Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ LPA No.755 of 2010
th
Reserved on: 8 December, 2012.
th
% Pronounced on: 24 February, 2012
UNION OF INDIA & OTHERS . . . APPELLANTS
Through: Mr. Mohan Parasaran, ASG
with Mr. Satish Agarwala,
Advocate and Mr. Alok P.
Kumar, Advocate.
VERSUS
INDIAN EXPORTERS GRIEVANCE
FORUM & ANR . . .RESPONDENTS
Through: Mr. Tarun Gulati, Advocate
with Ms. Shruti Sabarwal,
Advocate.
CORAM :-
HON’BLE THE ACTING CHIEF JUSTICE
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
A.K. SIKRI, Acting Chief Justice
1. This intra-appeal filed by the Union of India impugns the
judgment dated 05.8.2010 rendered by the learned Single
Judge of this Court in Writ Petition (Civil) No.2497 of 2008 filed
by the respondents herein. By means of the said decision, the
writ petition of the respondents has been allowed to a limited
extent holding that the duties and entitlement of the
respondent society will be computed on the basis stated in the
judgment and the corresponding duty credit will be given to
them by the appellants within a period of 12 weeks from the
date of judgment. The dispute arose on the nature of
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entitlement, viz., the duty credit that may be used by the
exporters earned by way of export incentive under the scheme
called the Target Plus Scheme (TPS). Under the aforesaid TPS
which was aimed at boosting the exports, it was decided to
reward those exporters who achieved quantum growth in
exports as per the target mentioned in the said scheme and
were described as Star Export Houses. Certain percentage of
incremental growth of FOB values of the exports were fixed as
duty entitlement. The scheme further provided that these duty
credits could be used for import of “any inputs, used capital
goods including spares, 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……………..” It is the nature of these imports for
which duty credit may be used has become the subject matter
of contention. The learned Single Judge in the impugned
judgment has given the detailed background of the scheme
and the amendments made from time to time. It may not be
necessary to restate all those in details. However, the relevant
facts which touch upon the controversy that arises in the
matter is the TPS was first introduced in the Foreign Trade
Policy, 2004 announced in 01.9.2004. As per the said scheme:
(i) All Star Export houses which have achieved a
minimum export turnover in free foreign exchange
of ` 10 Crores in the previous licensing year are
eligible for a duty credit based on incremental
exports (Paras 3.7.1 – 3.7.3 of the FTP, 2004).
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(ii) The duty credit may be used for import of any
inputs, capital goods including spares, office
equipment, professional equipment and office
furniture provided the same is freely importable
under the ITC (HS) classification of export and
import items, for their own use or that of
supporting manufacturers as declared in „Aayat
Niryat Form‟.
2. Import entitlement regarding growth products was also
stipulated as follows:
(A) 3.7.6 Imports allowed:
The duty credit may be used for import of any
inputs, capital goods including spares, 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’ .
(B) As 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
LPA No.755 of 2010 Page 3 of 28
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 for import under the Scheme.
Import of all edible oils classified under Chapter 13,
shall be allowed under the scheme only through
STC and MMTC.” 4. The above provisions were
valid from 1st April 2004 to 31st March 2005. For
the next licence year from 1st April 2005 to 31st
March 2006, they were continued with certain
minimal changes.
(C) Appendix 17D, i.e., the prescribed form was issued
by the Directorate General of Foreign Trade ( for
brevity „DGFT‟) vide Public Notice No.07.4.2005.
Applications were to be made in this prescribed
form for availing of duty free export credit (DFEC)
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under the TPS for the two licensing years, i.e., from
2004 to 2006. Serial No.10 of Appendix 17D
against the column “category of exports”, it was
mentioned:
“Goods allowed to be imported under the
scheme shall have a „broad nexus‟ with the
„Export Product Group‟ and declaration in
this behalf shall be made in Appendix 17D.”
3. From the aforesaid, it becomes clear that the duty credit under
the TPS was available for inputs that had a „broad nexus‟ with
the goods exported. To this extent, there is no quarrel.
4. Thereafter, by a Public Notice NO.16 dated 04.6.2005, 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.”
5. On 08.4.2005, Para 3.2.5 of the HBP was amended with
retrospective effect and state as follows:
“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
groups within the overall value of the entitlement
certificate.”
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6. On 01.8.2006, a Circular was issued by the DGFT clarifying that
so long as the imported goods belonged to the same “product
group” as the exported goods, the exporter could use the duty
credit under the TPS for such imported goods as well.
According to the appellant, the above was issued in the context
of a decision to permit a rice exporter to import almonds using
the duty credit under the TPS. The above Circular of the DGFT
was challenged by M/s. Indo-Afghan Chamber of Commerce in
this High Court in W.P.(C) No.12603 of 2006 and the said
Circular was defended by the DGFT in an affidavit filed in the
above matter. However, the Department of Revenue objected
to the above interpretation of the DGFT on the ground that the
said interpretation almost rendered the concept of „broad
nexus‟ nugatory and redundant, leading to a serious loss of
revenue for the Government. The matter was referred to the
Committee of Secretaries. In its meeting on 13.2.2007, the
Committee of Secretaries decided that the interpretation placed
by the DGFT was incorrect and beyond the scope of the overall
objective of the TPS itself. It was decided that the clarification
dated 01.8.2006 be withdrawn and the affidavit filed, suitably
amended. Following this, the Ministry of Law examined the
matter and recommended that another clarification be issued
and the amendment to Para 3.2.5 be deleted. Department of
Revenue issued Circular No.21/09-Cus dated 08.5.2007
clarifying the scope and coverage of the goods that can be
imported under the TPS.
7. Paras 3, 4 and 5 of the said circular state 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
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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 any
interpretation 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 brushed aside and
have to be in focus for the intended import. Together
these words indicate that the item sought to be imported
should be an “input” in the manufacture of the exported
items which is required for “use” by the exporter or the
supporting manufacturer, as the case may be. For this
purpose, the intended input must have a relationship with
the export product. Whereas SION will act as a prima
facie evidence of the 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. Ignoring to give effect to the words “inputs” in the
beginning and “own use” towards the end in Para 3.7.6 of
the FTP would mean to render a part of it redundant and
would not be in keeping with the objective and framework
of the scheme.
4. In the light of this, the Ministry of Law 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 export product
and is required to be used as an input in the product
exported for which TPS benefit is sought. 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
the petition filed before the learned Single Judge.
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8. 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). Note 2. In para 3.7.6 of FTP
(RE2004 & RE 2005), there is no quantitative/duty
quantum restriction on import of inputs related to export
products, which may otherwise be stipulated as a norm
for export product.”
9. The effect of the above Public Notice dated 21st June 2007,
which has also been challenged in this petition, is that it seeks
to further narrow down the right to import only such inputs
under TPS as those which have nexus with the export product,
and not the export product group. After the amendment, para
3.2.5 (II) of HBP reads as under:
“II. 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
of the product groups of the exported goods within the
overall value of the entitlement certificate.”
10. Thereafter a further circular No. 45/2007-Customs dated 19th
December 2007 was issued whereby the Respondents further
clarified that the term “broad nexus‟ has to be construed with
reference to the words “use” and “inputs” in the FTP. Thus
LPA No.755 of 2010 Page 8 of 28
Respondent No.3 restricted the benefit under the TPS by
clarifying that only “inputs‟ used in the
manufacture/production of goods exported will be allowed to
be imported.
11. Before the learned Single Judge, learned counsel for the
Petitioners submitted that members of Petitioner No.1 Society
had made incremental exports and had become entitled to
duty-free credit. By unduly seeking to restrict the items that
could be imported, an accrued benefit had been taken away. It
is submitted that the schedule of making imports was planned
well in advance and in the present case the exports had
already taken place between 1st April 2004 and 31st March
2006. Any change in the HBP made long after the completion
of those exports should not be permitted even on the ground of
legitimate expectation. Importantly, it is contended that such
change cannot be brought about through circulars and Forms
but only by means of an amendment through the notification
under Section 5 of the FTDR Act. The power to make such
changes obviously could not have been delegated by the
Central Government to the DGFT. It is for these reasons that
the amended para 3.2.5 (II) of the HBP is assailed being
beyond the competence of the DGFT and, therefore, liable to
be quashed.
