Pre-Import Condition Not Applicable Retrospectively: CESTAT Quashes ₹5.45 Cr IGST Demand Against GTN Engineering [Read Order]

In a recent ruling, the Customs and Excise& Service Tax Appellate Tribunal (CESTAT), Mumbai, held that the pre- import condition introduced under the advanced authorization scheme of the foreign trade policy ( FTP) cannot be applied retrospectively, and accordingly set aside an IGST demand of ₹5.45 crore raised against GTN Engineering (India) Ltd.

The appeal was filed by GTN Engineering India Ltd., a manufacturer and exporter of industrial valves and components, challenging the order in original passed by the principal commissioner of customs (Adjudication), which confirmed that the IGST demand along with interest, penalty and redemption fine for the period October 2017 to September 2018.

The appellant, GTN Engineering India Ltd, argued that all imported materials were used exclusively for manufacturing export goods and there is no domestic sale or domestic sale of either inputs or finished goods. The appellant also argued that export obligations were fully fulfilled, and export obligation discharge certificates (EODC) were published by the DGFT.

Also, the jurisdictional customs authorities had accepted the EODC and cancelled the bonds, thereby closing the advance authorisations and contented that the entire demand was revenue neutral, since any igst paid would have been available as input tax credit and the interest penalty and redemption fine were unsustainable as Section 3 of the CustomsTariff Act did not provide for levy of interest or penalties on IGST during the relevant period (2017–2018)

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The learned Authorized Representative for Revenue submitted that the DRI investigation has found that the appellants had not complied with the pre-import condition and therefore they are required to pay the duty demand of IGST as confirmed in the impugned order. In respect of the demand of interest, imposition of fine and penalty, the revenue reiterated the findings of the adjudicating authority by relying upon the judgment of the Hon’ble Supreme Court in the case of Union of India & Ors. Vs. Cosmo Films Limited - (2023)

The tribunal noted that Gtn Engineering had fulfilled its export obligation in respect of all 19 advanced authorizations and had obtained an Export Obligation Discharge Certificate (EODC) from the DGFT, and that once export obligations are discharged. EODCs are issued by the DGFT; the conditions of Notification No. 18/2015-Customs stand fulfilled. The customs authorities cannot subsequently deny exemption benefits on a re-interpretation of the pre-import condition.

The tribunal further held that the facts of the case in Cosmo Films Limited were different from those present before, and also the department failed to produce any evidence to show diversion of imported goods into the domestic market or misuse of the advance authorization scheme.

The bench, Justice S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member), set aside the impugned order, including the IGST demand, interest, redetermination fine, and penalty. Therefore, the impugned order is set aside, and the appeal is allowed in favour of the appellants

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