2025 (6) TMI 554 - AT - Customs

Benefit of N/N. 32/2005-Cus. dated 08.04.2005 under the Target Plus Scheme (TPS) - importer not having directly used the imported plastic granules in the manufacture of the exported products - HELD THAT - Admittedly TPS is basically a post-export incentive/reward scheme where the scope of actual user is very limited; to put it in very simple words there is no export obligation on the part of the importers. At this juncture it is relevant to refer to our observations in the case of Commissioner of Customs (Airport Aircargo) vs. Sunstar Overseas Ltd. 2025 (5) TMI 670 - CESTAT CHENNAI wherein it was held that PP granules were imported which were converted into plastic bags/inner layers of bags that were claimed to have been used as a packing material for Rice that was exported. So a pound of flesh could never be without a drop of blood and hence there is a possibility that the PP granules would belong to the genus if not the species. Hence we have to accept the reasoning given in the impugned order that the packing materials used for packing the export product were mentioned in the Shipping Bills for the year 2004-05 which were also furnished before the Adjudicating Authority. Based on an overall analysis the Original Authority has come to the conclusion that the twin conditions have been fulfilled by the assessee and that there was no material on record suggesting the violation of those twin conditions. Even before us the Revenue has not placed any supporting evidence in this regard other than trying to build their case on mere arguments. Conclusion - The Commissioner of Customs order granting TPS benefits to the importer upheld. Since there are no actual difference there are no reasons to interfere with the impugned order of the Commissioner of Customs and hence the Revenue s appeal is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether the Commissioner of Customs was justified in extending the benefit of Notification No. 32/2005-Cus dated 08.04.2005 under the Target Plus Scheme (TPS) to the importer, despite the importer not having directly used the imported plastic granules in the manufacture of the exported products.

- Whether the imported goods must be physically incorporated as inputs in the exported products to qualify for TPS benefits, or whether a broader nexus with the exported product group suffices.

- Whether the conditions laid down in Para 3.7.6 of the Foreign Trade Policy (FTP) 2004-09, Para 3.2.5 (II) of the Handbook of Procedures, and relevant Customs notifications and circulars have been violated by the importer.

- The validity of the Revenue's contention that the importer misused the TPS by importing plastic granules which were not used in the manufacture or packing of the exported goods.

- The scope and interpretation of "actual user condition" and "broad nexus" under the TPS and related policy clarifications issued by the Directorate General of Foreign Trade (DGFT).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for allowing TPS benefit despite non-use of imported goods in manufacture of exported products

Relevant legal framework and precedents: The Tribunal relied heavily on Para 3.7.6 of the FTP 2004-09, Para 3.2.5 (II) of the Handbook of Procedures, Notification No. 32/2005-Cus dated 08.04.2005, and circulars No. 21/2007-Cus and 45/2007-Cus. The DGFT clarifications dated 10.09.2007 and 25.09.2007 were pivotal in interpreting the scope of "actual user condition" and permissible sales of resultant products post conversion. The Tribunal also referred to judicial precedents from the Delhi High Court and Bombay High Court, which interpreted the broad nexus requirement liberally.

Court's interpretation and reasoning: The Tribunal emphasized that the TPS is a post-export incentive scheme designed to reward exporters for growth in exports, without imposing a mandatory export obligation on the imported inputs. The Tribunal accepted the Commissioner's view that nowhere in the import policy or Customs Notification is there a stipulation that imported goods must be physically used in the manufacture of the exported products. Instead, the policy requires only a "broad nexus" between the imported goods and the exported product group.

The DGFT clarifications reinforced that conversion of imported inputs can be carried out by jobbing units, and the sale of resultant products in domestic or international markets is permitted. The "actual user condition" under TPS does not mandate compulsory utilization of imported inputs in future exports.

Key evidence and findings: The importer, M/s. BIEL, admitted that they had never imported plastic granules prior to TPS imports, nor used these granules in their export products. The imported plastic granules were procured from original importers on High Sea Sales basis and cleared under TPS benefits. The imported goods did not physically reach the importer's premises but were processed by job workers. The exporter continued to export the same rice products, which were claimed to be packed using resultant packing materials derived from the imported plastic granules.

Application of law to facts: The Tribunal accepted the Commissioner's finding that the imported plastic granules constituted inputs for packing materials related to the rice export product group, fulfilling the "broad nexus" requirement. The importer's use of job workers for conversion was consistent with DGFT clarifications. The Tribunal found no material to suggest violation of the twin conditions of the policy.