12. In reply, it was 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
LPA No.755 of 2010 Page 9 of 28
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 only if the same has a “broad nexus‟ with the product
group as input in the export product and is required to be used
as an input in the product exported for which Target Plus
Scheme benefit is sought. It 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”. It is submitted that the subsequent circulars
are all consistent with the above opinion of the Law Ministry.
Challenge to maintainability of the petition not
sustainable
13. A preliminary objection has been raised by the learned ASG to
the maintainability of this writ petition on the ground that the
Petitioners do not have a locus standi to challenge the
impugned Circulars and the Notifications. He places reliance on
LPA No.755 of 2010 Page 10 of 28
the decision of this Court in Vaas Exports v. Union of India
143 (2007) DLT 525 .
14. This Court does not find the above preliminary objection to be
tenable in law. Petitioner No.1 is a registered Society having as
its members export houses and star trading houses all of whom
are affected by the impugned Notification. Petitioner No.1 is
entitled to represent the collective interest of its members.
Recognizing the locus standi of Petitioner No.1 will avoid
multifarious litigation by each of the members of the Petitioner
No.1 seeking identical relief. The facts in Vaas Exports were
different and, therefore that decision does not help the
Respondents in the present case.
Scope of petition restricted to challenging the procedure
adopted for change in the policy
15. It is next submitted by the learned ASG that the impugned
Circular and Notification are an expression of the policy
decision taken by the Government of India and, therefore, in
effect the Petitioners are challenging the policy decision of the
Government of India. It is submitted that in exercise of its
powers under Article 226 of the Constitution, this Court cannot
judicially review the executive policy of the Government of
India.
16. In the considered view of this Court, there is no merit in the
above objection either. The precise legal issue raised by the
Petitioners is whether a change to the duty credit entitlements
announced by the FTP can be brought about without amending
such policy and by issuing Circulars and Notifications or Forms.
LPA No.755 of 2010 Page 11 of 28
This can be examined by this Court in exercise 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?
17. It was further 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. It
was 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. It was 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, the
Petitioners would be willing to abide by that condition.
However, the change, in any event, cannot be made long after
the exports had taken place. The exports and imports had been
planned keeping in view the FTP already announced. He relied
on the decisions in Atul Commodities Pvt. Ltd. v.
Commissioner of Customs (2009) 235 ELT 385 (SC) and
Union of India v. Asian Food Industries (2006) 13 SCC
542 .
LPA No.755 of 2010 Page 12 of 28
18. Learned A.S.G. also relied on the decision in Atul
Commodities Pvt. Ltd. (supra) to submit that the separate
policy decision of the Government of India and the changes to
such policy decision were not amenable to judicial review. The
overall objective had to be kept in mind. Subsequent Circulars
and Notifications were only clarificatory and were not
inconsistent with para 3.7.6 of the FTP. He placed reliance
upon the decisions in Tata Teleservices Ltd. v.
Commissioner of Customs 2006 (194) ELT 11 (SC) and
UCO Bank, Calcutta v. Commissioner of Income Tax,
W.B. (1999) 4 SCC 599 .
19. This Court finds that a similar attempt made by the DGFT
which issued Circulars and Public Notices to amend the EXIM
Policy of 2002-07 was invalidated by a Division Bench of the
Bombay High Court in Narendra Udeshi v. Union of India
2003 (156) ELT 819 . The Bombay High Court observed that
it was beyond the scope of the powers of the DGFT to bring out
a change to the EXIM Policy. It was held that in the absence of
any power under the FTDR Act, the Circulars and Public Notices
to prohibit duty-free import of natural rubber under advance
licence could not be issued by the DGFT. This Court finds that
para 3.7.6 of the FTP, by itself, does not indicate that the
imported goods should constitute “inputs‟ in the goods
exported. In fact the language of para 3.7.6 is wide enough to
include any kind of inputs: capital goods including spares,
office equipment, professional equipment and office furniture
etc. It is not possible to read para 3.7.6 restrictively. In Atul
Commodities Pvt. Ltd. (supra) the Supreme Court explained
that it was not open to the DGFT to change the nature of the
LPA No.755 of 2010 Page 13 of 28
imported items as specified in the FTP from the category „free‟
to the category „restricted‟ by issuance of Circulars. It was
explained by the Supreme Court with reference to the facts of
that case that the circulars and notifications issued by the
DGFT were clarificatory and not amendatory in nature. 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.”
20. 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 which constituted an `input‟ in the
exported product is indeed impermissible.
21. It was inter alia clarified that in the light of this, the Ministry of
Law has 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 export product
and is required to be used as an input in the product exported
for which TPS benefit is sought. The Ministry of Law has also
clarified that the term „broad nexus‟ with the product group is
LPA No.755 of 2010 Page 14 of 28
in addition to and not in substitution of the words “inputs” and
“own use” in Para 3.7.6 of the Scheme.
22. According to the appellant, still there was misuse of TPS and
those instances were brought to the notice of the Department
of Revenue which necessitated issuance of another Circular
No.45/2007-Customs dated 19.12.2007 providing as under:
“3. The Board had clarified vide Circular No.21/2007-
Cus. Dated 21.5.2007, that the words „Inputs‟ and
„use‟may not be brushed aside and have to be in focus for
the intended import. Together, these words indicate that
the item sought to be imported should be an „Input‟ in the
manufacture of the exported products which is required
for „use‟ by the exporter or the supporting manufacturer,
as the case may be. For this purpose, the intended Input
must have a relationship with the export product.
Whereas SION will act as a prima facie avidence 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.
4. It is further clarified that under the TPS the
exporter can import, within the entitlement, items in
quantities in excess of that mentioned in SION or other
items in the product group provided that, in either case,
they form „inputs‟ and are used by him.
5. In view of the position explained above, imports
under TPS may be carefully scrutinized with reference to
the provisions of the FTP, Handbook of Procedures, the
customs notifications and Board‟s Circular referred to
above so as to ensure that the laid down provisions
regarding „inputs‟, „broad nexus‟ and „use‟ and „supporting
manufacturer(s)‟ are complied with.”
LPA No.755 of 2010 Page 15 of 28
23. The Circular dated 01.8.2006 was withdrawn by the DGFT vide
letter dated 09.5.2007. Public Notice No.9 dated 21.6.2007
was issued deleting the words “for the purposes of import
entitlements under this scheme, „broad nexus‟ would mean
goods imported with reference to any of the product groups of
the exported groups within the overall value of the entitlement
certificate” form Para 3.2.5 of the HBP. Circular No.21/2007-
Cus was issued by the Department finally clarifying the scope
of “broad nexus” for the purposes of the Target Plus Scheme.
24. It is at this stage, the respondents filed Writ Petition (Civil)
No.2497 of 2008 challenging the vires of:
(i) Para 3.2.5 of the HBP
(ii) Circular NO.21/2007-Cus dated 08.5.2007
(iii) Public Notice No.9/2007 dated 21.6.2007
25. By final judgment and order dated 05.8.2010, the learned
Single Judge granted the declaratory relief sought for by the
respondents and struck down the above paragraph of the HBP
and Circulars issued by the Department.
26. The contention of the respondents herein in the said writ
petition was that the appellant had no power or jurisdiction to
impose a condition of „broad nexus‟ or to define the term „broad
nexus‟ where there was no such condition in Para 3.7.6 of the
FTP. According to the respondent, it amounted to changing the
conditions in FTP, which could be brought by notification under
Section 5 of Foreign Trade (Development and Regulations),
1992. It was also contended that the members of the
LPA No.755 of 2010 Page 16 of 28
respondent who were Star Export Houses had made
incremental exports and had become entitled to duty free
credit. However, the appellants were attempting to take away
the same benefit that could be imported. It was also argued
that the schedule of making imports was planned well in
advance and exports had already taken place between
01.4.2004 to 31.3.2006. Any change in the HBP made long
after the completion of those exports should not be permitted
even on the ground of legitimate expectation and no case by
means of circular and forms and the only recourse could be to
issue notification under Section 5 of the FTDR Act and in no
case by the DGFT which had no jurisdiction or power.
