By Padmini Sundaram

NEVER could imagine that import of a ‘second hand’ product could create such a plethora of legal hassles as this ‘cloning’ machine successfully managed to do so !! I am referring to the “used photocopier” issue, which has been clinically analysed through a series of incisive articles on this portal, including an editorial. To drive home the above point, I borrow a phrase from one of the articles :- “The legal voyage of the import of secondhand photocopiers matches the cruise of the Grand Amazon through the dense forests of Africa.” Just that the dense forests got denser!!

I must be candid enough to admit that there is no new development on this issue to be discussed. So, what triggered the need for another piece? The idea cropped up as I was browsing through a comment of my learned colleague “on the scant respect of the Revenue babus for their Commerce Comrades” in the discussion board. Yes !! There are precedents which justify the valid comment – to cite an oft quoted one - no exemption notification till date for service tax in case of EOUs though the Foreign Trade Policy granted the same. Having said that, the reverse also holds good. The lack of mutual synchronization is obvious and this attribute has been peppered by some abysmally poor understanding of legal requirements which is time and again manifested in the functioning of The Director General of Foreign Trade (DGFT).

Let us see how the DGFT has played its role in making an epic saga out of this ‘used photocopier” issue. Before proceeding, permit me to revisit some of the milestones of this issue.

Outlook of judiciary on this issue :-

In BE- Office Automation Pvt. Ltd., Vs. Commissioner of Customs, Mumbai – 2004-TIOL-682-CESTAT-DEL, the Tribunal had held that the secondhand copier cannot be considered as consumer goods at all and so allowed the import. This view had been consistently followed by other Benches of the Tribunal but some Benches propounded the view that these photocopiers were in the nature of consumer goods and so the issue was referred to the Larger Bench presided over by the Honourable President of the Tribunal.

The Larger Bench of CESTAT in the case of M/s Atul Commodities (P) Ltd. vs. Commissioner of Customs, Cochin & Hyderabad (2005-TIOL-470-CESTAT-DEL-LB) overruled the decision of the Tribunal Benches that the second hand photocopiers are not capital goods but consumer goods , by emphatically concluding that the second hand photocopiers are capital goods within the meaning of the Foreign Trade Policy and are free importable as they are not consumer goods.

This relief was short lived as the above decision was subjected to the scrutiny of two different High Courts. While the Hon’ble Andhra Pradesh High Court (2006-TIOL-59-HC-AP-CUS) dismissed the appeal of the Department stating that no question of law raised much less any substantial question of law, the Hon’ble High Court of Kerala (2006-TIOL-167-HC-KERALA-CUS) allowed the appeal of the Revenue and set aside the Larger Bench Order.

DGFT’s roles in compounding the issue :-

The DGFT vide its Circular No.19/2003 dated 11.11.2003, clarified that the secondhand photocopier machines were covered under the definition of the "second hand goods" as per Para 2.17 of the EXIM Policy 2002-07.

In a subsequent Policy Circular No.20 (2004-09), dated 23.02.2005, the DGFT further reiterated that the "secondhand photocopiers" shall be covered under the definition of "secondhand goods" and hence their import shall be governed by the provisions of the Para 2.17 of the Policy and shall not be permitted to be imported under Para 5.1 of the Policy (EPCG scheme).

By the above Circulars, the DGFT made their intentions very clear that, the "second hand photocopiers" are not "second hand capital goods" but are "secondhand goods", which are restricted under an import licence.

Now, the crux of this article – Whether DGFT can amend the provisions of the policy by way of issuing circulars?

The Bombay High Court in the case of Narendra Udeshi vs. Union of India reported in 2003 (156) ELT 819(Bom) [affirmed by Hon’ble Supreme Court reported in 2003 (158) ELT A275-SC)] has held that the power to amend the policy being within the exclusive domain of the Central Government, the said powers cannot be usurped by the DGFT. Circular and Public notices issued by DGFT prohibiting the duty free import of natural rubber under advance licence are beyond the scope and ambit of the powers vested in DFGT. The High Court also held that the procedures to be prescribed by an authority in implementing the policy must be in consonance with the policy. If the procedural norms are in conflict with the policy, then the policy will prevail and the procedural norms to the extent that they are in conflict with the policy, are liable to be held to be bad in law.

In the instant case, since the impugned circulars and the public notice issued by DGFT are in conflict with the policy, the same are liable to be quashed and set aside. Also as per the above judgment, circulars cannot override the provisions of the policy and a policy can be amended only by way of issue of notification by the Central Government.

Another thought – Does the DGFT have power to amend the policy which is vested with the Central Government?

To examine this let me reproduce the relevant sections of the Foreign Trade (Development and Regulation) Act, 1992 –

Chapter II –Power of Central Government to make orders and announce export & import policy :

Section 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 like manner, amend that policy.

Section 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.

From the above, it would not be out of place to infer that the DGFT has no power to amend the policy which is vested with the Central Government under Section 5, as brought out hereinabove.

Before parting :-

Eventually, the Circulars did pave way to the Notification restricting the import of second hand photocopiers. However, the same was issued only on 19.10.05. Since Para 2.17 of the FTP was amended by issue of Notification No.31/2005 dt.19.10.05, import of second hand photocopiers made prior to 19.10.05 should be allowed freely without licence as there was no such requirement as per the old policy. Moreover, the High Court (affirmed by Hon’ble Supreme Court) in the above cited case of Narendra Udeshi has held that the power to amend the policy lies with the Central Government and DGFT cannot encroach upon the powers of the Central Government and also held that in case of conflict between policy and procedural norms, the policy will prevail.

Photocopiers have become part and parcel of every office and factory and are clearly meant for service sectors. These photocopiers are an input for production of services and does not get consumed themselves by their users and therefore ought to be considered as capital goods and not consumer goods as rightly held by the Larger Bench.

There are scores of cases pending at various forums on the above issue prior to the issue of Notification No 31/2005. May be, the view propounded as above, will be accepted and aggrieved importers will heave a sigh of relief. Hope I did not hear someone whisper “retrospective amendment” !!