REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2999/2007

M/s Atul Commodities Pvt. Ltd. & Ors. … Appellant(s)

              versus

Commissioner of Customs, Cochin-9 … Respondent(s)

with

Civil Appeal Nos. 5259/2007, 3226/2007 and 3977/2007

J U D G M E N T

S.H. KAPADIA, J.

Civil Appeal No. 2999 of 2007:

1. This  civil  appeal  is  directed  against  the  judgment  and  order  dated

7.4.2006 in Customs Appeal No. 15/05 delivered by the Division Bench of

Kerala High Court by which the Department’s appeal came to be allowed

and the judgment of the Tribunal dated 12.7.2005, following the decision of

its Larger Bench in the case of M/s Atul Commodities Pvt. Ltd.  v.  CC,

came to be set aside.

2. The issue involved in this civil appeal is – Whether, during the period

in  question,  Photocopying  Machines  (Photocopiers)  were  “freely

importable” or whether its import required a licence/permission/certificate.

Facts:

3. The facts lie within a very narrow compass.  

4. In exercise of the powers conferred under Section 5 of the Foreign

Trade (Development and Regulation)  Act,  1992,  the  Central  Government

notified  Foreign  Trade  Policy  (“FTP”  for  short)  for  the  period  2004-09

incorporating  the  Exim Policy  for  the  period  2002-07  as  modified.  The

Policy was announced on 31.8.2004. It  came into  force with  effect  from

1.9.2004. It remains in force up to 31.3.2009, unless otherwise specified.

5. The  appellant  imported  in  January,  2005  Photocopying  Machines

under the category “general imports”.

6. On 25.2.2005, the Dy.CoC (Import) issued a show cause notice under

Section  124  of  the  Customs  Act  alleging  that  the  Used  Photocopying

Machines  were restricted items for import under para 2.17 of the current

FTP 2004-09 read with circular No. 20 dated 23.2.2005 issued by DGFT. In

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the show cause notice, it was thus alleged that goods have been imported

without  a  valid  import  licence  and  consequently,  they  were  liable  to  be

confiscated under Section 111(d) of the Customs Act, 1962 read with para

2.17 of the FTP (2004-09).

7. In  its  reply  dated  3.3.2005,  appellant  submitted  inter  alia that

photocopying  machine  (photocopier)  is  an  item  of  capital  goods.  The

appellant  pointed out  that  on 21.8.2003 the Customs House,  Cochin,  had

obtained  a  clarification  from  JDGFT,  Cochin,  which  confirmed  that

photocopying machines can be classified under Capital Goods and Second

Hand  Photocopier  Machines  which  are  less  than  10  years  old shall  be

allowed free importation under para 2.33 of the Handbook of Procedures

2002-07.  In  its  reply,  the  appellant  further  pointed  out  that,  circulars  of

DGFT  No.  16  dated  29.9.2003  and  No.  19  dated  11.11.2003  had  been

issued specifically for EPCG Scheme(s) only  and not for normal imports on

which full  duty is payable. It is further pointed out that the above policy

circulars  are intended to  be applied to  EPCG Scheme wherein there  is  a

provision for an exemption of customs duty and, therefore, the above two

circulars cannot be suo motu applied to the imports in question.

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8. Vide  Order  of  adjudication  dated  11.3.2005,  the  adjudicating

authority (Commissioner) came to the conclusion that as per para 2.17 of the

FTP all second-hand goods, except capital goods, came in the category of

“restricted for import”. He relied upon circular No. 19 dated 11.11.2003 in

support of his above conclusion. It was held that second-hand photocopier

machines, air-conditioners, diesel generating sets are all covered under the

definition of “second-hand goods” and, therefore, there import is governed

by para 2.17 of  the current  Policy which restricts  import  of second-hand

goods without a licence. Accordingly, the adjudicating authority confirmed

the show cause notice.

9. Aggrieved by the Order of adjudication dated 11.3.2005, the matter

was carried in appeal to the Tribunal, which, as stated above, allowed the

appeal  in  favour of  the appellant  placing  reliance  on the  decision of  the

Larger Bench of the Tribunal dated 11.5.2005.   

10. Aggrieved by the decision of the Tribunal, the Department carried the

matter  in  appeal  to  the  High  Court.  By  the  impugned  judgment  dated

7.4.2006, the High Court held that, the import of second-hand photocopier

machines effected prior to 19.10.2005 (the date on which Notification No.

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31/05 came to be issued amending the current Policy) would be governed by

circular Nos. 16/03, 19/03 and 20/05 issued by DGFT warranting a licence

for import. It was further held that on a combined reading of circulars 16/03,

19/03  and  20/05  made  the  position  clear  that  second-hand  photocopier

machines are not covered by the definition of capital goods as defined under

para 9.10 of the FTP (2004-09). It was further observed that second-hand

photocopier machines were not freely importable as “capital goods”.  The

Division  Bench  of  the  Kerala  High  Court  vide  its  impugned  judgment

observed that it did not agree with the view taken by the Andhra Pradesh

High Court in Central Excise Appeal No. 52/2005 in favour of the assessee.

11. Before concluding the facts, we may state that, vide Notification No.

31/05 dated 19.10.2005 issued by the GoI under Section 5 of  Foreign Trade

(Development and Regulation) Act, 1992 read with para 1.3 of  FTP 2004-

09 import  of second-hand photocopier  machines,  air-conditioners  etc.  are

made  restricted  items warranting  a  licence  for  import.  However,  we are

concerned with the imports effected prior to 19.10.2005.

