TaxTMI 
TaxTMI 
2009 (2) TMI 18
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....the Foreign Trade (Development and Regulation) Act, 1992, the Central Government notified Foreign Trade Policy ("FTP" for short) for the period 2004-09 incorporating the Exim Policy for the period 2002-07 as modified. The Policy was announced on 31.8.2004. It came into force with effect from 1.9.2004. It remains in force up to 31.3.2009, unless otherwise specified. 5. The appellant imported in January, 2005 Photocopying Machines under the category "general imports". 6. On 25.2.2005, the Dy.CoC (Import) issued a show cause notice under Section 124 of the Customs Act alleging that the Used Photocopying Machines were restricted items for import under para 2.17 of the current FTP 2004-09 read with circular No. 20 dated 23.2.2005 issued by DGFT. In the show cause notice, it was thus alleged that goods have been imported without a valid import licence and consequently, they were liable to be confiscated under Section 111(d) of the Customs Act, 1962 read with para 2.17 of the FTP (2004-09). 7. In its reply dated 3.3.2005, appellant submitted inter alia that photocopying machine (photocopier) is an item of capital goods. The appellant pointed out that on 21.8.2003 the Custom....
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....as defined under para 9.10 of the FTP (2004-09). It was further observed that second-hand photocopier machines were not freely importable as "capital goods". The Division Bench of the Kerala High Court vide its impugned judgment observed that it did not agree with the view taken by the Andhra Pradesh High Court in Central Excise Appeal No. 52/2005 in favour of the assessee. 11. Before concluding the facts, we may state that, vide Notification No. 31/05 dated 19.10.2005 issued by the GoI under Section 5 of Foreign Trade (Development and Regulation) Act, 1992 read with para 1.3 of FTP 2004- 09 import of second-hand photocopier machines, air-conditioners etc. are made restricted items warranting a licence for import. However, we are concerned with the imports effected prior to 19.10.2005. Judgment of the Larger Bench of the Tribunal: 12. The controversy in hand first came to be decided, even before the impugned judgment, on 11.5.2005 by the Larger Bench of CESTAT which came to the conclusion that Used Photocopier Machines are capital goods. In this connection, it may be noted that there was a difference of opinion between different Benches of the Tribunal. One view was ....
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.... implementation of the Policy but he has no power to amend the Policy, which power under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 ("1992 Act") remains vested only in GoI. In this connection, learned counsel placed reliance on Sections 5 and 6(3) of the 1992 Act. He further contended that the three Circulars issued by DGFT were clarificatory in nature. They were not amendatory. He further submitted that DGFT had no authority to issue a circular which is contrary to the statute consisting of the 1992 Act, the FTP, the ITC(HS) and the Handbook of Procedures. Learned counsel further submitted that all the three circulars issued by DGFT were confined to imports under EPCG. They had no connection with general/normal imports. He further submitted that the above circulars did not bind the assessee. They do not bind the Courts. He further submitted that there are three broad categories of item-wise imports mentioned in ITC(HS), they are "free", "restricted" and "prohibited". According to the learned counsel, ITC(HS) is goods-specific whereas Other Conditions like actual user, export obligations, existence of licence etc. are Scheme-specific. Learned counse....
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....-hand capital goods. According to the learned counsel, circular no. 20/05 prohibits imports of second-hand photocopying machines under para 5.1 of FTP because the said machines are not capital goods. According to the learned counsel, the amendment to para 2.17 via Notification dated 19.10.2005 re-affirms the Circular No. 20/05, which in turn refers to para 2.17 and therefore it cannot be confined to EPCG Scheme. According to the learned counsel, a combined reading of paras 2.1, 2.2, 2.3, 2.17 and Circular No. 20/05 lead to unequivocal conclusion that the import of second-hand photocopying machines is restricted under FTP (2004-09) since they are second-hand goods other than second-hand capital goods, hence, the civil appeal is liable to be dismissed. 15. To decide the controversy we need to examine the 1992 Act read with the FTP (2002-07), the FTP (2004-09), the Handbook of Procedures and ITC(HS). (A) Contents of the Policy including ITC(HS) and the Handbook of Procedures: (i) Notification No. 1/2004-09 dated 31.8.2004:- "TO BE PUBLISHED IN THE GAZETTE OF INDIA EXTRAORDINARY PART-II, SECTION-3, SUB SECTION (ii) GOVERNMENT OF INDIA MINISTRY OF....
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.... amendments to this Policy in exercise of the powers conferred by Section-5 of the Act. Amendments 1.3 Such amendment shall be made by means of a Notification published in the Gazette of India. Transitional Arrangements 1.4 Any Notifications made or Public Notices issued or anything done under the previous Export/ Import policies, and in force immediately before the commencement of this Policy shall, in so far as they are not inconsistent with the provisions of this Policy, continue to be in force and shall be deemed to have been made, issued or done under this Policy. Licences, certificates and permissions issued before the commencement of this Policy shall continue to be valid for the purpose and duration for which such licence, certificate or permission was issued unless otherwise stipulated. CHAPTER-2 GENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS Exports and Imports free unless regulated 2.1 Exports and Imports shall be free, except in cases where they are regulated by the provisions of this Policy or any other law for the time being in force. The item wise export and import policy shall ....
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....cordance with the provisions of this Policy, ITC(HS), Handbook (Vol.1), Public Notice or a licence/certificate/permission issued in this behalf. Import of second hand capital goods, including refurbished/ reconditioned spares, shall be allowed freely. (This clause is not there in FTP 2002-07) (emphasis supplied) CHAPTER-5 EXPORT PROMOTION CAPITAL GOODS SCHEME EPCG Scheme 5.1 The scheme allows import of capital goods for pre production, production and post production (including CKD/SKD thereof as well as computer software systems) at 5% Customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme to be fulfilled over a period of 8 years reckoned from the date of issuance of licence. Capital goods would be allowed at 0% duty for exports of agricultural products and their value added variants. EPCG for Projects 5.1B An EPCG licence can also be issued for import of capital goods for supply to projects notified by the Central Board of Excise and Customs under S.No 441 of Customs Exemption Notific....
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....part of the end-product. Items, which are substantially or totally consumed during a manufacturing process will be deemed to be consumables. 9.16 "Consumer Goods" means any consumption goods, which can directly satisfy human needs without further processing and includes consumer durables and accessories thereof. 9.48 "Public Notice" means a notice published under the provisions of paragraph 2.4 of the Policy. (iv) Important provisions of the Handbook of Procedures (2004-09): Para 2.33 of the Handbook: "Import of Second Hand Capital Goods- 2.33 Import of second hand capital goods including refurbished/reconditioned spares, shall be allowed freely, subject to conditions for the following categories: The Import of second hand computers including personal computers and laptops are restricted for imports. The import of refurbished/ reconditioned spares will be allowed on production of a Chartered Engineer certificate that such spares have a residual life not less than 80% of the life of the original spare." (v) Important provisions of ITC(HS): "Col.3 Policy: Two types of Restrictions have been indicated in this column, namely, `Prohibited' a....
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....econd hand personal computers (PCs)/Laptops are covered under the definition of second hand capital goods and allowed freely as per the provisions of Para 2.33 of Handbook of Procedures (Vol.I) 2002-07, provided these are not more than ten years old. 3. The matter has been deliberated upon and it is clarified that the second hand personal computers (PCs)/Laptops are covered under the definition of "second hand goods" and their import is governed by the provisions of Para 2.17 of EXIM Policy,2002-07 and not covered under the definition of "capital goods" as defined under Para 9.10 of EXIM Policy and Para 2.33 of Handbook of Procedures (Vol.I). In view of this, second hand personal computers (PCs)/Laptops can also not to be permitted for import under EPCG scheme under the provisions of para 5.1 of the Exim Policy, even for service providers. 4. All the Licensing Authorities are advised to take action accordingly. This issues with the approval of DGFT. (M.C.Jauhari) Jt.Director General of Foreign Trade" ....
