2025 INSC 684

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2572 OF 2025

NOBLE RESOURCES AND APPELLANT(S)

TRADING INDIA PRIVATE LIMITED

(EARLIER KNOWN AS ANDAGRO

SERVICES PVT. LTD.)

VERSUS

UNION OF INDIA & ORS. RESPONDENT(S)

J U D G M E N T

UJJAL BHUYAN, J.

This appeal by special leave has been preferred

against the judgment and order dated 05.08.2019 passed by

the High Court of Gujarat at Ahmedabad (briefly ‘the High

Court’ hereinafter) in R/Special Civil Application No.8596 of

2007.

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2. On 06.12.2019, this Court had condoned the delay

in filing the special leave petition and issued notice. An interim

order was passed to the effect that the ad interim protection

which was granted by the High Court shall continue to operate.

By order dated 12.02.2025, leave has been granted.

3. Relevant facts may be briefly noted.

4. Appellant is a government recognized two star

export house and a trading company engaged in the export of

rice, sesame seeds, soyabean meal extracts, etc. Earlier name

of the appellant was M/s Andagro Services Private Limited but

has since been renamed as Noble Resources and Trading India

Private Limited.

5. Under the Export-Import (EXIM) policy of 2002-

2007, which provided for exempting goods when imported into

India under a duty free credit entitlement (DFCE) certificate,

appellant was granted such a certificate for import of goods

having a nexus with the products exported by it under the

category ‘67/food products’. Under this duty free credit

entitlement certificate (briefly ‘the certificate’ hereinafter),

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appellant imported crude degummed soyabean oil vide two

Bills of Entry dated 26.07.2006 and 27.07.2006 claiming duty

exemption on the basis of such certificate. The exemption

claimed was in terms of para 3.7.2.1(vi) of the EXIM policy.

6. A show-cause notice dated 30.08.2006 was issued

to the appellant by the Office of the Commissioner of Customs,

Kachchh Commissionerate stating that under the duty free

credit entitlement scheme (briefly ‘the scheme’ hereinafter) vide

notification No.53/2003-Cus. dated 01.04.2003, appellant was

not eligible for benefits on the import of crude degummed

soyabean oil as it was an agricultural product. Since goods in

the nature of agricultural and dairy products were excluded

under the said notification, appellant was liable to discharge

the duties as applicable. Revenue was of the further view that

the import made by the appellant should have a nexus with

the product group exported. One of the goods exported by the

appellant was soyabean meal extract while the product

imported was crude degummed soyabean oil; there was no

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nexus between the two. The notice therefore called upon the

appellant to pay all the duties chargeable with interest.

7. Appellant responded to the show-cause notice by

filing a reply dated 14.09.2006. Appellant contended that the

product imported by it i.e. crude degummed soyabean oil, was

not an agricultural and dairy product so as to be excluded

from the notification No.53/2003. It was further contended

that both the products imported and exported i.e. crude

degummed soyabean oil an d soyabean meal extract

respectively are classified as food products. Therefore, the

product imported clearly has a nexus with the product

exported by the appellant. Appellant relied upon amended

notifications dated 28.01.2004 and 21.04.2004 as well as para

3.2.5 of the Handbook of Procedures. Appellant explained that

through a process of manufacture, the agricultural product

soyabean loses its identity and becomes another product

called crude degummed soyabean oil which is a distinctly

marketable commodity. That apart, appellant contended that it

was imported through the Metals and Minerals Trading

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Corporation (MMTC). Therefore, it was entitled to exemption

from duty under the scheme on this score as well.

8. Appellant was granted a personal hearing on

08.12.2006.

9. Thereafter, order-in-original dated 09.01.2007 was

passed by the Assistant Commissioner (Gr.-VII), Customs

House, Kandla (briefly ‘Assistant Commissioner’ hereinafter)

whereby the demand of duty to the tune of Rs.1,00,38,321.00

raised in the show-cause notice was confirmed. In the process

appellant has been denied the benefit of duty free credit

entitlement.

10. This came to be assailed by the appellant before the

High Court by filing a petition under Article 226 of the

Constitution of India which was registered as R/Special Civil

Application No.8596 of 2007.

11. A Division Bench of the High Court vide judgment

and order dated 05.08.2019 (impugned judgment) dismissed

the writ petition by upholding the levy of demand. After

pronouncement of the judgment, on the prayer made on behalf

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of the appellant, the Division Bench of the High Court

extended the interim relief which was granted earlier in the

writ proceeding for a period of four weeks.

12. As noted above, this Court while issuing notice had

granted interim relief extending the interim protection granted

by the High Court.

13. Learned senior counsel for the appellant at the

outset submits that the benefit given by the statutory

notification bearing No. 53/2003-Cus. dated 01.04.2003 could

not have been whittled down by the departmental circular No.

10/2004-Cus. dated 30.01.2004. He submits that in terms of

the notification, the goods imported into India by importers

covered by the duty free credit entitlement certificate were

exempted from payment of whole of the customs duty and

additional duty. As per definition of the word ‘goods’ in the

said notification, only agricultural and dairy products were

excluded. Crude degummed soyabe an oil imported by the

appellant is not an agricultural product. However, the

department relied upon the circular to contend that any

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product derived from agriculture or having dairy origin would

not be permitted to avail the benefit under the duty free

entitlement scheme. High Court committed a manifest error in

placing reliance on the circular. The circular could not have

narrowed down the scope of the exemption by enlarging the

exclusionary clause.

13.1. Learned senior counsel submits that sin ce the

expression ‘agricultural product’ has not been defined in the

notification No. 53/2003, its meaning has to be ascribed in

terms of commercial parlance. In the said notification,

agriculture and dairy products were excluded from the

exemption to payment of customs duty and additional duty.

However, the circular expanded the exclusion by adding the

words ‘any product derived from agricultural origin’. Thus, the

circular had gone beyond the scope of the statutory

notification which is not permissible.

13.2. Learned senior counsel has pointed out that

Director General of Foreign Trade (DGFT) subsequently issued

public notice No. 42/2004-2009 dated 06.01.2025 permitting

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importers to import all types of edible oil classifiable under

Chapter Heading No. 15 through the State Trading Corporations

(STC) and MMTC.

