2015 (12) TMI 1298 - AT - Customs

Denial of the benefit of the exemption Notification No.32/2005-Cus. Dt. 08/04/2005 - nexus between the imported and exported goods - Difference of opinion - In view of the difference of views between the two Members, the following points emerge for consideration by a Third Member (i) Whether the appellants are covered by the Target Plus Scheme, read with the provisions of Handbook of Procedure, in respect of the imports of RBD Palmolein oil made by them as against the export of Rice and Wheat; (ii) Whether the appellants have satisfied the criteria of broad nexus between the imported and exported goods; (iii) Whether the disputed issue is covered by the decisions of the Hon ble High Court of Bombay and the Hon ble High Court of Delhi, as observed by Member(Judicial) or the same is distinguishable in the facts and circumstances of the case, as held be Member(Technical); and (iv) Whether the appeal has to be allowed as held by Member(Judicial) or to be rejected as held by Member(Technical).

Issues Involved:
1. Applicability of the Target Plus Scheme.
2. Nexus between exported goods and imported goods.
3. Satisfaction of the actual user condition.
4. Interpretation of relevant legal provisions and circulars.

Detailed Analysis:

1. Applicability of the Target Plus Scheme:
The Target Plus Scheme was introduced in the Foreign Trade Policy (FTP) in 2005 to reward Star Export Houses for achieving significant export growth. The scheme allows these houses to use duty credit certificates for importing inputs, capital goods, and certain agricultural products. The dispute centers on whether the appellant, a public sector undertaking engaged in imports and exports, is entitled to the benefits of this scheme for importing Palmolein oil against the export of rice and wheat.

2. Nexus Between Exported Goods and Imported Goods:
The core issue is whether there is a "broad nexus" between the exported goods (rice and wheat) and the imported goods (Palmolein oil). The FTP and Handbook of Procedures (HBP) initially defined "broad nexus" as goods falling within the same product group. However, subsequent amendments and circulars attempted to narrow this definition, requiring the imported goods to be inputs for the exported products. The appellant argued that both rice, wheat, and Palmolein oil fall under the same product group (Food Products-E), thus satisfying the broad nexus requirement.

The appellant relied on decisions from the Bombay and Delhi High Courts, which held that the broad nexus condition is satisfied if the exported and imported goods fall under the same product group. The courts also ruled that there is no requirement for the imported goods to be inputs for the exported products. The Tribunal agreed with this interpretation, noting that the legislative intent of the scheme is to promote exports by rewarding high-performing export houses.

3. Satisfaction of the Actual User Condition:
The appellant was required to demonstrate that the imported goods were used by them or their supporting manufacturers. The Commissioner denied the benefit on the grounds that repacking Palmolein oil into 1 kg packs did not constitute "manufacture" under the Central Excise Act. However, the Tribunal held that the definition of "manufacture" in the FTP should be applied, which includes processes like repacking. The Tribunal concluded that the appellant satisfied the actual user condition as the imported oil was processed and sold in retail packs.

4. Interpretation of Relevant Legal Provisions and Circulars:
The Tribunal examined various circulars issued by the DGFT and CBEC, which attempted to restrict the scope of the scheme. The Bombay High Court in Essel Mining & Industries Ltd. and the Delhi High Court in Indian Exporters Grievance Forum quashed these circulars, ruling that they were ultra vires the FTP. The Tribunal followed these decisions, holding that the broad nexus requirement is satisfied if the imported and exported goods fall under the same product group.

Conclusion:
The Tribunal concluded that the appellant is entitled to the benefits of the Target Plus Scheme. The imported Palmolein oil and exported rice and wheat fall under the same product group, satisfying the broad nexus requirement. The appellant also met the actual user condition by processing the imported oil into retail packs. Consequently, the Tribunal set aside the impugned order and allowed the appeal with consequential relief to the appellant.

Separate Judgment by Member (Technical):
The Technical Member disagreed, emphasizing that the broad nexus requirement should not be interpreted too liberally. The member argued that the imported Palmolein oil does not have a direct or indirect nexus with the exported rice and wheat. The member concluded that the appellant failed to establish the required broad nexus and therefore is not entitled to the benefits of the scheme. This difference of opinion led to the matter being referred to a third member for resolution.

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