Supreme Court’s Final Judgment on the Pre-Import Condition- Highlights and Major Impacts
Supreme Court’s judgement about upholding the validity of the pre-import condition to avail advance authorisation scheme and claim Integrated Goods and Service Tax (IGST) has baffled many exporters. However, the claim is that it will ease things out for exporters. Let us dig deep into what the news is all about.
Under the Foreign Trade (Development & Regulation) Act, of 1992, the Central Government introduced various duty exemption schemes such as Advance Authorisation. Through this, businesses could claim exemption from Goods and Services Tax (GST), Integrated Goods and Services Tax (IGST) and other compensation cess on inputs that are imported for producing export goods.
Through an amendment in the provisions of FTP that came into effect on 13/10/2017, a pre-import condition was notified. The Directorate of Revenue Intelligence (DRI), Kolkata considered the amendment. An investigation was then initiated with summons being issued to manufacturers across India who were importing goods under the Advance Authorisation Scheme.
Manufacturers vs DRI
The manufacturers and importers maintained that the provisions of pre-import condition were not mentioned. Whereas the DRI investigators claimed that a pre-import condition meant that first inputs should be imported, and afterwards the manufactured final product from these inputs should be exported. Thus, the pre-import condition would be fulfilled only after the goods imported under Advance Authorisation Scheme were used to produce finished goods and exported to satisfy the export obligation of the authorisation.
Appeal to the SC
The case went to the High Court where the respondents challenged the pre-import condition as explained by the DRI officers. The High Court claimed that the impugned pre-import condition as mentioned in the FTP does not make clear sense and is ultra vires to the scheme underneath the Foreign Trade Policy. Afterwards, the Union Government and Revenue made their appeal to the Supreme Court.
What is SC’s Final Judgment?
The decision of pre-import condition DGFT made by the Supreme Court of India also includes some
The Supreme Court granted permission to the respondents to claim a refund or input credit. Respondents can reach out to the jurisdictional commissioner and file their application with relevant documents within six weeks from the day judgement was passed.
Refund and credit claims will be analysed on their merits, and will vary from case to case. The revenue department is asked to give out appropriate procedures and guidelines regarding the same.
The Supreme Court put forth two conditions before availing exemption benefits:
- The exports with Advance Authorisations must be physical exports.
- Pre-import conditions in Foreign Trade Policy must be fulfilled.
Know the Basic Terms Involved
The Central Government announced various tax exemption schemes under the Foreign Trade (Development & Regulation) Act, of 1992. The Advance Authorisation scheme was one of them.
What is Advance Authorisation Scheme
The Advance Authorisation scheme was initiated to grant exporters the opportunity of getting the Integrated Goods & Services Tax (IGST) and Goods & Services Tax (GST) exempted. These were the compensation cess imposed on input imports that were used to manufacture goods for exports from India. The scheme regulates and provides a guideline for the implementation of the provision of Foreign Trade Policy (FTP).
What is Pre-Import Condition
It poses a regulation that the exporters should import goods before exporting to be eligible for claiming refunds or credits under the Advance Authorisation license. It came into effect on October 13, 2017 however, was withdrawn on January 10, 2019. It was a prospective withdrawal, which means that those exporters who failed to fulfil the pre-import conditions between October 13, 2017, and January 9, 2019, cannot claim benefits of refunds of IGST or any compensation cess.
Pre-import conditions in DGFT organisations can be important for manufacturers and exporters to ensure their products fulfil the required criteria before clearing for import or export. These conditions help ensure that the products are safe, meet regulatory requirements, and are of high quality.
The Decision of the Apex Court and its Major Impacts
The Supreme Court went beyond the Gujarat High Court Judgement regarding the pre-import conditions. The key points considered by the Supreme Court are:
- It noticed that the concept of the pre-import condition is not something entirely new for the Foreign Trade Policy 2015-20.
- Based on the inconvenience faced by the exporters through paying IGST and claiming refunds, no pre-import condition can be held as arbitrary.
- Excluding benefits from imports initiated under Advance Authorisation, and using the payment of duties under Sections 3(7) and (9) of the Customs Tariff Act, 1975, along with the pre-import condition are not eligible to be categorised as arbitrary or unreasonable.
- The argument put forth that BCD and IGST underneath the Advance Authorisation scheme have no rationale for different treatment without merits. Along with rejecting the Respondent-Assessee’s claims, the Supreme Court posits that BCD is a customs duty levied on the point of imports. Whereas IGST is implied on multiple stages, including the point of import and input tax credit added on to the stage of the end user. Henceforth, the notification cannot be misunderstood as being arbitrary or under classification.
- The Supreme Court directed the Revenue to allow manufacturer-exporters who had interim orders, till the judgements were promulgated, to apply for the refund or input tax credit. The court also directed the Revenue for issuing an appropriate circular in regard.
Why was Pre-Import Condition Introduced?
The Court states that its aim behind introducing pre-import conditions was to facilitate and simplify the process of export trade, to help the exporters effectively tackle the competitive price disadvantages while exporting finished goods.
Further, it was noted that the DGFT (Directorate General of Foreign Trade) organisation can implement pre-import conditions on specific commodities. The Court then stated that retaining the authority to impose pre-import conditions on specified commodities meant that it can be used concerning other products.
SC claimed that this aspect was not explained in the High Court, and assumed that only the specified articles were regulated under the pre-import condition. Furthermore, it was stated that the conditions mentioned in the notification were that the exemptions could be expanded only on physical exports under the Advance Authorisation Scheme.
Henceforth, the Court mentioned that impugned notification cannot be claimed arbitrarily and High Court’s reasoning had faults. SC said that the Advance Authorisations can be granted to exporters, merchant exporters, or manufacturers. If the shipments were not physical exports in nature, the AAs were not eligible for exemption.
The judgment and commands of the Gujarat High Court were declared faulty because the reason they provided was not strong enough to prove that the pre-import condition was arbitrary. The Court, therefore, allowed the Revenue to consider the respondents claiming their refund or input credit, whatever was appropriate and wherever they had to pay customs duty. Thus, the respondents could reach out to the jurisdictional Commissioner and file an application with all the necessary and relevant documents as evidence within six weeks from the date when the judgement for the refund claim was passed.