27. The contentions of the respondents herein have found favour
with the learned Single Judge, giving, inter alia , the following
reasons:
(a) Similar attempt made by the DGFT to amend EXIM
Policy of 2002-07 was invalidated by a Division
Bench of the Bombay High Court in the case of
Narendra Udeshi Vs. Union of India [2003
(156) ELT 819] holding that it was beyond the
scope of the powers of the DGFT to bring out a
change to the EXIM Policy.
(b) Para 3.7.6 of FTP, by itself, does not indicate that
the imported goods should constitute „inputs‟ in the
goods exported. In fact, the language of Para
3.7.6 is wide enough to include any kind of inputs:
capital goods including spares, office equipment,
professional equipment and office furniture, etc.
LPA No.755 of 2010 Page 17 of 28
This could not be read restrictively as held by the
Apex Court in Atul Commodities Pvt. Ltd.
(supra) .
(c) Even if requirement of „broad nexus‟ was justified
keeping in view the overall FTP, further change by
way of Circular dated 21.6.2007 to restrict the
import to only that goods that constituted an „input‟
in the exported product is indeed impermissible.
The learned Single Judge, in this behalf, observed
as under:
“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 Court that while the above
Public Notice dated 4th June 2005 was
perhaps justified since it was issued during
the time when the TPS was still continuing
and it was, therefore, possible for the
exporters to plan their exports and imports,
the subsequent circular dated 8th May 2007
and Public Notice dated 21st June 2007
issued by the Respondents have, in the garb
of clarifying the term „broad nexus‟, unduly
restricted the meaning of the word „inputs‟
to mean only those inputs used in the
manufacture of the goods exported. There is
merit in the contention of the Petitioners that
this was travelling far beyond what was
provided in para 3.7.6 of the FTP and ultra
vires the powers of the DGFT. Such a change
to the FTP, if at all, could have been brought
about only through a notification under
Section 5 FTDR Act.”
LPA No.755 of 2010 Page 18 of 28
(d) The learned Single Judge also noted that the stand
taken by the Government was contrary to its
counter affidavit dated 12.9.2006 filed in W.P.(C)
No.12603 of 2006 ( Indo Afghan Chamber of
Commerce Vs. Union of India ) as regard the
incentive provided by the TPS and Para 3.7.6 of the
FTP wherein the Government itself stated:
“………….. 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,
Scientific or Research and Development
(R&D) institution, university or other
educational institution or hospital; or (iii) any
service industry.”
It is submitted that the Policy defines
manufacturing under Para 9.37, which read
as “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-
LPA No.755 of 2010 Page 19 of 28
engineering, Manufacture, for the purpose of
this Policy, shall also include agriculture,
aquaculture, animal husbandry, floriculture,
horticulture, pisciculture, poultry, sericulture,
viticulture and mining.” Therefore, in view of
the above it is submitted that in the instant
case since the exporter will be processing
the almond-in-shell to produce the final
product i.e. either almond or roasted almond
or salted almond, it will be taken to be in
furtherance of the actual user condition.”
28. Thus, it was not open to the Government to again introduce a
change in the TPS with reference to the exports that had
already been completed as on 31.3.2006.
29. In this backdrop, while quashing the impugned Circular dated
08.5.2007, Public Notice dated 21.6.2007 and further Circular
dated 19.12.2007 as well as amended Para 3.4.5 of the HBP,
the learned Single Judge has made following remarks:
“27. Given the objective of providing an incentive to
exporters, para 3.7.6 of the FTP can reasonably be
interpreted to require an exporter to show that the goods
imported should have a “broad nexus‟ with reference to
any product group of the exported goods within the
overall value of the entitlement certificate. The word
„nexus‟ obviously refers to a larger group of similar goods
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
8th May 2007, the Public Notice dated 21st June 2007
and the further circular dated 19th 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
8th May 2007, the Public Notice dated 21st June 2007,
LPA No.755 of 2010 Page 20 of 28
the further circular dated 19th December 2007 and the
amended para 3.2.5 of the HBP are accordingly quashed.”
30. Assailing the aforesaid reasoning and conclusion in the
impugned judgment, Mr. Mohan Parasaran, learned Additional
Solicitor General argued that Para 3.2.5 of HBP, Circular
No.21/2007 and Public Notice No.9/2007 were all clarificatory
in nature and were seeking to clarify the scope of the word
“inputs” in Para 3.7.6 of FTP. According to him, the
clarification could always be issued and it did not amount to
any amendment. He further argued that there is no vested
right which accrued to the respondent or the members of its
organisation from the Circular dated 01.8.2006 which has not
only been withdrawn but also been accepted by the
Government itself as stating the incorrect position of law as
regards Para 3.7.6 of the FTP. It was open to the Government
to correct its mistake which has subsequently been clarified as
held in Videsh Sanchar Nigam Limited Vs. Ajit Kumar Kar
[(2008) 11 SCC 591].
31. Mr. Parasaran also referred to the judgment of the Supreme
Court in Atul Commodities (supra) in support of the
submission that “amendment” and “clarification” were
completely two different concepts and it is only in amendment
that notification was required to be issued under Section 5 of
the FTDR Act and therefore, there was no such requirement
when clarification only was issued as happened in the present
case. He also argued that the scope of Para 3.7.6 of the FTP
was wrongly interpreted in Para 21 of the impugned judgment
inasmuch as the term “inputs” does not include capital goods
including spares, etc. He argued that this Court has not taken
LPA No.755 of 2010 Page 21 of 28
into account the fact that there is a comma immediately after
inputs, but not before „inputs‟ indicating that inputs is part of a
list of items being enumerated, not a term being explained.
The correct interpretation therefore is:
(a) The Duty Credit may be used for import of any
(i) Inputs,
(ii) Capital goods including spares,
(iii) Office equipment,
(iv) Professional equipment, and
(v) 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‟.
(b) Furthermore, the learned Single Judge has failed to
appreciate the condition indicated in the “proviso”
contained in the relevant paragraph which clearly
states that the goods which can be imported have
to be freely importable, and they have to be
imported „for their own use‟ and that of supporting
manufacturers.
(c) It is, therefore, clear that the term “inputs” has to
be read in conjunction with the term “for their own
use” as contained in the same paragraph. The
irresistible conclusion that follows from this is that
a manufacturer may only use the duty credit
obtained from export in importing inputs that are
capable of being put to use and consequently the
LPA No.755 of 2010 Page 22 of 28
term “broad nexus” as used in the impugned
circular is merely clarificatory.
32. Learned counsel for the respondent, on the other hand, relied
upon the reasons given by the learned ASG in support of
decision in favour of the respondents hearing. He also
submitted that the pivotal purpose of the scheme was to
reward “Star Export Houses”, i.e., manufacturing houses and
“Merchant Export Houses”, who achieved targeted export turn
over stipulated in the said scheme. It is for this reason the
scheme provided that duty credit earned by these exporters
can be utilized for particular kind of imports stipulated in Para
3.7.6 of the scheme and the entire matter could be looked into
from this perspective. He submitted that the expression
“inputs”, used therein did not attach any condition that it has
to have any nexus to exporters, as was clear from Chapter IX
of the FTP. Even if some nexus had to be established as
mentioned in Appendix 17D, it had only to be “broad nexus”.
Broad nexus was explained in letter dated 01.8.2006 by DGFT
itself to mean broad category, viz., „product group‟.
