TaxTMI 
TaxTMI 
2016 (2) TMI 1391
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.... the duty involved. 2. Before we go into the facts involved in the present case, we would like to refer to the Target Plus Scheme as also the notification in question, whose interpretation is involved in the present case. The said Target Plus scheme was introduced in the Foreign Trade Policy (FTP) in the year 2005. The said scheme is available to all Star Export Houses, which have achieved a minimum export turn over in free foreign exchange of Rs. 10 crores in the previous licensing year. The objective of the said scheme is to accelerate growth in exports by rewarding Star Export Houses who have achieved a quantum growth of exports. In terms of the said scheme, high performing Star Export Houses are entitled for a duty credit based on incremental exports substantially higher than the general annual export target fixed.In terms of the said scheme, the Star Export Houses entitled to the said scheme are allowed to use the duty credit certificates given by the Director General of Foreign Trade (DGFT) for import of any inputs, capital goods including spares, office requirements, professional equipment and office furniture provided the same is freely importable under ITC(HC) Classificat....
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.... imported with reference to any of the product groups of the exported group within the overall value of the entitlement certificate. However the said para 3.2.5 was further amended by DGFT Public Notice No.9(RE-2007)/2004-09 dt. 21/06/2007 and the words "For the purpose of import entitlements under the scheme, 'broadnexus' would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate" were deleted. As a result of the said amendment, the goods allowed to be imported were required to have a broad nexus with the products exported. For better appreciation of the said clauses, we reproduce the same:- Before amendment: 3.2.5. Target Plus Scheme I ...... ....... II Goods allowed to be imported under this scheme shall have a broad nexus with the products exported. For the purpose of import entitlementsunder 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. After amendment: 1. In Para 3.2.5(II) second sentence, viz. 'For the purpose of import entitle....
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....fied that in your case, you are permitted to import Almonds (dry fruits) under the Target Plus Scheme and get the same processed/converted from any processor of your choice into possible resultant product(s) before selling in the domestic market. This clarification is issued with the approval of DG on file." The above circular was subsequently withdrawn by the DGFT and a new circular dt. 08/05/2007 was introduced detailing as under:- "3. The matter has been examined in consultation with the Ministry of Law (MOL). After examination of the provisions of Para 3.7.6 of the FTP and Para 3.2.5 (II) of the HBP,the MOL has opined that the FTP does not use the expression "broad nexus" and,therefore, the same cannot be dissociated from the words "input" and "use" mentioned in the Policy. The MOL has categorically stated that the addition in Para 3.2.5 (II) of the HBP is to facilitate the search for "inputs" and "use" and anyinterpretation so as to dissociate the import from the "inputs" and "use" in the export goods would make it ultra vires the FTP. The MOL has further stated that the words "inputs" and "use" cannot be brushedaside and have to be in focus for the intended import.Toget....
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....t. Whereas SION will act as a prima facie evidence of'Inputs', the exporter is not debarred from satisfying the authorities that there is a 'broad nexus' between the intended import item as an 'input' with the export product, both falling within the same product group, it was also clarified that the holder of TPS certificate is permitted to Import an Item under the TPS and get the same processed into possible resultant products only if the same has a 'broad nexus' with the product group as an 'input' in the product exported for which the TPS benefit is sought. 6. As is seen from the above provisions of law, the Target Plus Scheme allows Star Export Houses to import goods by debiting the duty leviable thereon from the duty credit certificates issued by DGFT, in relation to the exports made by them prior to the date of imports. The dispute in the present appeal rallies around the scope of the expression "broad nexus" of the imports which are made against the exports. 7. Now, we can advert to the facts of the present case, which are undisputed. The appellant made exports of rice and wheat and procured the duty credit certificates from DGFT. S....
