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TMI Blog2025 (5) TMI 1378X X X X Extracts X X X X X X X X Extracts X X X X ..... been granted. 3. Relevant facts may be briefly noted. 4. Appellant is a government recognized two star export house and a trading company engaged in the export of rice, sesame seeds, soyabean meal extracts, etc. Earlier name of the appellant was M/s Andagro Services Private Limited but has since been renamed as Noble Resources and Trading India Private Limited. 5. Under the Export-Import (EXIM) policy of 2002- 2007, which provided for exempting goods when imported into India under a duty free credit entitlement (DFCE) certificate, appellant was granted such a certificate for import of goods having a nexus with the products exported by it under the category '67/food products'. Under this duty free credit entitlement certificate (briefly 'the certificate' hereinafter), appellant imported crude degummed soyabean oil vide two Bills of Entry dated 26.07.2006 and 27.07.2006 claiming duty exemption on the basis of such certificate. The exemption claimed was in terms of para 3.7.2.1(vi) of the EXIM policy. 6. A show-cause notice dated 30.08.2006 was issued to the appellant by the Office of the Commissioner of Customs, Kachchh Commissionerate stating that under the duty free credit enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitution of India which was registered as R/Special Civil Application No.8596 of 2007. 11. A Division Bench of the High Court vide judgment and order dated 05.08.2019 (impugned judgment) dismissed the writ petition by upholding the levy of demand. After pronouncement of the judgment, on the prayer made on behalf of the appellant, the Division Bench of the High Court extended the interim relief which was granted earlier in the writ proceeding for a period of four weeks. 12. As noted above, this Court while issuing notice had granted interim relief extending the interim protection granted by the High Court. 13. Learned senior counsel for the appellant at the outset submits that the benefit given by the statutory notification bearing No. 53/2003-Cus. dated 01.04.2003 could not have been whittled down by the departmental circular No. 10/2004-Cus. dated 30.01.2004. He submits that in terms of the notification, the goods imported into India by importers covered by the duty free credit entitlement certificate were exempted from payment of whole of the customs duty and additional duty. As per definition of the word 'goods' in the said notification, only agricultural and dairy product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile soyabean is certainly an agricultural product, crude degummed soyabean oil, even if not refined and not fit for human consumption, cannot be termed as an agricultural product. 13.4. Learned senior counsel asserts that the process of extraction of crude degummed soyabean oil from soyabean amounts to manufacture. In this connection, he has placed reliance on the Central Excise Act, 1944. 13.5. Even otherwise, it is submitted that the Handbook of Procedures (Vol. I) was amended by the DGFT through public notice No. 40/2002-07 dated 28.01.2004 in terms of the powers conferred on him under the EXIM policy of 2002- 2007. By the said notice, para 3.2.5 was inserted which clearly stated that agricultural products under Chapters 1-24 of ITC (HS) were not allowed to be taken into consideration for computation of entitlement under the duty free credit entitlement scheme. Thereafter, DGFT further amended para 3.2.5 by way of public notice No. 42/2004-2009 dated 06.01.2005 whereby DGFT allowed import of items to be covered under the scheme except the items specifically excluded. By way of the said public notice, DGFT allowed the import of all types of edible oil classifiable under Chapte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts falling under item 1-24 of ITC (HS) will not be allowed for import under the scheme. 14.1. It is submitted that import of crude degummed soyabean oil is in the nature of an agricultural product or a product of agricultural origin. It is not eligible for benefits under the scheme in terms of notification No. 53/2003. He asserts that permitting import of such a product which is otherwise an agriculture product would amount to subverting the tariff barrier. 14.2. Controverting the contention of the appellant that the product imported is not agricultural in nature, learned Additional Solicitor General has referred to the impugned judgment of the High Court which held that extraction of oil from soyabean does not strip it of its agricultural identity. 