33. We have considered the respective submissions of both the
parties and have minutely gone through the impugned
judgment authored by the learned Single Judge. First and
foremost focus has to be on the scheme itself. Para 3.7 of the
scheme stipulates the targets which the Star Export Houses are
supposed to achieve and on achieving these targets
entitlement of duty credit is mentioned in that para. The
companies who can avail this credit are not only those which
have actually made exports, but are definitely „companies
LPA No.755 of 2010 Page 23 of 28
which are Star Exports Houses as well as a part of group
company‟, who are given an option to apply as an individual
company or as a group based on the growth in the groups turn
over as a whole. This is a significant feature in the scheme
where sister concerns of Star Export Houses are allowed to
avail the import entitlement against duty credit earned by
these Star Export Houses inasmuch as sister concern which is a
part of group company may not necessarily have exactly the
same export as that of the Star Export House, but still made
applicant company to avail imports against the duty credit. It
is in this light, we may have a relook at the imports which are
allowed as per Para 3.7.6 of the scheme. Opening para of the
scheme reads as under:
“3.7.6
The Duty Credit may be sued for import of any inputs,
capital goods including spares, office equipment,
professional equipment and office furniture provided the
same is freely importable under ITC (HS), for their own
use or that of supporting manufacturers as declared in
Appendix 17D…….”
34. Reading of the aforesaid para makes it clear that credit can be
used for import of any inputs, capital goods including spares,
office equipments, professional equipment and office furniture.
Such imports can be used not only by the exporter, but even
by the supporting manufacturer. Obviously, office equipment,
professional equipment and office furniture have no nexus with
the exports, the question is about inputs. When the expression
is “import of any inputs” whether it would mean only those
inputs which have nexus with the nature of goods exported.
That is not following from the scheme. When we read the later
portion of this para dealing with import of agricultural products,
LPA No.755 of 2010 Page 24 of 28
we find that some items which are allowed to be imported are
specifically mentioned. Again, when those items are
mentioned, it is not necessary that they will have nexus with
the exports made by a particular export houses. When we look
the matter from this angle and even proceed on the basis that
„broad nexus‟ criteria used in Handbook of Procedures Vol. I for
the period from 01.9.2004 to 31.3.2009, the word „broad‟
prefixed with nexus, the word „nexus‟ has to be assigned same
meaning. This meaning was given by the DGFT itself in its
letter dated 01.8.2006 in the following words:
“It is hereby clarified that in terms of the Policy Circular
No.27(RE-2005)/2004, 2009 dated 5.10.2005 read with
Policy Para 87.6 and Handbook of Procedure (Vol.I) Para
3.2.5 (ii) broad nexus is to be maintained with Product
Group in your case, your export products are covered
under the Food category, you are required to maintain
nexus with Food group of SION book, wherein you have
the flexibility to import any input listed in the relevant
product group category of the SION Book. As dry fruits
(including almonds, as in your case) are listed as one of
the inputs under SION E5, nexus with Food Products
group is clearly established.
It is further clarified that you can got the imported goods
processed and concerted from any processor of your
charge including the listed supporting manufacture job
worker etc. if any, and thereafter you are free to sell the
resultant product(s) in the market. There is no export
obligation attached with the resultant product(s) obtained
after processing of goods imported under the scheme.
You are required to maintain proper account of the
utilization of imported goods and abide by the Actual
Condition. Moreover there is no requirement of endorsing
the name(s) of soon processor(s) in the DFCE/IPS scripts
and you are at liberty to choose any processor to convert
you goods into value added resultant product(s).
Thus it is clarified 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.
LPA No.755 of 2010 Page 25 of 28
This clarification is issued with the approval of DG on file.”
35. It was thus understood that the nexus has to be maintained
that „product group‟, viz., the category of the products which is
exported. If the import also falls in the same category/group,
it would be allowable. In the aforesaid letter, in relation to the
export in food, it was clarified that it would be „food category‟
with respect to which the exporter was required to maintain
nexus. In that particular case, the exporter was exporting dry
fruits, he was permitted to import almond which falls in the
category of „dry fruits‟. Initially, when Public Notice NO.16
dated 04.6.2005 was issued replacing earlier Appendix 17D
with new one in Para 10 thereof, “broad nexus” was explained
to mean goods imported with respect to any product group of
the exported goods within the overall value of entitlement
certificate. Same meaning was assigned in Para 3.2.5 of the
HBP amended on 08.4.2005. Thus, Circular dated 01.8.2006 of
the DGFT was in tune with the aforesaid. It is only thereafter
that another Circular dated 08.5.2007 was issued bringing the
concept of „use‟ and „own used‟ contained in the Policy to
associate the same with „input‟ and stating that the import was
possible of those products only if the same had a „broad nexus‟
with the product group as an input with the export group and
is required to be used as an input in the product exported
by which TPS benefit is sought. On this basis, Public Notice
No.21.6.2007 was issued a this was departure of earlier
understating, the respondents naturally felt aggrieved against
the same.
36. We are, thus, in agreement with the view taken by the learned
Single Judge that Para 3.7.6 of the FTP by itself does not
LPA No.755 of 2010 Page 26 of 28
indicate that the imported goods should constitute „inputs‟ in
the goods exported relying upon Atul Commodities (supra) .
We also agree with the interpretation of the expression „broad
nexus‟ undertaken by the learned Single Judge. In fact,
Bombay High Court in the case of Narendra Udeshi (supra)
and Essel Mining & Industries Ltd. Vs. Union of India
[2011 (270) E.L.T. 308 (Bom.)] has taken identical view
dealing with the identical issue. For our benefit, we may
reproduce the following para from the said judgment:
“10. The Foreign Trade Policy, it is well settled, is
referable to the provisions of Sections 4 and 5 of the
Foreign Trade Development and Regulation Act, 1992.
The policy cannot be amended by an administrative
circular. The circular does not in this case supplement the
policy or fill up an interstitial space. The circular imposes
a substantive condition at variance with the policy. VBC
13 wp4499.07-14.6 Where the Central Government has
considered it necessary to impose a requirement of
physical incorporation, such a condition has been made
expressly in other provisions of the Foreign Trade Policy.
For instance, in relation to advance plus licences
governed by the duty exemption scheme, it has been
stipulated that an advance licence is issued to allow duty
free importable inputs which are physically incorporated
in the export products (paragraph 4.1.3 of the Foreign
Trade Policy for April 2005). Similarly, while issuing an
exemption notification in relation to imports covered by
advance licences, the Union Government in its notification
dated 10 September 2004 (Notification 93/04) has
specifically defined materials to mean raw materials,
components intermediates, consumables, catalysts and
parts which are required for manufacture of resultant
products. No such requirement was incorporated in
paragraph 3.7.6 of the Foreign Trade Policy. In other
words, the condition that the inputs which are imported
must be used in the export of the resultant product was
not incorporated as part of paragraph 3.7.6 of the Foreign
Trade Policy. In that view of the matter, it is not possible
LPA No.755 of 2010 Page 27 of 28
to accept the contention of the Respondent that the
conditions which were imposed by the circular VBC 14
wp4499.07-14.6 date 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).
11. Before concluding, it would be necessary to note that
during the course of the hearing of the Petition, Counsel
appearing on behalf of the Petitioner and the Respondent
had placed before this Court, a judgment of a Learned
Single Judge of the Delhi High Court in Indian Exporters
Grievance Forum vs. Union of India (Writ Petition (Civil)
2497 of 2008 decided on 5 August 2010). An appeal
against the judgment of the Learned Single Judge is
pending before the Division Bench and the judgment of
the Learned Single Judge has been stayed. In deciding
this matter, we have independently interpreted the terms
of the Foreign Trade Policy and the relevant notifications
and circulars that hold the field. It is, therefore, not
necessary for this Court to make any observation in
relation to the view which has been expressed by the VBC
15 wp4499.07-14.6 Learned Single Judge of the Delhi
High Court.”
37. The upshot of the aforesaid discussion would be that the appeal
is devoid of any merit. This appeal is dismissed with costs.
ACTING CHIEF JUSTICE
(RAJIV SAHAI ENDLAW)
JUDGE
February 24, 2012
pmc
LPA No.755 of 2010 Page 28 of 28
+ LPA No.755 of 2010
th
Reserved on: 8 December, 2012.
th
% Pronounced on: 24 February, 2012
UNION OF INDIA & OTHERS . . . APPELLANTS
Through: Mr. Mohan Parasaran, ASG
with Mr. Satish Agarwala,
Advocate and Mr. Alok P.
Kumar, Advocate.
VERSUS
INDIAN EXPORTERS GRIEVANCE
FORUM & ANR . . .RESPONDENTS
Through: Mr. Tarun Gulati, Advocate
with Ms. Shruti Sabarwal,
Advocate.
CORAM :-
HON’BLE THE ACTING CHIEF JUSTICE
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
A.K. SIKRI, Acting Chief Justice
1. This intra-appeal filed by the Union of India impugns the
judgment dated 05.8.2010 rendered by the learned Single
Judge of this Court in Writ Petition (Civil) No.2497 of 2008 filed
by the respondents herein. By means of the said decision, the
writ petition of the respondents has been allowed to a limited
extent holding that the duties and entitlement of the
respondent society will be computed on the basis stated in the
judgment and the corresponding duty credit will be given to
them by the appellants within a period of 12 weeks from the
date of judgment. The dispute arose on the nature of
LPA No.755 of 2010 Page 1 of 28
entitlement, viz., the duty credit that may be used by the
exporters earned by way of export incentive under the scheme
called the Target Plus Scheme (TPS). Under the aforesaid TPS
which was aimed at boosting the exports, it was decided to
reward those exporters who achieved quantum growth in
exports as per the target mentioned in the said scheme and
were described as Star Export Houses. Certain percentage of
incremental growth of FOB values of the exports were fixed as
duty entitlement. The scheme further provided that these duty
credits could be used for import of “any inputs, used capital
goods including spares, 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……………..” It is the nature of these imports for
which duty credit may be used has become the subject matter
of contention. The learned Single Judge in the impugned
judgment has given the detailed background of the scheme
and the amendments made from time to time. It may not be
necessary to restate all those in details. However, the relevant
facts which touch upon the controversy that arises in the
matter is the TPS was first introduced in the Foreign Trade
Policy, 2004 announced in 01.9.2004. As per the said scheme:
(i) All Star Export houses which have achieved a
minimum export turnover in free foreign exchange
of ` 10 Crores in the previous licensing year are
eligible for a duty credit based on incremental
exports (Paras 3.7.1 – 3.7.3 of the FTP, 2004).
LPA No.755 of 2010 Page 2 of 28
(ii) The duty credit may be used for import of any
inputs, capital goods including spares, office
equipment, professional equipment and office
furniture provided the same is freely importable
under the ITC (HS) classification of export and
import items, for their own use or that of
supporting manufacturers as declared in „Aayat
Niryat Form‟.
2. Import entitlement regarding growth products was also
stipulated as follows:
(A) 3.7.6 Imports allowed:
The duty credit may be used for import of any
inputs, capital goods including spares, 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’ .
(B) As 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
LPA No.755 of 2010 Page 3 of 28
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 for import under the Scheme.
Import of all edible oils classified under Chapter 13,
shall be allowed under the scheme only through
STC and MMTC.” 4. The above provisions were
valid from 1st April 2004 to 31st March 2005. For
the next licence year from 1st April 2005 to 31st
March 2006, they were continued with certain
minimal changes.
(C) Appendix 17D, i.e., the prescribed form was issued
by the Directorate General of Foreign Trade ( for
brevity „DGFT‟) vide Public Notice No.07.4.2005.
Applications were to be made in this prescribed
form for availing of duty free export credit (DFEC)
LPA No.755 of 2010 Page 4 of 28
under the TPS for the two licensing years, i.e., from
2004 to 2006. Serial No.10 of Appendix 17D
against the column “category of exports”, it was
mentioned:
“Goods allowed to be imported under the
scheme shall have a „broad nexus‟ with the
„Export Product Group‟ and declaration in
this behalf shall be made in Appendix 17D.”
3. From the aforesaid, it becomes clear that the duty credit under
the TPS was available for inputs that had a „broad nexus‟ with
the goods exported. To this extent, there is no quarrel.
4. Thereafter, by a Public Notice NO.16 dated 04.6.2005, 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.”
5. On 08.4.2005, Para 3.2.5 of the HBP was amended with
retrospective effect and state as follows:
“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
groups within the overall value of the entitlement
certificate.”
LPA No.755 of 2010 Page 5 of 28
6. On 01.8.2006, a Circular was issued by the DGFT clarifying that
so long as the imported goods belonged to the same “product
group” as the exported goods, the exporter could use the duty
credit under the TPS for such imported goods as well.
According to the appellant, the above was issued in the context
of a decision to permit a rice exporter to import almonds using
the duty credit under the TPS. The above Circular of the DGFT
was challenged by M/s. Indo-Afghan Chamber of Commerce in
this High Court in W.P.(C) No.12603 of 2006 and the said
Circular was defended by the DGFT in an affidavit filed in the
above matter. However, the Department of Revenue objected
to the above interpretation of the DGFT on the ground that the
said interpretation almost rendered the concept of „broad
nexus‟ nugatory and redundant, leading to a serious loss of
revenue for the Government. The matter was referred to the
Committee of Secretaries. In its meeting on 13.2.2007, the
Committee of Secretaries decided that the interpretation placed
by the DGFT was incorrect and beyond the scope of the overall
objective of the TPS itself. It was decided that the clarification
dated 01.8.2006 be withdrawn and the affidavit filed, suitably
amended. Following this, the Ministry of Law examined the
matter and recommended that another clarification be issued
and the amendment to Para 3.2.5 be deleted. Department of
Revenue issued Circular No.21/09-Cus dated 08.5.2007
clarifying the scope and coverage of the goods that can be
imported under the TPS.
7. Paras 3, 4 and 5 of the said circular state 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
LPA No.755 of 2010 Page 6 of 28
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 any
interpretation 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 brushed aside and
have to be in focus for the intended import. Together
these words indicate that the item sought to be imported
should be an “input” in the manufacture of the exported
items which is required for “use” by the exporter or the
supporting manufacturer, as the case may be. For this
purpose, the intended input must have a relationship with
the export product. Whereas SION will act as a prima
facie evidence of the 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. Ignoring to give effect to the words “inputs” in the
beginning and “own use” towards the end in Para 3.7.6 of
the FTP would mean to render a part of it redundant and
would not be in keeping with the objective and framework
of the scheme.
4. In the light of this, the Ministry of Law 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 export product
and is required to be used as an input in the product
exported for which TPS benefit is sought. 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
the petition filed before the learned Single Judge.
LPA No.755 of 2010 Page 7 of 28
8. 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). Note 2. In para 3.7.6 of FTP
(RE2004 & RE 2005), there is no quantitative/duty
quantum restriction on import of inputs related to export
products, which may otherwise be stipulated as a norm
for export product.”
9. The effect of the above Public Notice dated 21st June 2007,
which has also been challenged in this petition, is that it seeks
to further narrow down the right to import only such inputs
under TPS as those which have nexus with the export product,
and not the export product group. After the amendment, para
3.2.5 (II) of HBP reads as under:
“II. 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
of the product groups of the exported goods within the
overall value of the entitlement certificate.”
10. Thereafter a further circular No. 45/2007-Customs dated 19th
December 2007 was issued whereby the Respondents further
clarified that the term “broad nexus‟ has to be construed with
reference to the words “use” and “inputs” in the FTP. Thus
LPA No.755 of 2010 Page 8 of 28
Respondent No.3 restricted the benefit under the TPS by
clarifying that only “inputs‟ used in the
manufacture/production of goods exported will be allowed to
be imported.
11. Before the learned Single Judge, learned counsel for the
Petitioners submitted that members of Petitioner No.1 Society
had made incremental exports and had become entitled to
duty-free credit. By unduly seeking to restrict the items that
could be imported, an accrued benefit had been taken away. It
is submitted that the schedule of making imports was planned
well in advance and in the present case the exports had
already taken place between 1st April 2004 and 31st March
2006. Any change in the HBP made long after the completion
of those exports should not be permitted even on the ground of
legitimate expectation. Importantly, it is contended that such
change cannot be brought about through circulars and Forms
but only by means of an amendment through the notification
under Section 5 of the FTDR Act. The power to make such
changes obviously could not have been delegated by the
Central Government to the DGFT. It is for these reasons that
the amended para 3.2.5 (II) of the HBP is assailed being
beyond the competence of the DGFT and, therefore, liable to
be quashed.
