2026-VIL-67-P&H-CU
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CUSTOMS High Court Cases

Customs - Jurisdiction of DRI to issue show cause notice, cancellation of DFRC, flexibility in using inputs under SION - During 2004-05, the petitioner exported bicycle parts under the Duty Free Replenishment Certificate (DFRC) scheme. The DRI conducted a search at the petitioner's premises and formed an opinion that the petitioner had utilized Hot Rolled (HR) sheets as input, whereas DFRC was obtained for Cold Rolled Closed Annealed (CRCA) sheets. The DRI issued show cause notices to the petitioner and the importers, demanding the duty foregone at the time of import of CRCA against the DFRC - Whether the DRI had the jurisdiction to issue the show cause notices in the absence of cancellation of the DFRC by the DGFT, the competent authority under the Foreign Trade (Development and Regulation) Act, 1992 – HELD - The DGFT, through its policy circulars and letters, had clarified that as per the Standard Input Output Norms (SION), both HR sheets and CRCA sheets were interchangeable inputs for the manufacture of bicycle parts, and the exporter had the flexibility to use either of the two inputs. The Supreme Court's judgment in Titan Medical Systems (P) Ltd. Versus Collector of Customs, held that unless the license or scrip is questioned by the licensing authority, the Customs authorities cannot refuse the exemption on the ground of misrepresentation. In the present case, the DGFT had not taken any steps to cancel the DFRC, and instead had supported the petitioner's case. Therefore, the DRI was not competent to issue the show cause notices raising the demand of duty that was waived at the time of import of inputs against the DFRC - the DRI did not have the jurisdiction to issue the SCNs in the absence of cancellation of the DFRC by the DGFT - The impugned show cause notices issued by the DRI are set aside and the writ petitions are allowed
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