulations and laws governing the import and export of goods. However, non-compliance can lead to severe consequences, including fines, litigation, reputational damage, operational disruptions, and financial losses. This article delves into the importance of trade compliance, the legal implications of misclassification, and the findings from two empirical surveys on exemption notifications and HSN classification disputes.

Why Choose Trade Companion

When you use the Trade Companion tool, we ensure accurate and defensible classification outcomes—helping you remain compliant across regulatory frameworks, irrespective of your industry.

Legal Perspective: Classification-Related Disputes

Let us examine this from a legal standpoint.

Short Answer

Yes—incorrect classification under the Customs Tariff can result in:
- Demand of differential duty
- Interest liability
- Imposition of penalties
- Confiscation of goods (in serious cases)
- Prosecution (in cases involving fraud or intent to evade duty)
However, the extent of consequences depends on whether the error is bona fide or intentional.

1. Why Classification is Legally Critical

Classification is the foundation of trade compliance, as it determines:
- Basic Customs Duty (BCD)
- Integrated GST (IGST)
- Anti-dumping duty
- Safeguard duty
- Import policy status (Free / Restricted / Prohibited)
- Applicability of BIS/QCO and other allied regulations
- Eligibility for exemptions and concessions
Any error in classification directly impacts duty liability, regulatory obligations, and legal exposure.

Legal Framework Governing Classification

Classification under Indian Customs law is governed by:
- Customs Tariff Act, 1975
- Customs Act, 1962
- General Rules for Interpretation (GRI)
These laws collectively form the backbone of classification principles and compliance obligations.

Key Takeaway

Misclassification = Non-compliance.
But the legal consequences ultimately depend on:
- Intent
- Disclosure
- Conduct
The Cost of Non-Compliance in Trade Compliance 

Non-compliance with trade regulations can have devastating effects on businesses. The repercussions include:
- Demand for duty payments: Incorrect classification can lead to demands for additional duty payments.
- Interest and penalties: Businesses may face interest charges and penalties for non-compliance.
- Confiscation of goods: In severe cases, goods may be confiscated due to false or incorrect declarations.
- Prosecution: Fraudulent misclassification can result in legal action and prosecution.
Severity of Consequences 

The severity of penalties depends on the intent and nature of the misclassification:
- Bona fide errors: Typically result in duty and interest payments.
- Negligent misclassification: May lead to duty, interest, and penalties.
- Intentional misclassification: Can result in duty, interest, 100% penalty, and confiscation.
- Fraudulent evasion: May lead to duty, penalties, and even prosecution.
Statutory Provisions Triggered by Misclassification 

Section 17 — Self-Assessment 

Importers are responsible for self-assessing the classification of goods. Errors can lead to re-assessment and duty demands.

Section 28 — Demand of Duty 

Duty short-paid due to misclassification triggers two scenarios:
- Bona fide error: Duty and interest are payable within a 2-year time limit.
- Fraud or suppression: Duty, interest, and heavy penalties are imposed within a 5-year time limit.
Section 111(m) — Confiscation 

Goods are liable for confiscation if declarations are false or incorrect, making misclassification a serious compliance issue.

Section 112 — Penalty 

Improper importation can result in penalties up to the duty amount or more in cases of fraud.

Section 114A — Mandatory Penalty 

Fraudulent misclassification involving suppression, willful misstatement, or intent to evade duty results in a penalty equal to 100% of the duty.

Judicial Perspective on Misclassification 

Indian courts have consistently emphasized the distinction between bona fide classification disputes and deliberate evasion. Courts recognize that classification often involves technical interpretation, competing headings, HSN notes, and exemption conditions. Mens rea (intent) plays a crucial role in determining the severity of consequences.

When Misclassification Becomes Serious Non-Compliance 

Misclassification is treated as a serious violation under certain circumstances, such as:
1. Ignoring clear tariff headings.
2. Misusing exemption notifications.
3. Hiding product specifications.
4. Changing product descriptions across shipments.
5. Repeated misclassification despite queries.
6. Evasion of import policy (e.g., restricted goods declared as free).
7. Avoidance of BIS/QCO certification or anti-dumping duties.
Empirical Survey Analysis: Exemption Notifications 

Overview

A survey titled “Empirical Data Survey – Exemptions under Section 25 of the Indian Customs Act, 1962” collected responses from 12 trade professionals, including importers, exporters, consultants, and legal practitioners. The survey aimed to understand the practical impact of exemption notifications, litigation trends, compliance burdens, and views on judicial review and reforms.