12. In reply, it was 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
LPA No.755 of 2010 Page 9 of 28
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 only if the same has a “broad nexus‟ with the product
group as input in the export product and is required to be used
as an input in the product exported for which Target Plus
Scheme benefit is sought. It 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”. It is submitted that the subsequent circulars
are all consistent with the above opinion of the Law Ministry.
Challenge to maintainability of the petition not
sustainable
13. A preliminary objection has been raised by the learned ASG to
the maintainability of this writ petition on the ground that the
Petitioners do not have a locus standi to challenge the
impugned Circulars and the Notifications. He places reliance on
LPA No.755 of 2010 Page 10 of 28
the decision of this Court in Vaas Exports v. Union of India
143 (2007) DLT 525 .
14. This Court does not find the above preliminary objection to be
tenable in law. Petitioner No.1 is a registered Society having as
its members export houses and star trading houses all of whom
are affected by the impugned Notification. Petitioner No.1 is
entitled to represent the collective interest of its members.
Recognizing the locus standi of Petitioner No.1 will avoid
multifarious litigation by each of the members of the Petitioner
No.1 seeking identical relief. The facts in Vaas Exports were
different and, therefore that decision does not help the
Respondents in the present case.
Scope of petition restricted to challenging the procedure
adopted for change in the policy
15. It is next submitted by the learned ASG that the impugned
Circular and Notification are an expression of the policy
decision taken by the Government of India and, therefore, in
effect the Petitioners are challenging the policy decision of the
Government of India. It is submitted that in exercise of its
powers under Article 226 of the Constitution, this Court cannot
judicially review the executive policy of the Government of
India.
16. In the considered view of this Court, there is no merit in the
above objection either. The precise legal issue raised by the
Petitioners is whether a change to the duty credit entitlements
announced by the FTP can be brought about without amending
such policy and by issuing Circulars and Notifications or Forms.
LPA No.755 of 2010 Page 11 of 28
This can be examined by this Court in exercise 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?
17. It was further 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. It
was 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. It was 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, the
Petitioners would be willing to abide by that condition.
However, the change, in any event, cannot be made long after
the exports had taken place. The exports and imports had been
planned keeping in view the FTP already announced. He relied
on the decisions in Atul Commodities Pvt. Ltd. v.
Commissioner of Customs (2009) 235 ELT 385 (SC) and
Union of India v. Asian Food Industries (2006) 13 SCC
542 .
LPA No.755 of 2010 Page 12 of 28
18. Learned A.S.G. also relied on the decision in Atul
Commodities Pvt. Ltd. (supra) to submit that the separate
policy decision of the Government of India and the changes to
such policy decision were not amenable to judicial review. The
overall objective had to be kept in mind. Subsequent Circulars
and Notifications were only clarificatory and were not
inconsistent with para 3.7.6 of the FTP. He placed reliance
upon the decisions in Tata Teleservices Ltd. v.
Commissioner of Customs 2006 (194) ELT 11 (SC) and
UCO Bank, Calcutta v. Commissioner of Income Tax,
W.B. (1999) 4 SCC 599 .
19. This Court finds that a similar attempt made by the DGFT
which issued Circulars and Public Notices to amend the EXIM
Policy of 2002-07 was invalidated by a Division Bench of the
Bombay High Court in Narendra Udeshi v. Union of India
2003 (156) ELT 819 . The Bombay High Court observed that
it was beyond the scope of the powers of the DGFT to bring out
a change to the EXIM Policy. It was held that in the absence of
any power under the FTDR Act, the Circulars and Public Notices
to prohibit duty-free import of natural rubber under advance
licence could not be issued by the DGFT. This Court finds that
para 3.7.6 of the FTP, by itself, does not indicate that the
imported goods should constitute “inputs‟ in the goods
exported. In fact the language of para 3.7.6 is wide enough to
include any kind of inputs: capital goods including spares,
office equipment, professional equipment and office furniture
etc. It is not possible to read para 3.7.6 restrictively. In Atul
Commodities Pvt. Ltd. (supra) the Supreme Court explained
that it was not open to the DGFT to change the nature of the
LPA No.755 of 2010 Page 13 of 28
imported items as specified in the FTP from the category „free‟
to the category „restricted‟ by issuance of Circulars. It was
explained by the Supreme Court with reference to the facts of
that case that the circulars and notifications issued by the
DGFT were clarificatory and not amendatory in nature. 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.”
20. 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 which constituted an `input‟ in the
exported product is indeed impermissible.
21. It was inter alia clarified that in the light of this, the Ministry of
Law has 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 export product
and is required to be used as an input in the product exported
for which TPS benefit is sought. The Ministry of Law has also
clarified that the term „broad nexus‟ with the product group is
LPA No.755 of 2010 Page 14 of 28
in addition to and not in substitution of the words “inputs” and
“own use” in Para 3.7.6 of the Scheme.
22. According to the appellant, still there was misuse of TPS and
those instances were brought to the notice of the Department
of Revenue which necessitated issuance of another Circular
No.45/2007-Customs dated 19.12.2007 providing as under:
“3. The Board had clarified vide Circular No.21/2007-
Cus. Dated 21.5.2007, that the words „Inputs‟ and
„use‟may not be brushed aside and have to be in focus for
the intended import. Together, these words indicate that
the item sought to be imported should be an „Input‟ in the
manufacture of the exported products which is required
for „use‟ by the exporter or the supporting manufacturer,
as the case may be. For this purpose, the intended Input
must have a relationship with the export product.
Whereas SION will act as a prima facie avidence 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.
4. It is further clarified that under the TPS the
exporter can import, within the entitlement, items in
quantities in excess of that mentioned in SION or other
items in the product group provided that, in either case,
they form „inputs‟ and are used by him.
5. In view of the position explained above, imports
under TPS may be carefully scrutinized with reference to
the provisions of the FTP, Handbook of Procedures, the
customs notifications and Board‟s Circular referred to
above so as to ensure that the laid down provisions
regarding „inputs‟, „broad nexus‟ and „use‟ and „supporting
manufacturer(s)‟ are complied with.”
LPA No.755 of 2010 Page 15 of 28
23. The Circular dated 01.8.2006 was withdrawn by the DGFT vide
letter dated 09.5.2007. Public Notice No.9 dated 21.6.2007
was issued deleting the words “for the purposes of import
entitlements under this scheme, „broad nexus‟ would mean
goods imported with reference to any of the product groups of
the exported groups within the overall value of the entitlement
certificate” form Para 3.2.5 of the HBP. Circular No.21/2007-
Cus was issued by the Department finally clarifying the scope
of “broad nexus” for the purposes of the Target Plus Scheme.
24. It is at this stage, the respondents filed Writ Petition (Civil)
No.2497 of 2008 challenging the vires of:
(i) Para 3.2.5 of the HBP
(ii) Circular NO.21/2007-Cus dated 08.5.2007
(iii) Public Notice No.9/2007 dated 21.6.2007
25. By final judgment and order dated 05.8.2010, the learned
Single Judge granted the declaratory relief sought for by the
respondents and struck down the above paragraph of the HBP
and Circulars issued by the Department.
26. The contention of the respondents herein in the said writ
petition was that the appellant had no power or jurisdiction to
impose a condition of „broad nexus‟ or to define the term „broad
nexus‟ where there was no such condition in Para 3.7.6 of the
FTP. According to the respondent, it amounted to changing the
conditions in FTP, which could be brought by notification under
Section 5 of Foreign Trade (Development and Regulations),
1992. It was also contended that the members of the
LPA No.755 of 2010 Page 16 of 28
respondent who were Star Export Houses had made
incremental exports and had become entitled to duty free
credit. However, the appellants were attempting to take away
the same benefit that could be imported. It was also argued
that the schedule of making imports was planned well in
advance and exports had already taken place between
01.4.2004 to 31.3.2006. Any change in the HBP made long
after the completion of those exports should not be permitted
even on the ground of legitimate expectation and no case by
means of circular and forms and the only recourse could be to
issue notification under Section 5 of the FTDR Act and in no
case by the DGFT which had no jurisdiction or power.
