Customs Act, 1962 – s.25 – Foreign Trade (Development and Regulation) Act, 1992 – s.5 – Export-Import (EXIM) Policy of 2002-2007 – Show-cause notice was issued to the appellant stating that under the duty free credit entitlement scheme vide notification dtd. 01.04.2003, the appellant was not eligible for benefits on the import of crude degummed soyabean oil as it was an agricultural product, since goods in the nature of agricultural and dairy products were excluded under the said notification – Demand of duty confirmed by Assistant Commissioner – High Court upheld the levy of demand – Plea of the appellant that the benefit given by the statutory notification dtd. 01.04.2003 could not have been whittled down by the departmental circular dtd. 30.01.2004:
Held: 1.1 The department could not, by issuing a circular subsequent to the notification, add a new condition to the notification thereby either restricting the scope of the exemption notification or whittle it down – By way of the circular dtd. 30.01.2004, Board could not have curtailed the benefits granted to the appellant under the statutory notification dtd. 01.04.2003 by expanding the scope of the exclusionary clause ‘other than agricultural and dairy products’. [Paras 33, 36]
1.2 Under the notification dtd. 01.04.2003, exemption is granted when certain goods are imported into India against a duty free entitlement credit certificate issued under paragraph 3.7.2.1(vi) of the EXIM policy – The goods which are exempted from payment of customs duty etc. means capital goods, office equipments (including computer system, software, fax/machine, telephone) and raw materials, components, intermediates, consumables and parts other than agricultural and dairy – Thus, agricultural and dairy products are excluded from exempted goods – Agricultural and dairy products would not be covered by the notification dtd. 01.04.2003 and would be liable to pay customs duty, etc. on merit. [Para 29]
1.3 On the other hand, circular dtd. 30.01.2004 was issued by the Board following a clarification sought by DGFT from the Department of Revenue as to whether the restriction regarding agriculture and dairy products would apply to all products derived from agriculture/dairy origin – Board clarified that the restriction regarding agriculture and dairy products as specified in the scheme for status holders and service providers shall mean that import of all types of products derived from agriculture/dairy origin including crude edible oil shall not be permitted – Hence, by way of the subsequent administrative circular dtd. 30.01.2004, the excluded goods of agricultural and dairy products as per the statutory notification dtd. 01.04.2003 has been enlarged to include all types of products derived from agriculture/dairy origin including crude edible oil. [Paras 29, 30]
1.4 A circular cannot take away the effect of a notification statutorily issued – Thus, the Board could not have expanded the scope of the expression ‘other than agricultural and dairy products’ as stipulated in the statutory notification dtd. 01.04.2003 to mean and include all types of products derived from agriculture/dairy origin including crude edible oil by way of the administrative circular dtd. 30.01.2004 – If this is accepted, it would amount to rewriting the conditions of exclusion from exempted goods statutorily provided in the notification dtd. 01.04.2003 which is impermissible – Thus, circular dtd. 30.01.2004 insofar it expands the exclusionary clause in the statutory notification dtd. 01.04.2003 has no legal consequence – The process carried out by the appellant using soyabean as raw material and ending in the product crude degummed soyabean oil is manufacturing – Crude degummed soyabean oil is not an agricultural product – Therefore, the appellant is entitled to the benefits under notification dtd. 01.04.2003 – Impugned judgment of the High Court and the order of the Assistant Commissioner are set aside. [Paras 34, 35, 58, 60]
‘Manufacture’; ‘manufacturing process’ – Test of manufacture – Essential features to constitute manufacture – The process of conversion of soyabean into crude degummed soyabean oil, if amounts to manufacture:
Held: To constitute manufacture, the essential features are: i. There must be a process or series of process; ii. The original commodity or raw material undergoes a transformation through the process or series of process; iii. At the end of the process or series of process, a new commodity emerges; iv. The new commodity should have a distinct name, character or use and can no longer be regarded as the original commodity; v. It should be regarded as distinct from the original commodity and recognized as so in the trade – The test is not whether the end product is a consumable product or not – Therefore, the High Court erred in holding that because crude degummed soyabean oil was not further refined and thus, it is not a consumable item; it did not have a distinct identity – This is not the test of manufacture – While there is no dispute that soyabean is an agricultural product, the High Court while endorsing the view of the Assistant Commissioner held that crude degummed soyabean oil is also an agricultural product – Crude degummed soyabean oil is a product different and distinct in character and identity from soyabean, it is not the same thing as soyabean – The process carried out by the appellant using soyabean as raw material and ending in the product crude degummed soyabean oil is manufacturing. [Paras 51, 52, 58]
Words and Phrases – ‘Agricultural product’ – Meaning: Held: Things which have a situs of their production upon the farm and which are brought into condition for uses of society by labour of those engaged in agricultural pursuits as contra-distinguished from manufacturing or other industrial pursuits; that which is the direct result of husbandry and the cultivation of the soil; the product is in its natural unmanufactured condition – Applying the aforesaid test, the view of the High Court that crude degummed soyabean oil is an agricultural product, not concurred with – Crude degummed soyabean oil is not an agricultural product – Therefore, appellant is entitled to the benefits under notification dtd. 01.04.2003. [Paras 56-58]
Foreign Trade (Development and Regulation) Act, 1992 – Purpose, stated. [Paras 21, 22]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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