Key Findings
1. High litigation exposure: 75% of respondents faced disputes related to exemption notifications.
2. Interpretation disputes dominate: 75% of disputes arise from ambiguous interpretations.
3. Judicial remedies are critical: 58.3% of disputes escalate to High Courts, with 75% of outcomes favorable to businesses.
4. Time-consuming litigation: 33.3% of cases take over three years for resolution.
5. Business impact: Financial losses, working capital blockage, and supply chain disruptions are common.
6. Excessive discretionary power: 66.7% of respondents believe Section 25 grants excessive power to the government.
Empirical Survey Analysis: HSN Classification Disputes 

Overview

The “HSN Classification Empirical Survey” collected responses from 14 professionals to understand challenges in HSN classification, dispute patterns, financial impact, and reform suggestions.

Key Findings
1. Common disputes: 57.1% of respondents faced classification disputes, primarily related to customs duty rates (64.3%).
2. Knowledge gaps: Awareness of WCO HS explanatory notes is low, despite their importance in classification.
3. Reliance on consultants: 64.3% of respondents rely on consultants or lawyers for dispute resolution.
4. Digital tools are underutilized: Manual processes and online portals dominate, with limited use of integrated digital tools.
5. Financial impact: Classification disputes lead to significant cash flow issues and penalty exposure.
Suggested Reforms

Legislative Reforms
- Introduce clear statutory guidelines for classification disputes.
- Strengthen advance ruling mechanisms.
- Mandate explanatory notes for major tariff changes.
Administrative Reforms
- Develop a national HSN guidance portal.
- Conduct regular training sessions by CBIC and DGFT.
- Harmonize Customs and DGFT classification practices.
Technological Reforms
- Implement AI-based classification tools.
- Create a single-window digital classification platform.
- Develop a public database of classification rulings.
Conclusion

Trade compliance is a cornerstone of international business, but non-compliance can lead to severe financial and reputational consequences. Misclassification of goods under the Customs Tariff is a major source of disputes, often driven by ambiguous regulations and knowledge gaps. Empirical surveys highlight the need for legislative, administrative, and technological reforms to reduce disputes, improve compliance, and safeguard businesses from financial risks. Judicial review remains a critical mechanism to ensure fairness and accountability in trade compliance.

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March 23, 2026
CESTAT Chennai Reiterates DGFT Authority on FTP Schemes; Customs Cannot Re-Assess Fulfilled Export Obligations
ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 27.01.2026

CESTAT Chennai Reiterates DGFT Authority on FTP Schemes; Customs Cannot Re-Assess Fulfilled Export Obligations

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.comor on his Mobile +91-9999005379.

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chennai, recently delivered a significant judgment in the case of M/s Vedanta Ltd. vs. Commissioner of Customs. This case revolved around the fulfillment of export obligations under the Advance Authorization Scheme and the interpretation of Customs Notifications No. 96/2009-Cus and 99/2009-Cus, both dated September 11, 2009. The judgment, delivered on January 23, 2026, provides clarity on the jurisdiction of the Directorate General of Foreign Trade (DGFT) and the Customs authorities in matters related to export obligations.

Background of the Case

M/s Vedanta Ltd., formerly known as Sterlite Industries India Ltd., is an importer engaged in the manufacturing of copper products such as copper anodes and cathodes. The company had obtained three Advance Authorizations (dated January 2, 2009, November 30, 2009, and June 10, 2010) under the Advance Authorization Scheme, which is part of the Foreign Trade Policy (FTP). This scheme allows manufacturers to import raw materials duty-free, provided they fulfill specific export obligations (EO) in terms of both value and quantity.