27. The contentions of the respondents herein have found favour
with the learned Single Judge, giving, inter alia , the following
reasons:
(a) Similar attempt made by the DGFT to amend EXIM
Policy of 2002-07 was invalidated by a Division
Bench of the Bombay High Court in the case of
Narendra Udeshi Vs. Union of India [2003
(156) ELT 819] holding that it was beyond the
scope of the powers of the DGFT to bring out a
change to the EXIM Policy.
(b) Para 3.7.6 of FTP, by itself, does not indicate that
the imported goods should constitute „inputs‟ in the
goods exported. In fact, the language of Para
3.7.6 is wide enough to include any kind of inputs:
capital goods including spares, office equipment,
professional equipment and office furniture, etc.
LPA No.755 of 2010 Page 17 of 28
This could not be read restrictively as held by the
Apex Court in Atul Commodities Pvt. Ltd.
(supra) .
(c) Even if requirement of „broad nexus‟ was justified
keeping in view the overall FTP, further change by
way of Circular dated 21.6.2007 to restrict the
import to only that goods that constituted an „input‟
in the exported product is indeed impermissible.
The learned Single Judge, in this behalf, observed
as under:
“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 Court that while the above
Public Notice dated 4th June 2005 was
perhaps justified since it was issued during
the time when the TPS was still continuing
and it was, therefore, possible for the
exporters to plan their exports and imports,
the subsequent circular dated 8th May 2007
and Public Notice dated 21st June 2007
issued by the Respondents have, in the garb
of clarifying the term „broad nexus‟, unduly
restricted the meaning of the word „inputs‟
to mean only those inputs used in the
manufacture of the goods exported. There is
merit in the contention of the Petitioners that
this was travelling far beyond what was
provided in para 3.7.6 of the FTP and ultra
vires the powers of the DGFT. Such a change
to the FTP, if at all, could have been brought
about only through a notification under
Section 5 FTDR Act.”
LPA No.755 of 2010 Page 18 of 28
(d) The learned Single Judge also noted that the stand
taken by the Government was contrary to its
counter affidavit dated 12.9.2006 filed in W.P.(C)
No.12603 of 2006 ( Indo Afghan Chamber of
Commerce Vs. Union of India ) as regard the
incentive provided by the TPS and Para 3.7.6 of the
FTP wherein the Government itself stated:
“………….. 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,
Scientific or Research and Development
(R&D) institution, university or other
educational institution or hospital; or (iii) any
service industry.”
It is submitted that the Policy defines
manufacturing under Para 9.37, which read
as “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-
LPA No.755 of 2010 Page 19 of 28
engineering, Manufacture, for the purpose of
this Policy, shall also include agriculture,
aquaculture, animal husbandry, floriculture,
horticulture, pisciculture, poultry, sericulture,
viticulture and mining.” Therefore, in view of
the above it is submitted that in the instant
case since the exporter will be processing
the almond-in-shell to produce the final
product i.e. either almond or roasted almond
or salted almond, it will be taken to be in
furtherance of the actual user condition.”
28. Thus, it was not open to the Government to again introduce a
change in the TPS with reference to the exports that had
already been completed as on 31.3.2006.
29. In this backdrop, while quashing the impugned Circular dated
08.5.2007, Public Notice dated 21.6.2007 and further Circular
dated 19.12.2007 as well as amended Para 3.4.5 of the HBP,
the learned Single Judge has made following remarks:
“27. Given the objective of providing an incentive to
exporters, para 3.7.6 of the FTP can reasonably be
interpreted to require an exporter to show that the goods
imported should have a “broad nexus‟ with reference to
any product group of the exported goods within the
overall value of the entitlement certificate. The word
„nexus‟ obviously refers to a larger group of similar goods
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
8th May 2007, the Public Notice dated 21st June 2007
and the further circular dated 19th 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
8th May 2007, the Public Notice dated 21st June 2007,
LPA No.755 of 2010 Page 20 of 28
the further circular dated 19th December 2007 and the
amended para 3.2.5 of the HBP are accordingly quashed.”
30. Assailing the aforesaid reasoning and conclusion in the
impugned judgment, Mr. Mohan Parasaran, learned Additional
Solicitor General argued that Para 3.2.5 of HBP, Circular
No.21/2007 and Public Notice No.9/2007 were all clarificatory
in nature and were seeking to clarify the scope of the word
“inputs” in Para 3.7.6 of FTP. According to him, the
clarification could always be issued and it did not amount to
any amendment. He further argued that there is no vested
right which accrued to the respondent or the members of its
organisation from the Circular dated 01.8.2006 which has not
only been withdrawn but also been accepted by the
Government itself as stating the incorrect position of law as
regards Para 3.7.6 of the FTP. It was open to the Government
to correct its mistake which has subsequently been clarified as
held in Videsh Sanchar Nigam Limited Vs. Ajit Kumar Kar
[(2008) 11 SCC 591].
31. Mr. Parasaran also referred to the judgment of the Supreme
Court in Atul Commodities (supra) in support of the
submission that “amendment” and “clarification” were
completely two different concepts and it is only in amendment
that notification was required to be issued under Section 5 of
the FTDR Act and therefore, there was no such requirement
when clarification only was issued as happened in the present
case. He also argued that the scope of Para 3.7.6 of the FTP
was wrongly interpreted in Para 21 of the impugned judgment
inasmuch as the term “inputs” does not include capital goods
including spares, etc. He argued that this Court has not taken
LPA No.755 of 2010 Page 21 of 28
into account the fact that there is a comma immediately after
inputs, but not before „inputs‟ indicating that inputs is part of a
list of items being enumerated, not a term being explained.
The correct interpretation therefore is:
(a) The Duty Credit may be used for import of any
(i) Inputs,
(ii) Capital goods including spares,
(iii) Office equipment,
(iv) Professional equipment, and
(v) 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‟.
(b) Furthermore, the learned Single Judge has failed to
appreciate the condition indicated in the “proviso”
contained in the relevant paragraph which clearly
states that the goods which can be imported have
to be freely importable, and they have to be
imported „for their own use‟ and that of supporting
manufacturers.
(c) It is, therefore, clear that the term “inputs” has to
be read in conjunction with the term “for their own
use” as contained in the same paragraph. The
irresistible conclusion that follows from this is that
a manufacturer may only use the duty credit
obtained from export in importing inputs that are
capable of being put to use and consequently the
LPA No.755 of 2010 Page 22 of 28
term “broad nexus” as used in the impugned
circular is merely clarificatory.
32. Learned counsel for the respondent, on the other hand, relied
upon the reasons given by the learned ASG in support of
decision in favour of the respondents hearing. He also
submitted that the pivotal purpose of the scheme was to
reward “Star Export Houses”, i.e., manufacturing houses and
“Merchant Export Houses”, who achieved targeted export turn
over stipulated in the said scheme. It is for this reason the
scheme provided that duty credit earned by these exporters
can be utilized for particular kind of imports stipulated in Para
3.7.6 of the scheme and the entire matter could be looked into
from this perspective. He submitted that the expression
“inputs”, used therein did not attach any condition that it has
to have any nexus to exporters, as was clear from Chapter IX
of the FTP. Even if some nexus had to be established as
mentioned in Appendix 17D, it had only to be “broad nexus”.
Broad nexus was explained in letter dated 01.8.2006 by DGFT
itself to mean broad category, viz., „product group‟.