Judgment of the Larger Bench of the Tribunal:

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12. The controversy in hand first  came to be decided,  even before  the

impugned judgment, on 11.5.2005 by the Larger Bench of CESTAT which

came to the conclusion that Used Photocopier Machines are  capital  goods.

In this connection, it may be noted that there was a difference of opinion

between different Benches of the Tribunal. One view was that photocopying

machines  were  consumer  goods.  The  other  view was  that  photocopying

machines were capital goods. Therefore, the matter came to be decided by

the  Larger  Bench,  which  took  the  view that  photocopying  machines  are

capital goods, particularly in view of its definitions in para 9.12 of the FTP

(2004-09). As regards the applicability of circulars 16/03, 19/03 and 20/05,

the Larger Bench held that all the three Circulars came to be issued in the

context  of  imports  made  under  EPCG  Scheme  with  the  “actual  user”

condition attached to the import of capital goods under the said Scheme and

that the said three circulars had no application to “general imports” made by

the appellants. Accordingly, the Larger Bench of the Tribunal decided the

matter  in  favour  of  the  appellant.  This  view of the Larger  Bench  of  the

Tribunal  stood  overruled  by  the  impugned  judgment  of  the  High  Court,

hence, this civil appeal is filed by the appellant.

Contentions:

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13. Shri S.K. Bagaria, learned senior counsel appearing on behalf of the

appellant, submitted that in this case we are concerned with normal imports

and not  imports  under  the  EPCG or  Advance  Licencing  or  Passbook  or

100% EOU or EPZ Scheme(s). He submitted that the definition of the words

“capital goods”, “consumer goods”, “second-hand goods” are all to be seen

in  the  context  of  the  Scheme.  He  submitted  that  in  the  case  of

normal/general  imports,  there  is  no  concession/exemption  which  is  there

under  EPCG  Scheme.  He  submitted  that  export  promotion  stood  on  a

different footing vis-à-vis general imports. He submitted that in the case of

EPCG,  we  have  important  other  conditions  like,  fulfilment  of  export

obligations, existence of a licence, Actual User condition etc., which are not

there in the case of general imports. He further submitted that, each Scheme

under the  FTP forms a Code by itself  and therefore  one  has  to  read  the

definition of capital goods, consumer goods and second-hand goods in the

context of each of these Schemes. He submitted that existence of a licence is

required  whenever  an  import  falls  under  any of  the  above  Schemes.  He

submitted that  the general/normal  imports  do not  come under  any of  the

above  Schemes.  He  further  submitted  that  it  is  only  GoI  which  is

empowered to  amend the Policy. According to the learned senior counsel,

DGFT has  the  power  to  interpret  and  issue  administrative  circular(s)  in

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implementation  of  the  Policy but  he  has  no  power  to  amend the  Policy,

which  power  under  Section  5  of  the  Foreign  Trade  (Development  and

Regulation) Act, 1992 (“1992 Act”)  remains vested only in GoI. In this

connection, learned counsel placed reliance on Sections 5 and 6(3) of the

1992 Act.  He further contended that the three Circulars issued by DGFT

were  clarificatory  in  nature.  They  were  not  amendatory.  He  further

submitted that DGFT had no authority to issue a circular which is contrary

to the statute  consisting  of  the 1992 Act,  the  FTP, the ITC(HS) and the

Handbook  of  Procedures.  Learned  counsel  further  submitted  that  all  the

three circulars issued by DGFT were confined to imports under EPCG. They

had no connection with general/normal imports. He further submitted that

the above circulars did not bind the assessee. They do not bind the Courts.

He  further  submitted  that  there  are  three  broad  categories  of  item-wise

imports  mentioned  in  ITC(HS),  they  are  “free”,  “restricted”  and

“prohibited”. According to the learned counsel, ITC(HS) is goods-specific

whereas Other Conditions like actual user, export obligations, existence of

licence etc. are Scheme-specific. Learned counsel submitted that the basic

error in the impugned judgment is that the High Court has only applied the

above three circulars, which had no application to normal imports, to come

to the conclusion  that  import  of  photocopying machines,  air-conditioners

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etc.  required  a  licence.  According  to  the  learned  counsel,  it  has  not

considered the Scheme of the  1992 Act and it  has failed to consider  the

basic  fact  that  the imports  in  question  were made under  the  category of

“general imports” and not under EPCG Scheme.

14. Shri K. Radhakrishnan, learned senior counsel appearing on behalf of

the Revenue, submitted that it is clearly mentioned in the FTP 2004-09 that

second-hand goods, other than second-hand capital goods, are restricted for

import.  According to  the learned counsel,  the imported items are second

hand  goods.  They  are,  therefore,  restricted.  Therefore,  they  require  a

licence. In this connection, learned counsel placed reliance on circular no.

20 dated 23.2.2005, which came to be issued prior to Notification no. 31

dated  19.10.2005.  According  to  the  learned  counsel,  second-hand

photocopying machines came within  the definition of second-hand goods

and consequently their import stood governed by para 2.17 of the FTP and

shall  not  be  permitted  to  be  imported  under  para  5.1  of  the  Policy.

