The Target Plus Scheme (TPS) was introduced in the Foreign Trade Policy 2004-2009. The details of the scheme are enumerated under Para 3.7 of the Foreign Trade Policy and Para 3.2 of the Hand Book of Procedure and also in theNotification No. 32/2005-Cus dated 08.04.2005. This scheme provided for duty credits of 5%, 10% or 15% of FOB Value of the quantum by which the exports grew over the last year for exporters who achieved a quantum growth in exports of over 20% or 25% or 100% over last year export figure. The scheme permitted the Licence holder to utilise the full value of duty credit for importing any materials to make any resultant product himself or through his job workers. In case of manufacture on job-work basis the name, address and production capacity of the job-worker needs to be endorsed on the TPS Certificate. The Additional Customs duty and special CVD debited in the license is also permitted as Cenvat credit to the license holder or can be claimed as drawback. The scheme further provided for sale of the resultant product after manufacture in local market or to the job worker on payment of appropriate Central Excise duty, but prohibited the sale of the imported raw material before manufacture of finished goods.
By a public notice dated 7th April 2005, the Directorate General of Foreign Trade prescribed a form in Appendix 17D in which an application would have to be made for availing of Duty Free Export Credit (“DFEC”) under the TPS for the two licencing years 2004 to 2006. At Serial No. 10 of Appendix 17D, it was stated that goods i.e. inputs and capital goods should have a “broad nexus” with the “Export Product Group”. Thereafter, by a Public Notice No. 16 dated 4th June 2005, the earlier Appendix 17D was replaced by a new one. Para 10 of Appendix 17D as amended contained a provision in relation to the “broad nexus” and read as under:
“Goods allowed to be imported under this scheme shall have a broad nexus with the products exported. For the purpose of import entitlements under this scheme, “broad nexus would mean goods imported with reference to any product groups of the exported goods within the overall value of the entitlement certificate.”
A further circular dated 8th May 2007 was issued by the Department of Revenue, Government of India, which at para 4 stated as under :-
“In the light of this, the Ministry of Law clarified that the holder of TPS certificate is permitted to import an item under the TPS and get the same processed into possible resultant products only if the same has a „broad nexus with the product group as an input in the export product and is required to be used as an input in the product exported for which TPS benefit is sought. The Ministry of Law has also clarified that the term „broad nexus with the product group is in addition to and not in substitution of the words “inputs” and “own use” in Para 3.7.6 of the Scheme.“
This circular was followed by a Public Notice dated 21st June 2007 which sought to further narrowed down the right to import under TPS to only such inputs which have a nexus with the export product, and not the export product group. After the amendment, para 3.2.5 (II) of HBP reads as under:
“II. Goods allowed to be imported under this scheme shall have a broad nexus with the products exported. For the purpose of import entitlements under this scheme, “broad nexus” would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate.”
Thereafter a further circular No. 45/2007-Customs dated 19th December 2007 was issued whereby it was further clarified that the term “broad nexus” has to be construed with reference to the words “use” and “inputs” in the FTP, thus restricting the benefit under the TPS by clarifying that only “inputs” used in the manufacture/production of goods exported will be allowed to be imported.
These Circulars and Public Notices which instead of being clarificatory in nature, had the effect of denying the legitimate benefits otherwise intended to accrue to the TPS licence holders by the legislature as a reward for achieving incremental growth in exports.
The above circulars and Public Notices were recently under challenge before the High Court of Delhi in a Writ Petition filed by Indian Exporters Grievance Forum(CIO 2010 Del 2). The High Court after detailed hearing in the matter held that the para 3.7.6 of the Foreign Trade Policy can reasonably be interpreted to require an exporter to show that the goods imported should have a “broad nexus with reference to any product group of the exported goods within the overall value of the entitlement certificate. The word “nexus obviously refers to a larger group of similar goods and not the very exported goods itself. Consequently the impugned circulars and notice that purported to “clarify the term “broad nexus”, i.e. the impugned circular dated 8th May 2007, the Public Notice dated 21st June 2007 and the further circular dated 19th December 2007, travelled beyond what was envisaged by para 3.7.6 of the FTP and severely restricted the benefit thereunder. It was a significant change that could be brought about only through a notification under Section 5 FTDR Act. The said circulars and public notice were, therefore, ultra vires para 3.7.6 of the FTP. Further they sought to retrospectively take away a benefit that had accrued to the exporters which cannot but be viewed as unreasonable in the context. After observing so, the High court quashed the circular dated 8th May 2007, the Public Notice dated 21st June 2007, the further circular dated 19th December 2007 and the amended para 3.2.5 of the Hand Book of Procedure.
This ruling of the High Court of Delhi has set right a wrong perpetuated by the executive through its overzealous actions to deny the accrued benefits intended by the legislature to the exporters, by unduly seeking to restrict the items that could be imported under the Target Plus Scheme. The judiciary needs to be congratulated for not permitting or prohibiting any change in the Hand Book of Procedure made long after the completion of export obligation on the ground of legitimate expectation. The Directorate General of Foreign Trade and Central Board of Excise and Customs basically enjoys executive powers and time and again has violated their jurisdiction and encroached into the area of policy making, conveniently forgetting that law making is the exclusive power vested with the legislature. This judgement is a reminder to the executive that material changes to the Foreign Trade Policy or the Hand Book of Procedure cannot be brought about through circulars and Forms but only by means of an amendment through a notification under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992. The power to make such changes obviously cannot be delegated by the Central Government to the DGFT. It is for these reasons that the amended para 3.2.5 (II) of the Hand Book of Procedure is assailed being beyond the competence of the DGFT and therefore quashed.