Summary
An exporter imported crude degummed soyabean oil duty-free against a duty free credit entitlement certificate under customs exemption notification No. 53/2003, which excluded 'agricultural and dairy products'; customs demanded duty relying on a Board circular extending the exclusion to all products of agricultural origin including crude edible oil. The Supreme Court held that an administrative circular cannot enlarge the exclusionary clause of a statutory exemption notification, that extraction of crude degummed soyabean oil from soyabean is manufacture producing a distinct commodity, and that the oil is not an agricultural product; the exemption was therefore available.
Issues
- Whether Board circular No. 10/2004-Cus. dated 30.01.2004 could curtail the exemption under statutory notification No. 53/2003-Cus. dated 01.04.2003 by expanding the exclusion 'other than agricultural and dairy products' to all products derived from agriculture or dairy origin including crude edible oil.
- Whether the process of converting soyabean into crude degummed soyabean oil amounts to manufacture.
- Whether crude degummed soyabean oil is an 'agricultural product' excluded from the exemption.
Provisions considered
- Section 25(1), Customs Act, 1962Section 25(1) empowers the Central Government, by notification, to exempt goods of any description from customs duty absolutely or on conditions. Notification No. 53/2003-Cus. was issued under it and defined exempted 'goods' to include raw materials, components, intermediates, consumables and parts other than agricultural and dairy products; the Court treated this as a statutory notification that could not be whittled down by circular. (¶¶ 23, 23.1, 24, 29)
- Sections 28 and 28AB, Customs Act, 1962The show-cause notice and order-in-original demanded duty of Rs. 1,00,38,321 under Section 28 with interest under Section 28AB on the goods imported duty-free; both were set aside. (¶¶ 16, 18, 60)
- Sections 5 and 6, Foreign Trade (Development and Regulation) Act, 1992Section 5 empowers the Central Government to formulate and amend the foreign trade policy by notification; Section 6 provides for the DGFT who advises on and carries out the policy. The EXIM policy 2002-2007, its paragraph 3.7.2.1(vi) (duty free entitlement for status holders) and the Handbook of Procedures were made under these powers. (¶¶ 21, 22, 22.1, 22.2, 22.3)
Held
- A circular cannot take away the effect of a statutorily issued notification; the department cannot, by a circular subsequent to an exemption notification, add a new condition restricting the scope of the exemption or whittle it down. The Board therefore could not expand the exclusion 'other than agricultural and dairy products' in notification No. 53/2003 to mean all products derived from agriculture or dairy origin including crude edible oil; to that extent circular No. 10/2004-Cus. is of no legal consequence. (¶¶ 30, 31, 33, 34, 35, 36, 58)
- To constitute manufacture: there must be a process or series of processes; the original commodity undergoes a transformation; a new commodity emerges with a distinct name, character or use which can no longer be regarded as the original commodity; and it is recognised as distinct in the trade. (¶¶ 44, 45, 49, 50, 51)
- The test of manufacture is not whether the end product is consumable. The High Court erred in holding that crude degummed soyabean oil lacked a distinct identity because it was unrefined and unfit for direct human consumption; it is distinct from soyabean, and the process of cleaning, flaking, solvent extraction and distillation by which it is obtained is manufacturing. (¶¶ 40, 41, 52, 58)
- 'Agricultural product' being undefined in the EXIM policy, its meaning is to be found from dictionary meanings and the common parlance test: it denotes the direct result of husbandry and cultivation of the soil, in its natural unmanufactured condition. Crude degummed soyabean oil is not an agricultural product and so is not excluded from the exemption; the appellant is entitled to the benefit of notification No. 53/2003. (¶¶ 53, 54, 55, 56, 57, 58)
Result
Appeal allowed. High Court judgment dated 05.08.2019 and the Assistant Commissioner's order-in-original dated 09.01.2007 set aside. No order as to costs.