TaxTMI 
TaxTMI 
2010 (8) TMI 384
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....oreign Trade ('DGFT'), Department of Commerce, Ministry of Commerce & Industry, Government of India are ultra vires Articles 14, 19(1)(g) and 300A of the Constitution of India and/or Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 ('FTDR Act'), the provisions of para 3.7.6 of the Foreign Trade Policy ('FTP') and Section 25 of the Customs Act, 1962. 2. The Petitioners also pray for the quashing of the Circular dated 8th May 2007 issued by the Department of Revenue, Ministry of Finance, Government of India in terms of which for the purposes of availing of duty credit, the exporter would have to demonstrate that the items sought to be imported should be an "input" in the manufacture of the exported items. Background 3. The brief facts leading to the filing of the present petition are that the FTP was announced on 31st August 2004. It contained an export incentive scheme called the Target Plus Scheme (TPS), which was effective from 1st April 2004 to 31st March 2005. The TPS was continued for one more year from 1st April 2005 to 31st March 2006. It was thereafter discontinued. The relevant provision of the TPS dealing with the eligibility, entitlement and it....
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....office equipment, professional equipment and office furniture provided the same is freely importable under ITC (HS) Classification of Export and Import items, for their own use and that of supporting manufacturers as declared in `Aayat Niryaat Form?. Import of agricultural Products listed in Chapter 1 to 24 of ITC (HS) Classification of Export and Import items expect the following shall be allowed: (i) Garlic, Peas and all other Vegetables with a Duty of more than 30% under Chapter 7 of ITC (HS) Classification of Export and Import items. (ii) Coconut, Areca Nut, Oranges, Lemon, Fresh Grapes, Apple and Pears and all other fruits with a Duty of more than 30% under Chapter 8 of ITC (HS) Classification of Export and Import items. (iii) All spices with a Duty of more than 30% under Chapter of ITC (HS) Classification of Export and Import items (except Cloves). (iv) Tea, Coffee and Pepper as per Chapter 9 of ITC (HS) Classification of Export and Import items. (v) All Oil Seeds under Chapter 12 of ITC (HS) Classification of Export and Import items. Further, Natural Rubber as per Chapter 40 of ITC (HS) Classification of Export and Import items shall also not be allowed ....
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....7E to the jurisdictional Regional Licensing Authority." 6. By a public notice dated 7th April 2005, the DGFT prescribed a form in Appendix 17D in which an application would have to be made for availing of Duty Free Export Credit ('DFEC') under the TPS for the two licencing years 2004 to 2006. At Serial No. 10 of Appendix 17D, it was clearly stated that goods i.e. inputs and capital goods should have a 'broad nexus' with the 'Export Product Group'. Thereafter, by a Public Notice No. 16 dated 4th June 2005, the earlier Appendix 17D was replaced by a new one. Para 10 of Appendix 17D as amended contained a provision in relation to the "broad nexus" and read as under: "Goods allowed to be imported under this scheme shall have a broad nexus with the products exported. For the purpose of import entitlements under this scheme, "broad nexus" would mean goods imported with reference to any product groups of the exported goods within the overall value of the entitlement certificate." 7. Consequently, notifications were issued on 8th April 2005 and 10th July 2006. The contention of the Petitioners is that the Respondents had no power or jurisdiction to impose a condition of "broad nex....
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....t. The Ministry of Law has also clarified that the term "broad nexus" with the product group is in addition to and not in substitution of the words "inputs" and "own use" in Para 3.7.6 of the Scheme. 5. The Ministry has accepted the aforesaid opinion of the Ministry of Law. Accordingly, import of goods against TPS certificates may be allowed keeping in view the said opinion discussed in paragraphs 3 and 4 above." The above circular dated 8th May 2007 has been challenged in this petition. 9. Subsequently by a Public Notice dated 21st June 2007, the DGFT further made the following changes: "In para 3.2.5 (II) second sentence, viz. 'For the purpose of import entitlements under this scheme, 'broad nexus' would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate' inserted in Handbook of Procedures (Vol.1) RE 2005 {HBP v1 (RE2005)} is hereby deleted." By the said Public Notice, the following notes were also added in para 3.2.5 (II) of the HBP: "Note 1. The words "Goods? in first sentence shall mean inputs and capital goods as permitted under Para 3.7.6 of FTP (RE2004 & RE2005). ....
