Appellant not expected to Correlate Imports-Exports with whom License was Originally Issued: CESTAT in Relief to Volvo India [Read Order]

Volvo India had imported internal combustion engines under a transferrable DFIA license originally issued to M/s. International Tractors Ltd. for parts of agricultural tractors under SION (Standard Input Output Norms) category C969. The license was subsequently transferred through an intermediary to Volvo India, which used it to import the engines for manufacturing medium and heavy commercial vehicles—products falling under a different SION category, C1059.

The customs authorities, however, rejected Volvo India’s exemption claim under Notification No. 98/2009-Cus dated September 11, 2009. They contended that the license could only be used to import parts for agricultural tractors, not for commercial vehicle engines. This stand was upheld in the initial adjudication as well as by the Commissioner (Appeals), prompting Volvo India to approach the CESTAT.

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The key legal question before the bench—comprising Judicial Member Mr. P. Dinesha and Technical Member Mr. Vasa Seshagiri Rao—was whether the transferee of a DFIA license could import goods that did not correlate with the specific export obligations of the original license holder.

After hearing arguments from both sides, the Tribunal held that there was no legal basis to impose such a restriction. The DFIA license in question explicitly permitted the import of “internal combustion engine complete” without specifying its application to any particular type of vehicle. The Tribunal observed that neither the authorization itself nor Notification No. 98/2009 required the imported goods to match the category of goods exported by the original license holder.

Crucially, the Tribunal cited CBEC Circular No. 46/2007 dated December 20, 2007, which clarifies that correlation between inputs and export products is mandatory only for items listed under Paragraph 4.55.3 of the Foreign Trade Policy Handbook of Procedures. Since the goods involved in Volvo’s case did not fall under that provision, no such technical correlation was warranted.

In addition, the Tribunal emphasized that “no such restriction can be read in where the words of the authorization do not themselves create such a restriction.”

The tribunal bench also referred to precedents, including decisions by the Madhya Pradesh High Court and the Delhi Bench of the Tribunal, which supported the view that transferees of DFIA licenses should not be burdened with compliance conditions not stipulated in the license terms.

Accordingly, the CESTAT set aside the impugned order, ruling that Volvo India was entitled to the customs duty exemption. “The Appellant cannot be expected to correlate its imports with the exports of the person to whom the license was originally issued,” the order concluded.

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