The dispute arose when the Directorate of Revenue Intelligence (DRI) issued a Show Cause Notice (SCN) to Vedanta Ltd. on July 17, 2019, alleging that the company had failed to fulfill its export obligations in terms of value and quantity as required under the Customs Notifications. The SCN demanded payment of customs duty and interest for the unfulfilled portion of the EO and imposed penalties under Section 112(a) of the Customs Act, 1962.

Key Issues in the Case

The primary issue for consideration was whether the Customs authorities could raise a demand for customs duty and penalties, alleging a violation of the conditions of the Customs Notifications, when the DGFT had already issued Export Obligation Discharge Certificates (EODCs) confirming the fulfillment of the export obligations.

Arguments Presented
1. Appellant’s Argument:
  - Vedanta Ltd. argued that the DGFT had already regularized the shortfall in the fulfillment of export obligations in terms of value under the Advance Authorization Scheme.
  - The company had paid the required amount (1% of the shortfall in value) to the DGFT, as per the provisions of the FTP (Para 4.28 of FTP 2009-2014 / Para 4.49 of FTP 2015-2020).
  - The DGFT issued EODCs for all three Advance Authorizations, confirming the fulfillment of export obligations.
  - The Customs authorities had no jurisdiction to question the DGFT’s decision or raise demands for customs duty and penalties.
2. Respondent’s Argument:
  - The Customs authorities contended that Vedanta Ltd. had violated conditions (viii) and (ix) of the Customs Notifications by failing to fulfill the export obligations in terms of value and quantity.
  - They argued that the issuance of EODCs by the DGFT did not absolve the company from fulfilling the conditions of the Customs Notifications.
Tribunal’s Observations and Judgment 

The Tribunal made several key observations and ultimately ruled in favor of Vedanta Ltd. The highlights of the judgment are as follows:
1. Jurisdiction of DGFT vs. Customs Authorities:
  - The Tribunal emphasized that the DGFT is the final authority on matters related to the interpretation and implementation of the FTP. The Customs authorities cannot override the DGFT’s decisions regarding the fulfillment of export obligations.
  - The issuance of EODCs by the DGFT is conclusive evidence of the fulfillment of export obligations, and the Customs authorities cannot question or contradict this certification.
2. Regularization of Bona Fide Defaults:
  - The FTP provides provisions for regularizing bona fide defaults in fulfilling export obligations. Vedanta Ltd. had complied with these provisions by paying the required amount to the DGFT, which subsequently issued EODCs.
  - The Tribunal held that the regularization of the shortfall by the DGFT effectively revised and restated the export obligations, making the Customs authorities’ demand for duty and penalties untenable.
3. Customs Notifications and FTP:
  - The Tribunal clarified that the conditions in the Customs Notifications must be interpreted in the context of the FTP and the Handbook of Procedures (HBP). The fulfillment of export obligations specified in the Advance Authorizations by the DGFT is binding on the Customs authorities.
4. Precedents from Higher Courts:
  - The Tribunal referred to several judgments from the Supreme Court and High Courts, which consistently upheld the jurisdiction of the DGFT in matters related to export obligations under the FTP. These judgments emphasized that Customs authorities cannot take a view contrary to the DGFT’s decisions.
5. Cancellation of Bonds:
  - The Tribunal noted that the bonds executed by Vedanta Ltd. in respect of the three Advance Authorizations had been canceled by the Customs authorities. As a result, no demand for customs duty could be enforced under Section 143(3) of the Customs Act, 1962.
Final Decision

The Tribunal set aside the impugned order passed by the Commissioner of Customs and allowed Vedanta Ltd.’s appeal. It held that the demand for customs duty, interest, and penalties was not sustainable, as the export obligations had been fulfilled and regularized by the DGFT. The Tribunal also emphasized the need for coordination and harmony between the Ministry of Commerce and the Ministry of Finance in implementing the FTP and Customs Notifications.