13.3. Assailing the impugned judgment, learned senior

counsel submits that High Court fell in error in holding that

crude degummed soyabean oil imported by the appellant is an

agricultural product since it is derived from soyabean which is

admittedly an agricultural product. He has painstakingly

explained the process of manufacture of crude degummed

soyabean oil from soyabean and submits that by no stretch of

imagination, the same can be said to be an agricultural

product. Through a manufacturing process, a distinct

commodity or product is manufactured i.e. crude degummed

soyabean oil which is clearly a distinct commodity. This aspect

was overlooked by the High Court. He also adverted to the

expression ‘agricultural product’ and submits that since it has

not been defined in the EXIM policy, the common parlance test

should be applied and the dictionary definition should be

referred to. He submits that agriculture has been defined to

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mean the science and art of cultivating the soil, harvesting

crop and raising livestock. While soyabean is certainly an

agricultural product, crude degummed soyabean oil, even if

not refined and not fit for human consumption, cannot be

termed as an agricultural product.

13.4. Learned senior counsel asserts that the process of

extraction of crude degummed soyabean oil from soyabean

amounts to manufacture. In this connection, he has placed

reliance on the Central Excise Act, 1944.

13.5. Even otherwise, it is submitted that the Handbook

of Procedures (Vol. I) was amended by the DGFT through

public notice No. 40/2002-07 dated 28.01.2004 in terms of

the powers conferred on him under the EXIM policy of 2002-

2007. By the said notice, para 3.2.5 was inserted which clearly

stated that agricultural products under Chapters 1-24 of ITC

(HS) were not allowed to be taken into consideration for

computation of entitlement under the duty free credit

entitlement scheme. Thereafter, DGFT further amended para

3.2.5 by way of public notice No. 42/2004 -2009 dated

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06.01.2005 whereby DGFT allowed import of items to be

covered under the scheme except the items specifically

excluded. By way of the said public notice, DGFT allowed the

import of all types of edible oil classifiable under Chapter

Heading 15 of ITC (HS) classification of export and import

items but only through STC and MMTC. In the instant case,

appellant had imported the crude degummed soyabean oil on

26.07.2006 through the MMTC. Therefore, on this ground also

appellant is entitled to the benefit of the scheme.

13.6. Learned senior counsel also submits that the

imported good i.e. crude degummed soyabean oil ha s clear

nexus with the product group exported by the appellant. As

per the license under the scheme, the import should have

nexus with the product exported. Appellant exported food

products like non-basmati rice, sesame seeds, white sugar and

soyabean milk extract which are clearly food products having

been allotted respective numbers under the Standard Input

Output Norms (SION). The good imported is crude degummed

soyabean oil which is also a food product and clearly has a

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nexus with the exported product. This aspect has been dealt

with by the Bombay High Court in Essel Mining and Industries

Limited Vs. Union of India

1. However, learned senior counsel

pointed out that this decision is subject matter of a pending

special leave petition before this Court. In fact, this Court vide

order dated 08.01.2025 declined the request for tagging of the

present appeal with the special leave petition assailing the

Bombay High Court judgment in Essel Mining and Industries

Limited (supra) as the High Court has held that the same

would have no application.

13.7. In any view of the matter, learned senior counsel

submits that the order of the Assistant Commissioner dated

09.01.2007 and the impugned judgment are wholly

unsustainable in law. Those are liable to be appropriately

interfered with by this Court.

14. Per contra, learned Additional Solicitor General

appearing for the respondents submits that the precise

question involved in the present appeal is whether appellant

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(2011) 270 ELT 306

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was entitled to exemption from customs duty, additional duty

and special additional duty in terms of the notification No.

53/2003-Cus. dated 01.04.2003. He submits that while

dealing with this issue, the condition mentioned in the

notification would have to be read in terms of the EXIM policy

2002-2007, as amended from time to time. He has referred to

a subsequent notification bearing No. 38 dated 21.04.2004

whereby the EXIM policy was amended by insertion of Note 7

which clearly stated that agricultural products falling under

item 1-24 of ITC (HS) will not be allowed for import under the

scheme.

14.1. It is submitted that import of crude degummed

soyabean oil is in the nature of an agricultural product or a

product of agricultural origin. It is not eligible for benefits

under the scheme in terms of notification No. 53/2003. He

asserts that permitting import of such a product which is

otherwise an agriculture product would amount to subverting

the tariff barrier.

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14.2. Controverting the contention of the appellant that

the product imported is not agricultural in nature, learned

Additional Solicitor General has referred to the impugned

judgment of the High Court which held that extraction of oil

from soyabean does not strip it of its agricultural identity.

14.3. Referring to the two Bills of Entry, learned

Additional Solicitor General submits that appellant itself

classified the imported product under Custom Tariff Heading

(CTH) 15071000 which falls under Chapter 15 of the Indian

Trade Classification (Harmonized System) (already referred to

as ITC (HS)). This chapter specially covers animal or vegetable

fats and oils, prepared edible fats and animal or vegetable

waxes. This clearly shows that the product imported fall s

under Chapter 15 of ITC (HS) and, therefore, not allowed for

import under the scheme.

14.4. Learned Additional Solicitor General submitted that

appellant was exporting non-basmati rice (E/38), sesame

seeds (E/93), white sugar (E/52/79) and soyabean meal

extract (E/42) as food products. Such goods exported by the

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appellant did not have any broad nexus with the imported

product i.e. crude degummed soyabean oil. Therefore, the

benefit under notification No.53/2003 was rightly denied to

the appellant.

14.5. He has also referred to the impugned judgment

where the High Court has held that the test report clearly

demonstrated that crude degummed soyabean oil was not fit

for direct human consumption unless refined. Hence, benefit

of public notice No. 42/2004-2009 dated 06.01.2005 through

which import of edible oil was expressly permitted would not

be available to the appellant.

14.6. Referring to the submissions of the appellant that

the circular No. 10/2004-Cus. dated 30.01.2004 could not

have exceeded the statutory notification, he submits that

notification No. 53/2003 excluded agricultural products. The

specific exclusion of all agricultural and dairy products was

explained by the circular No. 10/2004-Cus. dated 30.01.2004.