According to the learned counsel, para 2.17 of the Policy restricts import of

second-hand  goods  without  a  licence.  This  position,  according  to  the

learned  counsel,  stood  reaffirmed  vide Policy  circular  No.  20  dated

23.2.2005.  Learned  counsel  submitted  that  Second  Hand  Photocopying

machines imported by the appellant(s) were second-hand goods other than

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second-hand  capital  goods,  hence,  the  said  import  is  restricted  by  FTP

(2004-09) and Policy circular no. 20/05. According to the learned counsel,

the import of subject goods is made during the current FTP, that para 2.1 of

the FTP postulates that exports and imports are “free” unless regulated, that

it further postulates that such regulation can be by FTP and that DGFT is

the statutory authority in-charge of the implementation of the 1992 Act and

the Policy thereunder. According to the learned counsel,  the said circular

no. 20/05 was part of the FTP, that FTP is regulated through para 2.17 and

that the said para 2.17 read with circular no. 20/05 declares second-hand

photocopying  machines  as  second-hand  goods  other  than  second-hand

capital goods. According to the learned counsel, circular no. 20/05 prohibits

imports  of  second-hand  photocopying  machines  under  para  5.1  of  FTP

because the said machines are not capital goods. According to the learned

counsel, the amendment to para 2.17 via Notification dated 19.10.2005 re-

affirms  the  Circular  No.  20/05,  which  in  turn  refers  to  para  2.17  and

therefore it cannot be confined to EPCG Scheme. According to the learned

counsel, a combined reading of paras 2.1, 2.2, 2.3, 2.17 and Circular No.

20/05  lead  to  unequivocal  conclusion  that  the  import  of  second-hand

photocopying machines  is  restricted  under  FTP (2004-09)  since  they are

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second-hand goods other than second-hand capital goods, hence, the civil

appeal is liable to be dismissed.  

15. To decide the controversy we need to examine the 1992 Act read with

the FTP (2002-07),  the FTP (2004-09),  the Handbook of Procedures and

ITC(HS).

(A) Contents of the Policy including ITC(HS) and the Handbook of           Procedures:

(i) Notification No. 1/2004-09 dated 31.8.2004:-

“TO BE PUBLISHED IN THE GAZETTE OF INDIA EXTRAORDINARY

PART-II, SECTION-3, SUB SECTION (ii)

GOVERNMENT OF INDIA MINISTRY OF COMMERCE AND INDUSTRY

NOTIFICATION No. 1/ 2004-09 NEW DELHI: the 31st August, 2004,

 In exercise  of  powers conferred by Section 5 of  the Foreign Trade  (Development  and  Regulation)  Act,  1992  (No  22  of 1992)  read  with  paragraph  1.2  of  the  Foreign  Trade  Policy, 2004-09, the Central Government hereby notifies the Foreign Trade  Policy  2004-09  as  contained  in  Annexure  to  this notification.  The  Policy  shall  come  into  force  from  1st September, 2004.  

This issues in public interest.      

(GOPAL. K. PILLAI)

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Director General of Foreign Trade and Ex Officio Additional Secretary to the Government of India  

 (F.No. 01/94/180/Foreign Trade Policy /AM05/PC-IV)”

(ii) Important provision(s) of the 1992 Act:-

Section 5 of the Foreign Trade (Development and Regulation)

Act, 1992 reads as follows:

“5.  Export  and  import  policy.- The  Central Government  may,  from  time  to  time  formulate  and announce,  by  notification  in  the  Official  Gazette,  the export  and  import  policy  and  may  also,  in  the  like manner, amend that policy.”

…

“6.  Appointment  of  Director  General  and  his functions.-   …   6(3) The Central Government may, by Order published in the Official Gazette, direct that any power exercisable by it under this Act (other than the powers under sections 3, 5, 15, 16 and 19) may also be exercised, in such cases and subject to such conditions, by the Director General or such other officer subordinate to the Director General, as may be specified in the Order.”

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(iii) Important provisions of the Policy (2004-09).

“CHAPTER-1A

   LEGAL FRAMEWORK

Duration

 Amendments

1.2

1.3

In exercise of the powers conferred under Section 5 of The Foreign Trade (Development and Regulation Act), 1992 (No. 22 of 1992), the Central Government hereby notifies the Foreign Trade Policy for the period 2004- 2009 incorporating the Export and Import Policy for the period 2002-2007, as modified. This Policy shall come into force with effect from 1st September, 2004 and shall remain  in  force  upto  31st March,  2009,  unless  as otherwise specified.  

The  Central  Government  reserves  the  right  in  public interest  to  make  any  amendments  to  this  Policy  in exercise of the powers conferred by Section-5 of the Act. Such  amendment  shall  be  made  by  means  of  a Notification published in the Gazette of India.

Transitional Arrangements

1.4 Any  Notifications  made  or  Public  Notices  issued  or anything  done  under  the  previous  Export/  Import policies,  and  in  force  immediately  before  the commencement of this Policy shall, in so far as they are not  inconsistent  with  the  provisions  of  this  Policy, continue to be in force and shall be deemed to have been made, issued or done under this Policy.

Licences, certificates and permissions issued before the commencement of this Policy shall continue to be valid for  the  purpose  and  duration  for  which  such  licence, certificate  or  permission  was  issued  unless  otherwise stipulated.  

CHAPTER-2

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GENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS

Exports and Imports free unless regulated

2.1 Exports and Imports shall be free, except in cases where they are regulated by the provisions of this Policy or any other  law for  the  time being in  force.  The item wise export and import  policy shall be, as specified in ITC (HS)  published  and  notified  by  Director  General  of Foreign Trade, as amended from time to time.

