Transferable DFIA exemption: transferee need not prove actual use of imported inputs once transferability is endorsed.

A transferable DFIA, once endorsed after fulfilment of export obligation, places the transferee in the position of a lawful holder of the authorisation, and the actual-use requirement in paragraph 4.1.15 of the FTP applies only at the stage of the original holder's import for manufacture of export goods. The transferee is not required to prove that the imported inputs were actually used in the exported product where the import falls within the description and value covered by the transferable authorisation. Customs exemption under Notification No. 98/2009-Cus could not be denied merely for lack of proof of direct use of the imported bearings in the exported product.

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Issues: (i) Whether paragraph 4.1.15 of the Foreign Trade Policy, 2009-2014, requiring actual use of inputs in the export product, applies to a transferee of a transferable DFIA after export obligation has been fulfilled and transferability has been endorsed; (ii) Whether the petitioners were entitled to customs exemption for import of bearings under Notification No. 98/2009-Cus dated 11.09.2009 without proving that the imported goods were actually used in the exported product.

Issue (i): Whether paragraph 4.1.15 of the Foreign Trade Policy, 2009-2014, requiring actual use of inputs in the export product, applies to a transferee of a transferable DFIA after export obligation has been fulfilled and transferability has been endorsed?

Analysis: The transferability provisions under paragraph 4.2.6 permit transfer of the DFIA after fulfilment of export obligation, subject to the specified exceptions. Once transferability is endorsed, the authorisation becomes transferable and the transferee stands in the position of a lawful holder of the transferable authorisation. Paragraph 4.1.15 was held to operate in the stage where the original DFIA holder imports inputs for use in manufacture of the export product, and not after the authorisation has been made transferable. The requirement of identifying and correlating the exact inputs actually used in the exported goods was treated as inapplicable to a transferee.

Conclusion: Paragraph 4.1.15 does not apply to a DFIA transferee after endorsement of transferability.

Issue (ii): Whether the petitioners were entitled to customs exemption for import of bearings under Notification No. 98/2009-Cus dated 11.09.2009 without proving that the imported goods were actually used in the exported product?

Analysis: The imported bearings were described within the DFIA and the relevant licence had been endorsed as transferable. The resultant product was agricultural tractors, which was not treated as a category requiring the petitioners to establish correlation of imported goods with technical specifications under paragraph 4.32.2 of the Handbook of Procedures. The demand for proof of actual use was held inconsistent with the scheme of transferable DFIA and with the legal effect of the transfer endorsement. The exemption could not be denied merely because the goods were not shown to be the very inputs used by the original exporter.

Conclusion: The petitioners were entitled to the customs exemption and denial of benefit was unsustainable.

Final Conclusion: The writ petition was allowed in part and the impugned denial of DFIA customs benefit was set aside to the extent inconsistent with the transferable DFIA scheme.

Ratio Decidendi: Once a DFIA is made transferable after fulfilment of export obligation, the transferee is not required to prove actual use of the imported inputs in the exported product, and exemption cannot be denied on that basis if the import falls within the description and value covered by the transferable authorisation.

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