Foreign Trade Policy 2004-09: second-hand photocopying machines stayed freely importable, and DGFT circulars could not alter policy.

Second-hand photocopying machines imported for service-sector use under the Foreign Trade Policy 2004-09 were treated as freely importable capital goods, not restricted consumer goods, because the relevant policy permitted second-hand capital goods during the material period and the later restriction operated only prospectively. DGFT circulars could not reclassify those imports or impose a restriction, since amendment of the Foreign Trade Policy lay exclusively with the Central Government under the governing statute. The challenge to the imports therefore failed, and the policy position in favour of the assessee remained intact.

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Issues: (i) Whether second-hand photocopying machines imported during 2004 and 2005 for use in the service sector were to be treated as capital goods freely importable and not as restricted consumer goods. (ii) Whether DGFT circulars could alter the policy position or reclassify the goods without an amendment by the Central Government.

Issue (i): Whether second-hand photocopying machines imported during 2004 and 2005 for use in the service sector were to be treated as capital goods freely importable and not as restricted consumer goods.

Analysis: The imported goods fell within the regime of the Foreign Trade Policy 2004-09, under which import of second-hand capital goods was permitted freely. The Supreme Court decision relied upon in the judgment held that photocopying machines used for rendering services were capital goods and that the relevant policy provisions did not restrict their import during the material period. The later restriction introduced by Notification No. 31 dated 19.10.2005 operated only prospectively and did not govern earlier imports.

Conclusion: The imported second-hand photocopying machines were capital goods freely importable, and the challenge on this issue fails against the Revenue.

Issue (ii): Whether DGFT circulars could alter the policy position or reclassify the goods without an amendment by the Central Government.

Analysis: Under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, the power to amend the Foreign Trade Policy vested exclusively in the Central Government, while DGFT could only issue clarifications. The judgment applied the Supreme Court's view that policy circulars could not convert goods from the free category to the restricted category, and that any such change required a formal amendment to the policy. Accordingly, the DGFT clarification could not override the policy position applicable to the imports in question.

Conclusion: The DGFT clarification could not reclassify the imports or impose a restriction contrary to the policy, and this issue is also decided against the Revenue.

Final Conclusion: The substantial questions of law were answered against the Revenue, and the appeals were dismissed, leaving the assessee's position undisturbed.

Ratio Decidendi: For imports governed by the Foreign Trade Policy 2004-09, second-hand capital goods remained freely importable, and a DGFT circular could not amend or restrict that policy, since reclassification from free to restricted imports could be done only by a valid amendment by the Central Government under the governing statute.

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