TMI Blog2013 (8) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, it is not necessary that they will have nexus with the exports made by a particular export houses. When we look the matter from this angle and even proceed on the basis that ‘broad nexus’ criteria used in Handbook of Procedures Vol. I for the period from 1-9-2004 to 31-3-2009, the word ‘broad’ prefixed with nexus, the word ‘nexus’ has to be assigned same meaning. The nexus has to be maintained that ‘product group’, viz., the category of the products which is exported. If the import also falls in the same category/group, it would be allowable. Imports under TPS may be carefully scrutinized with reference to the provisions of the FTP, Handbook of Procedures, the customs notifications and Board’s Circular referred to above so as to ensure that the laid down provisions regarding ‘inputs’, ‘broad nexus’ and ‘use’ and ‘supporting manufacturer(s)’ are complied with - FTP by itself does not indicate that the imported goods should constitute ‘inputs’ in the goods exported - Relying upon Atul Commodities Pvt. Ltd. v. Commissioner of Customs [2009 (2) TMI 18 - SUPREME COURT] and Narendra Udeshi v. Union of India [2002 (10) TMI 646 - BOMBAY HIGH COURT] – Decided against assesse. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for a duty credit based on incremental exports (Paras 3.7.1 - 3.7.3 of the FTP, 2004). (ii) The duty credit may be used for import of any inputs, capital goods including spares, office equipment, professional equipment and office furniture provided the same is freely importable under the ITC (HS) classification of export and import items, for their own use or that of supporting manufacturers as declared in Aayat Niryat Form . 2. Import entitlement regarding growth products was also stipulated as follows : (A) 3.7.6 Imports allowed : The duty credit may be used for import of any inputs, capital goods including spares, office equipment, professional equipment and office furniture provided the same is freely importable under ITC (HS) Classification of Export and Import items, for their own use and that of supporting manufacturers as declared in Aayat Niryaat Form . (B) As import of agricultural products listed in Chapters 1 to 24 of ITC (HS) Classification of Export and Import items except the following shall be allowed : (i) Garlic, Peas and all other Vegetables with a Duty of more than 30% under Chapter 7 of ITC (HS) Classification of Export and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospective effect and state as follows : For the purpose of import entitlements under this scheme, broad nexus would mean goods imported with reference to any of the product groups of the exported groups within the overall value of the entitlement certificate. 6. On 1-8-2006, a Circular was issued by the DGFT clarifying that so long as the imported goods belonged to the same product group as the exported goods, the exporter could use the duty credit under the TPS for such imported goods as well. According to the appellant, the above was issued in the context of a decision to permit a rice exporter to import almonds using the duty credit under the TPS. The above Circular of the DGFT was challenged by M/s. Indo-Afghan Chamber of Commerce in this High Court in W.P. (C) No. 12603 of 2006 and the said Circular was defended by the DGFT in an affidavit filed in the above matter. However, the Department of Revenue objected to the above interpretation of the DGFT on the ground that the said interpretation almost rendered the concept of broad nexus nugatory and redundant, leading to a serious loss of revenue for the Government. The matter was referred to the Committee of Secretari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed into possible resultant products only if the same has a broad nexus with the product group as an input in the export product and is required to be used as an input in the product exported for which TPS benefit is sought. The Ministry of Law has also clarified that the term broad nexus with the product group is in addition to and not in substitution of the words inputs and own use in Para 3.7.6 of the Scheme. 5. The Ministry has accepted the aforesaid opinion of the Ministry of Law. Accordingly, import of goods against TPS certificates may be allowed keeping in view the said opinion discussed in paragraphs 3 and 4 above. The above circular dated 8th May 2007 has been challenged in the petition filed before the learned Single Judge. 8. Subsequently, by a Public Notice dated 21st June 2007, the DGFT further made the following changes : In para 3.2.5 (II) second sentence, viz. For the purpose of import entitlements under this scheme, broad nexus would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate inserted in Handbook of Procedures (Vol. 1) RE 2005 {HBP v1 (RE2005)} ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make such changes obviously could not have been delegated by the Central Government to the DGFT. It is for these reasons that the amended para 3.2.5 (II) of the HBP is assailed being beyond the competence of the DGFT and, therefore, liable to be quashed. 