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....e, liable to be quashed. Respondents' submissions 13. In reply, it is submitted by Mr.A.S.Chandhiok, learned Additional Solicitor General (ASG) appearing for the Respondents, that the term 'broad nexus' became necessary to be defined since otherwise a person exporting garments might end up importing automobile parts which could not have been used by such importer as either an input in manufacture by him or by an associate manufacturer. It is pointed out that the FTP does not use the expression 'broad nexus' which appears in the HBP. However the term in the HBP cannot be dissociated from the words 'input' and 'use' in the FTP. The intended input must have a relationship with the export product. It is submitted that the condition of the broad nexus in para 3.2.5 (II) of the HBP was clarificatory of the terms 'inputs' and 'use' in the FTP and any interpretation so as to dissociate 'inputs' from 'use' in the exported goods would be contrary to the provisions of the FTP. The Law Ministry had therefore clarified that "the holder of Target Plus Scheme certificate is permitted to import an item under the Target Plus Scheme and get the same processed into possible resultant products o....
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....of its powers under Article 226 of the Constitution. By doing so, this Court is not judicially reviewing the policy of the Government of India but only the procedure adopted by it to change the policy which might incidentally prejudice an exporter. Is the procedure adopted for change in the FTP lawful? 18. Mr. Nankani submitted that there was nothing in para 3.7.6 of the FTP to indicate that the goods imported would necessarily have to be used as inputs in the goods exported. He submitted that the scheme was in fact one of a cash incentive as explained by the Jt. DGFT itself in its counter affidavit filed in W.P. (C) No. 12603 of 2006 in this Court (titled Indo Afghan Chamber of Commerce v. Union of India). A change in the policy to the detriment of the Petitioners could not be brought about through Circulars and Forms but had to be only by way of a Notification under Section 5 of the FTDR Act. He submitted that without prejudice to the submissions of the Petitioners regarding the validity of the Circular dated 8th May 2007, as long as the Petitioners were able to show that the goods imported constituted an input and had a broad nexus to any product group of exported goods, ....
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....ature. It was explained that under the FTDR Act, one finds a clear demarcation between an "amendatory clarification and a clarification." It was further observed: "Section 5 of the FTDR Act contemplates amendment to the export and import policy under the FTDR Act. It empowers only the Central Government to make such amendment. This power is not given to the DGFT." 22. Turning to the facts of the present case, this Court finds that even if one were to accept the argument of the learned ASG that the "broad nexus" requirement was justified keeping in view the overall objective of the FTP, the further change by way of the Circular dated 21st June 2007 to restrict the import to only that goods that constituted an `input' in the exported product is indeed impermissible. The condition is unduly restrictive and has the effect of negating the accrued benefit retrospectively. If one went by the Public Notice dated 4th June 2005, then it was clear that "for the purpose of import entitlements under the Scheme, 'broad nexus' would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate". It appears to this ....
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....for status holders under the then EXIM Policy allowed the utilization of the reward on imports that had nexus with product group. This has been elaborated in Policy Circular 27(RE-2005)/2004-2009 Dated: 05-10-2005. A copy of the Policy Circular 27(RE-2005)/2004-2009 Dated: 05-10-2005 is annexed hereto and marked as Annexure R-1. However, it is clarified that 'Broad Nexus' means goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate." (emphasis supplied) 24. Thereafter in para 8 it was stated: "It is submitted that the actual user is defined under Para 9.4 as "Actual User" means an actual user who may be either industrial or non-industrial. Para 9.5 inter alia reads as "Actual User (Industrial)? means a person who utilizes the imported goods for manufacturing in his own industrial unit or manufacturing for his own use in another unit including a jobbing unit" and Para reads as "9.6 „Actual User (Non-Industrial)? means a person who utilizes the imported goods for his own use in- (i) any commercial establishment carrying on any business, trade or profession; or (ii) any laboratory, S....