Case Note & Summary
The appellant, Noble Resources and Trading India Private Limited (formerly Andagro Services Pvt. Ltd.), a government-recognized two-star export house, imported crude degummed soyabean oil under the Duty Free Credit Entitlement (DFCE) scheme of the EXIM Policy 2002-2007, claiming exemption from customs duty under Notification No. 53/2003-Cus. dated 01.04.2003. The Revenue issued a show-cause notice on 30.08.2006, contending that the imported oil was an agricultural product excluded from exemption, and that there was no nexus between the imported oil and the exported products (soyabean meal extract, etc.). The Assistant Commissioner confirmed the demand of Rs. 1,00,38,321/- on 09.01.2007. The appellant challenged this before the Gujarat High Court, which dismissed the writ petition on 05.08.2019. The Supreme Court granted special leave and heard the appeal. The core legal issues were: (1) whether crude degummed soyabean oil is an 'agricultural product' excluded under the notification; (2) whether the departmental circular could expand the exclusion; and (3) whether the imported product had nexus with the exported product. The appellant argued that the oil is not an agricultural product as it undergoes manufacture, and the circular cannot override the statutory notification. The Revenue argued that the oil is derived from soyabean, an agricultural product, and thus excluded. The Supreme Court held that crude degummed soyabean oil is not an agricultural product; it is a manufactured commodity. The circular could not enlarge the exclusion. The nexus requirement was satisfied as both products are food products. The Court allowed the appeal, setting aside the demand and the High Court's judgment.
Headnote
A) Customs Law - Duty Free Credit Entitlement (DFCE) Scheme - Exemption from Customs Duty - Notification No. 53/2003-Cus. dated 01.04.2003 - The appellant imported crude degummed soyabean oil claiming exemption under the DFCE scheme. The Revenue denied exemption on the ground that the imported oil was an agricultural product excluded under the notification. The Supreme Court held that crude degummed soyabean oil is not an agricultural product as it undergoes a manufacturing process and is a distinct marketable commodity. The circular No. 10/2004-Cus. could not expand the exclusion beyond the statutory notification. (Paras 13-13.1) B) Customs Law - Nexus Requirement - DFCE Scheme - The appellant exported food products like soyabean meal extract and imported crude degummed soyabean oil. The Court held that both are food products under category '67/food products', establishing the required nexus. The DGFT public notice allowed import of edible oils through MMTC, which the appellant complied with. (Paras 13.5-13.6) C) Customs Law - Manufacture Test - Central Excise Act, 1944 - The process of extracting crude degummed soyabean oil from soyabean amounts to manufacture, resulting in a distinct commodity. Therefore, the imported oil is not an agricultural product. (Para 13.4) D) Customs Law - Circular Cannot Override Notification - Departmental Circular No. 10/2004-Cus. dated 30.01.2004 - The circular expanded the exclusion to 'any product derived from agricultural origin', which went beyond the statutory notification. The High Court erred in relying on the circular. (Paras 13-13.1)
Issue of Consideration
Whether crude degummed soyabean oil is an 'agricultural product' excluded from exemption under Notification No. 53/2003-Cus. dated 01.04.2003, and whether the imported product has nexus with the exported product under the DFCE scheme.
Final Decision
The Supreme Court allowed the appeal, set aside the order of the Assistant Commissioner dated 09.01.2007 and the judgment of the Gujarat High Court dated 05.08.2019. The demand of duty of Rs. 1,00,38,321/- was quashed. The appellant was held entitled to the benefit of the DFCE scheme.
Law Points
- Customs duty exemption
- Duty Free Credit Entitlement (DFCE) scheme
- Agricultural product definition
- Circular cannot override statutory notification
- Nexus requirement
- Manufacture test
- Common parlance test
