Madras High Court Quashes Vital Wheat Gluten Seizure, Cites Earlier Ruling On DFIA Exemption

The Madras High Court has recently quashed a seizure memo issued against Bhansali Chematics Private Limited over its import of Vital Wheat Gluten.

The court held that there was no legally sustainable material to form the requisite belief that the goods were liable to confiscation.

A Single Bench of Justice Hemant Chandangoudar held that wheat gluten falls within the description of “wheat flour” for the purposes of the Duty Free Import Authorisation (DFIA) Scheme.

The court relied on earlier decisions of the tribunal and a coordinate Bench of the High Court that had already considered the issue.

The coordinate Bench had held that “wheat flour and wheat gluten fall under the same description for the purpose of the DFIA Scheme”. It also held that Customs proceedings based on the contrary assumption could not be sustained.

The dispute arose after the company imported Vital Wheat Gluten under a DFIA authorisation that permitted duty-free import of wheat flour. The company claimed exemption from Basic Customs Duty under the scheme.

The issue before the court was whether Vital Wheat Gluten could be covered by the description of “wheat flour” for the purposes of the DFIA Scheme.

The Directorate of Revenue Intelligence (DRI) had issued a seizure notice after taking the position that wheat gluten was different from wheat flour and therefore was not entitled to the DFIA benefit. The company challenged the notice before the High Court.

The High Court then directed the DRI to give the company a personal hearing. It also directed the DRI to consider the company's explanation and the judicial precedents relied upon by it. The DRI subsequently issued the seizure memo challenged in the present case.

The company argued that the seizure memo was based on a Public Notice dated November 2, 2016.

The notice had amended the Standard Input Output Norms (SION) for the export product “Biscuits” and provided that “Maida/Atta/Flour” was to be read as “Wheat Flour”.

The company contended that the 2016 Public Notice had been suspended indefinitely on August 26, 2025. This was before the import in question. It therefore argued that the suspended notice could not be used as the basis for the seizure.

The company also relied on earlier tribunal decisions and a Madras High Court judgment. Those decisions had held that wheat gluten was covered by the description of wheat flour for the purposes of the DFIA Scheme.

It further relied on a Customs department circular dated July 24, 2025. The circular clarified that technical correlation between imported inputs and exported products was required only for inputs covered by paragraph 4.29 of the Foreign Trade Policy, 2023.

The company argued that wheat flour and wheat gluten did not fall within that category. It therefore contended that the department could not deny the DFIA benefit merely on the ground that the two products were different.

The Customs authorities took the opposite position. They argued that wheat flour and wheat gluten were commercially and technically distinct products.

According to the department, wheat gluten is obtained by processing wheat flour through aqueous separation. This removes starch and other constituents from the product.

The department also contended that wheat gluten is a value-added product with a considerably higher commercial value. It attracts customs duty at 30%, while wheat flour enjoys exemption, the department argued.

The court noted that the issue had already been examined by the tribunal and a coordinate Bench of the High Court. The tribunal had considered technical literature and clarifications from the Ministry of Food Processing Industries and the Joint Director General of Foreign Trade.

The tribunal had held that wheat gluten is nothing but wheat flour with specific technical characteristics. It therefore qualified for exemption under the DFIA Scheme.

In the earlier cases, the tribunal also held that the ITC (HS) Code of the imported goods did not have to exactly correspond with the code mentioned in the authorisation. This was subject to the description, quantity and value requirements being satisfied.

The coordinate Bench of the High Court subsequently concluded that wheat flour and wheat gluten fell under the same description for the DFIA Scheme. It held that Customs proceedings based on the contrary assumption could not be sustained.

The court also noted that the Commissioner of Customs (Appeals-II), in an order dated July 14, 2021, had held that wheat gluten was entitled to exemption under the DFIA Scheme. The department had not produced any material showing that these earlier decisions had been stayed or set aside.

The court then examined whether the seizure satisfied the requirements of Section 110 of the Customs Act. The provision allows a proper officer to seize goods when there is a “reason to believe” that they are liable to confiscation.

The court observed that this belief must be based on relevant and legally sustainable material. It cannot be founded on material that has ceased to have legal force or on a position contrary to binding judicial decisions.

In the present case, the respondents had proceeded on the assumption that wheat gluten was different from wheat flour. On that basis, they treated the product as ineligible for the DFIA benefit.

The court noted that this very issue had already been decided by the tribunal and affirmed by the coordinate Bench of the High Court. The respondents had not placed any material showing that those decisions had been stayed or set aside.

The principal basis for the seizure memo was also the Public Notice dated November 2, 2016. The court noted that the notice had been suspended on August 26, 2025, before the import.

“Once the public notice stands suspended, it ceases to operate prospectively,” the court observed. It held that the respondents could not rely on the suspended notice to form the belief that the goods were liable to confiscation.

The July 24, 2025, customs circular also did not support the department's position. The court noted that the circular did not require technical correlation between the imported goods and the export product in a case such as this.

The court observed that the real question was not whether wheat gluten was commercially different from wheat flour or whether it attracted a different rate of customs duty. The issue was whether wheat gluten fell within the description of the input permitted under the DFIA Scheme.

Once that issue had been settled by judicial decisions and the applicable policy, the commercial differences between the two products became irrelevant, the court observed.

“In these circumstances, this Court is of the view that there was no legally sustainable material before the first respondent to form the requisite reason to believe that the imported goods were liable to confiscation,” the court observed.

The court consequently held that the assumption of jurisdiction under Section 110 of the Customs Act was unsustainable. It quashed the seizure memo dated December 26, 2025.

The court also noted that the DFIA authorisation had been validly transferred to Bhansali Chematics by the original exporter. The transferred authorisation specifically permitted the import of wheat flour.

The writ petition was allowed. The bank guarantee furnished by Bhansali Chematics was directed to stand discharged.

For Petitioner: Hari Radhakrishnan, Advocate

For Respondent: Rajendran Raghavan, SPC -R1 and S.M.Deenadayalan, SPC – R2 & R3