12. In reply, it was submitted by Mr. A.S. Chandhiok, learned Additional Solicitor General (ASG) appearing for the Respondents, that the term broad nexus became necessary to be defined since otherwise a person exporting garments might end up importing automobile parts which could not have been used by such importer as either an input in manufacture by him or by an associate manufacturer. It is pointed out that the FTP does not use the expression broad nexus which appears in the HBP. However the term in the HBP cannot be dissociated from the words input and use in the FTP. The intended input must have a relationship with the export product. It is submitted that the condition of the broad nexus in para 3.2.5 (II) of the HBP was clarificatory of the terms inputs and use in the FTP and any interpretation so as to dissociate inputs from use in the exported goods would be contrary to the provisions of the FTP. The Law M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit entitlements announced by the FTP can be brought about without amending such policy and by issuing Circulars and Notifications or Forms. This can be examined by this Court in exercise of its powers under Article 226 of the Constitution. By doing so, this Court is not judicially reviewing the policy of the Government of India but only the procedure adopted by it to change the policy which might incidentally prejudice an exporter. Is the procedure adopted for change in the FTP lawful? 17. It was further submitted that there was nothing in para 3.7.6 of the FTP to indicate that the goods imported would necessarily have to be used as inputs in the goods exported. It was submitted that the scheme was in fact one of a cash incentive as explained by the Jt. DGFT itself in its counter affidavit filed in W.P. (C) No. 12603 of 2006 in this Court (titled Indo Afghan Chamber of Commerce v. Union of India). A change in the policy to the detriment of the Petitioners could not be brought about through Circulars and Forms but had to be only by way of a Notification under Section 5 of the FTDR Act. It was submitted that without prejudice to the submissions of the Petitioners regarding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by issuance of Circulars. It was explained by the Supreme Court with reference to the facts of that case that the circulars and notifications issued by the DGFT were clarificatory and not amendatory in nature. It was explained that under the FTDR Act, one finds a clear demarcation between an amendatory clarification and a clarification. It was further observed : Section 5 of the FTDR Act contemplates amendment to the export and import policy under the FTDR Act. It empowers only the Central Government to make such amendment. This power is not given to the DGFT. 20. Turning to the facts of the present case, this Court finds that even if one were to accept the argument of the learned ASG that the broad nexus requirement was justified keeping in view the overall objective of the FTP, the further change by way of the Circular dated 21st June 2007 to restrict the import to only that goods which constituted an input in the exported product is indeed impermissible. 21. It was inter alia clarified that in the light of this, the Ministry of Law has clarified that the holder of TPS certificate is permitted to import an item under the TPS and get the same processed into possib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the DGFT vide letter dated 9-5-2007. Public Notice No. 9, dated 21-6-2007 was issued deleting the words for the purposes of import entitlements under this scheme, broad nexus would mean goods imported with reference to any of the product groups of the exported groups within the overall value of the entitlement certificate from Para 3.2.5 of the HBP. Circular No. 21/2007-Cus. was issued by the Department finally clarifying the scope of broad nexus for the purposes of the Target Plus Scheme. 24. It is at this stage, the respondents filed Writ Petition (Civil) No. 2497 of 2008 challenging the vires of : (i) Para 3.2.5 of the HBP (ii) Circular No. 21/2007-Cus., dated 8-5-2007 (iii) Public Notice No. 9/2007, dated 21-6-2007 25. By final judgment and order dated 5-8-2010, the learned Single Judge granted the declaratory relief sought for by the respondents and struck down the above paragraph of the HBP and Circulars issued by the Department. 26. The contention of the respondents herein in the said writ petition was that the appellant had no power or jurisdiction to impose a condition of broad nexus or to define the term broad nexus where there was no suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d nexus would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate . It appears to this Court that while the above Public Notice dated 4th June 2005 was perhaps justified since it was issued during the time when the TPS was still continuing and it was, therefore, possible for the exporters to plan their exports and imports, the subsequent circular dated 8th May 2007 and Public Notice dated 21st June 2007 issued by the Respondents have, in the garb of clarifying the term broad nexus , unduly restricted the meaning of the word inputs to mean only those inputs used in the manufacture of the goods exported. There is merit in the contention of the Petitioners that this was travelling far beyond what was provided in para 3.7.6 of the FTP and ultra vires the powers of the DGFT. Such a change to the FTP, if at all, could have been brought about only through a notification under Section 5 FTDR Act. (d) The learned Single Judge also noted that the stand taken by the Government was contrary to its counter affidavit dated 12-9-2006 filed in W.P. (C) No. 12603 of 2006 (Indo Afghan Chamber of Commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Single Judge has made following remarks : 27. 