Interpretation of Policy

2.3 If  any  question  or  doubt  arises  in  respect  of  the interpretation of any provision contained in this Policy, or regarding the classification of any item in the ITC (HS)  or  Handbook  (Vol.1)  or  Handbook  (Vol.2),  or Schedule Of DEPB Rate the said question or doubt shall be  referred  to  the  Director  General  of  Foreign  Trade whose decision thereon shall be final and binding.  

If  any  question  or  doubt  arises  whether  a  licence/ certificate/permission  has  been  issued  in  accordance with  this  Policy  or  if  any  question  or  doubt  arises touching upon the scope and content of such documents, the  same shall  be  referred  to  the  Director  General  of Foreign Trade whose decision thereon shall be final and binding.

Procedure 2.4 The Director General of Foreign Trade may, in any case or class of cases, specify the procedure to be followed by an exporter or importer or by any licensing or any other  competent  authority  for  the  purpose  of implementing the provisions of the Act, the Rules and the  Orders  made  thereunder  and  this  Policy.  Such procedures shall be included in the Handbook (Vol.1), Handbook (Vol.2), Schedule of DEPB Rate and in ITC (HS) and published by means of a Public Notice. Such procedures may, in like manner, be amended from time to time.

The Handbook (Vol.1) is a supplement to the Foreign Trade Policy and contains relevant procedures and other details. The procedure of availing benefits under various schemes  of  the  Policy  are  given  in  the  Handbook (Vol.1).

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Actual User Condition

2.16 Capital  goods,  raw  materials,  intermediates, components,  consumables,  spares,  parts,  accessories, instruments  and  other  goods,  which  are  importable without any restriction, may be imported by any person.  

However,  if  such  imports  require  a  licence/ certificate/permission, the actual user alone may import such  goods  unless  the  actual  user  condition  is specifically dispensed with by the licensing authority.

Second Hand Goods

2.17 All second hand goods, excepting second hand capital goods,  shall  be  restricted for  imports  and  may  be imported only in accordance with the provisions of this Policy, ITC(HS), Handbook (Vol.1), Public Notice or a licence/certificate/permission issued in this behalf.  

 Import  of  second  hand  capital  goods,  including refurbished/  reconditioned  spares,  shall  be  allowed freely.  (This  clause  is  not  there  in  FTP  2002-07) (emphasis supplied)

CHAPTER-5  

EXPORT PROMOTION CAPITAL GOODS SCHEME  

EPCG Scheme 5.1 The  scheme  allows  import  of  capital  goods  for  pre production,  production  and  post  production  (including CKD/SKD thereof as well as computer software systems) at  5%  Customs  duty  subject  to  an  export  obligation equivalent  to  8  times  of  duty  saved  on  capital  goods imported  under  EPCG  scheme  to  be  fulfilled  over  a period of 8 years reckoned from the date of issuance of licence. Capital goods would be allowed at 0% duty for exports  of  agricultural  products  and  their  value  added variants.

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EPCG for Projects

5.1B An EPCG licence can also be issued for import of capital goods  for  supply  to  projects  notified  by  the  Central Board  of  Excise  and  Customs  under  S.No  441  of Customs  Exemption  Notification  No  21/2002  dated 01.03.2002 wherein the basic customs duty on imports is 10% with a CVD of 16%.

The export obligation for such EPCG licences would be eight times the duty saved. The duty saved would be the difference between the effective duty under the aforesaid Customs  Notification  and  the  concessional  duty under the EPCG Scheme.

Conditions for import of Capital Goods  

5.3 Import of capital goods shall be subject to Actual User condition till the export obligation is completed.

CHAPTER-9

DEFINITIONS

9.1 For  the  purpose  of  this  Policy,  unless  the  context  otherwise requires,  the  following  words  and  expressions  shall  have  the following meanings attached to them.  

9.4 "Actual User" means an actual user who may be either industrial or non-industrial.

9.5 "Actual  User  (Industrial)"  means  a  person  who  utilises  the imported goods for manufacturing in his own industrial unit or manufacturing  for  his  own  use  in  another  unit  including  a jobbing unit.

9.6 "Actual User (Non-Industrial)" means a person who utilises the imported goods for his own use in

 (i) any commercial establishment carrying on any business, trade or profession; or  

 (ii) any laboratory, Scientific or Research and Development (R&D) institution, university or other educational institution or hospital; or

 (iii) any service industry.

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9.12 "Capital  Goods"  means  any  plant,  machinery,  equipment  or accessories  required  for  manufacture  or  production,  either directly  or  indirectly,  of  goods  or  for  rendering  services, including  those  required  for  replacement,  modernisation, technological  upgradation  or  expansion.  Capital  goods  also include  packaging  machinery  and  equipment,  refractories  for initial  lining,  refrigeration  equipment,  power  generating  sets, machine  tools,  catalysts  for  initial  charge,  equipment  and instruments for testing, research and development,  quality and pollution  control.  Capital  goods  may  be  for  use  in manufacturing,  mining,  agriculture,  aquaculture,  animal husbandry,  floriculture,  horticulture,  pisciculture,  poultry, sericulture  and  viticulture  as  well  as  for  use  in  the  services sector.

9.15 "Consumables"  means  any  item,  which  participates  in  or  is required for a manufacturing process, but does not necessarily form part of the end-product. Items, which are substantially or totally consumed during a manufacturing process will be deemed to be consumables.  

