The Supreme Court of India upheld the requirement of ‘pre-import condition’ incorporated in the Foreign Trade Policy of 2015-2020 (FTP) and Handbook of Procedures 2015-2020 (HBP) by Notification No. 33 / 2015-20 and Notification No. 79 / 2015-Customs, to claim exemption of Integrated Goods and Services Tax (IGST) and GST compensation cess on inputs imported into India for manufacture of export goods, on the basis of advance authorization (AA).
The appeals are directed against a judgment and order of the Gujarat High Court, wherein it was observed that such fulfilment in order to claim exemption of Integrated Goods and Services Tax (IGST) and GST compensation cess on input imported into India for the production of goods to be exported from India, on the strength of an advance authorization was arbitrary and unreasonable.
In terms of the Foreign Trade (Development & Regulation) Act, 1992 (“FTDRA”) the Central Government had been framing, from time to time, Export-Import Policies (or FTPs) for the development, regulation and control of imports and exports in the country.
The Union later announced duty exemption schemes as well. One among these was the AA. To regulate and guide the procedure to be followed for implementing the provisions of the FTP and the rules framed thereunder, the Director General of Foreign Trade (“DGFT”) notified the HBP, chapter 4 of which prescribed the procedure for availing duty exemption / remission schemes.
The Bench comprising Justices S. Ravindra Bhat and Dipankar Datta set aside the judgment of the Gujarat High Court where it had quashed the amending Notifications, i.e., Notification No. 33 / 2015- 20 and 79 / 2017-Customs, dated 13.10.2017, by which the Director General of Foreign Trade (DGFT) had imposed the ‘pre-import’ and ‘physical export’ conditions for availing IGST and Compensation Cess exemption on imports made under ‘Advance Authorisation’.
The Court commented that the introduction of the ‘pre-import condition’ may have resulted in hardship to the exporters, since they could no longer continue with their former business practices of importing inputs, after applying for Advance Authorization, to fulfil their overseas export contractual obligations.
The Court further observed that when a new set of laws are enacted, the same is bound to lead to some disruption. “In this case, the disruption is in the form of exporters needing to import inputs, pay the two duties, and claim refunds. Yet, this inconvenience is insufficient to trump the legislative choice of creating an altogether new fiscal legislation, and insisting that a section of assessee’s order their affairs, to be in accord with the new law. Therefore, the exclusion of benefit of imports in anticipation of AAs, and requiring payment of duties, under Sections 3 (7) and (9) of Customs Tariff Act, 1975, with the ‘pre-import condition’, cannot be characterized as arbitrary or unreasonable.”
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