The circular did not add anything new but merely clarified and

articulated what was implicit in the notification.

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14.7. He, therefore, submits that there is no merit in the

appeal which is liable to be dismissed.

15. Submissions made by learned counsel for the

parties have received the due consideration of the Court.

16. Since the genesis of the present lis is the show-

cause notice dated 30.08.2006 issued by the Assistant

Commissioner, Kandla, it would be appropriate to initiate the

analysis therefrom. The show-cause notice referred to the

factum of importation of crude degummed soyabean oil falling

under CTH 15071000 chargeable to appropriate tariff duty by

the appellant. However, the appellant filed two Bills of Entry

dated 26.07.2006 and 27.07.2006 claiming benefit of the

notification bearing No.53/2003-Cus. dated 01.04.2003 i.e.

exemption from payment of various customs dut ies on the

basis of the license issued by the DGFT for duty free import of

goods specified in the license. After referring to the said

notification and the amendments carried out thereto, the

Assistant Commissioner observed that in view of exclusion of

agricultural and dairy products from the ambit of ‘goods’

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covered by the said notification, the import did not appear to

be eligible for the benefits under the scheme since the

imported good i.e. crude degummed soyabean oil was in the

nature of agricultural product. The Assistant Commissioner

further observed that as per the pre-condition sheet attached

to the license issued by the DGFT, the imported product must

have a nexus with the product group exported. The export

group name indicates 67/food products. Included in the said

group of export was soyabean m eal extract, whereas the

product imported was crude degummed soyabean oil which

did not appear to have a nexus with the exported product.

Therefore, appellant was called upon to show-cause as to why

the duties chargeable/leviable for imported goods should not

be charged under Section 28 of the Customs Act, 1962 (‘the

Customs Act’ hereinafter) on the goods imported duty free and

hit by the exclusion clause of the notification bearing

No.53/2003. Appellant was also called upon to show cause as

to why interest at appropriate rate on the aforesaid duties

should not be charged under Section 28AB of the Customs Act.

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17. Appellant responded to the aforesaid show-cause

notice by way of reply dated 14.09.2006. Appellant submitted

that the product imported by it clearly did not fall within the

scope of the term ‘agricultural and dairy product’ and cannot

be excluded from the benefits of the notification bearing No.

53/2003. The exclusion was only with respect to agricultural

products falling under Chapter Heading 1 to 24 of ITC (HS).

Crude degummed soyabean oil imported by the appellant can

by no means be said to be an agricultural product. Thereafter,

appellant explained the various stages in the process of

manufacturing of crude degummed soyabean oil. It was

submitted that crude degummed soyabean oil was a

completely different marketable commodity having an identity

distinct from soyabean. While soyabean is an agricultural

product, crude degummed soyabean oil manufactured

therefrom cannot be called an agricultural product. Therefore,

the exclusion of agricultural product vide the notification

bearing No.53/2003 would not apply to crude degummed

soyabean oil. The process of extraction of crude degummed

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soyabean oil from soyabean amounts to manufacture . Crude

degummed soyabean oil is clearly a commodity distinct from

soyabean. Hence, crude degummed soyabean oil cannot be

classified as an agricultural product and therefore the

exclusion of agricultural product would not apply to crude

degummed soyabean oil. Appellant also asserted that the

imported product i.e. crude degummed soyabean oil is

classified as a food product under SION; so also one of the

exported products i.e. soyabean meal extract. In view of

clarifications issued by the DGFT from time to time, the

product imported clearly has a nexus with the product

exported by the appellant. In the circumstances, appellant

contended that there was no basis whatsoever for demanding

any duty from it. Appellant had rightly claimed the benefit of

notification bearing No.53/2003. Therefore, the Assistant

Commissioner was requested to drop the show-cause notice.

18. After considering the reply of the appellant to the

show-cause notice and upon hearing the appellant, order-in-

original dated 09.01.2007 was passed by the Assistant

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Commissioner. After analyzing the notification No.53/2003,

Assistant Commissioner held that in view of exclusion of

agricultural and dairy products from the scope of ‘goods’

covered by the said notification, appellant was not eligible for

the benefits under the scheme on the import of crude

degummed soyabean oil which is in the nature of agricultural

product arising out of a product of agricultural origin. The

importer has therefore to discharge the duties as applicable.

The Assistant Commissioner referred to para 3.7.5 of the EXIM

policy and also observed that goods allowed to be imported

under the scheme should have a broad nexus with the product

group exported. For the purpose of import entitlement under

the scheme ‘broad nexus’ would mean goods imported with

reference to any of the products in the product group exported

within the overall value of the entitlement certificate. The

name of the export group indicates 67/food products. Goods

exported by the appellant included non-basmati rice (E/38),

sesame seeds (E/93), white sugar (E/52/79) and soyabean

meal extract (E/42) while the product imported was crude

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degummed soyabean oil. Hence the imported good did not

appear to have any broad nexus with the product group

exported. Therefore, the Assistant Commissioner concluded

that appellant did not appear to be eligible for the benefits

under the scheme on the import of crude degummed soyabean

oil. The said good is excluded from the purview of the

notification bearing No.53/2003. Therefore, it was declared

that appellant would have to discharge the dut ies as

applicable on merit. Consequently, a demand of duty to the

tune of Rs.1,00,38,321.00 was raised against the appellant

further ordering that interest at the appropriate rates on the

aforesaid demand of duty would also be recoverable under

Section 28AB of the Customs Act.

19. Though the order-in-original dated 09.01.2007 was

an appealable order under Section 128 of the Customs Act ,

appellant assailed the same before the High Court by filing a

petition under Article 226 of the Constitution of India. The

challenge made in the writ proceedings was to the order-in-

original dated 09.01.2007 as well as to the circular bearing

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No.10/2004-Cus. dated 30.01.2004 whereby the exclusionary

clause in the notification bearing No.53/2003 was expanded to

include all types of products derived from agriculture/dairy

origin within the term ‘agriculture and dairy products’.