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 a broad nexus with reference to any product group of the exported goods within the overall value of the entitlement certificate. The word nexus obviously refers to a larger group of similar goods and not the very exported goods itself. Consequently the impugned circulars and notice that purported to clarify the term broad nexus , i.e. the impugned circular dated 8th May 2007, the Public Notice dated 21st June 2007 and the further circular dated 19th December 2007, travelled beyond what was envisaged by para 3.7.6 of the FTP and severely restricted the benefit thereunder. It was a significant change that could be brought about only through a notification under Section 5 FTDR Act. The said circulars and public notice were, therefore, ultra vires para 3.7.6 of the FTP. Further they sought to retrospectively take away a benefit that had accrued to the exporters which cannot but be viewed as unreasonable in the context. The impugned circular da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Single Judge has failed to appreciate the condition indicated in the proviso contained in the relevant paragraph which clearly states that the goods which can be imported have to be freely importable, and they have to be imported for their own use and that of supporting manufacturers. (c) It is, therefore, clear that the term inputs has to be read in conjunction with the term for their own use as contained in the same paragraph. The irresistible conclusion that follows from this is that a manufacturer may only use the duty credit obtained from export in importing inputs that are capable of being put to use and consequently the term broad nexus as used in the impugned circular is merely clarificatory. 32. Learned counsel for the respondent, on the other hand, relied upon the reasons given by the learned ASG in support of decision in favour of the respondents hearing. He also submitted that the pivotal purpose of the scheme was to reward Star Export Houses , i.e., manufacturing houses and Merchant Export Houses , who achieved targeted export turnover stipulated in the said scheme. It is for this reason the scheme provided that duty credit earned by these export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturer. Obviously, office equipment, professional equipment and office furniture have no nexus with the exports, the question is about inputs. When the expression is import of any inputs whether it would mean only those inputs which have nexus with the nature of goods exported. That is not following from the scheme. When we read the later portion of this para dealing with import of agricultural products, we find that some items which are allowed to be imported are specifically mentioned. Again, when those items are mentioned, it is not necessary that they will have nexus with the exports made by a particular export houses. When we look the matter from this angle and even proceed on the basis that broad nexus criteria used in Handbook of Procedures Vol. I for the period from 1-9-2004 to 31-3-2009, the word broad prefixed with nexus, the word nexus has to be assigned same meaning. This meaning was given by the DGFT itself in its letter dated 1-8-2006 in the following words : It is hereby clarified that in terms of the Policy Circular No. 27 (RE-2005)/2004-2009, dated 5-10-2005 read with Policy Para 87.6 and Handbook of Procedure (Vol. 1) Para 3.2.5 (II) broad nexus is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar dated 1-8-2006 of the DGFT was in tune with the aforesaid. It is only thereafter that another Circular dated 8-5-2007 was issued bringing the concept of use and own used contained in the Policy to associate the same with input and stating that the import was possible of those products only if the same had a broad nexus with the product group as an input with the export group and is required to be used as an input in the product exported by which TPS benefit is sought. On this basis, Public Notice No. 21-6-2007 was issued as this was departure of earlier understating, the respondents naturally felt aggrieved against the same. 36. We are, thus, in agreement with the view taken by the learned Single Judge that Para 3.7.6 of the FTP by itself does not indicate that the imported goods should constitute inputs in the goods exported relying upon Atul Commodities (supra). We also agree with the interpretation of the expression broad nexus undertaken by the learned Single Judge. In fact, Bombay High Court in the case of Narendra Udeshi (supra) and Essel Mining Industries Ltd. v. Union of India [2011 (270) E.L.T. 308 (Bom.)] has taken identical view dealing with the identi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
