1. Exporter claimed duty exemption under Target Plus Scheme; Customs authorities alleged improper nexus between imported and exported goods and initiated recovery proceedings. (Para 5 , 6 , 7 , 9 , 10 )
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2026 Supreme(Telangana) 735
THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
P. SAM KOSHY, NARSING RAO NANDIKONDA, JJ.
The Principal Commissioner of Customs - Appellant
Vs.
M/s. Gimpex Limited - Respondent
Central Excise Appeal Nos.2, 26 & 27 of 2013
Decided On : 11-08-2026
Important Points
A 'broad nexus' with the product group, rather than a strict one-to-one product nexus, is sufficient for duty credit exemptions. Where policy ambiguity exists, invoking the extended period of limitation under Section 28(1) is impermissible absent clear intent to evade duty.
Subject
Customs and Indirect Taxes - Customs Duty and Export Promotion Schemes
Act Referred
CUSTOMS ACT: S.108, S.112, S.130, S.25(1), S.46
Headnote
(A) Customs Act, 1962 - Sections 28(1), 112, 114A - Foreign Trade Policy (FTP) 2004-09 - Customs Notification No. 32/2005-Cus - Duty credit certificates - Target Plus Scheme (TPS) - Incremental growth in exports - Exemption from customs duty - Broad nexus - Limitation period.
(B) For claiming exemption under duty credit certificates, a strict product-to-product nexus between the goods imported and the specific goods exported is not required; establishment of a ‘broad nexus’ with reference to the product group of the exported goods as specified by the licensing authority is sufficient. (Para 19)
(C) The extended period of limitation under the proviso to Section 28(1) of the Customs Act cannot be invoked where there is ambiguity in the policy provisions and the assessee proceeded on a bona fide interpretation of the same; intent to evade payment of duty is an essential ingredient for invoking said extended period. (Para 24)
Facts of the case:
Exporters who achieved incremental growth in exports obtained duty credit certificates under a specific reward scheme. Utilizing these certificates, they imported goods duty-free under a Customs Notification. The department investigated and alleged that the imported goods bore no nexus with the exported goods, subsequently demanding differential duty, interest, and penalties by invoking the extended period of limitation.
Findings of Court:
The court observed that the policy did not require a strict one-to-one nexus but rather a broad nexus relating to the defined product group. It further noted that the ambiguity in the policy and the subsequent judicial interpretations supported the respondents' belief, and since the certificates were not cancelled or revoked by the licensing authority, there was no wilful suppression.
Issues: (i) Whether a strict product-to-product nexus or a ‘broad nexus’ with the product group was necessary for claiming exemption under Notification No.32/2005-Cus. (ii) Whether the extended period of limitation under the proviso to Section 28(1) of the Customs Act was invocable.
Ratio Decidendi: The court ruled that the interpretation of ‘broad nexus’ allows for imports that are inputs for any product within the same product group. Moreover, in cases of policy ambiguity where the assessee's interpretation is later judicially supported, the charge of wilful suppression cannot be sustained, thereby barring the invocation of the extended period of limitation under Section 28(1).
Result: Appeals dismissed.
(B) For claiming exemption under duty credit certificates, a strict product-to-product nexus between the goods imported and the specific goods exported is not required; establishment of a ‘broad nexus’ with reference to the product group of the exported goods as specified by the licensing authority is sufficient. (Para 19)
(C) The extended period of limitation under the proviso to Section 28(1) of the Customs Act cannot be invoked where there is ambiguity in the policy provisions and the assessee proceeded on a bona fide interpretation of the same; intent to evade payment of duty is an essential ingredient for invoking said extended period. (Para 24)
Facts of the case:
Exporters who achieved incremental growth in exports obtained duty credit certificates under a specific reward scheme. Utilizing these certificates, they imported goods duty-free under a Customs Notification. The department investigated and alleged that the imported goods bore no nexus with the exported goods, subsequently demanding differential duty, interest, and penalties by invoking the extended period of limitation.
Findings of Court:
The court observed that the policy did not require a strict one-to-one nexus but rather a broad nexus relating to the defined product group. It further noted that the ambiguity in the policy and the subsequent judicial interpretations supported the respondents' belief, and since the certificates were not cancelled or revoked by the licensing authority, there was no wilful suppression.
Issues: (i) Whether a strict product-to-product nexus or a ‘broad nexus’ with the product group was necessary for claiming exemption under Notification No.32/2005-Cus. (ii) Whether the extended period of limitation under the proviso to Section 28(1) of the Customs Act was invocable.
Ratio Decidendi: The court ruled that the interpretation of ‘broad nexus’ allows for imports that are inputs for any product within the same product group. Moreover, in cases of policy ambiguity where the assessee's interpretation is later judicially supported, the charge of wilful suppression cannot be sustained, thereby barring the invocation of the extended period of limitation under Section 28(1).
