EXEMPTION FROM CUSTOMS DUTY CANNOT BE DENIED SOLELY ON DESCRIPTION VARIANCE: KERALA HIGH COURT RULING IN NITTA GELATIN INDIA LTD. V. COMMISSIONER OF CUSTOMS

In a landmark judgment that reinforces the supremacy of policy intent over technical rigidity, the Kerala High Court in Nitta Gelatin India Ltd. Versus Commissioner Of Customs Kochi (Vice Versa) - 2025 (6) TMI 1855 - KERALA HIGH COURT has delivered a much-needed judicial affirmation of the Advance Authorization Scheme under the Foreign Trade Policy. The Court clarified that customs exemption benefits under this scheme cannot be denied merely due to variation in product descriptions when the licensing authority (DGFT) has not alleged any violation or misuse.

 Factual Matrix of the Case

Nitta Gelatine India Ltd., a manufacturer and exporter of gelatine and related products, imported raw materials under the Advance Authorization Scheme, which permits duty-free import of inputs required for export production. The import was made based on a valid license issued by the Directorate General of Foreign Trade (DGFT).

However, the Customs Department subsequently alleged that the imported goods did not match the exact description provided in the license, and on that basis sought to deny the benefit of the exemption notification. Show cause notices were issued invoking penal provisions under Sections 112(a),114A, and 114AA of the Customs Act, 1962, treating the imports as deliberate misdeclaration.

The Legal Issues

The case raised the following vital questions:

1. Whether customs authorities can deny exemption benefits merely on the basis of description differences when the licensing authority (DGFT) has not objected to the import?
2. Whether penal provisions under the Customs Act can be invoked in the absence of proven mala fide intent or misrepresentation?
3. Whether the principle of harmonious construction between customs law and foreign trade policy supports the importer’s case?

Findings of the High Court

The Kerala High Court decisively ruled in favour of the petitioner, holding as follows:

• No Independent Review by Customs When DGFT is Silent: The Court stressed that the legality of import under the Advance Authorization Scheme is governed primarily by DGFT, and if that authority has not found any breach or misutilization, Customs authorities cannot independently reinterpret product classifications to deny benefits.
• Substance Over Form: Echoing the doctrine of substance over form, the Court observed that minor variations in product descriptions, without affecting the nature or end-use of the imported goods, cannot invalidate the exemption. The benefit of the exemption notification, which grants nil duty under the scheme, is not to be denied based on technical or interpretative classifications.
• Purpose of the Scheme Upheld: The Advance Authorization Scheme is intended to promote exports by allowing duty-free imports of inputs. The Court reminded the authorities that overzealous scrutiny on nomenclature undermines the scheme’s objectives and discourages genuine exporters.
• Sections 112(a),114A, and 114AA Not Attracted Automatically: Imposition of penalties under these sections requires deliberate misdeclaration, fraudulent intent, or suppression of facts. In this case, where there was no concealment, no wrongful gain, and no objection from DGFT, the invocation of penal sections was held to be unjustified.

Legal and Policy Implications

This judgment serves as a critical precedent in cases involving customs exemption disputes under the Advance Authorization Scheme and potentially under other export incentive schemes like EPCG and SEIS. The judgment strengthens:

• Predictability and Consistency in trade facilitation measures;
• The role of DGFT as the apex licensing authority;
• The rights of bona fide exporters against arbitrary departmental interpretations;
• The need for cooperative federalism between policy-making (DGFT) and enforcement (Customs).

It also discourages penal overreach by Customs when there is no mala fide intent or deception, and realigns enforcement actions with the underlying economic policy goals of India’s Foreign Trade Policy.

Conclusion

The Kerala High Court’s decision in Nitta Gelatine India Ltd. is a victory for principled adjudication and sound economic policy. It affirms that technicalities should not override legitimate trade incentives, especially when the licensing authority itself finds no fault. Customs authorities are duty-bound to respect the spirit of the law and the intent behind trade schemes—lest they deter genuine exporters with procedural rigidity and unwarranted penalties.

This judgment is supposed to serve as a precedent for other High Courts and quasi-judicial authorities to settle similar disputes in the realm of trade facilitation even if the parties are represented by lesser-known Advocates.

Courtesy -Chat GPT

By

Jayaprakash Gopinathan

Advocate