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Issues: (i) Whether the export product "liquid glucose concentrate (food grade)" was correctly linked to SION Entry E22 with "starch" as the import input, or whether SION Entry E76 with "maize" was the correct norm; (ii) Whether customs could invoke section 28AAA of the Customs Act, 1962 to recover duty when the DFIA licences were issued by DGFT and remained valid and uncancelled.
Issue (i): Whether the export product "liquid glucose concentrate (food grade)" was correctly linked to SION Entry E22 with "starch" as the import input, or whether SION Entry E76 with "maize" was the correct norm.
Analysis: The export product was manufactured through starch slurry, which is starch in slurry form, and starch was the immediate input used in the manufacture of the export product. The competing SION entries both covered liquid glucose, but differed on the import input. The reasoning adopted the concept of immediate parentage, under which the directly used input for the export product is material to the DFIA claim. Since starch slurry was the immediate input, and starch is also a recognised input under the scheme, the claim under E22 was held to be proper. The fact that maize was the base material did not displace starch as the relevant input. Selection of the more beneficial eligible entry did not amount to misdeclaration.
Conclusion: The correct SION entry was E22, and the assessee's claim to import starch was upheld.
Issue (ii): Whether customs could invoke section 28AAA of the Customs Act, 1962 to recover duty when the DFIA licences were issued by DGFT and remained valid and uncancelled.
Analysis: The DFIA licences had been issued after verification by DGFT and were neither cancelled nor suspended. No proceeding by the competent licensing authority had been initiated to establish fraudulent procurement of the licences. In that situation, customs could not independently treat the licences as vitiated or invoke section 28AAA on allegations of misdeclaration, particularly when the assessment of the shipping bills had attained finality and no appeal had been filed against them. The power to question the grant of the licence and its validity lay with the licensing authority, not customs, on the facts found.
Conclusion: Section 28AAA could not be invoked, and the duty demand was unsustainable.
Final Conclusion: The impugned order was set aside and the appeals succeeded, with consequential relief in accordance with law.
Ratio Decidendi: Where an export incentive claim is capable of falling under two eligible entries, the directly used immediate input governs the classification; and customs cannot invoke section 28AAA to deny DFIA benefits in the absence of cancellation or challenge by the competent licensing authority to a subsisting licence.
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