CESTAT Chennai Upholds TPS Exemption

“Indirect Tax I Indirect Tax Litigation I Customs & FTP I Central Licensing I Arbitration I Advisory”

Dated: 09.05.2025

CESTAT Chennai Upholds TPS Exemption

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai Bench, dismissed an appeal filed by the Commissioner of Customs (Airport & Aircargo), Chennai, and upheld the Order-in-Original allowing M/s. Sunstar Overseas Ltd. to claim duty exemption under the Target Plus Scheme (TPS) for the import of plastic granules.

Case Background

Importer/Respondent: M/s. Sunstar Overseas Ltd., New Delhi
Exported Goods: Rice and spices
Imported Goods: Plastic granules under Notification No. 32/2005-Cus dated 08.04.2005 (TPS Benefit)
Allegation: Customs claimed that plastic granules were not directly related to exported items (rice/spices) and thus not eligible for TPS exemption due to lack of “broad nexus”

Key Legal Issues

Whether plastic granules used for packaging qualify as legitimate inputs under the TPS?
Whether DGFT’s interpretation of “broad nexus” under Para 3.2.5 of the Handbook of Procedures (HBP) prevails over CBEC circulars?
Whether Customs can deny benefit based on its own interpretation of TPS conditions?

CESTAT’s Key Observations

The Tribunal held that DGFT is the sole competent authority to define policy parameters under the FTP and TPS. Customs cannot override DGFT’s clarification.
It was confirmed that plastic granules were converted into PP bags (through job workers) for use as packaging material for rice exports, satisfying the input-use criteria.
The Tribunal rejected the Customs’ contention that physical incorporation of inputs into export products is mandatory, citing:
- Essel Mining & Industries Ltd. v. Union of India – Bombay HC
- Union of India v. Indian Exporters Grievance Forum – Delhi HC
- Silver Line Plastpack Pvt. Ltd. v. CCE, Bhavnagar – CESTAT Ahmedabad

Legal Precedents Cited

Packaging materials used in export logistics qualify as having “broad nexus”
Broad nexus refers to product groups, not necessarily physical transformation into exported goods
FTP Para 3.7.6 and Para 3.2.5 (pre-21.06.2007 amendment) do not require physical incorporation, and circulars cannot override policy

Final Decision

CESTAT upheld the Commissioner’s Order-in-Original dated 27.11.2008
Dismissed the appeal by the Commissioner of Customs
Confirmed that Sunstar Overseas rightly availed the TPS exemption

Legal Significance

This ruling reinforces:

Supremacy of DGFT policy interpretation over departmental circulars
Validity of input use in packaging under broad nexus principles
Protection for exporters using indirect job workers or intermediate inputs not part of the core exported item

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Source: CESTAT Chennai

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