14.3. Referring to the two Bills of Entry, learned Additional Solicitor General submits that appellant itself classified the imported product under Custom Tariff Heading (CTH) 15071000 which falls under Chapter 15 of the Indian Trade Classification (Harmonized System) (already referred to as ITC (HS)). This chapter specially covers animal or vegetable fats and oils, prepared edible fats and animal or vegetable waxes. This clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in view of exclusion of agricultural and dairy products from the ambit of 'goods' covered by the said notification, the import did not appear to be eligible for the benefits under the scheme since the imported good i.e. crude degummed soyabean oil was in the nature of agricultural product. The Assistant Commissioner further observed that as per the pre-condition sheet attached to the license issued by the DGFT, the imported product must have a nexus with the product group exported. The export group name indicates 67/food products. Included in the said group of export was soyabean meal extract, whereas the product imported was crude degummed soyabean oil which did not appear to have a nexus with the exported product. Therefore, appellant was called upon to show-cause as to why the duties chargeable/leviable for imported goods should not be charged under Section 28 of the Customs Act, 1962 ('the Customs Act' hereinafter) on the goods imported duty free and hit by the exclusion clause of the notification bearing No.53/2003. Appellant was also called upon to show cause as to why interest at appropriate rate on the aforesaid duties should not be charged under Section 28AB of the Cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification, appellant was not eligible for the benefits under the scheme on the import of crude degummed soyabean oil which is in the nature of agricultural product arising out of a product of agricultural origin. The importer has therefore to discharge the duties as applicable. The Assistant Commissioner referred to para 3.7.5 of the EXIM policy and also observed that goods allowed to be imported under the scheme should have a broad nexus with the product group exported. For the purpose of import entitlement under the scheme 'broad nexus' would mean goods imported with reference to any of the products in the product group exported within the overall value of the entitlement certificate. The name of the export group indicates 67/food products. Goods exported by the appellant included non-basmati rice (E/38), sesame seeds (E/93), white sugar (E/52/79) and soyabean meal extract (E/42) while the product imported was crude degummed soyabean oil. Hence the imported good did not appear to have any broad nexus with the product group exported. Therefore, the Assistant Commissioner concluded that appellant did not appear to be eligible for the benefits under the scheme on the import of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imports. When a clarification was sought for by the DGFT, the said circular was issued clarifying that all products derived from agriculture/dairy origin are not permitted to be imported. 19.3. High Court also did not find fault with the view taken by the primary authority that the imported goods i.e. crude degummed soyabean oil had no nexus with the product group exported. What was exported was not soyabean refined oil after undergoing chemical modification but was only soyabean meal extract which had no nexus with the imported product i.e. crude degummed soyabean oil which is again not a refined oil fit for human consumption. Therefore, even though crude degummed soyabean oil might have been imported through the MMTC, that would not be of any help to the appellant. Therefore, High Court affirmed the order of the Assistant Commissioner dated 09.01.2007 denying the benefit of the scheme to the appellant under notification No. 53/2003- Cus. dated 01.04.2003 in respect of the subject Bills of Entry. 20. Before we examine the correctness or otherwise of the view taken by the High Court, it would be apposite to have an overview of the relevant legal provisions, statutory or otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange) shall be entitled to the facility of duty free credit entitlement subject to achieving a minimum annual export turnover of Rs. 25 crore (in free foreign exchange). Such status holders shall be entitled to duty free credit entitlement certificate to the extent of 10% of the incremental growth in exports. Accordingly, status holders who will achieve more than 25% growth in exports in the year 2003-04 (in free foreign exchange) as compared to the exports made in 2002-03 (in free foreign exchange) subject to a minimum export of Rs. 25 crore (in free foreign exchange) shall be entitled for duty free credit entitlement certificate @ 10% of the incremental growth in exports. The duty free credit entitlement can be used for import of capital goods, office equipment and inputs provided the same is freely importable under ITC(HS). Such goods shall be non-transferable. Goods imported against such entitlement certificate shall be used by status holder or his supporting manufacturer/job worker provided the name and address of the