Customs exemption cannot be narrowed by circular where processed soyabean oil is treated as a distinct manufactured product.

A departmental circular cannot expand the exclusion contained in a statutory customs exemption notification or narrow the benefit conferred by it. Crude degummed soyabean oil, obtained through processing that gives it a distinct commercial identity, is a manufactured product and not an agricultural product merely because it originates from soyabean. On that basis, the imported goods fell within the notification and the exemption could not be denied by reference to an enlarged circular-based exclusion or by treating the product as the same as the raw agricultural material.

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Issues: (i) whether the departmental circular could enlarge the exclusion in the exemption notification so as to deny the benefit of duty free credit entitlement; (ii) whether crude degummed soyabean oil is a manufactured product distinct from soyabean and not an agricultural product; and (iii) whether the appellant was entitled to exemption under the relevant customs notification.

Issue (i): whether the departmental circular could enlarge the exclusion in the exemption notification so as to deny the benefit of duty free credit entitlement.

Analysis: The exemption flowed from the statutory notification issued under the Customs Act. The notification excluded only agricultural and dairy products. The later circular expanded that exclusion to all products derived from agricultural or dairy origin, including crude edible oil. A circular cannot add a new restriction or whittle down the scope of a notification issued under statutory power. The administrative clarification therefore could not rewrite the exemption condition.

Conclusion: The circular could not validly expand the exclusion and had no legal consequence to that extent, in favour of the assessee.

Issue (ii): whether crude degummed soyabean oil is a manufactured product distinct from soyabean and not an agricultural product.

Analysis: The process of extracting crude degummed soyabean oil from soyabean involves multiple stages of treatment and transformation. A process amounts to manufacture when a new commodity emerges with a distinct name, character, use, and trade identity. The end product is not the same as the raw material merely because it remains unrefined or not fit for direct human consumption. Applying the common parlance understanding of agricultural product, a product that is commercially and functionally distinct from the agricultural raw material cannot be treated as the same agricultural product.

Conclusion: Crude degummed soyabean oil is a distinct manufactured product and is not an agricultural product, in favour of the assessee.

Issue (iii): whether the appellant was entitled to exemption under the relevant customs notification.

Analysis: Once the circular was held ineffective to enlarge the exclusion, and crude degummed soyabean oil was found not to be an agricultural product, the imported goods fell within the ambit of the notification. The denial of benefit on the grounds of agricultural exclusion and lack of nexus with the export product could not survive the correct legal characterisation of the imported goods and the scheme.

Conclusion: The appellant was entitled to the benefit of the exemption notification, in favour of the assessee.

Final Conclusion: The denial of duty free credit entitlement was unsustainable, and the demand raised against the appellant could not be maintained.

Ratio Decidendi: A departmental circular cannot enlarge the exclusion in a statutory exemption notification, and a product emerging from a manufacturing process that acquires a distinct commercial identity is not to be treated as the same agricultural product as its raw material for the purpose of such exemption.

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