9.16 "Consumer Goods" means any consumption goods, which can directly  satisfy  human  needs  without  further  processing  and includes consumer durables and accessories thereof.

9.48 "Public Notice" means a notice published under the provisions of paragraph 2.4 of the Policy.  

(iv) Important provisions of the Handbook of Procedures            (2004-09):

Para 2.33 of the Handbook:

“Import of Second Hand Capital Goods-

2.33 Import  of  second  hand  capital  goods  including refurbished/reconditioned spares, shall be allowed freely, subject to conditions for the following categories:

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The Import of second hand computers including personal computers and laptops are restricted for imports.

The import of refurbished/ reconditioned spares will be allowed  on  production  of  a  Chartered  Engineer certificate that such spares have a residual life not less than 80% of the life of the original spare.”

(v) Important provisions of ITC(HS):

“Col.3  Policy:

Two types of Restrictions have been indicated in this column, namely, ‘Prohibited’ and ‘Restricted’.

Items which do not require any licence under the Exim Policy have been denoted as ‘Free’ subject to the Licensing  Notes  contained  in  the  relevant chapter/heading/sub-heading  or  as  may  have  been indicated under column 4 mentioning conditions relating to the policy and is also subject to any other law for the time being in force.

Wherever  the  policy  indicated  as  ‘State  Trading Enterprise  (STE)’,  the  nominated  STE shall  make any such  purchases  or  sales  involving  imports  solely  in accordance  with  the  provision  at  para  2.11  of  Foreign Trade Policy.”

Exim Code 9009 reads as follows:

“EXIM Code

Item Description Policy

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9009 Photocopying apparatus incorporating an optical system or of the contact-type and thermo-copying apparatus

Electrostatic photocopying apparatus: 9009 11 00 Operating by reproducing the original image

directly onto the copy (direct-process) Free

9009 12 00 Operating by reproducing the original image via an intermediate onto the copy (indirect- process)

Other photocopying apparatus:

Free

9009 21 00 Incorporating an optical system Free 9009 22 00 Of the contact type Free 9009 30 00 Thermo-copying apparatus

Parts and accessories: Free

9009 91 00 Automatic document feeders Free 9009 92 00 Paper feeders Free 9009 93 00 Sorters Free 9009 99 00 Other Free”

(B) Policy Circulars (2002-07):

(i) Policy Circular No. 16 dated 29.9.2003:-

“Government of India Ministry of Commerce & Industry

Department of Commerce Directorate General of Foreign Trade

Udyog Bhawan, New Delhi. -----

POLICY CIRCULAR NO. 16(RE-2003)/2002-07                                                                       dated :   29 /09/2003   To

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All Licensing Authorities, All Commissioners of Customs.   Sub:-  Import of second hand personal computers (PCs)/ Laptops – clarification regarding.

---------   1. Attention is invited to Para 2.17 of EXIM Policy, 2002- 07 stipulating that all second hand goods shall be restricted for imports  and  may  be  imported  only  in  accordance  with  the provisions  of  the  Policy,  ITS(HS),  Handbook  (Vol.I),  Public Notice  or a licence/certificate/permission issued in this behalf.   2. Representations  have  been  received  seeking clarifications  as  to  whether  second  hand  personal  computers (PCs)/Laptops  are covered under the definition of second hand capital goods and allowed freely as per the provisions of Para 2.33  of  Handbook  of  Procedures  (Vol.I)  2002-07,  provided these are  not more than ten years old.    3.       The matter has been deliberated upon and it is clarified that  the  second  hand  personal  computers  (PCs)/Laptops  are covered under the definition of “second hand goods” and their import  is  governed by the  provisions  of  Para 2.17  of  EXIM Policy,2002-07 and not covered under the definition of “capital goods” as defined under Para 9.10 of EXIM Policy and Para 2.33  of  Handbook  of  Procedures  (Vol.I).   In  view  of  this, second hand personal computers (PCs)/Laptops can also not to be  permitted  for  import  under  EPCG  scheme  under  the provisions  of  para  5.1  of  the  Exim Policy,  even  for  service providers.     4.   All the Licensing Authorities are advised to take action accordingly.   This issues with the approval of DGFT.

(M.C.Jauhari) Jt.Director General of Foreign Trade”

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(ii) Policy Circular No. 19 dated 11.11.2003:-

“Government of India Ministry of Commerce & Industry

Department of Commerce Directorate General of Foreign Trade

Udyog Bhawan, New Delhi. -----

POLICY CIRCULAR NO. 19 (RE-2003)/2002-07                                                                           11th Nov.2003.   To All Licensing Authorities, All Commissioners of Customs.   Subject:   Import of second hand photocopier machines, Air Conditioners, Diesel Generating Sets, etc.,  - clarification reg.  