supporting manufacturer/job worker is endorsed on the certificate issued by RLA. 22.3. Chapter 3 of the EXIM policy 2002-2007 deals with promotional measur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt credit certificate issued under paragraph 3.7.2.1(vi) of the EXIM policy from the whole of the duty, additional duty and special additional duty of customs subject to the conditions that the certificate was issued by the licensing authority to a status holder specified in paragraph 3.7.2 of the EXIM policy and that the said certificate and goods imported against it were not transferred or sold. Paragraph 3 deals with capital goods with which we are not concerned in this appeal. However, the said certificate shall be produced before the proper officer of customs at the time of clearance for debit of the duties leviable on the goods but for the exemption. Further, the imports against the said certificate should be undertaken through the seaports mentioned in paragraph 5 of the said notification. Paragraph 5(ii) is relevant and is extracted hereunder: (5) *** *** *** *** (i) * * * * * * (ii) goods means - (a) capital goods; (b) office equipment (including computer systems, software, fax/machine, telephone); and (c) raw materials, components, intermediates, consumables and parts other than agricultural and dairy products; 25. Thereafter, the Central Board of Excise and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er vegetables with a duty of more than 30% under Chapter 7 of ITC (HS) classification of export and import items. (ii) Coconut, areca nut, oranges, lemon, fresh grapes, apple and pears and all other fruits with a duty of more than 30% under Chapter 8 of ITC (HS) classification of export and import items. (iii) All spices with a duty of more than 30% under Chapter 9 of ITC (HS) classification of export and import items (except cloves). (iv) Tea, coffee and pepper as per Chapter 9 of ITC (HS) classification of export and import items. (v) All oil seeds under Chapter 12 of ITC (HS) classification of export and import items. Further, natural rubber as per Chapter 40 of ITC (HS) classification of export and import items shall also not be allowed for import under the scheme. Import of all edible oils classified under Chapter 15 of ITC (HS) classification of export and import items, shall be allowed under the scheme only through STC and MMTC. 29. As we have noted, notification No. 53/2003-Cus. dated 01.04.2003 is a statutory notification issued under sub-section (1) of Section 25 of the Customs Act. By way of the said notification, exemption is granted when certain goods are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arises for consideration is, whether by way of the circular dated 30.01.2004 the benefits granted under the statutory notification dated 01.04.2003 could have been curtailed by expanding the exclusionary clause. 33. A two-Judge Bench of this Court in Union of India Vs. Inter Continental 2008 SCC OnLine SC 22 was considering the question as to whether the end-use verification of the products is necessary for availing the benefit of concessional rate of duty. In that case, the statutory notification bearing No.17/2001-Cus. dated 01.03.2001 provided for concessional rate of duty on crude palmolin oil. However, as per Board's circular No.40/2001-Cus. dated 13.07.2001, end-use certificate was required to be produced for allowing such benefit. This came to be challenged by the assessee by filing a writ petition in the High Court questioning the direction to produce the end-use certificate which was stated to be a new condition to the statutory notification by way of a circular. Contention of the petitioner was that the circular sought to impose a limitation on the exemption notification or tried to whittle it down by adding a new condition beyond the notification. High Court accepted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.2004. If this is accepted, it would amount to rewriting the conditions of exclusion from exempted goods statutorily provided in the notification dated 01.04.2003. This is impermissible. To that extent, circular No.10/2004-Cus. dated 30.01.2004 would be of no legal consequence. 36. Therefore, our answer to the question framed above would be that by way of the circular dated 30.01.2004, Board could not have curtailed the benefits granted to the appellant under the statutory notification dated 01.04.2003 by expanding the scope of the exclusionary clause 'other than agricultural and dairy products'. 37. This brings us to the crucial question as to whether crude degummed soyabean oil imported by the appellant is an agricultural product. The related question is, what is an agricultural product or what do we mean by an agricultural product? 