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Department argued for strict product-to-product nexus requirements; Respondent contended 'broad nexus' was sufficient and challenged invocation of the extended period of limitation due to lack of suppression. (Para 11 , 12 , 13 , 14 , 15 , 16 , 17 )
3. The court found that the ambiguous 'broad nexus' policy was not designed to impose strict product-matching, and that the department failed to prove intent to evade duty. (Para 19 , 20 , 21 , 23 , 24 )
4. Extended limitation period under Section 28(1) is inapplicable when policy provisions are ambiguous and lack clear criteria, preventing a finding of deliberate suppression or collusion. (Para 23 , 24 )
5. Appeals dismissed and CESTAT order upholding the benefit of exemption and rejecting the demand for duty and penalties is confirmed. (Para 25 , 26 )
6. What is the requirement for 'broad nexus' under the Target Plus Scheme?
The court held that 'broad nexus' does not require a strict one-to-one product match. It is sufficient if the imported goods can be utilized as input in any goods falling within the same defined product group as the exported items. (Para 19 , 20 , 21 )
7. Can the extended period of limitation under Section 28(1) of the Customs Act be invoked when policies are ambiguous?
No. When statutory or policy provisions are demonstrably ambiguous and capable of multiple interpretations, the lack of certainty precludes the establishment of 'intent to evade duty', which is a necessary ingredient for invoking the extended period of limitation. (Para 23 , 24 )
JUDGMENT:
(per the Hon’ble Sri Justice P. Sam Koshy)
Since the issue arising out of the three appeals is one and the same and the parties thereto are also same, they were heard together and are decided by this Common Judgment.
2. The instant appeals are preferred by the Customs Department under Section 130 of the Customs Act, 1962 assailing the Common Order dated 13.06.2012 in Appeal No.C/249/09 passed by the Customs, Excise and Services Tax Appellate Tribunal, South Zonal Bench, Bangalore (for short, ‘CESTAT’) in the course of deciding a batch of appeals, the lead case being C-249/2009. Though there were other appeals as well which were filed by the Customs-Department and decided by the CESTAT, however consequent to the revised litigation policy adopted by the Central Board of Excise and Customs, except for the present batch of appeals, all other appeals have been withdrawn.
3. Heard Ms. B. Sapna Reddy, learned Senior Standing Counsel for Central Board of Indirect Taxes and Customs (C.B.I.C.), for the appellant; and Mr. B. Satish Sundar, learned counsel appearing on behalf of Mr. Parikshith Kutur, for the respondent.
4. For convenience, the facts in Central Excise Appeal No.2 of 2013 are discussed hereunder.
5. The respondent M/s. Gimpex Ltd. (for short ‘GL’) was engaged in the export of industrial minerals such as iron ore, bentonite, feldspar, and granite slabs, for which purpose the raw material and machinery required for export packing materials such as PP bags, and machinery such as dozers, dumpers, generators, excavators, tippers, and crushing and screening systems were utilised. During the period from 01.04.2004 to 31.03.2005, GL exported iron ore fines valued at Rs.142.3 crores and other minerals valued at Rs.31 crores, aggregating to Rs.173.3 crores which enabled GL to record sufficient incremental growth over its exports in the preceding year (2003-04), thereby rendering it eligible for duty credit certificates under the Target Plus Scheme (for short ‘TPS’). GL accordingly applied in the prescribed format to the Director-General of Foreign Trade (for short ‘DGFT’) for grant of such certificates, and obtained 7 duty credit certificates for a total amount of Rs.7,08,12,793/- in the month of May, 2006 issued by the Joint DGFT, Chennai. These certificates / licences under the TPS enabled GL to import canalized items in terms of paragraph 3.2.5 of the Handbook of Procedures (Volume-I) 2004-09 subject to the actual user condition, the Conditions Sheet attached to each certificate specifying two export product groups, namely ‘Chemical and Allied Products’ and ‘Engineering Products’ and carrying an endorsement that ‘import will have broad nexus’. Since the said licences stood registered at Chennai Port Customs and GL intended to effect imports through ICD Hyderabad, it obtained Transfer Release Advices (for short ‘TRAs’) from Chennai Customs for that purpose.
6. Using the said TRAs, GL imported ‘continuous cast copper rods’ (a canalized item, hereinafter referred to as ‘c.c. copper rods’) in 14 consignments, aggregating 427.383 MTs in weight and valued at Rs.13,53,94,741/- through ICD Hyderabad during the period from September, 2006 to April, 2007, the said imports having been effected under High Sea Sale Agreements concluded between GL and M/s. MMTC Limited.Notification No.32/2005-Cus, dated 08.04.2005, issued by the Central Government under the TPS in terms of paragraph 3.7 of the Foreign Trade Policy (FTP), 2004-09, granted full exemption from payment of basic customs duty and additional customs duty (CVD) on goods imported against duty credit certificates/licences issued under the TPS, extending to any inputs, capital goods (including spares and office equipment) and agricultural products freely importable under the FTP, subject to the actual user condition. GL claimed the benefit of this exemption in respect of the c.c. copper rods so imported, pursuant to which the relevant Bills of Entry were assessed and the goods were c
