2013 (8) TMI 131 - HC - Customs

Nature of entitlement duty credit - export incentive under the scheme called the Target Plus Scheme (TPS) - Nexus with import - Whether a change to the duty credit entitlements announced by the FTP can be brought about without amending such policy and by issuing Circulars and Notifications or Forms Held that - credit can be used for import of any inputs, capital goods including spares, office equipments, professional equipment and office furniture. Such imports can be used not only by the exporter, but even by the supporting manufacturer. 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. 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.

Issues Involved:
1. Maintainability of the petition.
2. Procedure adopted for changing the Foreign Trade Policy (FTP).
3. Interpretation of "broad nexus" in the context of the Target Plus Scheme (TPS).
4. Validity of Circulars and Public Notices issued by the Directorate General of Foreign Trade (DGFT).

Issue-wise Detailed Analysis:

1. Maintainability of the Petition:
The court addressed a preliminary objection raised by the Additional Solicitor General (ASG) regarding the locus standi of the petitioners. It was argued that the petitioners did not have the standing to challenge the impugned Circulars and Notifications. The court rejected this objection, stating that Petitioner No. 1, a registered society representing export houses and star trading houses, had the right to represent the collective interest of its members. This approach avoids multiple litigations by individual members seeking identical relief. The court found the facts in the cited case of Vaas Exports v. Union of India to be different and not applicable to the present case.

2. Procedure Adopted for Changing the FTP:
The court examined whether changes to the duty credit entitlements announced by the FTP could be brought about without amending the policy through Circulars and Notifications. The court held that the procedure adopted by the government could be reviewed under Article 226 of the Constitution. The court emphasized that it was not reviewing the policy itself but the procedure adopted to change the policy, which might prejudice an exporter.

3. Interpretation of "Broad Nexus":
The court analyzed the term "broad nexus" within the context of the TPS. Initially, the TPS allowed duty credits to be used for importing various inputs, capital goods, and office equipment, provided they were freely importable under the ITC (HS) classification. The term "broad nexus" was introduced to ensure that imported goods had a relationship with the exported goods. However, subsequent Circulars and Public Notices attempted to narrow this interpretation, restricting imports to only those goods that constituted "inputs" in the exported products. The court found that this restrictive interpretation was impermissible and beyond the scope of the DGFT's powers.

4. Validity of Circulars and Public Notices:
The court scrutinized various Circulars and Public Notices issued by the DGFT, including Circular No. 21/2007-Cus., dated 8-5-2007, and Public Notice No. 9/2007, dated 21-6-2007. These documents sought to clarify and restrict the scope of "broad nexus" and the types of goods that could be imported under the TPS. The court held that these Circulars and Notices were ultra vires para 3.7.6 of the FTP and could not retrospectively take away benefits that had already accrued to exporters. The court emphasized that any significant change to the FTP could only be brought about through a notification under Section 5 of the FTDR Act, not through administrative Circulars or Public Notices.

Separate Judgments:
The court referred to similar judgments by the Bombay High Court in Narendra Udeshi v. Union of India and Essel Mining & Industries Ltd. v. Union of India, which invalidated attempts by the DGFT to amend the EXIM Policy through Circulars and Public Notices. These judgments supported the view that substantive changes to the FTP could not be made through administrative actions.

Conclusion:
The court dismissed the appeal, upholding the judgment of the learned Single Judge. It ruled that the impugned Circulars and Public Notices unduly restricted the benefits under the TPS and were issued beyond the DGFT's powers. The court quashed the Circulars and Public Notices, reaffirming that any changes to the FTP must be made through proper notifications under Section 5 of the FTDR Act. The appeal was dismissed with costs.

← Previous Next →