Key Takeaways
1. Authority of DGFT:
  - The DGFT is the final authority on matters related to the FTP and export obligations. Customs authorities cannot override or contradict the DGFT’s decisions.
2. Regularization of Defaults:
  - The FTP provides mechanisms for regularizing bona fide defaults in fulfilling export obligations, ensuring that businesses can comply with the scheme without facing undue penalties.
3. Harmonious Interpretation:
  - The FTP, HBP, Customs Act, and related notifications must be interpreted harmoniously to ensure that the benefits of the Advance Authorization Scheme are not denied to importers and exporters.
4. Precedents Matter:
  - The judgment highlights the importance of adhering to established legal precedents, which consistently uphold the jurisdiction of the DGFT in matters related to export obligations.
Conclusion

The CESTAT’s decision in the Vedanta Ltd. vs. Commissioner of Customs case is a landmark ruling that reinforces the authority of the DGFT in matters related to the FTP and export obligations. It underscores the importance of a coordinated approach between government departments to ensure the smooth implementation of trade policies and schemes. This judgment serves as a reminder that businesses operating under the Advance Authorization Scheme can rely on the DGFT’s certification of export obligation fulfillment as conclusive evidence, safeguarding their rights and benefits under the FTP.

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Source: CESTAT Chennai

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January 27, 2026
Delhi High Court Strikes Down DGFT Circular related to Focus Product Scheme (FPS): A Victory for Exporters and Policy Transparency
ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 16.01.2026

Delhi High Court Strikes Down DGFT Circular related to Focus Product Scheme (FPS): A Victory for Exporters and Policy Transparency

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.

On January 13, 2026, the High Court of Delhi delivered a significant judgment in favor of exporters, dismissing appeals filed by the Directorate General of Foreign Trade (DGFT) and upholding the decision of a learned Single Judge to strike down the DGFT Policy Circular dated October 21, 2011. This case, involving multiple appeals, revolved around the legality of the DGFT circular and its retrospective application, which had restricted the scope of export incentives under the Focus Product Scheme (FPS).

Background of the Case

The dispute originated from the Foreign Trade Policy (FTP) 2009-2014, which was issued under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act). The FTP provided export incentives under the Focus Product Scheme (FPS) to promote exports and increase foreign exchange earnings. Appendix 37D of the Handbook of Procedures (HBP), which was notified under the FTP, listed products eligible for FPS benefits. Serial No. 33 in Table 4 of Appendix 37D specifically mentioned “Technical Textiles – Woven Fabrics of Synthetic Filament Yarn” under ITC (HS) Code 5407 as eligible for FPS benefits.

However, the DGFT issued Policy Circular No. 42 (RE-2010)/2009-14 on October 21, 2011, which restricted FPS benefits to only 33 items listed in an annexure to the circular. This circular also applied retrospectively from April 1, 2011, effectively disqualifying many exporters who had already shipped products under the assumption that they were eligible for FPS benefits.

The Legal Challenge

The DGFT circular was challenged by several exporters, including Malik Tanning Industries, Good One Traders Pvt. Ltd., BRD International, High Value Exim Pvt. Ltd., Attire Designers Pvt. Ltd., and Welldone Exim Pvt. Ltd. These exporters argued that their products, described as “polyester printed-dyed texturized fabrics,” fell within the broad description of “woven fabrics of synthetic filament yarn” under ITC (HS) Code 5407 and were therefore entitled to FPS benefits as per the original provisions of the FTP and HBP.

The learned Single Judge of the High Court of Delhi upheld the challenge, striking down the DGFT circular on the grounds that it was not merely clarificatory but instead sought to restrict the scope of eligible products under the FPS. The DGFT appealed this decision, leading to the present case.

Key Issues in the Case

The appeals raised several critical legal questions:
1. Legality of the DGFT Circular: Did the DGFT have the authority to issue a circular that restricted the scope of products eligible for FPS benefits under the FTP and HBP?
2. Retrospective Application: Was the DGFT empowered to make the circular retrospectively applicable from April 1, 2011, thereby denying benefits to exporters who had already shipped products under the original provisions?
3. Interpretation of Serial No. 33 in Appendix 37D: Should the entry “Technical Textiles – Woven Fabrics of Synthetic Filament Yarn” be interpreted narrowly to include only the 33 items listed in the annexure to the circular?
The High Court’s Analysis 

