Supreme Court in its judgement in UOI v. Cosmos Films Limited (2023) on 28-04-23, has upheld the validity of “pre-import” condition for Advance Authorisation.
The Apex Court has reversed the decision of Hon’ble Gujarat High Court and held that the “pre-import condition” stipulated in grant of exemption from payment of IGST & Compensation Cess is not ultra vires. The Hon’ble Gujarat High Court had earlier held that grant of IGST exemption with “pre-import condition” was arbitrary and that such condition was ultra vires.
Background
Notification No. 18/2015-Customs dated 01-04-2015 governs import of inputs against Advance Authorization (AA) for physical exports. This notification originally granted complete exemption from payment of BCD (Basic Customs Duty), CVD (Additional Duty of Customs) and SAD (Special Additional Duty of Customs), apart from granting exemption to other customs duties such as ADD, etc.
On introduction of GST w.e.f. 01-07-2017, the exemption was limited to BCD only. (N No. 26/2017 dtd 29-07-2017).
Subsequently, w.e.f. 13-10-2017, Exemption from payment of IGST as well as Compensation Cess was extended to imports made against AA, subject to fulfilment of ‘pre-import condition’ and ‘physical exports’. (vide N No. 79/2017-Cus. dated 13-10-2017). Further, Foreign Trade Policy 2015-20 (Para 4.14) was also amended accordingly vide Notification No. 33(RE 2015-2020) dtd 13-10-17.
Thus, due to ‘pre-import’ condition, import of inputs after exports (as replenishment) was not permissible without payment of IGST.
Later on, ‘Pre-import’ condition was removed w.e.f. 10-01-2019 (N No. 01/2019-Cus. Dtd 10-01-19).
However, for cases prior to 10-01-2019, Investigation was initiated against various manufacturer exporters who had availed exemption of IGST and Compensation cess, on the ground that pre-import condition was not satisfied. As per the revenue, pre-import condition means that goods had to be imported first and then the final product manufactured using such imported goods should be exported.
The Exporters / Assessees challenged the said pre-import condition before the Hon’ble Gujarat High Court, which held that ‘pre-import condition’, as stipulated in Notification No. 79/2017-Cus., was ultra vires on the ground that it does not meet the test of reasonableness and is also not in consonance with the scheme of Advance Authorization Scheme.
However, the said view of the Hon’ble Gujarat High Court has now been overturned by the Apex Court in judgement of UOI v. Cosmo films Limited holding that ‘pre-import condition’ is not ultra vires.
Issue before the Supreme Court
The Civil Appeals were filed by the Revenue before the Apex Court against the order of Gujarat High Court.
The precise question before the Apex Court was that whether pre-import condition is a valid requirement to claim exemption from IGST and Compensation Cess for imports made under Advance Authorisation Scheme.
Finding and Decisions of the Supreme Court
Key findings given by the Apex Court in this regard are summarized below:
Pre-import Condition is not arbitrary or unreasonable
The Apex Court observed that the concept of ‘pre-import condition’ was not alien to the Foreign Trade Policy 2015-20 (FTP). Further, by para 4.13 of FTP, DGFT could impose ‘pre-import’ condition on articles other than already specified articles.
Inconvenience caused to exporters by paying IGST and claiming refund thereafter could not be a ground to hold the ‘pre-import’ condition as arbitrary.
Separate Treatment of BCD and IGST levies are justified
Respondent-Assessee’s argument that there is no rationale for different treatment of BCD and IGST under Advance Authorisation is without merits.
While dismissing the Respondent-Assessee’s argument, SC held that BCD is a customs levy at the point of import. On the other hand, IGST is levied at multiple points (including at the stage of import) and input tax credit gets into the stream, till the point of end user. As a result, there is a justification for a
separate treatment of two levies. Therefore, the notification cannot be faulted with for arbitrariness or under classification.
Notification withdrawing ‘Pre-import’ Condition cannot be made applicable from 13-10-17
With respect to give retrospective effect from 13-10-17, to the Notification No. 01/2019-Customs dated 10 -01 2019 vide which pre-import condition was removed on 10-01-2019 as a condition for granting IGST exemption on import of goods, the Apex Court held that Central government has no power to issue retrospective notification / regulations.
Set aside Gujarat High Court Judgement
The Hon’ble Supreme Court has set aside Gujarat High Court Judgement with respect to fulfilment of pre-import condition as stipulated in Notification No. 79/2017-Cus., dated 13-10-2017. The Supreme Court ruled in favour of the validity of the ‘pre-import’ condition.
The Apex Court has directed the Revenue to permit the manufacturer -exporters who were enjoying interim orders, till the impugned judgments were delivered, to claim refund or input tax credit. The Apex Court also directed the Revenue to issue suitable circular in this regard.
