Paragraphs 4 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
This article is on the Handbook only; paragraphs 4.49 and 4.50 have no paragraph of their own in the Foreign Trade Policy, 2023. They allow a Regional Authority to regularise a bona fide default in export obligation, on payment, and set out how customs duty and interest are paid. The payment depends on whether the shortfall is in quantity, in value or in both, and on whether the unutilised material was a restricted import.
The procedure is taken from Chapter 4 of the Handbook of Procedures, 2023 as published on the DGFT website (file of July 2026), consulted on 2 October 2026. This article is based on the chapter-wise text of the Foreign Trade Policy, 2023 published on the DGFT website, as consulted on 2 October 2026; the copy carries no "updated up to" date. Later Public Notices should be checked. Where the Regional Authority refuses regularisation or issues a notice, our legal dispute resolution service is the next step.
Cases of bona fide default may be regularised by the Regional Authority (paragraph 4.49). A quantity shortfall means customs duty and interest on the unutilised material, plus 10% of CIF value if the item was restricted (4.49(a)). A value shortfall with value addition below the minimum means 1% of the shortfall in FOB value (4.49(b)). Payment is within 30 days of demand through the Customs payment gateway (4.50(a)), and is without prejudice to other Customs action (4.50(g)).
Paragraph 4.49: the cases
Shortfall in quantity: 4.49(a)
If the obligation is fulfilled in value but there is a shortfall in quantity, the holder pays, for regularisation:
- to the customs authorities, customs duty on the unutilised value of imported or indigenously procured material, with interest as notified by the Department of Revenue, paid online through the Customs payment gateway; and
- 10% of the CIF value of the unutilised imported material, if the item of import is restricted, into the head of account the paragraph names. This does not apply if the unutilised material was importable without an authorisation on the date of import or domestic procurement.
The rate of customs duty and the rate of interest are not in the Handbook paragraph and are not stated here.
Shortfall in value: 4.49(b) and (c)
If the obligation is fulfilled in quantity but there is a shortfall in value, no penalty is imposed if the holder has achieved the minimum value addition prescribed. If value addition falls below the minimum, the holder deposits 1% of the shortfall in FOB value, in Indian Rupees, online through the DGFT website.
Paragraph 4.49(c) says how the value shortfall is computed: with reference to the actual quantity of exports and the FOB value of realisation against the pro-rata quantity of imports and CIF value. Its example: if export performance is only 50% in quantity but import has been for the complete CIF value permitted, value addition is calculated pro rata against 50% of the CIF value of imports. The paragraph concludes that where the holder is unable to export, no penalty on value-wise shortfall is imposed.
Shortfall in both: 4.49(d)
If the obligation is not fulfilled in quantity and in value, the holder pays as under (a), (b) and (c).
No imports made: 4.49(e)
If the holder cannot complete the obligation in full and has made no import under the authorisation, it may get the authorisation cancelled and apply for drawback after obtaining permission from Customs for conversion of shipping bills to Drawback Shipping Bills. For drawback in general, see duty drawback: rates, claim process and brand rate.
Verification of accounts: 4.49(f)
The Regional Authority compares the relevant portion of Appendix 4H, verified and certified by a Chartered Accountant or Cost Accountant, with the norms allowed and the actual quantity imported, at the beginning of the licensing year for authorisations redeemed in the preceding licensing year. If less was consumed than imported, the holder pays customs duty on the unutilised value with interest as notified, or makes additional exports within the export obligation period.
Drugs from unregistered sources: 4.49(g)
For an authorisation issued for import of drugs from unregistered sources with a pre-import condition, regularisation has two tracks.
- (i) The holder submits documents showing consumption of the full imported quantity as per norms. If there is a shortfall and unutilised quantity remains, it submits a self-declaration with a Chartered Accountant's certificate of destruction of the unutilised duty-exempt imported material, with an affidavit-cum-indemnity bond indemnifying the Government for harm or loss from diversion into the domestic market that may be detected in future, or proof of re-export in terms of paragraph 4.42 of the Handbook.
- (ii) Exports made under any shipping bill under the same authorisation after expiry of the export obligation period, using the unutilised quantity of drugs, are accepted in place of the destruction certificate if the exact description and technical characteristics of the drug match the export item described in the authorisation. The holder still pays customs duty with interest on the unutilised quantity; such exports only waive the destruction certificate, not duty and interest.