The Division Bench of the High Court, comprising Justice, upheld the learned Single Judge’s judgment and dismissed the DGFT’s appeals. The court provided a detailed analysis of the case, addressing the key issues as follows:
1. DGFT’s Authority: The court emphasized that the power to frame the FTP under the FTDR Act rests solely with the Central Government. The DGFT’s role is limited to implementing the FTP and providing clarifications in case of ambiguities. The court found that the DGFT had overstepped its authority by issuing a circular that effectively amended the provisions of the FTP and HBP.
2. Retrospective Application: The court held that neither the Central Government nor the DGFT has the power to issue policies or amendments with retrospective effect. Citing the Supreme Court’s judgment in Union of India v. Asian Food Industries, the court reiterated that a vested or accrued right cannot be taken away by retrospective amendments.
3. Interpretation of Serial No. 33: The court agreed with the learned Single Judge that the entry “Technical Textiles – Woven Fabrics of Synthetic Filament Yarn” must be read as a whole. The DGFT’s interpretation, which focused solely on the term “technical textiles” and ignored “woven fabrics of synthetic filament yarn,” was deemed erroneous. The court noted that the products exported by the respondents clearly fell within the description of “woven fabrics of synthetic filament yarn” under ITC (HS) Code 5407 and were therefore entitled to FPS benefits.
Key Takeaways from the Judgment

The High Court’s judgment has several important implications for exporters and policymakers:
1. Clarifications vs. Amendments: The court made it clear that the DGFT cannot use clarificatory circulars to amend the provisions of the FTP or HBP. Any changes to the scope of export incentives must be made through proper amendments to the FTP or HBP, following due process.
2. Protection Against Retrospective Changes: Exporters are protected from retrospective changes to export incentive schemes, ensuring that their vested rights are not arbitrarily taken away.
3. Broad Interpretation of Policy Entries: The court emphasized the importance of interpreting policy entries in their entirety, rather than selectively focusing on specific terms. This ensures that the original intent of the policy is preserved.
Conclusion

The High Court’s decision to strike down the DGFT Policy Circular dated October 21, 2011, is a landmark judgment that upholds the rights of exporters and reinforces the principle that policy changes cannot be made retrospectively. By dismissing the DGFT’s appeals, the court has sent a strong message about the limits of administrative authority and the importance of adhering to statutory provisions.

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Source: Delhi High Court

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January 16, 2026
The Issue of Pre-Import Condition under Advance Authorization Scheme
ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 14.12.2025

The Issue of Pre-Import Condition under Advance Authorization Scheme

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.comor on his Mobile +91-9999005379.

The “pre-import condition” under the Advance Authorization Scheme has been a significant issue for exporters, particularly for imports made between October 13, 2017, and January 9, 2019. This condition required that goods be imported first and then used for manufacturing export goods, which created operational challenges for exporters. The condition was introduced to regulate exemptions from Integrated Goods and Services Tax (IGST) and GST Compensation Cess under the scheme.