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....ssion "product group" nowhere stands defined and for considering the same, one has to go to the Input and Output Norms. By taking us to the said norms, he submits that rice and wheat as also the palmolein oil fall under the same product group E(Food Products). As such, he submits that as long as the exported and imported items fall under the same product group, they have to be held as having broad nexus, thus satisfying the condition as contained in Para 3.2.5 of the HBP. He further submits that the said para, prior to its amendment in the year 2007, specifically clarified and laid down a definition of broad nexus as both the items being falling under the same product group but even after the deletion of the said definition, the broad nexus element condition has to be established and the same can be established only by referring to the product group. 9.2. Learned advocate submits that the disputed issue has been the subject matter of the Hon'ble Bombay High Court as also Hon'ble Delhi High Court. By drawing our attention to the Hon'ble Bombay High Court'sdecision in the case of Essel Mining & Industries Ltd. Vs UOI [2011 (270) ELT 308 (Bom.)], he submits that all t....
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.... condition as a reason for rejecting their claim of exemption. The adjudicating authority has observed that even in terms of the notification in question, the merchant exporter is entitled to get the imported goods manufactured through the supporting manufacturers. However he has held that inasmuch as the activity of packing of palmolein oil in 1 kg. Packs, directly out of the pipelines or tanks would not be covered by the definition of manufacture, the benefit cannot be extended. By drawing our attention to Notification No.32/2005-Cus., Condition No.3, he submits that the only restriction is that the goods imported against the duty credit certificate shall not be transferred or sold. The proviso to the said condition further expands the scope by laying down that where the goods are imported by a merchant exporter having supporting manufacturers, whose name and address is specified on the said certificate, the said goods may be utilised by the said supporting manufacturers. From this, he draws that there is no condition of manufacture prescribed in the notification. It simplisitor says that if the imported goods are to be further manufactured through the supporting manufacturers, e....
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....ard supply through public distribution system. The said Palmolein oil imported by the appellant in liquid form was pumped directly from the vessels to the storage points of their supporting manufacturers M/s. Ruchi Infrastructure Ltd., M/s. Acalmar Oils and Fats Ltd. and their other job workers for further packing of the same in 1 litre pouches. He submits that in terms of the Target Plus Scheme, the importer can import items for THEIR OWN USE OR THAT OF SUPPORTING MANUFACTURERS as declared in Aayaat Niryaat Form. By drawing our attention to the provisions of Para 3.2.5 of HBP Vol.I, he submits that the goods imported under the said scheme must have broad nexus with the products exported. Prior to the amendment of the said para, the same read as "broad nexus" and broad nexus would mean goods imported with reference to any of the product groups and the exported goods within the overall value of the entitlement certificate. He further agreed that even after the amendment, the criteria of broad nexus are required to be established. Inasmuch as the imported palmolein oil is neither an input nor is related to the exported goods, which was rice, wheat etc., the same should be held as hav....
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....r E which covers food products. There is general note to these input output norms which states a) norms have been put with a view to facilitate determination of the proportion of various inputs which can be used or are required in the manufacture of different resultant products . In many cases resultant products and the inputs have been described in generic terms. The applicants shall, therefore, ensure that the goods sought for import and actually imported are those which are used / required in the export product. The items allowed for the import in the licence shall be co-related with the description of the export product in the Shipping Bill by the exporter. Forexample,if the input allowed in the norms is relevant fabrics, only the specific types of fabrics i.e polyester or nylon used in the export product shall be allowed. Wherever a specific norm has been provided the same will prevail over the generic norm laid down, if any. If the application is based on the generic norm, specific reason for applying under the generic norms should be clearly stated. So it is clear that only inputs which are used/required in the exported product can be imported. The product group as re....
