What is Pre Import Condition in Advance Authorisation – Detailed Guide and Latest Updates
The Supreme Court of our country has stated that pre-import condition in Foreign Trade Policy are not arbitrary. It is vital to accomplish this condition if you are willing to avail the tax exemption advantages.
Pre-import condition is the term used to describe the situation where goods or products had to be imported first. Later, the final goods or products that are produced through these imported materials or products need to be exported.
It was during a decision taken on 28 April 2023. The Supreme Court of India reversed the decision made by the High Court of Gujarat and stated that pre-import condition is necessary to be exempted from paying IGST and compensation cess is not considered to be ultra vires.
What is the Pre Import Condition in Advance Authorisation?
Pre-import condition is the situation where the goods that have been imported against any specific Advance Authorization (AA) are being used to manufacture or produce final goods or products to be exported to accomplish the export obligation of that particular Advance Authorization.
The Supreme Court has upheld the pre-import condition in Advance Authorization under the specific grounds mentioned below.
- With the introduction of GST, exporters were notified via trade notices that Advance Authorization and its utilisation would not continue in the same manner as the scheme was operating in the previous years.
- It is seen that Para 4.13 of the new Foreign Trade Policy has provided powers to the Directorate General of Foreign Trade (DGFT) for the implementation of the pre-import conditions. Moreover, in the para 4.27 of Handbook of Procedure (HBP), it has been mentioned that the Government has stated that duty-free authorization cannot be issued in terms of materials that are subject to pre-import conditions.
- Whenever any exporter states that there is not any logical reason for the unique treatment of Basic Customs Duty, commonly known as BCD, and IGST under the AA scheme, then it is considered to be without merit. We also have a justification for the distinct therapy of the two levies as BCD is a customs levy at the point of import without any question of credit. On the other hand, IGST is also levied at varied points along with the stage of import and input credit is available.
- Disproportionate difficulties faced by exporters shall not be considered as a valid reason to withhold the insertion of pre-import conditions as arbitrary.
What do you need to know about the Amnesty Scheme? - Important Details
The Amnesty Scheme in India’s new Foreign Trade Policy has been introduced by the Indian government to support and provide aid to Indian exporters to enhance their exports on a global level. Here we are sharing with you some important information regarding the Amnesty Scheme introduced in FTP 2023.
Let us first come to the benefits of this scheme. There is a wide range of advantages that exporters can enjoy through this Amnesty Scheme.
What are the issues that can be caused by pre-import condition DGFT?
The decision of pre-import condition DGFT made by the Supreme Court of India also includes some issues. The likely issues to be raised through this decision are:
Exporters will need to pay IGST with interest
The Supreme Court has upheld the validity of pre-import conditions and since then there is no retrospective application of Notification No.01/2019-Cus dated 10.01.2019. Therefore, the DRI and other Customs formations throughout the country shall restart investigations against all the foreign trade business owners who have exported their goods or products under this Advance Authorization Scheme.
In case it is empirical that they have contradicted the pre-import condition, the Customs authorities are going to force exporters to make the payment of IGST with additional interest. Moreover, in some other situations, the customs authorities might also ask exporters to pay penalties for not following the pre-import condition.
There are also cases where some customs formation/DRI made requests to the DGFT office to take some major action under the Advance Authorization policy against such exporters. If you are an exporter facing such a scenario, you shall be notified through official letters from the regional offices of DGFT.
Exporters will face issue for years now
The exporters are going to deal with some issues due to the pre-import condition. Exporters will not be able to enjoy a single penny out of the said exemption for the pre-import condition. But, these exporters are likely to deal with the issue as it will be continuing for a lot of years at the hands of the Customs/DRI and at the DGFT office.
Exporters may not even have any idea regarding why the pre-import condition has been implemented at the first instance, particularly highlighting the fact that all the duties have been exempted under the Advance Authorization Scheme in the previous years.
Moreover, as soon as the absurdity came into the government’s notice, the Notification No.01/2019-Cus dated 10.01.2019 was issued by removing the pre-import condition. It is suggested by a lot of people that In order to come up with the solution to eliminate this unwarranted problem forever, the Indian Government should have amended the pre-import condition retrospectively. It is because through opting such a method, the government of India could have avoided this entire unwarranted litigation easily.
With the pre-import condition, Indian exporters are enabled to credit the claim of raw materials before exporting their final goods or products. Here, in this blog, we have discussed a bit of the information that has been disclosed regarding the pre-import condition under AA. Hope it helps you.