Legal Framework Governing the Issue

1. Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act):
- The FTDR Act, 1992 provides the legal foundation for the formulation and implementation of the Foreign Trade Policy (FTP).
- Section 5 of the FTDR Act empowers the Central Government to formulate and amend the FTP to regulate imports and exports.
- The Advance Authorization Scheme is governed under Chapter IV of the FTP, which is framed under the FTDR Act.
2. Customs Act, 1962:
- The Customs Act, 1962 governs the levy and collection of customs duties on imports and exports.
- Section 25(1) of the Customs Act empowers the Central Government to issue exemption notifications for customs duties.
3. Customs Notification No.  18/2015-Customs (April 1, 2015):
- This notification exempted goods imported under Advance Authorization from various duties, including Basic Customs Duty (BCD), Additional Customs Duty, Anti-Dumping Duty, and others.
4. Customs Notification No.  79/2017-Customs (October 13, 2017):
- This notification amended Notification No. 18/2015-Customs to include exemptions for IGST and GST Compensation Cess, subject to the fulfillment of the pre-import condition.
- Two key conditions were introduced:
  - Exemption from IGST and Compensation Cess was applicable only for physical exports.
  - The exemption was subject to the pre-import condition, meaning goods had to be imported first and then used for manufacturing export goods.
5. Customs Circular No.  16/2023:
- Issued in compliance with the Supreme Court’s judgment, this circular provides a procedure for regularizing imports that failed to meet the ‘pre-import condition’ during the specified period. It allows importers to pay IGST and Compensation Cess along with applicable interest and claim refunds or ITC, subject to eligibility under GST laws.
6. Foreign Trade Policy (FTP) 2023:
- Paragraph 4.03: Governs the Advance Authorization Scheme, allowing duty-free import of inputs physically incorporated into export products.
- Paragraph 4.13: Empowers the Director General of Foreign Trade (DGFT) to impose pre-import conditions for specific inputs.
- Paragraph 4.14: Lists the duties exempted under the Advance Authorization Scheme, including IGST and Compensation Cess, subject to the pre-import condition.
- Paragraph 4.27: Permits exports in anticipation of authorization, allowing exporters to export goods before importing inputs under Advance Authorization.
7. Handbook of Procedures (HBP) 2023:
- Paragraph 4.27(d): States that duty-free authorizations for inputs subject to pre-import conditions cannot be issued.
- Appendix 4J: Lists specific inputs subject to pre-import conditions and their export obligation periods.
Supreme Court Judgment (April 28, 2023):

The Supreme Court upheld the Revenue’s appeal, ruling that the pre-import condition was valid and not arbitrary or unreasonable. Key points from the judgment include:
1. Legality of Pre-Import Condition:
  - The pre-import condition was within the powers of the DGFT under Paragraph 4.13(i) of the FTP and Section 5 of the FTDR Act.
  - The condition was introduced to align the Advance Authorization Scheme with the GST regime, which aimed to create a unified tax structure.
2. Impact of GST:
  - The GST regime introduced IGST and Compensation Cess, which were not part of the original Notification No. 18/2015-Customs. The pre-import condition was introduced to ensure compliance with the new tax framework.
3. Hardship to Exporters:
  - The court acknowledged the operational challenges faced by exporters due to the pre-import condition but emphasized that inconvenience does not render a policy arbitrary or unconstitutional.
4. Legislative Intent:
  - The court recognized the legislative intent behind the pre-import condition as part of broader fiscal reforms under GST.
How DGFT Clarifications Helped Address Discrepancies

The Directorate General of Foreign Trade (DGFT) issued several clarifications and circulars to address the challenges and discrepancies arising from the pre-import condition:

1. Trade Notice No.  07/2023-24 (June 8, 2023):
- In compliance with the Supreme Court judgment, this notice informed exporters that imports made under the Advance Authorization Scheme between October 13, 2017, and January 9, 2019, which could not meet the pre-import condition, may be regularized by making payments as prescribed in Customs Circular No.  16/2023 (dated June 7, 2023).
- Regional Authorities were instructed to guide exporters on the regularization process.
2. Trade Notice No.  27/2023 (September 25, 2023):
- Provided detailed clarifications for specific scenarios:
  - Imports after January 10, 2019: Not subject to the pre-import condition.
  - Imports under Advance Authorization on payment of IGST and Compensation Cess: Not subject to the pre-import condition, irrespective of the date of import.
  - Partially completed imports: Imports made after January 10, 2019, are not subject to the pre-import condition, even if some imports were made before this date.
3. Policy Circular No.  07/2025-26 (November 11, 2025):
- Clarified that the Export Obligation Discharge Certificate (EODC) shall not be withheld if all other requirements are fulfilled in the following cases:
  - IGST paid in cash during the specified period.
  - Non-availing of duty exemptions for IGST, Compensation Cess, or other levies (except Basic Customs Duty).
  - Compliance with pre-import condition and other procedural requirements under the scheme.
Addressing Deficiencies in Advance Authorization Applications

For exporters facing deficiencies due to non-compliance with the pre-import condition, the following steps can be taken:

1. Regularization of Imports:
- As per Trade Notice No.  07/2023-24, imports made between October 13, 2017, and January 9, 2019, which did not meet the pre-import condition, can be regularized by paying the applicable duties and interest to the Customs Authority.
- Exporters should approach the jurisdictional Customs Authority with the required documentation and make the necessary payments.
2. **Claim Refund or Input Tax Credit 

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Source: Supreme Court, DGFT, CBIC

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December 14, 2025
Delhi High Court Partially Allows Chillies Exporters Association’s Petition Against TMA Scheme Foreclosure

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 13.12.2025

Delhi High Court Partially Allows Chillies Exporters Association’s Petition Against TMA Scheme Foreclosure

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.comor on his Mobile +91-9999005379.