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....heading for items to be imported which has broad nexus with the food items exported in their relevant sub headings. The interpretation of the two Hon'ble High Court judgements can not lead to an interpretation to import diesel coal/coke mustard oil phosphoric acid etc against export of biscuits which belong to E-5 of export product group and the items of import belonging to E-127 of the product group. Similarly the import of RBD Palmolein belonging to E-112 can not be allowed against export of rice/wheat belonging to E-38. In the case of M/s.MMTC against export of Rice and wheat, RBD Palmolein cannot be imported as there is no broad nexus between the item of export and import . So the import of Palmolein has no nexus with wheat or rice or in anything similar to the goods exported by MMTC. Thus M/s.MMTC fails to satisfy the conditions of broad nexus between the item exported and imported. In view of the above he submits that the appellant has no case and accordingly prays for upholding the impugned order of the Commissioner. 10.2. As regards the second condition of the goods being used by the importer himself, he submits as under:- In the present case M/s.MMTC have n....
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....cided in the present case is as to whether the import of Palmolein oil as against the export of rice and wheat is covered by the Target Plus Scheme introduced in the FTP and whether the appellant is entitled to pay duty on the imported goods, by using the duty credit certificates issued by the DGFT. As we have seen the Target Plus Scheme was formulated in Para 3.7.1. of the FTP for the year 2004-09 with an intention to accelerate the growth of exports, by rewarding the various star export houses. Such reward to the export houses was in the nature of the duty credit certificates to be issued by DGFT in the light of the incremental growths of exports. It is no doubt and admitted fact in the present case that the appellant is a star export house exporter and such duty credit certificates were given to them by the DGFT. The issue narrows down only to the use of the said duty credit certificates for payment of duty on the imported palmolein oil as against the export of rice and wheat. 13. Revenue has not accepted the appellant's stand on the ground that palmolein oil cannot be imported against the export of rice and wheat inasmuch as there is no nexus between the imported and expor....
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....broad'. As such, it is the broad nexus between the imported and the exported item which is to be looked into. After the amendment in Para 3.2.5 of the HBP, which explains that how the broad nexus has to be arrived at, there is no rule/section/para, anywhere providing any guidance as to how the broad nexus has to be established. 17. There are various circulars issued by DGFT as also by the CBEC. First circular of DGFT was issued on 01/08/2006 wherein they clarified that the broad nexus would be established as long as the imported and exported items fall under the same product group. This reflects upon the understanding of the concerned authorities. However the said circular was subsequently changed and replaced by a circular dt. 05/06/2008 wherein the DGFT laid down a list of goods which may be imported under the said scheme. As regards the inputs, it was said that the same are importable if having any nexus with the export products - (Para 3.2.5 of HBP). Subsequently the CBEC issued a circular being Circular No.21/2007-Cus. dt. 08/05/2007 laying down that the expression "broad nexus" appearing in para 3.2.5 of the HBP cannot be disassociated from the words "inputs" and "use" m....
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....e overall value of the entitlement certificate. There is no dispute before the Court that this requirement under the Handbook of Procedures has been dulyfulfilled. No submission to the contrary has been urgedbyCounsel for the Respondents. The fact that the goods imported were required by the Petitioner for its own use has not been disputed before the Court by Counsel for the Respondents. But the case of the Respondents is that the requirement which is stipulated in the circular dated 8 May 2007 is that there should not only be a broad nexus of the goods imported with reference to the product group of the exported goods but thatthe goods imported must constitute an input in relation to the very products which have been exported. Now, reading paragraph 3.7.6 of the Foreign Trade Policy, it is evident that an eligible exporter is entitled to utilize duty credit in the import of any inputs , provided (i) they are freely importable; and (ii) the inputs are imported by importers for their own use. Paragraph 3.7.6 does not stipulate that the goods which are imported must be inputs for the manufacture of the export product in relation to which the benefit of the Target Plus Scheme is claim....