33. We have considered the respective submissions of both the
parties and have minutely gone through the impugned
judgment authored by the learned Single Judge. First and
foremost focus has to be on the scheme itself. Para 3.7 of the
scheme stipulates the targets which the Star Export Houses are
supposed to achieve and on achieving these targets
entitlement of duty credit is mentioned in that para. The
companies who can avail this credit are not only those which
have actually made exports, but are definitely „companies
LPA No.755 of 2010 Page 23 of 28
which are Star Exports Houses as well as a part of group
company‟, who are given an option to apply as an individual
company or as a group based on the growth in the groups turn
over as a whole. This is a significant feature in the scheme
where sister concerns of Star Export Houses are allowed to
avail the import entitlement against duty credit earned by
these Star Export Houses inasmuch as sister concern which is a
part of group company may not necessarily have exactly the
same export as that of the Star Export House, but still made
applicant company to avail imports against the duty credit. It
is in this light, we may have a relook at the imports which are
allowed as per Para 3.7.6 of the scheme. Opening para of the
scheme reads as under:
“3.7.6
The Duty Credit may be sued for import of any inputs,
capital goods including spares, office equipment,
professional equipment and office furniture provided the
same is freely importable under ITC (HS), for their own
use or that of supporting manufacturers as declared in
Appendix 17D…….”
34. Reading of the aforesaid para makes it clear that credit can be
used for import of any inputs, capital goods including spares,
office equipments, professional equipment and office furniture.
Such imports can be used not only by the exporter, but even
by the supporting manufacturer. Obviously, office equipment,
professional equipment and office furniture have no nexus with
the exports, the question is about inputs. When the expression
is “import of any inputs” whether it would mean only those
inputs which have nexus with the nature of goods exported.
That is not following from the scheme. When we read the later
portion of this para dealing with import of agricultural products,
LPA No.755 of 2010 Page 24 of 28
we find that some items which are allowed to be imported are
specifically mentioned. Again, when those items are
mentioned, it is not necessary that they will have nexus with
the exports made by a particular export houses. When we look
the matter from this angle and even proceed on the basis that
„broad nexus‟ criteria used in Handbook of Procedures Vol. I for
the period from 01.9.2004 to 31.3.2009, the word „broad‟
prefixed with nexus, the word „nexus‟ has to be assigned same
meaning. This meaning was given by the DGFT itself in its
letter dated 01.8.2006 in the following words:
“It is hereby clarified that in terms of the Policy Circular
No.27(RE-2005)/2004, 2009 dated 5.10.2005 read with
Policy Para 87.6 and Handbook of Procedure (Vol.I) Para
3.2.5 (ii) broad nexus is to be maintained with Product
Group in your case, your export products are covered
under the Food category, you are required to maintain
nexus with Food group of SION book, wherein you have
the flexibility to import any input listed in the relevant
product group category of the SION Book. As dry fruits
(including almonds, as in your case) are listed as one of
the inputs under SION E5, nexus with Food Products
group is clearly established.
It is further clarified that you can got the imported goods
processed and concerted from any processor of your
charge including the listed supporting manufacture job
worker etc. if any, and thereafter you are free to sell the
resultant product(s) in the market. There is no export
obligation attached with the resultant product(s) obtained
after processing of goods imported under the scheme.
You are required to maintain proper account of the
utilization of imported goods and abide by the Actual
Condition. Moreover there is no requirement of endorsing
the name(s) of soon processor(s) in the DFCE/IPS scripts
and you are at liberty to choose any processor to convert
you goods into value added resultant product(s).
Thus it is clarified 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.
LPA No.755 of 2010 Page 25 of 28
This clarification is issued with the approval of DG on file.”
35. It was thus understood that the nexus has to be maintained
that „product group‟, viz., the category of the products which is
exported. If the import also falls in the same category/group,
it would be allowable. In the aforesaid letter, in relation to the
export in food, it was clarified that it would be „food category‟
with respect to which the exporter was required to maintain
nexus. In that particular case, the exporter was exporting dry
fruits, he was permitted to import almond which falls in the
category of „dry fruits‟. Initially, when Public Notice NO.16
dated 04.6.2005 was issued replacing earlier Appendix 17D
with new one in Para 10 thereof, “broad nexus” was explained
to mean goods imported with respect to any product group of
the exported goods within the overall value of entitlement
certificate. Same meaning was assigned in Para 3.2.5 of the
HBP amended on 08.4.2005. Thus, Circular dated 01.8.2006 of
the DGFT was in tune with the aforesaid. It is only thereafter
that another Circular dated 08.5.2007 was issued bringing the
concept of „use‟ and „own used‟ contained in the Policy to
associate the same with „input‟ and stating that the import was
possible of those products only if the same had a „broad nexus‟
with the product group as an input with the export group and
is required to be used as an input in the product exported
by which TPS benefit is sought. On this basis, Public Notice
No.21.6.2007 was issued a this was departure of earlier
understating, the respondents naturally felt aggrieved against
the same.
36. We are, thus, in agreement with the view taken by the learned
Single Judge that Para 3.7.6 of the FTP by itself does not
LPA No.755 of 2010 Page 26 of 28
indicate that the imported goods should constitute „inputs‟ in
the goods exported relying upon Atul Commodities (supra) .
We also agree with the interpretation of the expression „broad
nexus‟ undertaken by the learned Single Judge. In fact,
Bombay High Court in the case of Narendra Udeshi (supra)
and Essel Mining & Industries Ltd. Vs. Union of India
[2011 (270) E.L.T. 308 (Bom.)] has taken identical view
dealing with the identical issue. For our benefit, we may
reproduce the following para from the said judgment:
“10. The Foreign Trade Policy, it is well settled, is
referable to the provisions of Sections 4 and 5 of the
Foreign Trade Development and Regulation Act, 1992.
The policy cannot be amended by an administrative
circular. The circular does not in this case supplement the
policy or fill up an interstitial space. The circular imposes
a substantive condition at variance with the policy. VBC
13 wp4499.07-14.6 Where the Central Government has
considered it necessary to impose a requirement of
physical incorporation, such a condition has been made
expressly in other provisions of the Foreign Trade Policy.
For instance, in relation to advance plus licences
governed by the duty exemption scheme, it has been
stipulated that an advance licence is issued to allow duty
free importable inputs which are physically incorporated
in the export products (paragraph 4.1.3 of the Foreign
Trade Policy for April 2005). Similarly, while issuing an
exemption notification in relation to imports covered by
advance licences, the Union Government in its notification
dated 10 September 2004 (Notification 93/04) has
specifically defined materials to mean raw materials,
components intermediates, consumables, catalysts and
parts which are required for manufacture of resultant
products. No such requirement was incorporated in
paragraph 3.7.6 of the Foreign Trade Policy. In other
words, the condition that the inputs which are imported
must be used in the export of the resultant product was
not incorporated as part of paragraph 3.7.6 of the Foreign
Trade Policy. In that view of the matter, it is not possible
LPA No.755 of 2010 Page 27 of 28
to accept the contention of the Respondent that the
conditions which were imposed by the circular VBC 14
wp4499.07-14.6 date 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).
11. Before concluding, it would be necessary to note that
during the course of the hearing of the Petition, Counsel
appearing on behalf of the Petitioner and the Respondent
had placed before this Court, a judgment of a Learned
Single Judge of the Delhi High Court in Indian Exporters
Grievance Forum vs. Union of India (Writ Petition (Civil)
2497 of 2008 decided on 5 August 2010). An appeal
against the judgment of the Learned Single Judge is
pending before the Division Bench and the judgment of
the Learned Single Judge has been stayed. In deciding
this matter, we have independently interpreted the terms
of the Foreign Trade Policy and the relevant notifications
and circulars that hold the field. It is, therefore, not
necessary for this Court to make any observation in
relation to the view which has been expressed by the VBC
15 wp4499.07-14.6 Learned Single Judge of the Delhi
High Court.”
37. The upshot of the aforesaid discussion would be that the appeal
is devoid of any merit. This appeal is dismissed with costs.
ACTING CHIEF JUSTICE
(RAJIV SAHAI ENDLAW)
JUDGE
February 24, 2012
pmc
LPA No.755 of 2010 Page 28 of 28