Madras HC Allows Customs Duty Exemption on STP Imports Despite CMDA Approval Granted Post-Import [Read Order]

In a recent decision, the Madras High Court held that Khivraj Tech Park Pvt. Ltd. was entitled to customs duty exemption on imported capital goods for setting up a Software Technology Park (STP), even though approval from the Chennai Metropolitan Development Authority (CMDA) was received after the date of import. The court ruled that procedural delays by authorities should not deprive the company of benefits it was otherwise eligible for.

Khivraj Tech Park filed a writ appeal challenging the rejection of its claim for exemption under Customs Notification No. 153/1993, which provides for duty-free import of telematic infrastructural equipment used for export of software from units set up under the STP scheme.

The company had applied for approval on 25.01.2005 and received a recommendation from the Inter-Ministerial Standing Committee (IMSC) on 04.04.2005, which was communicated via a letter of intent dated 22.06.2005. The final CMDA approval came later, on 29.11.2005. The company imported the goods on 24.10.2005 and claimed the exemption, which was denied by customs authorities on the grounds that the required CMDA approval was not available at the time of import.

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The appellant’s counsel argued that all required applications were filed on time and that the delay in CMDA approval was beyond the company’s control. It was further argued that the IMSC’s recommendation and the company’s substantial compliance with the scheme’s requirements, including use of the goods for export, were sufficient to claim the exemption.

They relied on the doctrine of substantial compliance and on judicial precedents where courts had allowed exemptions even when certain approvals were granted after import, as long as the core conditions were met.

The customs department’s counsel argued that the exemption notification must be strictly interpreted and that the benefit could not be granted unless all procedural approvals, including from CMDA, were in place before import. They argued that the letter dated 22.06.2005 was only a letter of intent and not a final permission.

The division bench of Chief Justice K.R. Shriram and Justice Mohammed Shaffiq observed that the company had done everything within its control, including applying to the CMDA well in advance. The bench observed that the delay in receiving the CMDA approval was due to administrative processing and should not penalize the appellant. They also observed that the goods were imported within the permitted value, used for export purposes, and that denying the benefit would defeat the objective of promoting exports through the STP scheme.

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The court applied the doctrine of substantial compliance and emphasized that the purpose of the exemption notification was to promote exports. It stated that technical delays or procedural lapses not attributable to the importer should not lead to the denial of substantive benefits.

The court allowed the writ appeal, quashed the earlier order rejecting the exemption, and directed that the company was entitled to customs duty exemption. The court also held that the bank guarantee furnished by the appellant must be returned.

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