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....h 3.7.6 of the Foreign Trade Policy. In that view of the matter, it is not possible to accept the contention of the Respondent that the conditions which were imposed by the circular dated 8 May 2007 were implicit in paragraph 3.7.6 of the Foreign Trade Policy. We, therefore, come to the conclusion that the conditions which were stipulated by the circular dated 8 May 2007 were ultra vires paragraph 3.7.6 of the Foreign Trade Policy and Customs notification dated 8 April 2005 (Customs Notification 32/05). 19. The facts of the case before the Hon'ble High Court have to be considered for the purpose of taking a decision in the present case. It is seen that the assessee in that case exported iron ore and obtained the duty credit certificates from DGFT. The same were sought to be used by the assessee for payment of duty of customs in respect of imports of Molybdenum concentrates. Admittedly, imports of Molybdenum concentrates cannot be held to be an input for the exported item iron ore. Learned AR, at this stage, drew our attention to the fact that the Molybdenum concentrate which was imported by the assessee in that case was an input required for the further manufacture of Ferro M....
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.... input in the exported product is indeedimpermissible. The condition is unduly restrictive and has the effect of negating the accrued benefit. The Court further observed that the subsequent Circular dt. 08/05/2007 issued by the CBEC and Public Notice dt. 21/06/2007 issued by the DGFT, in the garb of clarifying the term 'broad nexus', unduly restricted the meaning of the inputs to only those inputs used in the manufacture of goods exported. This amounts to travelling beyond what is provided in para 3.7.6 of FTP and ultra vires the powers of DGFT. Such a change could have been brought only by amending the law and by way of issue of public notices. Accordingly the Hon'ble Court observed as under:- 27. Given the objective ofproviding an incentive to exporters, para 3.7.6 of the FTP can reasonablybe interpreted to require an exporter to show that the goods imported should have a "broad nexus" with reference to any product group of the exportedgoods within the overall value of the entitlement certificate. The word "nexus" obviously refers to a largergroup of similar goods and not the very exported goods itself. Consequently the impugned circulars and notice that purported t....
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....d. 21. When we examine the issue in the light of the law declared by the Hon'ble Bombay High Court as also the Hon'ble Delhi High Court, it becomes clear that the imported items would have broad nexus with the exported goods as long as the same fall under the same product group. No contra decisions stand shown to us by the Revenue, in support of their plea that the imported items must be inputs for exported goods. 22. We also may deal with the contention of the learned AR drawing our attention to the Delhi High Court's decision wherein it stand observed that -"The word 'nexus' obviously refers to a larger group of similar goods and not the very exported goods itself". From here he has sought to draw a concept that similar means the goods associated with the exported goods. However we find that general meaning of similar, as understood in common parlance, is the goods of like nature. Neither does it mean that the "same very goods" nor "identical goods" nor "the goods used in exported goods". In fact, we find that the said observation made by the High Court supports the assessee's stand that the nexus would refer to larger group of similar groups. This obvio....
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....oduct group i.e. E-Food products, they have to be held as having broad nexus thus satisfying the condition of Target Plus Scheme. 25. The Commissioner has also held against the appellant on the ground that the imported oil, which was subsequently packed by them into the retail packs of 1 kg., through their supporting manufacturers, does not satisfy the user condition. It is seen that while holding so, Commissioner has referred to the definition of manufacture in terms of Central Excise Act. By referring to Chapter Note 5 of Chapter 15, which provided a deemed manufacture concept by laying down that the repacking of goods from bulk packs to retail packs would amount to manufacture. By relying upon the Tribunal's decision in the case of Ammonia Supply Co. (supra) which laid down that packing of 1 kg. packs directly from the tankers would not be covered by the deemed definition of manufacture as appearing in Chapter Note 5 of Chapter 15, the Commissioner in the present case has held that inasmuch as the supporting manufacturers were packing the goods from the tankers directly, the same would not amount to any manufacturing activity. 26. It stands contended by the learned advocat....
