CBIC Clarifies Adjudication of Section 28AAA Customs Cases Involving Fraudulently Obtained DGFT Scrips

“Indirect Tax I Indirect Tax Litigation I Customs & FTP I Central Licensing I Arbitration I Advisory”

Dated: 22.09.2026

CBIC Clarifies Adjudication of Section 28AAA Customs Cases Involving Fraudulently Obtained DGFT Scrips

The Central Board of Indirect Taxes and Customs (CBIC) has issued Instruction No. 17/2026-Customs dated 21 September 2026, providing an important clarification on adjudication of Show Cause Notices issued under Section 28AAA of the Customs Act, 1962, particularly where duty credit instruments or scrips issued by the Directorate General of Foreign Trade (DGFT) are alleged to have been obtained fraudulently.

The Instruction addresses a practical difficulty faced by Customs and DRI officers: must Customs wait for DGFT to cancel the disputed scrip before adjudicating a Section 28AAA demand, or can Customs first decide the underlying Customs violation?

CBIC has now clarified that the answer depends upon the nature of the allegation.

Background: Section 28AAA of the Customs Act

Section 28AAA provides for recovery of duty from the person to whom an instrument or scrip was originally issued where the instrument was obtained fraudulently through collusion, wilful misstatement or suppression of facts.
CBIC referred to the earlier TRU D.O. letter dated 1 June 2012, which advised field formations to issue demands once DGFT or the concerned Regional Authority initiates cancellation proceedings, but to decide the matter only after DGFT has actually cancelled the instrument.
This created difficulties because, in some cases, DGFT itself required Customs first to determine whether the underlying export declaration, classification or valuation was incorrect.

Misclassification, Overvaluation or Wrong Shipping Bill Declaration: Customs Must Decide First

The first category covers cases where Customs or DRI alleges that a scrip was fraudulently obtained because of an incorrect declaration in the Shipping Bill, including:

misclassification;
overvaluation; or
other incorrect Customs declarations.
CBIC records DGFT’s position that where the allegation concerns matters such as misclassification, Customs should investigate and complete adjudication under the Customs Act first. Where warranted, Customs should conclusively amend the Shipping Bill or classification.
Only after that determination should the matter be referred to the concerned DGFT Regional Authority for consequential action, including possible cancellation of the scrip.
Significantly, DGFT has stated that scrips should not be cancelled merely on the basis of allegations, suspicions or requests made by DRI/Customs without a final Customs determination and amendment of the Shipping Bill. CBIC has expressly agreed with this position.
This clarification is important because it establishes a clear sequence:

Customs investigation → Customs adjudication → consequential Shipping Bill amendment, where warranted → reference to DGFT → DGFT action on the scrip.

Policy, Eligibility and Entitlement Disputes: DGFT Must Decide First

CBIC has drawn a clear distinction where the allegation relates not to a Customs declaration but to policy interpretation, eligibility, entitlement or another matter falling within DGFT’s domain.
In these situations, Customs/DRI should first refer the matter to DGFT because DGFT is the competent authority responsible for issuance, administration and interpretation of the relevant instrument or scrip.
The Instruction goes further and states that DGFT’s view shall prevail regarding the validity of and entitlement under the instrument/scrip issued by it. Customs/DRI proceedings should accordingly be decided consistently with DGFT’s determination on those policy-related issues.
This is a significant clarification of the respective jurisdictional roles of Customs/DRI and DGFT.

What if DGFT Cannot Legally Cancel the Scrip?

CBIC has also addressed cases where DGFT cannot cancel an instrument or scrip because of a technical or legal impediment, including a binding court judgment.
The Instruction specifically refers to M/s Supreme Castings Ltd. v. Joint DGFT, Ludhiana. In that matter, the Court observed that because Section 9(4) did not provide for retrospective cancellation of the licence, the DEPB could not be cancelled ab initio from its date of issue.
CBIC has clarified that Section 28AAA Show Cause Notices need not remain indefinitely pending merely because DGFT is unable to cancel the scrip in such circumstances.

Instead, the adjudicating authority should proceed with adjudication and decide the case on its merits in accordance with law.

When Is Prior DGFT Cancellation Still Required?

CBIC has retained the earlier position for the residual category of cases.
Where it is alleged that the DGFT instrument was fraudulently obtained and DGFT has initiated proceedings for cancellation, the Customs adjudication should take place only after DGFT has cancelled the instrument/scrip, unless the case falls within the specific situations clarified in the Instruction.
Thus, Instruction No. 17/2026 does not completely dispense with the requirement of DGFT cancellation. Instead, it creates a more nuanced framework depending upon the nature of the dispute.

Practical Impact on Customs, DRI and Exporters

The Instruction provides a useful jurisdictional demarcation between the two authorities.
Where the dispute concerns Shipping Bill particulars, classification, valuation or another Customs declaration, Customs must first establish the alleged violation through investigation and adjudication. A mere suspicion or allegation by DRI/Customs is not, by itself, sufficient for DGFT to cancel the scrip.
Where the dispute concerns FTP policy interpretation, eligibility or entitlement, DGFT takes the lead, and its determination governs the policy-related question.
And where DGFT is legally unable to cancel a scrip, Customs authorities need not keep a Section 28AAA SCN pending indefinitely; they may proceed to adjudicate it on merits.

Key Takeaway

CBIC Instruction No. 17/2026-Customs significantly clarifies the sequencing of Customs and DGFT proceedings in Section 28AAA cases.

The central principle emerging from the Instruction is that the authority having jurisdiction over the foundational issue should determine that issue first. Customs must determine Customs-specific allegations such as misclassification or overvaluation, while DGFT must determine FTP policy, eligibility and entitlement issues.

At the same time, the Instruction prevents DGFT scrips from being cancelled solely on the basis of unproven Customs/DRI allegations and prevents Section 28AAA proceedings from remaining indefinitely pending where DGFT is legally unable to cancel the instrument.

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Source: CBIC, Ministry of Finance, Govt. of India

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