Court rules starch slurry as valid input under SION Entry E22 for liquid glucose exports; rejects Customs demand for duty recovery and penalties under Section 28AAA
In a significant ruling dated October 21, 2026, the Gujarat High Court dismissed the Customs Department's appeal challenging the Customs, Excise and Service Tax Appellate Tribunal's (CESTAT) decision favoring Sanstar Bio Polymers Ltd. The dispute centered on the classification of inputs under the Duty Free Import Authorisation (DFIA) Scheme for the export of liquid glucose concentrate (food grade).
Sanstar Bio Polymers Ltd., a manufacturer and exporter of corn-derived products including liquid glucose concentrate, claimed export benefits under the DFIA Scheme by declaring their import item as "Maize (Corn) Starch" under Standard Input Output Norms (SION) Entry E22. The Customs Department contended that since maize is the base raw material, the correct SION entry should have been E76, which specifically relates to maize.
The Directorate of Revenue Intelligence (DRI) had alleged that the company used starch slurry-not powdered maize starch-as the input in manufacturing liquid glucose, and thus the classification under E22 was incorrect. Consequently, Customs demanded recovery of duty foregone exceeding Rs. 4 crore under Section 28AAA of the Customs Act, 1962, alongside confiscation and penalties under Sections 113(i) and 114(iii).
However, the CESTAT, on appeal, examined the manufacturing process and technical materials and concluded that starch slurry is essentially starch in slurry form and serves as the immediate input for liquid glucose. The tribunal observed that the export product (liquid glucose) was specified under both SION entries E22 and E76, but since starch slurry is the direct input, E22 was the correct classification. It further noted that subsequent deletion of Entry E22 by the DGFT reflected concerns of misuse, but did not negate the validity of claims made before such deletion.
Importantly, the CESTAT held that the DFIA licenses issued by the DGFT to Sanstar were valid and subsisting, with no proceedings for cancellation or suspension initiated by the DGFT. Therefore, Customs could not invoke Section 28AAA for recovery of duty, as the DGFT was the proper authority to decide classification issues under the Foreign Trade Policy.
The Gujarat High Court upheld these findings. Relying on precedents including the Supreme Court decision in Commissioner of Customs, Nhava Sheva-II vs Bharat Rasayan Ltd., the court emphasized that once the DGFT has accepted classification and issued authorizations, Customs authorities cannot independently question it through Section 28AAA. The court further rejected the Customs Department's contention of willful misstatement, citing CESTAT's finding that Sanstar had not suppressed facts or misrepresented input classification.
The court clarified that the "immediate parent material" doctrine is relevant to determining the applicable SION entry and that starch slurry qualifies as starch for this purpose. Hence, denial of DFIA benefits on the ground that maize is the original input was unsustainable.
The appeal was dismissed, reinforcing the principle that classification for export benefits under DFIA must align with the manufacturing input directly used, and that Customs cannot override DGFT's licensing decisions without appropriate cancellation or suspension proceedings.
This ruling provides clarity on the scope of Customs powers under Section 28AAA and the interplay between Customs and DGFT jurisdiction in export benefit schemes.
Bottom Line:
Customs - DFIA Scheme - Where export item liquid glucose concentrate was manufactured using starch slurry, SION Entry E22 relating to starch was rightly held applicable and not Entry E76 relating to maize - In absence of cancellation or suspension of DFIA licences by DGFT, invocation of Section 28AAA of Customs Act for recovery of duty foregone was not justified - Confiscation and penalty also not sustainable in absence of willful misstatement or suppression.
Statutory provision(s):
Customs Act, 1962 Sections 28AAA, 113(i), 114(iii), 130; Foreign Trade Policy provisions related to DFIA Scheme;.