----   1.        In  continuation  of   Policy  Circular  No.16  dated 29.9.2003 whereby it was clarified that Second Hand Personal Computers(PCs)/Laptops  are  covered  under  the  definition  of Second Hand goods,     it  is  further  clarified that  the second hand  Photocopier  Machines,  Air  Conditioners,  Diesel Generating Sets, etc., are also covered under the definition of “Second Hand Goods”   and  their  import  is  governed by the Provisions of Para 2.17 of EXIM Policy, 2002-07.  In view of this,   Second  Hand Photocopier  Machines,  Air  Conditioners, Diesel Generating Sets,  etc., can also not  to be permitted for import under EPCG Scheme under the provisions of Para 5.1 of EXIM Policy even if these are less than ten years old and  even for Service Providers.     2. However,  import  of  new  Personal  Computers  (PCs)  / Laptops  ,  Photocopier  Machines,  Air  Conditioners,  Diesel Generating Sets, etc., may be permitted under EPCG Scheme

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provided  these  are  required  for  manufacturing  of  goods   or rendering services.       3. Licensing Authorities are advised to take action accordingly.   4. This issues with the approval of DGFT.     

(M.C.Jauhari) Jt.Director General of Foreign Trade”

(iii) Policy Circular No. 20 dated 23.2.2005:-

“Government of India Ministry of Commerce & Industry

Department of Commerce Directorate General of Foreign Trade

Udyog Bhawan, New Delhi _______

POLICY CIRCULAR NO.20 (2004-2009)      Dt 23/02/2005

To All Licensing Authorities, All Commissioners of Customs.

Subject:  Import of Second Hand Diesel Generating Sets –                 clarification reg.

1. Attention  is  invited  to  Policy  Circular  No.19 dt.11.11.2003  vide  which  it  was  clarified  that  Second  Hand Photocopiers,  Air  Conditioners,  Diesel  Generating  Sets,  etc. will  not  be  permitted  to  be  imported  under  EPCG  Scheme under the provision of Para 5.1 of the Exim Policy 2002-2007 even if these are less than 10 years old and even for Service Providers.    The  intention  of  this  Circular  is  to  restrict  the

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import  of  such  items under  EPCG Scheme which  are in  the nature of Consumer goods.

2. Since Second Hand Diesel Generating Sets of 10 KVA and  above  have  industrial  application  and  import  of  second hand  capital  goods  without  any  age  restriction  is  permitted under EPCG Scheme in the Foreign Trade Policy 2004-09, it is therefore clarified that Second Hand Diesel Generating Sets of 10  KVA and  above  shall  be  allowed  to  be  imported  under EPCG Scheme without any age restriction.  

3. However  since  Second  Hand  Photocopiers,  Air Conditioners and Diesel Generating Sets (below 10 KVA) etc. are  covered  under  the  definition  of  ‘Second  Hand  Goods’, therefore their  import  shall  be governed by the provisions of Para 2.17 of Policy and shall not be permitted to be imported under Para 5.1 of Policy.

4. Licensing  Authorities  are  advised  to  take  action accordingly.

5. This issues with the approval of DGFT. Sd/-

( M.K. Parimoo ) Dy. Director General of Foreign Trade

(Issued from F.No.01/94/160/14/AM05/PC-IV)”

(C) Para 2.17 of the Exim Policy (2002-07):

“Second Hand Goods

2.17 All second hand goods shall be restricted for imports and may be imported only in accordance with the provisions of this Policy,  ITC(HS),  Handbook  (Vol.1),  Public  Notice  or  a licence/certificate/permission issued in this behalf.”

Para 2.33 of the Handbook of Procedures (2002-07):

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“2.33    Import of Second Hand Capital Goods

  Import of second hand capital  goods,  which are not more than 10 years old, shall be allowed freely.”

(D) Notification No. 31 dated 19.10.2005:-

“GOVERNMENT OF INDIA MINISTRY OF COMMERCE AND INDUSTRY

DEPARTMENT OF COMMERCE   

NOTIFICATION NO.  31 (RE-2005) / 2004-2009 NEW DELHI, DATED    19th  October, 2005

S.O. (E)    In exercise of powers conferred by Section 5 of the Foreign  Trade  (Development  and  Regulation)  Act,  1992 (No.22 of 1992) read with paragraph 1.3 of the Foreign Trade Policy,  2004-09  as  amended  from time  to  time,  the  Central Government hereby makes the following amendments:   1. The Paragraph of Para 2.17 will be amended to read as follows:   “Import of  second hand capital  goods,  including refurbished/ re-conditioned spares shall be allowed freely. However, second hand  personal  computers/laptops,  photocopier  machines,  air conditioners,  diesel  generating  sets  will  only  be  allowed against a license issued in this behalf.”

 This issues in public interest.

 (K.T. Chacko)

Director General of Foreign Trade And Ex-Officio Additional Secretary to the Govt. of India

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(Issued from File No.01/94/162/270/AM06/PC-1A)”

Findings:

(A) Interpretation of Policy Circular Nos. 16/03, 19/03 and 20/05:

16. Before coming to the circulars, one needs to understand the Scheme

of the 1992 Act. The said Act is enacted to provide for development and

regulation  of  Foreign  Trade  by facilitating  imports  into,  and  augmenting

exports from India. Under Section 3, the Central Government is empowered

by  Order  published  in  the  Official  Gazette  to  make  provision  for  the

development  and  regulation  of  foreign  trade.  Under  sub-section  (2)  of

Section 3 the Central Government may by Order published in the Official

Gazette  prohibit,  restrict  or  otherwise  regulate  import/export  of  goods

subject to such exceptions as it may deem fit. Under Section 5, the Central

Government is empowered from time to time to formulate and announce by

notification in the Official Gazette the Exim Policy and it may also amend

that  policy from time to  time. Under  Section  6,  DGFT is  empowered to

advise the Central Government in the formulation of Exim Policy and shall

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be responsible for carrying out that Policy. Under Section 6(3) of the 1992

Act only Central Government is empowered to amend the FTP.