19.1. High Court did not non-suit the appellant on the

ground of alternative remedy but proceeded to hear the

challenge on merit. By the impugned judgment and order

dated 05.08.2019, High Court held that the basic ingredient of

crude degummed soyabean oil is soyabean which is admittedly

an agricultural product. According to the High Court, the

process which is undertaken to convert soyabean into crude

degummed soyabean oil though may be termed as a

manufacturing process but what is to be seen is that soyabean

as an agricultural product is a primary product which

undergoes a simple operation so as to make it more usable or

saleable. It can in no way be said to acquire a distinct identity.

Soyabean on extraction of oil does not lose its identity.

According to the test report, unless the crude degummed

soyabean oil is refined, it cannot be used for human

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consumption. Therefore, the High Court rejected the

contention that in view of the process undertaken soyabean

acquires a distinct marketable identity is without any merit.

Finding of the Assistant Commissioner that crude degummed

soyabean oil is an agricultural product cannot be faulted.

19.2. Insofar the challenge to circular No.10/2004-Cus.

dated 30.01.2004 is concerned, High Court observed that the

EXIM policy stated that agricultural products would not be

allowed for imports. When a clarification was sought for by the

DGFT, the said circular was issued clarifying that all products

derived from agriculture/dairy origin are not permitted to be

imported.

19.3. High Court also did not find fault with the view

taken by the primary authority that the imported goods i.e.

crude degummed soyabean oil had no nexus with the product

group exported. What was exported was not soyabean refined

oil after undergoing chemical modification but was only

soyabean meal extract which had no nexus with the imported

product i.e. crude degummed soyabean oil which is again not

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a refined oil fit for human consumption. Therefore, even

though crude degummed soyabean oil might have been

imported through the MMTC, that would not be of any help to

the appellant. Therefore, High Court affirmed the order of the

Assistant Commissioner dated 09.01.2007 denying the benefit

of the scheme to the appellant under notification No. 53/2003-

Cus. dated 01.04.2003 in respect of the subject Bills of Entry.

20. Before we examine the correctness or otherwise of

the view taken by the High Court, it would be apposite to have

an overview of the relevant legal provisions, statutory or

otherwise.

21. To provide for the development and regulation of

foreign trade by facilitating imports into and augmenting

exports from India and for matters connected therewith or

incidental thereto, the Foreign Trade (Development and

Regulation) Act, 1992 (briefly ‘the 1992 Act’ hereinafter) came

to be enacted. Section 5 provides for framing of foreign trade

policy. It says that the central government may, from time to

time, formulate and announce by notification in the official

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gazette the foreign trade policy and may also, in like manner

amend such policy. Under Section 6(1) of the 1992 Act, the

central government may appoint any person to be the Director

General of Foreign Trade (DGFT) for the purposes of the 1992

Act. It shall be the duty of the DGFT to advise the central

government in the formulation of the foreign trade policy and

shall be responsible for carrying out that policy.

22. In exercise of the powers conferred by Section 5 of

the 1992 Act, the central government notified the export and

import (EXIM) policy for the period 2002-2007 coming into

force w.e.f. 01.04.2002. Paragraph 1.1 clarified that the

central government reserved the right in public interest to

carry out any amendment in the EXIM policy , 2002-2007.

Such amendment would be made by means of a notification

published in the Gazette of India.

22.1. Under paragraph 2.4, DGFT 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 purposes of implementing

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amongst others the EXIM policy, 2002-2007. Such procedures

shall be included in the Handbook of Procedures (Vol.-1) etc.

and published by means of a public notice. The Handbook of

Procedures (Vol.-1) is a supplement to the EXIM policy and

contains relevant procedures and other details including the

procedure for availing benefits under various schemes of the

EXIM policy.

22.2. In exercise of the powers conferred under paragraph

2.4 of the EXIM policy 2002 -2007, DGFT notified

the Handbook of Procedures (Vol.–1) vide the public notice

No. 1/2002-2007 dated 31.03.2002 which came into force

from 01.04.2002. Paragraph 3.2 provides for duty free credit

entitlement for status holders. Paragraph 3.2.5 reads as

under:

3.2.5 The status holders having an annual incremental

growth of more than 25% in the FOB value of exports

(in free foreign exchange) shall be entitled to the

facility of duty free credit entitlement subject to

achieving a minimum annual export turnover of Rs.

25 crore (in free foreign exchange). Such status

holders shall be entitled to duty free credit

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entitlement certificate to the extent of 10% of the

incremental growth in exports.

Accordingly, status holders who will achieve more

than 25% growth in exports in the year 2003-04 (in

free foreign exchange) as compared to the exports

made in 2002-03 (in free foreign exchange) subject to

a minimum export of Rs. 25 crore (in free foreign

exchange) shall be entitled for duty free credit

entitlement certificate @ 10% of the incremental

growth in exports.

The duty free credit entitlement can be used for

import of capital goods, office equipment and inputs

provided the same is freely importable under ITC(HS).

Such goods shall be non -transferable. Goods

imported against such entitlement certificate shall be

used by status holder or his supporting

manufacturer/job worker provided the name and

address of the supporting manufacturer/job worker

is endorsed on the certificate issued by RLA.

22.3. Chapter 3 of the EXIM policy 2002-2007 deals with

promotional measures. Paragraph 3.7.2.1 provides for special

strategic package for status holders. In paragraph 3.7.1, it is

stated that merchant as well as manufacturer exporters,

service providers, export oriented units or units located in

special economic zones or agri export zones or electronic

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hardware technology parks or software technology parks shall

be eligible for such status certificate. Paragraph 3.7.2.1 says

that the status holders shall be eligible for the new/special

facilities mentioned therein. In this case, we are concerned

with clause (vi) which reads thus:

vi) Duty free import entitlement for status holders having

incremental growth of more than 25% in FOB value of exports

(in free foreign exchange) subject to a minimum export

turnover of Rs. 25 crore (in free foreign exchange). The duty

free entitlement shall be 10% of the incremental growth in

exports. Such entitlement can be used for import of capital

goods, office equipment and inputs for their own factory or

the factory of the associate/supporting manufacturer/job

worker. The entitlement/goods shall not be transferable.