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....ars old and even for Service Providers. The intention of this Circular is to restrict the import of such items under EPCG Scheme which are in the nature of Consumer goods. 2. Since Second Hand Diesel Generating Sets of 10 KVA and above have industrial application and import of second hand capital goods without any age restriction is permitted under EPCG Scheme in the Foreign Trade Policy 2004-09, it is therefore clarified that Second Hand Diesel Generating Sets of 10 KVA and above shall be allowed to be imported under EPCG Scheme without any age restriction. 3. However since Second Hand Photocopiers, Air Conditioners and Diesel Generating Sets (below 10 KVA) etc. are covered under the definition of 'Second Hand Goods', therefore their import shall be governed by the provisions of Para 2.17 of Policy and shall not be permitted to be imported under Para 5.1 of Policy. 4. Licensing Authorities are advised to take action accordingly. 5. This issues with the approval of DGFT. &....
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....bsp; Director General of Foreign Trade And Ex-Officio Additional Secretary to the Govt. of India (Issued from File No.01/94/162/270/AM06/PC-1A)" Findings: (A) Interpretation of Policy Circular Nos. 16/03, 19/03 and 20/05: 16. Before coming to the circulars, one needs to understand the Scheme of the 1992 Act. The said Act is enacted to provide for development and regulation of Foreign Trade by facilitating imports into, and augmenting exports from India. Under Section 3, the Central Government is empowered by Order published in the Official Gazette to make provision for the development and regulation of foreign trade. Under sub-section (2) of Section 3 the Central Government may by Order published in the Official Gazette prohibit, restrict or otherwise regulate import/export of goods subject to such exceptions as it may deem fit. Under Section 5, the Central Government is empowered from time to time to formulate and announce by notification in the Official Gazette the Exim Policy and it may also amend that policy from time to time. Under Secti....
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....ct contemplates amendment to the FTP. It empowers only the Central Government to amend the Policy. This power is not given to the DGFT. It is not open to DGFT vide circulars to change categorization of items from the category of "free" to the category of "restricted" imports. This aspect is important for two reasons. Firstly, notification no. 31 dated 19.10.2005, quoted hereinabove, is an amendment to the Policy. It operates only from 19.10.2005. It recites that second-hand capital goods are importable freely. The Notification states that after 19.10.2005, however, import of second-hand photocopying machines will be allowed only against a licence. This amendment pre-supposes that photocopying machines are kept out of the purview of "second hand capital goods" only after 19.10.2005. Secondly, as stated above, broadly imports fall in two categories - general and restricted categories including prohibited category. When there is change of categorization, it can be done only by an amendment. This has been done by notification no. 31 dated 19.10.2005. It is only by Amendment that import of second-hand photocopying machines can be kept out of the definition of "second-hand ca....
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....rbished/reconditioned spares, shall be allowed freely." This statement was not there in para 2.17 of the FTP (2002-07). Similarly, as quoted hereinabove, para 2.33 of the Handbook of Procedures (2004-09) has been completely recasted. Therefore, Policy circular nos. 16/03 and 19/03 has no application to the facts of the present case. (B) Interpretation of Circular No. 20 dated 23.2.2005 read with Para 2.17 of FTP (2004-09) and Para 2.33 of the Handbook of Procedures: 20. Policy circular No. 20/05 appears to be in continuation of Policy circular Nos. 16/03 and 19/03. In this connection, para 1 of Policy circular No. 20/05 requires to be noted. As stated above, under FTP (2002-07) import of "second-hand goods" could be made only against a licence. They came in the restricted category. However, in the Handbook (2002-07) it was inter alia provided that old and used capital goods which were not more than 10 years old could be imported freely. Those goods, therefore, were treated as "new" goods. This resulted in confusion. Therefore, DGFT stepped in to clarify that second-hand photocopying machines, irrespective of the period of use, shall fall in the restricted category (see Pol....