In a significant judgment delivered on December 10, 2025, the Delhi High Court partially ruled in favor of the Chillies Exporters Association India in their petition challenging the foreclosure of the “Revised Transport and Marketing Assistance (TMA) for Specified Agricultural Products” scheme. The case, W.P. (C) 9463/2024, revolved around the retrospective withdrawal of export incentives under the TMA Scheme by the Directorate General of Foreign Trade (DGFT).

Background of the Case 

The TMA Scheme was introduced by the Government of India in February 2019 to provide assistance for the international transportation and marketing of specified agricultural products. The scheme aimed to mitigate the higher costs of transportation and promote brand recognition for Indian agricultural products in overseas markets. Initially, the scheme was applicable for exports from March 1, 2019, to March 31, 2020, and was later extended until March 31, 2021.

In September 2021, the government issued a revised TMA Scheme notification, making it applicable retrospectively for exports from April 1, 2021, to March 31, 2022. However, this notification was withdrawn on March 25, 2022, effectively foreclosing the scheme. The Chillies Exporters Association India challenged the retrospective withdrawal, arguing that it unfairly denied exporters the incentives they were entitled to under the scheme.

Key Arguments

The petitioners contended that the notification dated March 25, 2022, was ultra vires as it retrospectively rescinded the benefits of the TMA Scheme, which had been operational from April 1, 2021, to March 31, 2022. They argued that the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), under which the scheme was introduced, does not empower the government to issue notifications with retrospective effect. The petitioners also invoked the principle of legitimate expectation, stating that exporters had relied on the scheme to make business decisions and that the retrospective withdrawal of benefits was arbitrary and unfair.

The respondents, represented by the DGFT, argued that the notification was issued to revamp and redesign the scheme for better outcomes. They emphasized that the government has the authority to amend or rescind policies in the public interest, especially in complex economic matters, and that such decisions should not be subject to judicial review unless malice or arbitrariness is established.

The Court’s Decision

The Delhi High Court ruled that the government does not have the authority under Sections 3 and 5 of the FTDR Act to issue notifications with retrospective effect. The court held that the notification dated September 9, 2021, which introduced the revised TMA Scheme, could only operate prospectively. Therefore, the court concluded that chilli exporters who made exports between September 9, 2021, and March 24, 2022, are eligible to claim incentives under the scheme, provided they meet the eligibility criteria.

However, the court also ruled that no rights had accrued to chilli exporters for exports made between April 1, 2021, and September 8, 2021, as the scheme was not in operation during that period. The retrospective application of the September 9, 2021, notification was deemed impermissible under the FTDR Act.

Implications of the Judgment

This judgment is a landmark decision in the realm of foreign trade policy and government schemes. It reinforces the principle that delegated or subordinate legislation cannot have retrospective effect unless explicitly authorized by the governing statute. The ruling also highlights the importance of the principle of legitimate expectation, emphasizing that public authorities must act in a consistent, transparent, and predictable manner.

For chilli exporters, the judgment provides partial relief, allowing them to claim incentives for exports made between September 9, 2021, and March 24, 2022. However, it also underscores the limitations of retrospective policy changes, which can disrupt business planning and create uncertainty for exporters.

Conclusion

The Delhi High Court’s decision in W.P. (C) 9463/2024 serves as a reminder of the legal boundaries within which government policies must operate. While the government has the right to amend or rescind policies in the public interest, such actions must comply with statutory provisions and cannot infringe upon the legitimate expectations of stakeholders. This case is a significant development for exporters and policymakers alike, setting a precedent for the treatment of retrospective policy changes in India’s foreign trade framework.