23. Let us now come to the Customs Act, 1962 (already

referred to as ‘the Customs Act’ hereinabove). Sub-section (1)

of Section 25 is relevant and reads thus:

25. Power to grant exemption from duty. -(1) If the

Central Government is satisfied that it is necessary in the

public interest so to do, it may, by notification in the

Official Gazette, exempt generally either absolutely or

subject to such conditions (to be fulfilled before or after

clearance) as may be specified in the notification goods of

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any specified description from the whole or any part of duty

of customs leviable thereon.

23.1. Thus what the above provision provides for is that if

the central government is satisfied that it is necessary in the

public interest it may by notification in the official gazette

exempt generally either absolutely or subject to such

conditions as may be specified in the notification, goods of

any specified description from the whole or any part of the

duty of customs leviable thereon.

24. In exercise of the powers conferred by sub-section

(1) of Section 25 of the Customs Act, the central government

being satisfied that it is necessary in the public interest so to

do issued notification No. 53/2003-Cus. dated 01.04.2003,

exempting goods when imported into India against a duty free

entitlement credit certificate issued under paragraph

3.7.2.1(vi) of the EXIM policy from the whole of the duty,

additional duty and special additional duty of customs

subject to the conditions that the certificate was issued by

the licensing authority to a status holder specified in

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paragraph 3.7.2 of the EXIM policy and that the said

certificate and goods imported against it were not transferred

or sold. Paragraph 3 deals with capital goods with which we

are not concerned in this appeal. However, the said certificate

shall be produced before the proper officer of customs at the

time of clearance for debit of the duties leviable on the goods

but for the exemption. Further, the imports against the said

certificate should be undertaken through the seaports

mentioned in paragraph 5 of the said notification. Paragraph

5(ii) is relevant and is extracted hereunder:

(5) *** *** *** ***

(i) * * * * * *

(ii) goods means –

(a) capital goods;

(b) office equipment (including computer systems,

software, fax/machine, telephone); and

(c) raw materials, components, intermediates,

consumables and parts other than agricultural

and dairy products;

25. Thereafter, the Central Board of Excise and

Customs issued circular No. 10/2004-Cus. dated 30.01.2004

30

stating that DGFT had sought clarification from the

Department of Revenue whether the restriction regarding

agricultural and dairy products would apply to all products

derived from agriculture/diary origin. Central Board of Excise

and Customs (Board) clarified that restriction regarding

agriculture and dairy products as specified under the scheme

shall mean that import of all types of products derived from

agriculture/diary origin including crude edible oil shall not be

permitted. Relevant portion of the circular dated 30.01.2004

reads as under:

4. It is, therefore, reiterated that the restriction regarding

agriculture and dairy products as specified in DFCEC

scheme for status holders and service providers shall mean

that import of all types of products derived from

agriculture/diary origin including crude edible oil shall not

be permitted.

26. Government of India in the Ministry of Commerce

and Industry, Department of Commerce, issued public notice

No.40 (RE-2003)/2002-2007 dated 28.01.2004 insert ing

amongst others the following below paragraph 3.2.5 of the

Handbook of Procedures (Volume 1):

31

3. In terms of para 3.2.5 of Handbook of Procedures

(Volume 1) the following items would not be allowed for

imports under duty free credit entitlement certificate for

status holders:

a. Agricultural products which fall under Chapters 1-24

of ITC(HS) classification of export and import items.

27. Thereafter, the Department of Commerce issued

notification No. 38/(RE-2003)/2002-2007 dated 21.04.2004

inserting Note 7 in paragraph 3.7.2.1 of the EXIM policy

2002-2007 which reads thus:

Note 7 – The following items would not be allowed for

imports under duty free credit entitlement certificate for

status holders:

Agricultural products, which fall under Chapters 1-24 of

ITC(HS) classification of export and import items.

28. Finally, DGFT issued public notice No.42/2004-

2009 dated 06.01.2005 making the following amendments in

the Handbook of Procedures (Vol. I):

Sub para-3 of public notice No. 40(RE-2003)/2002-2007 dt.

28.01.2004 shall be amended to read as under:

In terms of para 3.2.5 of the Handbook of Procedures (Vol.

I), import of agricultural products listed in Chapter 1 to 24

of ITC (HS) classification of export and import items except

the following shall be allowed:

32

(i) Garlic, peas and all other vegetables with a duty

of more than 30% under Chapter 7 of ITC (HS)

classification of export and import items.

(ii) Coconut, areca nut, oranges, lemon, fresh grapes,

apple and pears and all other fruits with a duty of

more than 30% under Chapter 8 of ITC (HS)

classification of export and import items.

(iii) All spices with a duty of more than 30% under

Chapter 9 of ITC (HS) classification of export and

import items (except cloves).

(iv) Tea, coffee and pepper as per Chapter 9 of ITC

(HS) classification of export and import items.

(v) All oil seeds under Chapter 12 of ITC (HS)

classification of export and import items.

Further, natural rubber as per Chapter 40 of ITC (HS)

classification of export and import items shall also not be

allowed for import under the scheme.

Import of all edible oils classified under Chapter 15 of ITC

(HS) classification of export and import items, shall be

allowed under the scheme only through STC and MMTC.

29. As we have noted, notification No. 53/2003-Cus.

dated 01.04.2003 is a statutory notification issued under

sub-section (1) of Section 25 of the Customs Act. By way of

the said notification, exemption is granted when certain

goods are imported into India against a duty free entitlement

33

credit certificate issued under paragraph 3.7.2.1(vi) of the

EXIM policy. The goods which are exempted from payment of

customs duty etc. means capital goods, office equipments

(including computer system, software, fax/machine,

telephone) and raw materials, components, intermediates,

consumables and parts other than agricultural and dairy

products. From a plain reading of the said notification, it

would mean that agricultural and dairy products are

excluded from exempted goods. In other words, agricultural

and dairy products would not be covered by the notification

No.53/2003-Cus. dated 01.04.2003 and would be liable to

pay customs duty, etc. on merit. On the other hand, circular

No.10/2004-Cus. dated 30.01.2004 was issued by the Board

following a clarification sought by DGFT from the Department

of Revenue as to whether the restriction regarding agriculture

and dairy products would apply to all products derived from

agriculture/dairy origin. Board clarified that the restriction

regarding agriculture and dairy products as specified in the

scheme for status holders and service providers shall mean

34

that import of all types of products derived from

agriculture/dairy origin including crude edible oil shall not be

permitted.