Paragraph 4.50: paying customs duty and interest
| Sub-paragraph | Requirement |
|---|---|
| (a) | Customs duty with interest, recovered on regularisation or on enforcement of the Bank Guarantee or Legal Undertaking, is deposited online through the Customs payment gateway within 30 days of demand raised by the Regional or Customs Authority, with documentary evidence produced immediately. The exporter may also pay suo motu on its own calculation, as per the Department of Revenue procedure; it is adjusted when the case is closed. |
| (b) | Mode of payment: online through the Customs payment gateway. |
| (c) | Documentary evidence of payment goes to the Regional Authority with the duty calculation sheet. |
| (d) | The Regional Authority verifies the quantity of excess import before redeeming. It may direct payment of the balance, giving reasons for any difference; the balance of duty and interest is paid within 30 days. |
| (e) | Interest is paid online at the rate applicable on the date of payment of the delayed duty. |
| (f) | On receipt of the evidence, the Regional Authority redeems the case, endorses details of duty paid on the EODC or redemption letter, and informs Customs at the port of registration or the Commissioner of Customs having jurisdiction over the factory. |
| (g) | Payment of duty, interest and dues is without prejudice to other action by Customs under the Customs Act, 1962. |
How this sits with the Act and the Policy
The Handbook is issued by the Director General under section 6 of the Foreign Trade (Development and Regulation) Act, 1992 (section 6 of the FTDR Act), and the Policy it supports is made under section 5 (section 5 of the FTDR Act). Regularisation is a facility of the Handbook; it does not take away the Act's provisions on contravention and penalty. Those are in section 11 of the FTDR Act and, for the Settlement Commission and other punishments, sections 11A, 11B and 12. Penal action and the Denied Entity List under paragraph 2.14 of the Policy are in our article on paragraph 2.14. The Handbook does not say when a default is "bona fide"; the Regional Authority decides that on the facts. For authorisations under paragraph 4.05 of the Handbook, paragraph 4.49 does not apply (see our article on paragraph 4.18 of the Policy).
A worked example
Shah Fabrics Private Limited, an invented exporter, exported goods of the full obligation value but fewer in quantity than the norm; part of the imported material is unused. Under paragraph 4.49(a) it pays customs duty and interest on the unutilised value, online, and also 10% of CIF value if the unused material was a restricted import. It pays suo motu (paragraph 4.50(a)), and the Regional Authority redeems the case, noting the duty paid on the discharge certificate (paragraph 4.50(f)). Customs may still act later under the Customs Act (paragraph 4.50(g)).
Need help with a default?
A regularisation offer made early, with the figures worked out, is usually easier than one made after a notice. If a demand or a show-cause notice has already arrived, our legal dispute resolution team can look at the options with you.
Key takeaways
- Bona fide default may be regularised by the Regional Authority, on payment (paragraph 4.49).
- Quantity shortfall: customs duty and interest, plus 10% of CIF value if the item was restricted (paragraph 4.49(a)).
- Value shortfall below minimum value addition: 1% of the shortfall in FOB value (paragraph 4.49(b)).
- No import made: cancel the authorisation and seek drawback (paragraph 4.49(e)).
- Pay within 30 days of demand, online; payment is without prejudice to other Customs action (paragraph 4.50).
Read next
- Paragraph 2.14 of the Foreign Trade Policy, 2023: penal action and the Denied Entity List
- Paragraphs 4.27, 4.28, 4.43 and 4.46 to 4.48 of the Handbook of Procedures, 2023: monitoring and redemption of export obligation
- Paragraph 4.36 of the Handbook of Procedures, 2023: clubbing of Advance Authorisations
- Advance Authorisation: export obligation, clubbing and the EODC
Disclaimer: Based on the chapter-wise text of the Foreign Trade Policy, 2023 and the Handbook of Procedures, 2023 published on the DGFT website, and on the later Notifications named in this article, as consulted on 2 October 2026. The copies carry no "updated up to" date. Notifications, Public Notices, Trade Notices, the ITC(HS) schedules, Appendices and forms change often; the current text on the DGFT website should be checked before acting. This article is general information, not legal advice; check the official text before acting.