Treatment of competing arguments: The Revenue argued misuse of TPS on the ground that the imported goods were not used in the manufacture or packing of exported products and thus violated FTP provisions. However, the Tribunal noted the absence of any statutory or policy provision requiring physical incorporation of inputs into exported goods. The Revenue failed to produce supporting evidence beyond mere argumentation.

Conclusions: The Commissioner was justified in allowing TPS benefits. The importer's actions did not contravene the policy conditions, and the Revenue's appeal lacked merit.

Issue 2: Interpretation of "broad nexus" and "actual user condition" under TPS and related policy provisions

Relevant legal framework and precedents: The Tribunal relied on Para 3.7.6 of the FTP, Para 3.2.5 (II) of the Handbook of Procedures, and judicial interpretations by the Delhi and Bombay High Courts. The DGFT clarifications of September 2007 were critical in elucidating the scope of "actual user condition" and permissible sales of resultant products.

Court's interpretation and reasoning: The Tribunal held that "broad nexus" refers to a connection between the imported goods and any product group of the exported goods, not necessarily the exact exported product. The policy does not require that imported goods be physically incorporated into the exported products. The "actual user condition" under TPS is limited and does not impose an export obligation on the importer for the imported inputs.

Key evidence and findings: The Tribunal noted that the packing materials made from imported plastic granules were used in relation to the exported rice products, satisfying the broad nexus requirement. The DGFT clarifications permitted conversion by job workers and sale of resultant products, supporting the importer's position.

Application of law to facts: The Tribunal applied the liberal interpretation of "broad nexus" to accept that plastic granules converted into packing materials for rice exports fall within the ambit of permissible imports under TPS.

Treatment of competing arguments: The Revenue's restrictive interpretation was rejected as inconsistent with policy intent and judicial rulings.

Conclusions: The broad nexus and actual user conditions were fulfilled, justifying the grant of TPS benefits.

Issue 3: Procedural propriety and conduct of parties in filing appeal documents

Relevant legal framework: The Tribunal referred to procedural norms for filing appeal papers before the CESTAT and the expectations of proper documentation without misleading markings.

Court's interpretation and reasoning: The Tribunal took serious note of the Revenue's casual approach in filing appeal papers with excessive markings, underlining, and marginal remarks intended to mislead the Bench. It emphasized the need for proper filing and documentation and directed that the observations be sent to the CBIC for instructions to prevent recurrence.

Key evidence and findings: The appeal papers filed by the Revenue were poorly bound, incompletely numbered, and contained extraneous annotations.

Application of law to facts: The Tribunal's observations were procedural and disciplinary in nature, aimed at maintaining decorum and fairness in appellate proceedings.

Treatment of competing arguments: None specifically addressed this procedural issue.

Conclusions: The Tribunal condemned the casual filing practice and recommended remedial instructions to the CBIC.

3. SIGNIFICANT HOLDINGS

"Nowhere the import policy or the relevant Customs Notification stipulates that the material imported should have actually been used in the manufacture of the product exported, no actual user conditions in the product exported can be introduced by the authorities without authority of law."

"Para 3.7.6 of the FTP, by itself, does not indicate that the imported goods should constitute inputs in the goods exported. It is not possible to read para (3.7.6.) restrictively."

"Given the objective of providing an incentive to exporters, para (3.7.6.) of the FTP can reasonably be interpreted to require an exporter to show that the goods imported should have broad nexus with reference to any product group of the exported groups within the overall value of the entitlement certificate."

"The actual user condition does not contemplate compulsory utilization of the inputs imported in the manufacture of products to be exported in future."

"The packing materials used for packing the export product were mentioned in the Shipping Bills for the year 2004-05, which were also furnished before the Adjudicating Authority. Based on an overall analysis, the Original Authority has come to the conclusion that the twin conditions have been fulfilled by the assessee and that there was no material on record suggesting the violation of those twin conditions."

"The sale of the resultant product is also permitted to the conversion unit, as the same would obviously take place after payment of applicable duties on the resultant product."

Core principles established include:

• The TPS is a post-export incentive scheme without export obligations on imported inputs.
• Imported goods need only have a broad nexus with the exported product group, not physical incorporation.
• Use of job workers for conversion and sale of resultant products in domestic or international markets is permissible under DGFT clarifications.
• Authorities cannot impose conditions beyond those prescribed in the FTP and Customs Notifications.
• Proper procedural discipline is expected in filing appeal documents before the Tribunal.

Final determinations:

The Tribunal upheld the Commissioner of Customs' order granting TPS benefits to the importer, dismissed the Revenue's appeal, and found no violation of the FTP or Customs provisions. The Revenue's arguments were rejected due to lack of evidence and misinterpretation of policy provisions.