30. In contra-distinction to the exclusion of agricultural

and dairy products from the goods exempted from paying

customs duty etc. on import as stated in the statutory

notification No.53/2003, the circular has expanded the

meaning of the expression ‘other than agricultural and

dairy products’ to mean ‘all types of products derived from

agriculture/dairy origin including crude edible oil’. What

is therefore evident is that by way of the subsequent

administrative circular dated 30.01.2004, the excluded goods

of agricultural and dairy products as per the statutory

notification dated 01.04.2003 has been enlarged to include all

types of products derived from agriculture/dairy origin

including crude edible oil.

31. In Tata Teleservices Ltd. Vs. Commissioner of

Customs

2 this Court observed that the concerned circular

2

(2006) 1 SCC 746

35

sought to impose a limitation on the exemption notification

which the exemption notification itself did not provide. This

Court held that it was not open to the Board to whittle down

the exemption notification in such a manner.

32. Therefore, the first question which arises for

consideration is, whether by way of the circular dated

30.01.2004 the benefits granted under the statutory

notification dated 01.04.2003 could have been curtailed by

expanding the exclusionary clause.

33. A two-Judge Bench of this Court in Union of India

Vs. Inter Continental

3 was considering the question as to

whether the end-use verification of the products is necessary

for availing the benefit of concessional rate of duty. In that

case, the statutory notification bearing No.17/2001 -Cus.

dated 01.03.2001 provided for concessional rate of duty on

crude palmolin oil. However, as per Board’s circular

No.40/2001-Cus. dated 13.07.2001, end-use certificate was

required to be produced for allowing such benefit. This came

3

2008 SCC OnLine SC 22

36

to be challenged by the assessee by filing a writ petition in the

High Court questioning the direction to produce the end-use

certificate which was stated to be a new condition to the

statutory notification by way of a circular. Contention of the

petitioner was that the circular sought to impose a limitation

on the exemption notification or tried to whittle it down by

adding a new condition beyond the notification. High Court

accepted the writ petition by holding that the Board by

issuing a circular subsequent to the notification could not

have added a new condition thereby restricting the scope of

the exemption notification. Imposing such a condition would

tantamount to re-writing the notification or in other words

legislating by circular, which is not permissible in law. High

Court held that the circular being contrary to the notification

could not be sustained as it could not override the

notification. This Court agreed with the view of the High

Court and held thus:

6. We entirely agree with the view taken by the

High Court that the department could not, by

issuing a circular subsequent to the notification,

37

add a new condition to the notification thereby

either restricting the scope of the exemption

notification or whittle it down.

34. This view was reiterated in Sandur Micro Circuits

Limited Vs. Commissioner of Central Excise, Belgaum

4. Though

the controversy was of a different nature in Sandur Micro

Circuits Limited (supra), nonetheless it is relevant to note the

principle laid down in the said decision. This Court held that

the principle that a circular cannot take away the effect of a

notification statutorily issued would be applicable to the facts

of that case as well. This Court held thus:

6. The issue relating to effectiveness of a circular

contrary to a notification statutorily issued has

been examined by this Court in several cases. A

circular cannot take away the effect of notifications

statutorily issued. In fact in certain cases it has

been held that the circular cannot whittle down

the exemption notification and restrict the scope of

the exemption notification or hit (sic) it down. In

other words, it was held that by issuing a circular

a new condition thereby restricting the scope of the

exemption or restricting or whittling it down

cannot be imposed. The principle is applicable to

4

(2008) 14 SCC 336

38

the instant cases also, though the controversy is of

different nature.

35. Following the clear principle of law enunciated by

this Court, it is evident that the Board could not have

expanded the scope of the expression ‘ other than

agricultural and dairy products ’ as stipulated in the

statutory notification dated 01.04.2003 to mean and include

all types of products derived from agriculture/dairy origin

including crude edible oil by way of the administrative

circular dated 30.01.2004. If this is accepted, it would

amount to rewriting the condition s of exclusion from

exempted goods statutorily provided in the notification dated

01.04.2003. This is impermissible. To that extent, circular

No.10/2004-Cus. dated 30.01.2004 would be of no legal

consequence.

36. Therefore, our answer to the question framed above

would be that by way of the circular dated 30.01.2004, Board

could not have curtailed the benefits granted to the appellant

under the statutory notification dated 01.04.2003 by

39

expanding the scope of the exclusionary clause ‘other than

agricultural and dairy products’.

37. This brings us to the crucial question as to whether

crude degummed soyabean oil imported by the appellant is

an agricultural product. The related question is, what is an

agricultural product or what do we mean by an agricultural

product?

38. Before we analyze the above issue, let us examine

the reasonings given by the High Court in this regard. The

reasonings are at paragraphs 9 and 9.1 of the impugned

judgment. On an analysis of the diagram describing the

manufacturing process of the appellant, High Court observed

that the basic ingredient/root of the product is soyabean. It is

not disputed even by the appellant that soyabean is an

agricultural product. After referring to the contention of the

appellant that after undergoing the process of manufacture,

the crude degummed soyabean oil becomes a distinct

commodity, High Court observed that though the process

undertaken by the appellant may be termed as a

40

manufacturing process but what is to be seen is that

soyabean as an agricultural product is a primary product

which undergoes a simple operation so as to make it more

usable or saleable; it can in no way be said to acquire a

distinct identity. Unlike eucalyptus oil, soyabean on

extraction of oil does not lose its identity. High Court relied

on the test report placed on record to hold that unless the

crude degummed soyabean oil is refined, it cannot be used

for human consumption. High Court, therefore, rejected the

contention of the appellant that after going through the

process as explained, soyabean acquires a distinct

marketable identity is without any merit and upheld the

finding of the assessing authority that crude degummed

soyabean oil is an agricultural product.

39. We will advert to the concept of agriculture and

agricultural product a little later. First, let us deal with the

contention of the appellant vis-à-vis the process of conversion

of soyabean into crude degummed soyabean oil ; whether it

amounts to manufacture? Appellant has mentioned the four

41

steps taken for undergoing the aforesaid process. At this stage

we need to make a note that while the High Court admitted

that the process undertaken by the appellant may be a

manufacturing process but the end product does not acquire a

distinct identity. View of the High Court is that on extraction of

oil soyabean does not lose its identity. Unless crude degummed

soyabean oil is refined, it cannot be used for human

consumption. Therefore, crude degummed soyabean oil is an

agricultural product.

