2012 (5) TMI 328 - HC - Customs

Target Plus Scheme - Foreign trade policy - entitlement to credit at the rate of 15% of the incremental growth - requirement to indicate the name of the export product - circular dated on 8 May 2007 - actual user condition - sale of goods (almonds) in the open market. - misuse of the Target Plus Scheme - Held that - there should exist a broad nexus between the goods which are imported and the goods which are exported - broad nexus would mean goods imported with reference to any of the product groups of the imported goods within the overall value of the entitlement certificate. - the goods imported against the certificate shall not be transferred or sold. - Paragraph 3.7.6 on its plain construction does not incorporate a requirement that the goods which are imported as inputs must find physical incorporation in the export products in relation to which the benefit of the Target Plus Scheme is claimed. The Foreign Trade Policy it is well settled is referable to the provisions of Sections 4 and 5 of the Foreign Trade Development and Regulation Act 1992. The policy cannot be amended by an administrative circular. - the circular does not in this case supplement the policy or fill up an interstitial space. - the conditions which were stipulated by the circular dated 8 May 2007 were ultra vires paragraph 3.7.6 of the Foreign Trade Policy and Customs notification dated 8 April 2005 (Customs Notification 32/05).

Summary

Issues Involved:
1. Validity of the circular issued by the Central Board of Excise and Customs on 8 May 2007.
2. Interpretation of the terms "inputs" and "use" in paragraph 3.7.6 of the Foreign Trade Policy.
3. Whether the circular amends the Foreign Trade Policy impermissibly.

Detailed Analysis:

1. Validity of the Circular Issued by the Central Board of Excise and Customs on 8 May 2007:
The Petitioner challenged the validity of the circular dated 8 May 2007, which imposed conditions on the utilization of duty credit certificates under the Target Plus Scheme. The Petitioner argued that the circular unlawfully amended the Foreign Trade Policy by introducing a condition that the imported input must be used in the manufacture of the exported product for which the Target Plus Scheme benefit was sought. The Court held that the circular was ultra vires paragraph 3.7.6 of the Foreign Trade Policy and the Customs notification dated 8 April 2005. The circular imposed a substantive condition at variance with the policy, which was not permissible as an administrative circular cannot amend the policy.

2. Interpretation of the Terms "Inputs" and "Use" in Paragraph 3.7.6 of the Foreign Trade Policy:
The Court examined paragraph 3.7.6 of the Foreign Trade Policy, which allowed duty credit to be used for the import of any inputs, provided they were freely importable and for the importer's own use. The Court found that this paragraph did not require the imported inputs to be used in the manufacture of the exported product. The policy only stipulated that the imported goods must be inputs and used by the importer, without specifying that they must be incorporated into the export product. The Court noted that the requirement of a "broad nexus" between imported and exported goods, as stated in the Handbook of Procedures, was fulfilled by the Petitioner.

3. Whether the Circular Amends the Foreign Trade Policy Impermissibly:
The Court concluded that the circular dated 8 May 2007 introduced a new requirement that was not present in paragraph 3.7.6 of the Foreign Trade Policy. This requirement mandated that the imported inputs must be used in the manufacture of the exported products, which was not a condition in the original policy. The Court emphasized that the Foreign Trade Policy, governed by Sections 4 and 5 of the Foreign Trade Development and Regulation Act, 1992, could not be amended by an administrative circular. The circular did not merely supplement the policy but imposed a new substantive condition, making it impermissible.

Conclusion:
The Court quashed and set aside the circular dated 8 May 2007 and the consequential assessment. The Petitioner was allowed to import goods by availing of the benefit of the notification dated 3 March 2005, as per the interim order. The assessment was directed to be carried out afresh in accordance with the law. The Court did not comment on the judgment of the Delhi High Court, as it independently interpreted the relevant terms of the Foreign Trade Policy and associated notifications and circulars.