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.... Though no support of any decisions to hold that the legal provisions should be interpreted in the light of the language used therein and no extraneous condition can be introduced for the same is required but one such reference can be made to Hon'ble Supreme Court's decision in the case of Hemraj Gordhandas Vs. H.H. Dave [1978(2) ELT J 350 (SC)]. 28. We also find favour in the appellant's alternative submissions that even if the concept of manufacture has to be examined, the same should be in the light of the definition of manufacture as appearing in FTP. The said definition is as under:- "manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name character or use and shall include processes such as refrigeration, re-packing, polishing, labeling, re-conditioning repair, remaking, refurbishing, testing, calibration, re-engineering. Manufacture, for the purpose of FTP,shall also include agriculture, aquaculture, animal husbandry,floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining. 29. The adjudicating authority has not considered the manuf....
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....r: Ashok K Arya: 32. Heard both parties in detail. 33. They have narrated the facts, which are also available on record for consideration. Here the main crux is the entitlement to the benefit of the Notification No.32/2005-Cus. dt. 08/04/2005 where alongwith other conditions, the main conditions which require discussion are: a. that the goods imported have to satisfy the definition(meaning) of the wording 'goods' as given in the Explanation clause (i) to this notification; whether the subject goods qualify what the 'goods' means here; and b. that the goods are not to be transferred or sold. In case of the goods imported, the Explanation (i) to the said Notification says as below: Explanation (i) "goods" means any inputs, capital goods including spares, office equipment, professional equipment, office furniture and agricultural products listed in Chapters 1 to 24 of the First Schedule to said Customs Tariff Act as may be notified by DGFT from time to time, which are freely importable under the Foreign Trade Policy. 34. Here the appellant namely M/s. MMTC Ltd. through their learned advocate, Shri G. Shivadass, say that they are entitled to import "any inp....
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....similar goods (emphasis supplied) and not the very exported goods itself. Consequently the impugned circulars and notice that purported to "clarify" the term "broad nexus", i.e. the impugned circular dated 8 th May 2007, the Public Notice dated 21 st June 2007 and the further circular dated 19 th December 2007, travelled beyond what was envisaged by para 3.7.6 of the FTP and severely restricted the benefit thereunder.It was a significant change that could be brought about only through a notification under Section 5 FTDR Act.The said circulars and public notice were, therefore, ultra vires para 3.7.6 of the FTP. Further they sought to retrospectively take away a benefit that had accrued to the exporters which cannot but be viewed as unreasonable in the context.The impugned circular dated 8 th May 2007, the Public Notice dated 21 st June 2007, the further circular dated 19 th December 2007 and the amended para 3.2.5 of the HBP are accordingly quashed." 35.1. Here I would like to draw attention where the learned Single Judge in above quote refers to the word 'nexus' and says that the word 'nexus' obviously refers to a larger group of similar goods and not the very ex....
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....preparation and finalization of this by the Ministry of Commerce /DGFT and their staff. 36.1.1. From above, we find that against export of Rice / Wheat, one can import 1. Canvas / Jute 2. LDPE / HDPE / PP Granules 3. Printing Ink 4. Art Paper and against export of Refined Palmolein Oil (Edible grade) FFA content 0.25%, one can import 1. Crude Palmolein oil 2. Phosphoric acid 3. Citric acid 4. TONSIL Bleaching earth However for present purposes, we need to only see if between the items of export (Rice / Wheat and item of import (RBD Palmolein Oil) broad connection / nexus could be found / established. It is also seen that RBD Palmolein has not been mentioned as items of import in this list, only Crude Palmolein oil mentioned as import item against export of Refined Palmolein Oil (Edible grade). For our present purposes, only thing important is to find the broad nexus / link / connection between the export items - Rice / Wheat and the import item - RBD Palmolein; in other words whether they, between them or the item of import (RBD Palmolein) with the larger group of goods similar to export items (Rice / Wheat), could have some kind of direct or indirect nex....