40. The steps mentioned by the appellant for carrying

out the manufacturing process to convert soyabean into

crude degummed soyabean oil are as follows:

Step 1 - Soyabean procured from mandis (markets) are

stored in cylos where proper storage, free from moisture

and heat is ensured;

Step 2 - From cylos, these beans are taken to cleaning

machine through conveyor where all dust, stones and

foreign material are removed. After screening, it goes to

the cooker. After cooking, the mass goes to flaker where

42

flaking is done and these flakes are then fed to the

extractor.

Step 3 - The flakes are fed from one side and fresh

solvent - hexane is fed from the other side, both move

continuously in opposite direction. The speed of belt of

extractor and feeding rate of flakes and hexane is so

adjusted that complete oil gets extracted from flakes by

the time flakes exit the extractor.

Step 4 - Solvent containing oil called miscella is then

taken to distillation unit where solvent is recovered back

by distillation and condensation. Thereafter, the oil is

sent to separate tank. Cake exiting from second end of

extractor is cooled and then taken to toaster to remove

traces of solvent. Toasted DOC (soymeal) is sent to DOC

godown for storing, packing and dispatching. This

extracted oil is sent to storage tank and subsequently

dispatched for taken to refinery to manufacture refined

oil.

43

41. This then is the process of conversion of soyabean

into crude degummed soyabean oil. On the basis of the

aforesaid process, appellant contends that a distinct

commodity is manufactured. The above process has been

explained by way of a diagram which we extract hereunder:

42. On the above basis it is the contention of the

appellant that crude degummed soyabean oil is a commodity

clearly distinct from soyabean. Through a series of process,

the original agricultural product soyabean completely loses its

identity. The natural identity of soyabean is completely lost and

a new product is manufactured which is distinct from soyabean.

SOYABEAN

CLEANING, GRADING, DRYING,

TEMPERING, CRACKING, FLAKING

SOLVENT EXTRACTION

DEFATTED FLAKES

48-50% PROTEIN

FOOD GRADE

HEXANE

CRUDE OIL HULLSX

PROTEINS

44

Therefore, crude degummed soyabean oil cannot by any stretch

of imagination be treated as an agricultural product.

43. Having examined the process undertaken by the

appellant and even though the High Court acknowledges

such process to be a process of manufacture, it will be

useful to make a reference to the judicial precedents qua

manufacture or manufacturing process.

44. In Union of India Vs. Delhi Cloth and General Mills

Co. Ltd.

5, a Constitution Bench of this Court held that the

verb ‘manufacture’ used as a word is generally understood to

mean as ‘bringing into existence a new substance’, howsoever

minor in consequence the change may be . ‘Manufacture’

implies a change but every change is not manufacture. Every

change of an article is the result of treatment, labour and

manipulation. But something more is necessary to make it

‘manufacture’. There must be transformation; a new and

different article must emerge having a distinctive name,

character or use.

5

AIR 1963 SC 791

45

45. The meaning of the expression ‘manufacture’ was

considered by this Court in Deputy CST Vs. Pio Food Packers

6.

In the said decision, a three-Judge Bench held that the test

evolved for determining whether manufacture can be said to

have taken place is whether the commodity which is

subjected to the process of manufacture can no longer be

regarded as the original commodity but is recognized in the

trade as a new and distinct commodity. This Court laid down

the following test to determine as to whether manufacture

has taken place:

5. xxx xxx xxx xxx

Commonly manufacture is the end result of one or

more processes through which the original

commodity is made to pass. The nature and extent

of processing may vary from one case to another,

and indeed there may be several stages of

processing and perhaps a different kind of

processing at each stage. With each process

suffered, the original commodity experiences a

change. But it is only when the change, or a series

of changes, take the commodity to the point where

commercially it can no longer be regarded as the

6

1980 Supp. SCC 174

46

original commodity but instead is recognized as a

new and distinct article that a manufacture can be

said to take place.

46. This view was endorsed by this Court in

Commissioner of Income Tax, Orissa Vs. M/s N.C. Budharaja

And Company

7. In that case this Court was considering the

limited question as to whether the construction of a dam to

store water (reservoir) can be characterized as amounting to

manufacturing or producing an article or articles, as the case

may be. The aforesaid question arose in the context of the

claim of the assessee to deduction under Section 80-HH of

the Income Tax Act, 1961. This Court explained that the word

‘production’ has a wider connotation than the word

‘manufacture’; while every manufacture can be characterized

as production, every production need not amount to

manufacture and thereafter endorsed the meaning ascribed

by this Court to the expression ‘manufacture’ in Pio Food

Packers (supra).

7

1994 Supp (1) SCC 280

47

47. In Commissioner of Income Tax Vs. Stanes

Amalgamated Estates Ltd .

8, Madras High Court was

examining the question on a reference made to it under

Section 256(2) of the Income Tax Act, 1961: whether the

Income Tax Appellate Tribunal was right in holding that the

sale proceeds of eucalyptus oil extracted by the assessee from

the leaves of eucalyptus trees grown by it was in the nature of

agricultural income and hence not assessable to income tax?

The reference was at the instance of the revenue. Finding of

the Income Tax Appellate Tribunal (for short ‘the Tribunal’)

was that eucalyptus oil was agricultural produce. It was in

that backdrop the High Court considered the question as to

whether eucalyptus oil extracted from eucalyptus leaves

could be considered as an agricultural produce. Division

Bench of the High Court held that the oil extracted from the

eucalyptus leaves is a distinct product. In the process

undertaken, eucalyptus leaves loses their original identity.

Therefore, the High Court held that view taken by the

8

(1998) 232 ITR 443

48

Tribunal that eucalyptus oil extracted from eucalyptus leaves

is also an agricultural produce is not correct.

48. This Court in Commissioner of Income Tax Vs.

Cynamid India Limited

9 considered an interesting question as

to whether rice husk was a product of agriculture or not.