17. Under para 2.3 of the FTP (2004-09) DGFT is empowered to interpret

the Policy. If any doubt or question arises in respect of interpretation of any

provision in FTP or in the matter of classification of any item in the ITC

(HS) or in the Handbook, the said question or doubt shall be referred to the

DGFT, whose decision thereon shall be final and binding.

18. We have referred to the provisions of the 1992 Act and Para 2.3 of

the FTP to demonstrate the difference between amendment and clarification.

The  power  to  amend  the  FTP  is  exclusively  vested  in  the  Central

Government whereas the power to clarify is vested in DGFT. On 31.8.2004,

the Central Government  vide Notification No. 1/2004-09 notified the  FTP

2004-09. The Policy was announced on 31.8.2004. The Policy came into

force from 1.9.2004. That Policy came to be amended vide Notification No.

31 dated 19.10.2005 issued by the Central Government under Section 5 of

the 1992 Act by which the position came to be changed and, for the first

time,  import  of  second-hand  photocopying  machines  imported  under  the

“general” category came under the “restricted” category of imports, which

made the importer to import the said machine only against a licence issued

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in  that  behalf.  Why  was  that  Notification  necessary?  By  the  said

Notification, import of photocopying machines came to be restricted. It was

provided that the said import shall be against a licence. Such a restriction

could  be  placed  only  by  an  Amendment  and  not  by  Policy  Circular(s).

Hence, after 19.10.2005, second-hand photocopying machines came within

the “restricted” category. Such a change of category has to take place by

way of Amendment by Central Government under Section 5 of the 1992

Act. On the other hand, the three administrative/policy circular Nos. 16/03,

19/03 and 20/05 only refer to  clarifications  issued by DGFT pursuant  to

representations  received  by  him  from  the  Trade.  These  circulars  are

clarificatory and not amendatory in nature. Therefore, under the scheme of

the Statute, one finds a clear demarcation between an amendatory provision

and  a  clarificatory  provision.  Section  5  of  the  1992  Act  contemplates

amendment to the FTP. It empowers only the Central Government to amend

the Policy. This power is not given to the DGFT. It is not open to DGFT

vide circulars to change categorization of items from the category of “free”

to  the  category  of  “restricted”  imports.  This  aspect  is  important  for  two

reasons. Firstly, notification no. 31 dated 19.10.2005, quoted hereinabove,

is an amendment to the Policy. It operates only from 19.10.2005. It recites

that   second-hand  capital  goods  are  importable  freely.  The  Notification

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states that after 19.10.2005, however, import of second-hand photocopying

machines  will  be  allowed  only  against  a  licence.  This  amendment  pre-

supposes  that  photocopying  machines  are  kept  out  of  the  purview  of

“second  hand  capital  goods”  only  after  19.10.2005.  Secondly,  as  stated

above,  broadly  imports  fall  in  two  categories  -  general  and  restricted

categories  including  prohibited  category.  When  there  is  change  of

categorization, it can be done only by an amendment. This has been done by

notification no. 31 dated 19.10.2005. It is only by Amendment that import

of second-hand photocopying machines can be kept out of the definition of

“second-hand capital goods”.

19. As stated above, in this case, we are concerned with imports dated

January, 2005. It is submitted on behalf of the Department that in January,

2005  Policy  circular  No.  20  dated  23.2.2005  was  applicable.  However,

Policy circular No. 20/05 is in continuation of Policy circular Nos. 16/03

and 19/03. They have to be read together.  In this connection,  it  may be

noted  that  para  1  of  Policy  circular  No.  16/03  recites  that  import  of  all

second-hand goods stood restricted under the FTP (2002-07). That circular

clarified that import of second-hand PCs/Laptops would fall in the category

of “second hand goods”. That circular was in the context of  FTP 2002-07.

However, in the Handbook of Procedures relating to FTP (2002-07) it was

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provided that import of second-hand capital goods, not more than 10 years

old,  would  be allowed  freely  (see  para  2.33  of  the  Handbook).  In  other

words,  old  and  used  goods  of  not  more  than  10  years  was  treated  as

“second-hand  capital  goods”.  This  led  to  confusion.  Therefore,

representations  came  to  be  made  to  DGFT  seeking  clarifications  as  to

whether  second-hand  PCs/Laptops  stood  covered  under  the  definition  of

second-hand capital goods, provided they were not more than 10 years old.

It is these representations which came to be answered  vide Policy circular

No.  16  dated  29.9.2003  in  the  manner  indicated  above.  Accordingly,  by

Policy circular  No. 16/03,  it  was clarified  that  second-hand  PCs/Laptops

would not  fall  under  “second hand capital  goods” as  defined under Para

2.33 of the Handbook and consequently their import could only be against a

licence. In continuation of Policy circular no. 16/03, circular no. 19/03 came

to be issued by which photocopying machines were sought to be brought in

the  connotation  of  “second  hand  goods”  in  contradistinction  to  “second

hand capital  goods”.  However,  both these Policy circular  nos.  16/03 and

19/03  pertain  to  period  prior  to  January,  2005  when  appellant  imported

photocopying machines. Both the said circulars referred to FTP (2002-07)

whereas  appellant  imported  the  machines  under FTP (2004-09)  in  which

para 2.17 of FTP and para 2.33 of the Handbook had undergone a change.