38. Before we analyze the above issue, let us examine the reasonings given by the High Court in this regard. The reasonings are at paragraphs 9 and 9.1 of the impugned judgment. On an analysis of the diagram describing the manufacturing process of the appellant, High Court observed that the basic ingredient/root of the product is soyabean. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mass goes to flaker where flaking is done and these flakes are then fed to the extractor. Step 3 - The flakes are fed from one side and fresh solvent - hexane is fed from the other side, both move continuously in opposite direction. The speed of belt of extractor and feeding rate of flakes and hexane is so adjusted that complete oil gets extracted from flakes by the time flakes exit the extractor. Step 4 - Solvent containing oil called miscella is then taken to distillation unit where solvent is recovered back by distillation and condensation. Thereafter, the oil is sent to separate tank. Cake exiting from second end of extractor is cooled and then taken to toaster to remove traces of solvent. Toasted DOC (soymeal) is sent to DOC godown for storing, packing and dispatching. This extracted oil is sent to storage tank and subsequently dispatched for taken to refinery to manufacture refined oil. 41. This then is the process of conversion of soyabean into crude degummed soyabean oil. On the basis of the aforesaid process, appellant contends that a distinct commodity is manufactured. The above process has been explained by way of a diagram which we extract hereunder : 42. On the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. 46. This view was endorsed by this Court in Commissioner of Income Tax, Orissa Vs. M/s N.C. Budharaja And Company 1994 Supp (1) SCC 280. In that case this Court was considering the limited question as to whether the construction of a dam to store water (reservoir) can be characterized as amounting to manufacturing or producing an article or articles, as the case may be. The aforesaid question arose in the context of the claim of the assessee to deduction under Section 80-HH of the Income Tax Act, 1961. This Court explained that the word 'production' has a wider connotation than the word 'manufacture'; while every manufacture can be characterized as production, every production need not amount to manufacture and thereafter endorsed the meaning ascribed by this Court to the expression 'manufacture' in Pio Food Packers (supra). 47. In Commissioner of Income Tax Vs. Stanes Amalgamated Estates Ltd. (1998) 232 ITR 443, Madras High Court was examining the question on a reference made to it under Section 256(2) of the Income Tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to be 'agricultural product' or 'product of agriculture'. 49. In Jai Bhagwan Oil and Flour Mills Vs. Union of India (2009) 14 SCC 63, this Court held that the true test to ascertain whether a process is a manufacturing process producing a new and distinct article is, whether the article produced is regarded in the trade, by those who deal in it, as a marketable product distinct in identity from the commodity/raw material involved in the manufacture. 50. Again, in the case of Collector of Central Excise, Kanpur Vs. Mineral Oil Corporation (2015) 14 SCC 64, a three-Judge Bench of this Court endorsed the view taken in Delhi Cloth and General Mills Co. Ltd. (supra) and held that to amount to manufacture, a new commodity having distinct name, character or use should emerge as a result of the process of manufacture. The true test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in trade as a new and distinct commodity. 50.1. In the facts of that case, this Court observed that appellants used to bring transformer oil and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck and also as the science or art of the production of plants and animals useful to man and in varying degrees the preparation of such products for man's use and their disposal. 55.1 The expression 'agricultural purposes' refer to tilling and cultivation for the purposes of raising crops. In their widest sense, the words may include grazing as well. 56. Kerala High Court in P. Narayanan Nair Vs. Dr. Lokeshan Nair AIR 2014 Ker 141 referred to the dictionary meaning of the expression 'agricultural product' as under: 14. Agricultural product. Things which have a situs of their production upon the farm and which are brought into condition for uses of society by labour of those engaged in agricultural pursuits as contra-distinguished from manufacturing or other industrial pursuits. That which is the direct result of husbandry and the cultivation of the soil. The product is in its natural unmanufactured condition. 57. Therefore, applying the above test, we are unable to concur with the view expressed by the High Court that crude degummed soyabean oil is an agricultural product. 58. Thus, having regard to the discussions made above, we record our conclusions as under: i. The circu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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