Assessee claimed deduction under Section 35 -C of the

Income Tax Act, 1961 contending that it manufactures an

animal feed wherein rice husk was mainly used as raw

material. Tribunal disallowed the deduction on the ground

that rice husk was not a product of agriculture because it

was not a direct outcome of agricultural endeavor. What was

produced by the cultivator was paddy which alone could be

considered as an agricultural product. The husk was the

result of a process of dehusking which was not agriculture.

High Court answered the question in favour of the assessee

holding that operation of dehusking paddy is not a n

industrial or manufacturing operation as commonly

understood. It is essentially an agricultural operation. Both

9

(1999) 3 SCC 727

49

rice and husk remain in their natural form as a result of

dehusking and are covered by the term ‘agricultural product’.

It was in that context this Court observed that the term

‘agricultural product’ or ‘product of agriculture’ is required to

be construed liberally so as to include not merely the primary

product as it actually grows but also a product which

undergoes a simple operation so as to make it more saleable

or more usable. The rice and the husk though separate d

remain as they were produced and hence continue to be

‘agricultural product’ or ‘product of agriculture’.

49. In Jai Bhagwan Oil and Flour Mills Vs. Union of

India

10, this Court held that the true test to ascertain whether

a process is a manufacturing process producing a new and

distinct article is, whether the article produced is regarded in

the trade, by those who deal in it, as a marketable product

distinct in identity from the commodity/raw material involved

in the manufacture.

10

(2009) 14 SCC 63

50

50. Again, in the case of Collector of Central Excise,

Kanpur Vs. Mineral Oil Corporation

11, a three-Judge Bench of

this Court endorsed the view taken in Delhi Cloth and General

Mills Co. Ltd. (supra) and held that to amount to manufacture,

a new commodity having distinct name, character or use

should emerge as a result of the process of manufacture. The

true test for determining whether manufacture can be said to

have taken place is whether the commodity which is

subjected to the process of manufacture can no longer be

regarded as the original commodity but is recognized in trade

as a new and distinct commodity.

50.1. In the facts of that case, this Court observed that

appellants used to bring transformer oil and by removing

impurities, it was again made useable as transformer oil.

Before and after the process, the product was only

transformer oil. That being so, this Court held that it could

not be said that a new and distinct commodity had come into

11

(2015) 14 SCC 64

51

existence consequent to the process undertaken by the

appellant.

51. Thus, to constitute manufacture, the following are

the essential features:

i. There must be a process or series of process.

ii. The original commodity or raw material undergoes a

transformation through the process or series of process.

iii. At the end of the process or series of process, a new

commodity emerges.

iv. The new commodity should have a distinct name,

character or use and can no longer be regarded as the

original commodity.

v. It should be regarded as distinct from the original

commodity and recognized as so in the trade.

52. The test is not whether the end product is a

consumable product or not. Therefore, the High Court clearly

missed the point by holding that because crude degummed

soyabean oil was not further refined and therefore was not a

consumable item; it did not have a distinct identity. This is

52

not the test of manufacture. While there is no dispute that

soyabean is an agricultural product, the High Court while

endorsing the view of the Assistant Commissioner held that

crude degummed soyabean oil is also an agricultural product.

Certainly, crude degummed soyabean oil is distinct from

soyabean; it is not the same thing as soyabean.

53. The expression ‘agricultural product’ is not defined

in the EXIM policy. Therefore, to understand the expression

‘agricultural product’, reference would have to be made to the

dictionary meaning and also what is understood as an

‘agricultural product’ by applying the common parlance test.

54. In Black’s Law Dictionary, Ninth Edition, ‘agriculture’

has been defined as the science or art of cultivating soil,

harvesting crops and raising livestock.

54.1. Supreme Court Words and Phrases, Fourth Edition,

defines ‘agriculture’ to mean in its root sense ager, a field,

and cultura, cultivation; which means cultivation of field.

55. In P. Ramanatha Aiyar’s Advanced Law Lexicon,

Seventh Edition, the expression ‘agricultural purpose’ has

53

been ascribed the meaning of use of land for the purpose of

growing crops. It is the science and art of cultivating the soil,

harvesting crops and raising livestock and also as the science

or art of the production of plants and animals useful to man

and in varying degrees the preparation of such products for

man’s use and their disposal.

55.1 The expression ‘agricultural purposes’ refer to tilling

and cultivation for the purposes of raising crops. In their

widest sense, the words may include grazing as well.

56. Kerala High Court in P. Narayanan Nair Vs. Dr.

Lokeshan Nair

12 referred to the dictionary meaning of the

expression ‘agricultural product’ as under:

14. Agricultural product. Things which have a

situs of their production upon the farm and which

are brought into condition for uses of society by

labour of those engaged in agricultural pursuits as

contra-distinguished from manufacturing or other

industrial pursuits. That which is the direct result

of husbandry and the cultivation of the soil. The

product is in its natural unmanufactured condition.

12

AIR 2014 Ker 141

54

57. Therefore, applying the above test, we are unable to

concur with the view expressed by the High Court that crude

degummed soyabean oil is an agricultural product.

58. Thus, having regard to the discussions made above,

we record our conclusions as under:

i. The circular bearing No.10/2004 dated 30.01.2004

insofar it expands the exclusionary clause in the statutory

notification No.53/2003 dated 01.04.2003 would have no

legal consequence.

ii. Crude degummed soyabean oil is a product different

and distinct in character and identity from soyabean.

iii. The process carried out by the appellant using

soyabean as raw material and ending in the prod uct

crude degummed soyabean oil is manufacturing.

iv. Crude degummed soyabean oil is not an

agricultural product.

v. Therefore, appellant would be entitled to the

benefits under notification No.53/2003 dated 01.04.2003.

55

59. In view of the aforesaid discussions and conclusions

reached, this Court is of the considered opinion that further

deliberation on the remaining issues is not warranted.

60. Consequently, the appeal is allowed. Impugned

judgment and order of the High Court dated 05.08.2019 and

the order passed by the Assistant Commissioner dated

09.01.2007 are hereby set aside.

61. However, there shall be no order as to costs.

…………………………J.

[ABHAY S. OKA]

……………………………J.

[UJJAL BHUYAN]

NEW DELHI;

MAY 14, 2025.