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As can be seen from para 2.17 of the FTP (2004-09) a statement is added to

para 2.17 of the FTP (2002-07) that statement reads as under:

“Import  of  second  hand  capital  goods,  including refurbished/reconditioned  spares,  shall  be  allowed freely.”

This statement was not there in para 2.17 of the FTP (2002-07). Similarly,

as quoted hereinabove, para 2.33 of the Handbook of Procedures (2004-09)

has  been  completely  recasted.  Therefore,  Policy  circular  nos.  16/03  and

19/03 has no application to the facts of the present case.

(B) Interpretation  of  Circular  No.  20  dated  23.2.2005  read  with Para 2.17 of  FTP (2004-09)  and Para 2.33  of  the Handbook of Procedures:

20. Policy  circular  No.  20/05  appears  to  be  in  continuation  of  Policy

circular Nos. 16/03 and 19/03. In this connection, para 1 of Policy circular

No.  20/05  requires  to  be  noted.  As  stated  above,  under  FTP (2002-07)

import of “second-hand goods” could be made only against a licence. They

came in the restricted category. However, in the Handbook (2002-07) it was

inter alia provided that  old and used capital  goods which were not more

than 10 years old could be imported freely. Those goods,  therefore, were

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treated  as  “new”  goods.  This  resulted  in  confusion.  Therefore,  DGFT

stepped in to clarify that second-hand photocopying machines, irrespective

of the period of use, shall fall in the restricted category (see Policy circular

No. 19/03). Para 1 of Policy circular  no. 20/05 recites that photocopying

machines are not to be imported without a licence even if they are less than

10 years old and even if the photocopying machines are imported for service

providers. Vide para 3, the Policy circular no. 20/05 clarifies that second-

hand photocopying machines are covered under the definition of “second-

hand goods”, therefore, their import shall be governed by the provisions of

para 2.17 of the Policy and shall not be permitted to be imported under para

5.1 of the Policy. Reverting to para 2.17 of FTP (2004-09) read with para

2.33  of  the  Handbook  (2004-09)  one  finds  that  import  of  second-hand

capital goods is made “free”. Para 2.17 of FTP (2004-09) is in two parts.

The first  part deals with the meaning of the words “second-hand goods”.

The second part  states  that  import  of second-hand capital  goods shall  be

allowed freely. Para 3 of the Policy circular no. 20/05 states that import of

second-hand goods shall be governed by the provisions of para 2.17 of the

Policy. Para 2.17 has to be read in its entirety. That para draws a dichotomy

between “second-hand goods” and “second-hand capital goods”. Para 2.33

of the Handbook (2004-09) places restriction only qua computers and not

3 1

qua  photocopying  machines.  In  our  view,  therefore,  one  has  to  give

weightage to the second part  of para 2.17 which allows “free” import of

second-hand capital goods. What is not permitted vide para 3 of the Policy

circular no. 20/05 is importation under EPCG. As stated above, in this case,

we are concerned with imports under general category and not under EPCG.

We are in agreement with the view expressed by the Larger Bench of the

Tribunal  that  photocopying machines  are  capital  goods  as  defined  under

para  9.12.  The  Tribunal  has  held  that  the  use  of  these  machines  for

rendering services makes them capital  goods.  In fact,  this  finding on the

“user” is not challenged by the Department. Therefore, import of old and

used  photocopying  machines  stands  covered  by the  concept  of  “second-

hand  capital  goods”  in  para  2.17  (particularly  in  the  light  of  the  last

statement in the said para, which we have underlined hereinabove).

21. One more aspect needs to be mentioned. Para 2.33 expressly states

that import of old and used computers/second-hand computers are restricted.

Para 2.33 of the Handbook do not restrict photocopying machines. Import of

photocopying machines are expressly restricted only by Notification no. 31

dated 19.10.2005. This itself indicates that categorization/re-categorization

cannot be done by policy circulars. Such exercise has to be undertaken by

specific amendment to the Policy  vide  Section 5 of the 1992 Act. In this

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case,  Notification  no.  31  dated  19.10.2005  indicates  that  the  Central

Government  has  brought  in  photocopying  machines  into  the  category  of

second-hand  goods  vide amendatory  Notification,  therefore,  import  of

photocopying machines  stand restricted  only on and after  19.10.2005.  In

fact, if the argument of the Department is to be accepted, then there was no

need to issue Notification no. 31 dated 19.10.2005.   

22. For the aforestated reasons, we set aside the impugned judgment of

the  High  Court  and  we restore  the  decision  of  the  Larger  Bench  of  the

Tribunal dated 11.5.2005 in the case of M/s Atul Commodities Pvt. Ltd.  v.

CC.

23. Accordingly, we allow the civil appeal filed by the assessee with no

order as to costs.

Civil Appeal Nos.  3226, 3977 and 5259 of 2007:  

24. These civil appeals are filed by the Department against the judgment

and order dated 15.1.2007 of the Calcutta High Court upholding the view

expressed  by  the  Larger  Bench  of  CESTAT  in  the  case  of   M/s  Atul

Commodities Pvt. Ltd.  v.  CC.

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25. For  the  reasons  given  by  us  in  Civil  Appeal  No.  2999/07,

hereinabove, we dismiss all the three civil appeals filed by the Department

with no order as to costs.

…………………….J.                                                                   (S. H. Kapadia)    

…………………….J.                                                                 (H. L. Dattu)    

New Delhi, February  24, 2009.

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