LoC Condition under Notification Inapplicable to Non‑LoC Exporters: Chhattisgarh HC Orders Refund of ₹2.01 Cr Customs Duty on Parboiled Rice Exports [Read Order]

The Chhattisgarh High Court, in a recent case, has ruled that the requirement of backing exports with irrevocable letters of credit (LOCs) as stipulated in Condition No. 6 of Notification No. 50/2023‑Customs dated 25.08.2023, is inapplicable to exporters who do not transact through LoCs.

Eastman International, a Ludhiana-based three-star export house engaged in rice exports, challenged the levy of 20% of export duty on parboiled rice imposed by notification no 49/2023‑Customs dated 25.08.2023. On the same day, Notification No. 50/2023‑Customs granted exemption from this duty, prescribing a nil rate subject to the fulfilment of Condition No. 6.

The condition required that (i) goods had entered the customs station before 25.08.2023 and a clearance order had not been issued, and (ii) exports were backed by irrevocable LoCs opened before 25.08.2023.

Your Smartest Guide to the 2025 Income Tax Act — With Old Act Parallels. Click here

The petitioner’s consignment had entered the customs station at ICD CONCOR Naya Raipur before the cut‑off date, satisfying clause (i). However, the company exported on a cash-on-delivery basis and did not use LOCs. Customs authorities insisted that both subconditions must be satisfied concurrently and denied the exemption. To avoid delay Eastman paid ₹2,01,28,295/‑ as export duty “under protest” and approached the High Court seeking a refund and quashing of the LoC condition.

The petitioner argued that clause (ii) did not apply to them, as they did not transact through LoCs. export proceeds had been fully realised through other lawful methods, fulfilling the substantive object of the exemption. Insisting on LOCs was arbitrary, discriminatory, and violative of Articles 14, 19(1)(g), and 21 of the Constitution.

The petitioner depended on Mangalore Chemicals and Fertilizers Ltd. v. Deputy Commissioner of Commercial Taxes (1992 Supp (1) SCC 21), where the Supreme Court held that technical conditions should not defeat substantive entitlement.

The respondents contended that both clauses (i) and (ii) had to be read conjunctively and exemption notifications must be strictly construed. It argued that the policy decsisions to levy duty under section 25(1) of the Customs Act, 1962, and Section 8(1) of the Customs Tariff Act, 1975. Since Eastman had no LoC, it was not eligible for exemption.

After hearing both sides, the division bench of Chief Justice Ramesh Sinha and Justice Bibhu Datta Guru held that export through the LOC is neither compulsory nor statutorily mandated. Multiple lawful modes of realising export proceeds exist, including documentary collection, wire transfer and cash on delivery. Clause (ii) presupposes the existence of an LOC, where none exists; compliance is impossible. The Court invoked the maxim lex non cogit ad impossibilia, the law does not compel impossibilities, to hold that exporters cannot be compelled retrospectively to have opened LoCs.

The judges observed that the reading clause (i) and (ii) conjunctively merely because of the word “and” would be mechanical and absurd. Condition must have interpreted contextually and purposively, not in a manner that renders exemptions illusory. Denial of exemption to non-LOC exporters created hostile discrimination between similarly situated exporters, violatingArticle 14. Indirectly compelling exporters to adopt LoCs restricted the freedom of trade under Article 19(1)(g).

The Court also noted that the LoC condition operated only for a brief period between 25.08.2023 and 15.10.2023, after which the exemption was made unconditional. This reinforced the conclusion that the condition was situational and protective, not mandatory. The substantive object of the exemption, ensuring realisation of export proceeds, stood fulfilled in Eastman’s case.

Accordingly, the writ petition was allowed. The Court directed the respondents to refund the duty amount of ₹2,01,28,295/‑ along with interest within eight weeks. Having granted relief under prayer clauses 10.1 and 10.2, the Court did not venture into the broader constitutional challenge under prayer 10.3, leaving it open. No order as to costs was made.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates