Factual Background and Procedural History
The appellant, Noble Resources and Trading India Pvt. Ltd. (formerly Andagro Services Pvt. Ltd.), a two-star export house engaged in food exports, was granted a Duty-Free Credit Entitlement Certificate (DFCEC) under the EXIM Policy 2002–2007. Using this, it imported crude degummed soyabean oil in July 2006 under two Bills of Entry.
A show-cause notice dated 30.08.2006 alleged that such import was ineligible under Notification No. 53/2003-Cus., as agricultural and dairy products were excluded from the exemption, and the oil was deemed of agricultural origin. The Assistant Commissioner confirmed the demand for duty (₹1,00,38,321) via order dated 09.01.2007.
The appellant challenged this in a writ petition before the Gujarat High Court, which was dismissed in 2019. On appeal by special leave, the Supreme Court issued notice, granted interim relief, and ultimately delivered the present judgment on 14.05.2025.
Identification of Legal Issues
The Court considered the following core legal questions:
- Can a departmental circular expand or restrict the scope of a statutory exemption notification?
- Does crude degummed soyabean oil qualify as an agricultural product excluded under Notification No. 53/2003-Cus.?
- Whether the manufacturing process renders the imported oil a distinct commodity from soyabean?
- Whether there was a valid nexus between the imported product and the items exported?
- Can interpretative circulars override EXIM Policy and statutory notifications?
Arguments of the Parties
Appellant (Noble Resources):
- Crude degummed soyabean oil is not an agricultural product—it is a manufactured good distinct from soyabean.
- Circular No. 10/2004-Cus. unlawfully expands the exclusion under Notification 53/2003, which excluded only agricultural and dairy products, not products “derived” from them.
- Relied on para 3.2.5 and para 3.7.2.1(vi) of the EXIM policy and subsequent public notices allowing import of edible oils under Chapter 15 via MMTC/STC.
- Argued the product has commercial distinctiveness and satisfies the manufacture test as per Delhi Cloth Mills and Pio Food Packers.
Respondents (Union of India):
- The DGFT Circular and amended Handbook explicitly barred import of items from Chapters 1–24 (including crude oils).
- Oil is still agricultural in origin; extraction process doesn’t confer a new identity.
- Crude oil is not edible unless refined, hence not “food.”
- There is no nexus with exported items (e.g., soyabean meal extract).
Court’s Analysis and Reasoning
a) On Circular v. Statutory Notification
The Court held that Circular No. 10/2004-Cus. cannot override Notification 53/2003-Cus., which excluded only “agricultural and dairy products”. A circular cannot impose additional exclusions not found in the parent notification. Citing Tata Teleservices, Intercontinental, and Sandur Micro Circuits, the Court declared the circular legally ineffective.
b) Nature of Crude Degummed Soyabean Oil
The Court undertook a deep dive into the manufacturing process, including cleaning, flaking, solvent extraction, and distillation, resulting in a distinct marketable commodity.
Following precedents like:
- Delhi Cloth & General Mills (1963)
- Pio Food Packers (1980)
- N.C. Budharaja (1994)
- Mineral Oil Corporation (2015)
It reaffirmed that manufacture requires transformation into a new product with a distinct name, character, and use. Crude soyabean oil, though not edible unless refined, meets this test.
c) What Constitutes an Agricultural Product?
The term being undefined in the EXIM policy, the Court applied:
- Commercial parlance test
- Dictionary definitions (Black’s Law, Ramanatha Aiyar)
- Interpretation from Kerala HC in P. Narayanan Nair
It concluded that crude degummed soyabean oil is not an agricultural product, as it is not a raw, unprocessed commodity.
d) Nexus with Exported Goods
The Court found that soyabean oil and soyabean meal extract are distinct but related food-grade outputs of the same source. Given SION classifications and import through MMTC, the required “broad nexus” under the EXIM policy was satisfied.
Final Conclusion and Holding
The Supreme Court allowed the appeal and held:
- Circular No. 10/2004-Cus. is unenforceable to the extent it alters Notification 53/2003.
- Crude degummed soyabean oil is a manufactured product, not an agricultural product.
- Appellant is entitled to duty exemption under Notification 53/2003-Cus.
- The High Court judgment (2019) and Assistant Commissioner’s order (2007) were set aside.
FAQs:
1. Can a government circular override a customs exemption notification?
No. A circular is merely clarificatory and cannot expand, restrict, or alter the scope of a statutory notification under the Customs Act.
2. Is crude degummed soyabean oil considered an agricultural product under import laws?
No. The court held that it is a distinct, manufactured product, and does not retain the identity of soyabean as an agricultural good.
3. What test determines whether a product is manufactured?
If the product undergoes processing resulting in a new article with distinct name, character, or use, it qualifies as manufacture under legal precedents.
4. How does the EXIM policy assess “nexus” between import and export items?
The EXIM policy requires a broad nexus, meaning a general link between imported goods and the category of exported products, based on SION norms.
5. Can processed oils be exempt from duty under EXIM schemes
Yes, if they are not classified as “agricultural products” and the import meets policy conditions (e.g., sourcing through STC/MMTC and product categorization).
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