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Rules Sufficient for Target Plus Duty Exemption for Gimpex Limited
A Division Bench of the , comprising Justices P. Sam Koshy and Narsing Rao Nandikonda, dismissed three appeals filed by the against the common order of the that had set aside a demand for customs duty and penalties against M/s. Gimpex Limited and M/s. Sree Enterprises.
The court held that the Target Plus Scheme (TPS) under the does not require a strict, between the goods imported and the specific goods exported. Instead, a “” between the imported goods and the product group of the exported goods is sufficient to claim the duty exemption under .
Background: Exports, Duty Credit Certificates, and the DRI Investigation
Gimpex Limited, an exporter of industrial minerals such as iron ore fines, bentonite, feldspar, and granite slabs, achieved significant export growth during , making it eligible for duty credit certificates under the TPS. The issued seven certificates worth over ₹7.08 crore. On the strength of these certificates, Gimpex imported continuous cast copper rods in 14 consignments between and , valued at approximately ₹13.54 crore, and claimed full exemption from basic customs duty and additional customs duty.
The later investigated the imports and issued a show-cause notice in , alleging that the copper rods bore no nexus to the goods actually exported by Gimpex and that the company had misused the TPS benefit. The argued that a was required and that Gimpex had acted with duty, thereby justifying invocation of the under .
Arguments: Strict Nexus vs.
The contended that paragraphs 3.7.1 and 3.7.6 of the Foreign Trade Policy required the imported goods to be usable as inputs or capital goods in the manufacture or processing of the very goods exported. It argued that continuous cast copper rods, which are used for wire drawing, could not be considered inputs for iron ore, bentonite, or granite. The department further submitted that the expression “” in the Handbook of Procedures was merely clarificatory and could not override the policy’s requirement of a direct relationship.
Gimpex countered that the policy only demanded a “,” not a rigid one-to-one correlation. It highlighted that the DGFT had issued the duty credit certificates after verifying its export documents and that those certificates had never been revoked or cancelled. The company also pointed to subsequent circulars and public notices that sought to narrow the scope of “” but were struck down by the Delhi and Bombay High Courts as . Relying on these judgments, Gimpex argued that its in the validity of its imports precluded any finding of fraudulent intent.
Legal Analysis: Harmonising Policy Provisions
The High Court analysed the interplay between paragraph 3.7.6 of the FTP, which allowed import of “any inputs, capital goods… for their own use,” and paragraph 3.2.5 of the Handbook of Procedures, which required a “” with the export product. The court rejected the department’s call for a strict product-to-product test, observing:
“We find no infirmity in this construction, which harmonises the expression ‘’ occurring in paragraph 3.2.5 of the Handbook of Procedures with the words ‘input and use’ employed in the FTP itself, while at the same time not permitting the expression to be stretched so as to render the concept of nexus wholly illusory.”
The court noted that the CESTAT had correctly applied this test on the facts. It found that a existed between the imported copper rods and Gimpex’s exports of iron ore fines, which fell under the “Engineering Products” group. However, no such nexus was established with the “Chemical and Allied Products” group, meaning Gimpex could not resist a duty demand on that portion. This even-handed application demonstrated that the test was not a blanket endorsement of the company’s entire claim.
Limitation and
On the critical question of limitation, the court held that the extended period under the proviso to Section 28(1) could not be invoked because the policy was inherently ambiguous. The DGFT’s own clarificatory circulars and public notices had been struck down by two High Courts for being . In such circumstances, the taxpayer could not be said to have acted with the duty.
“Where the Policy provisions themselves were demonstrably capable of more than one interpretation, and where the interpretation ultimately upheld by two Hon’ble High Courts was, in substance, the interpretation on which the GL had proceeded and claimed the benefit of the Notification, it cannot be said that the GL acted with the payment of duty.”
The court further observed that the duty credit certificates had not been obtained by fraud and had never been revoked or amended by the DGFT. The mere fact that Gimpex established a unit to utilise the TPS certificates or supplied copper to other importers at a discounted price did not establish .
Court’s Decision
The High Court dismissed all three appeals and upheld the CESTAT’s common order. It answered the questions of law against the and in favour of the respondents. The judgment reinforces the principle that ambiguous export promotion policies should be interpreted liberally in favour of the exporter, and that the cannot be invoked without clear evidence of fraudulent intent.