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Source: Delhi High Court

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December 13, 2025
DGFT issues Clarification on Redemption of Advance Authorisations Impacted by Rule 96(10) of CGST Rules in context to the Supreme Court judgement
ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 12.11.2025

DGFT issues Clarification on Redemption of Advance Authorisations Impacted by Rule 96(10) of CGST Rules in context to the Supreme Court judgement

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.

The Directorate General of Foreign Trade (DGFT), under the Ministry of Commerce & Industry, Government of India, has issued Policy Circular No. 07/2025-26 dated November 11, 2025, addressing concerns related to the redemption of Advance Authorisations (AAs) impacted by the erstwhile Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, 2017. This circular provides much-needed clarity for exporters and trade members who faced challenges due to the earlier provisions of Rule 96(10) and its implications on imports made between October 13, 2017, and January 9, 2019.

Background

Rule 96(10) of the CGST Rules, prior to its amendment, restricted the refund of IGST paid on exports in cases where exporters or their suppliers availed specified duty exemptions under Customs Notification No. 79/2017-Customs. This created hurdles for exporters seeking redemption of their Advance Authorisations during the specified period.

To address these issues, the DGFT had earlier issued Notification No. 33/2015-2020 on October 13, 2017, modifying Para 4.14 of the Foreign Trade Policy (FTP) 2015-2020. This notification extended exemptions from payment of duties, including IGST and Compensation Cess, for physical exports under the AA Scheme, subject to a pre-import condition. However, the pre-import condition was later withdrawn through DGFT Notification No. 53/2015-2020 on January 10, 2019, following the issuance of Customs Notification No. 01/2019-Customs.

Supreme Court Judgment and Subsequent Actions

Union of India & ORS. vs Cosmo Films Limited

The Supreme Court of India set aside the Gujarat High Court’s judgment, which had declared the ‘pre-import condition’ in the Foreign Trade Policy (FTP) and customs notifications as arbitrary and unreasonable. The court upheld the validity of the ‘pre-import condition’ introduced by Notification No. 79/2017-Customs and Notification No. 33/2015-2020, stating that it was within legislative discretion and not arbitrary. It emphasized that tax exemptions and refunds are statutory privileges, not constitutional rights, and that economic policies can involve phased implementation and experimentation. The court also ruled that the removal of the ‘pre-import condition’ through a later notification could not be applied retrospectively. While allowing the Revenue’s appeals, the court directed the respondents (exporters) to claim refunds or input tax credit for duties paid during the interim period, subject to verification by the jurisdictional commissioner.

The Hon’ble Supreme Court, in its judgment dated April 28, 2023, upheld the Revenue’s appeal and directed that affected parties be allowed to claim refunds or input tax credit (ITC) wherever applicable. In response, the Customs Authorities issued Circular No. 16/2023-Customs on June 7, 2023, and the DGFT followed suit with Trade Notices No. 07/2023-24 and No. 27/2023, issued on June 8, 2023, and September 25, 2023, respectively.

Key Clarifications in Policy Circular No. 07/2025-26

To further streamline the process and address exporters’ concerns, the DGFT has clarified the following points regarding the issuance of Export Obligation Discharge Certificates (EODC):
1. Payment of IGST in Cash: Exporters who paid IGST in cash at the time of clearing import consignments under the AA Scheme during the specified period will not face any hindrance in obtaining their EODC, provided all other requirements are met.
2. Non-Availing of Duty Exemptions: Exporters who did not avail exemptions from IGST, Compensation Cess, or other levies (except Basic Customs Duty) are eligible for EODC issuance.
3. Compliance with Pre-Import Conditions: Exporters who adhered to the prescribed pre-import and other procedural requirements under the AA Scheme will not face delays in EODC issuance.
Conclusion

This clarification by the DGFT is a welcome move for exporters who were impacted by the earlier provisions of Rule 96(10) of the CGST Rules. By addressing the concerns and providing clear guidelines, the government has ensured smoother processes for the redemption of Advance Authorisations. Exporters are encouraged to review the circular and ensure compliance with the outlined conditions to facilitate the timely issuance of their EODCs.

Source: DGFT, Supreme Court

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November 12, 2025