Customs Act | Gujarat High Court Upholds CARR Ruling Allowing Duty Free Import On Inshell Walnuts Treating It As 'Dietary Fibre'

The Gujarat High Court upheld ruling of Customs Authority for Advance Rulings granting exemption from payment of Basic Customs Duty for inshell-walnuts imported by an entity treating the goods as "dietary fibre". 

The respondent- assessee is a transferee of Duty-Free Import Authorisations issued against the export of Assorted Confectionary Products (SION E-1) and Biscuits (SION E-5).

The respondent had filed an application under Section 28H(Application for advance ruling) Customs Act before the Customs Authority for Advance Rulings (CAAR) seeking a ruling on the permissibility of importing Inshell Walnuts by availing the benefit of Customs Notification No.25/2023-Cus dated 01.04.2023.

The said import item was claimed to be covered under the description of “Other Confectionary Ingredients” – viz. (i) Relevant Fruits; and (ii) Nut and Nut Products - under Sr. No.7 of the DFIA issued as per SION E-1, and also under the description of “Dietary Fibre” at Sr.No.4 (“Biscuit and Additives and Ingredients”) of the DFIA issued as per SION E5.

The authority answered the question in the affirmative, holding that the import of Inshell Walnuts is permissible under the said DFIAs, subject to compliance with the value-based limitations endorsed therein.

The court was considering whether the respondent entity is entitled to claim exemption from payment of Basic Customs Duty against Custom Notification No.25/2023-Cus dated 01.04.2023 under Transferable Duty-Free Import Authorisations (DFIAs) for their import of Walnuts Inshell against import goods description of 'Fruits & Fruit Products and Nut Products' against Export of Assorted confectionary goods and against the description of 'Dietary Fibre' against Export of Biscuits

It was also considering whether the CARR had erred allowing the exemption as per for Notification No.25/2023 dated 01.04.2023 "Walnuts In-shell" under general heads such as "Dietary Fibre" and "Other Confectionery Ingredients” without technical linkage to actual exports.

The Commissioner of Customs argued that the CARR had erred in treating in-shell walnuts as "dietary fibre", since the expression (Dietary Fibre) commercially refers to cellulose or pectin-based roughage used in biscuit formulation and not high-fat nuts predominantly composed of oils and proteins.

Such a generic reading dilutes the technical meaning in Foreign Trade Policy/Standard Input-Output Norms and is impermissible where exemption provisions require strict construction. 

It was submitted that In-shell Walnuts are unspecified, so CAAR's generic, "dietary fibre" exemption is unsustainable and risks misuse. It was submitted that condition (iii) of 2023 notification requires clear description, specifications, value, and quantity of imported materials in the authorization; without a precise match, the exemption must be denied.

A division bench of Justice AS Supehia and Justice Pranav Trivedi referred to Bombay High Court's decision in The Commissioner of Customs, Nhava Sheva-V vs. VKC Nuts Private Limited wherein the high court had held that walnuts (including inshell form) fall within the broader classification of dietary fibre for the purposes of DFIA entries.

"Thus, the Bombay High Court, after considering the array of judgments has examined the issue as to whether the subject walnuts in-shell are covered under the description of input entries 'dietary fibre' and therefore, whether the same can be permitted for duty free clearance against the DFIA issued against the export under SION E5 which inter alia permits duty free import of 'dietary fibre'. The Bombay High Court has also placed reliance on the technical opinion of the Joint Director, Jawahar Customs House Laboratory, who opined that the walnuts may be used as a source of dietary fibre in the manufacturing of biscuits / cookies and confectionery, which has not been refuted," the court said.

"In the instant case, CAAR, Mumbai, while placing reliance on the legal precedent set by the various High Courts and Tribunal and the conditions prescribed in the Notification No.25/2023-Cus dated 01.04.2023, along with the DFIA licenses issued by the DGFT in terms of Paragraph Nos.4.24 and 4.26 of the Foreign Trade Policy for import of input used in exported products for SION Norms has held that the import of “Walnut Inshell” against the entry of “Dietary Fibers” in the DFIA license issued under SION Norms E-5 for export Biscuits is permissible. It is also held that the “Dietary Fibers” are mentioned at Item No.4 under the Generic Input Entry “Biscuit Additives and Ingredients” and DGFT vide Public Notice No.41/2015-2020 dated 02.11.2016 have put a value criterion apart from the quantity mentioned therein, and hence the total CIF value of all the imports of inputs mentioned under Item No.4 cannot and should not exceed 10% of the total CIF value of DIFA license. The appellant has not pointed out any breach of the aforesaid value to us," the bench added. 

For context, the DFIA is a post-export duty credit instrument and is freely transferable in terms of Paragraph No.4.26 read with Paragraph No.4.28 (viii) of the Foreign Trade Policy.

The Standard Input Output Norms (SION) for various export products are notified by the Director General of Foreign Trade (DGFT). Each SION prescribes the permitted inputs (ingredients) along with their corresponding quantity norms required for manufacturing the resultant export product. In the present case, the applicable notified norms are SION E-1 for the export of Assorted Confectionary Products and SION E-5 for the export of Biscuits. 

The court thus dismissed the appeal.

Case title: THE COMMISSIONER OF CUSTOMS - KANDLA v/s M/A DEVAM IMPEX

R/TAX APPEAL NO.507 of 2025

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