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....2, E-79, E-106) - Guargum / Bubble gum (E-26, E-97) - Rice / wheat / vegetable biryani / jeera rice, wheat flour / atta / suji /maida (E-38, E-110) - Spices / supari / turmeric / ginger (E-43, E-45, E-85, E-86) - Chicken biryani/ chicken / chicks/ meat (E-57, E-58 & E-60, E-73) - Different kinds of eggs (E-59, E-108, E-119, E-120) - Milk protein concentrate / Total milk protein (E-65) - Cheese(E-71) - Beedies /Pan masala gutkha / Pan masala (E-91, E-94, E-105) - Sesame seeds / sunhemp seeds / safflower seeds / sesbenia seeds / sorbitol (E-93, E-102) Considering such a wide variety of items in the above list, one can certainly say that there are more than one product groups in this list of FOOD ITEMS which have been named under Foreign Trade Policy's Input-Output Norms in Section E as "FOOD PRODUCTS". Further by exporting one or two food items one cannot claim that he/she is eligible to import any item of import or export from this whole list of items [E-1 to E-128] under Target Plus Scheme (TPS) and be eligible for benefit of Notification No.32/2005- Cus. unless earlier referred 'broad nexus' between items of export or import is established.....
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....hat the Policy provisions as interpreted by the Hon'ble High Courts did not restrictively require the assessees, (for exemption under Notification No. 32/2005-Cus.) to prove that the goods imported by them were usable in the very products which were exported by them for obtaining the TPS certificates. It was enough for them to show that the c.c. copper rods imported by them could be used as input in the manufacture of any goods of a larger group of similar goods including the exported goods. [emphasis supplied] If this burden of proof was discharged, the importers would be held to have established a broad nexus between the imported and exported goods. But this "larger group of similar goods" cannot be left indeterminate, lest it should be unduly enlarged by unscrupulous seekers of TPS benefit (No offence to GL or SE!). Therefore the licensing authority which issued TPS certificates to GL and SE specified therein groups of export products, such as "Engineering Products" and "Chemical & Allied Products", each being a "larger group of similar goods". The Hon'ble High Court's judgments cannot be understood as having so interpreted the Policy provisions as to place any fette....
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.... that the wordings "broad nexus" do not give the freedom to import each and every item which is listed from Sl.No.E-1 to E-128, both in the columns of export item as well as that of import item for an importer, who is registered under Target Plus Scheme(TPS). There may be certain food items which are exported and there could be some food items which are imported by a person registered under Target Plus Scheme, but both these items (of export and import) have to establish 'broad nexus' with each other in terms of the orders of High Courts of Delhi and Mumbai referred in this order. One cannot indiscriminately allow an importer under TPS (Target Plus Scheme) to import any kind of food item, when the said importer cannot establish a 'broad nexus' between his import item and any one of his export items (if he exports more than one item). Here export items mentioned by the appellant are rice and wheat and import item is RBD Palmolein. How are they have broad relationship or nexus to each other, has not clearly come out in the submissions of the appellants; the appellants have merely stated that both (import item and export items) appear as member items of '(E) Food P....
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....d with even the larger group of goods similar to the export items (Rice & Wheat). In order to fulfill the aims and objectives of the Foreign Trade Policy (FTP), whose integral part is HBP and also the FTP's Input-Output Norms, it is very essential that the Policy (FTP) is implemented honestly andqualitatively with full integrity. It has been said here that though one-to-one nexus is not required but 'broad nexus' is still necessary. If we ignore these wordings 'broad nexus', then we would not be truthful to the FTP and its aims and objectives would not be fulfilled. Rice and wheat on one hand (export item) and RBD Palmolien (import item) on other hand, though are member of wide 'Food Groups', cannot be called to have 'broad nexus'. 39. It has been mentioned earlier that in the Section E of FTP: Input-Output Norms, "Food Products" are mentioned. It is again to be noted that in Section E, there are totally 128 serial numbers E1 to E128; we can also call them sub-groups. But they (E1 to E128) being a large number of categories mentioning 128 export items and against these 128 export items there are larger number of import items mentioned i.e. appr....