Challenging SC judgment on validity of pre-import condition may not succeed

As expected, the Supreme Court has upheld the validity of the pre-import condition under advance authorisations. Many exporters have now raised questions on the way forward. I deal with some of them here.
 

The Supreme Court held that as Para 4.03 of the Foreign Trade Policy (FTP) says that advance authorisation is issued to allow duty free import of input, which is physically incorporated in export products, it is essentially a pre-import scheme. Furthermore, Para 4.13 of the FTP gives the government the power to impose pre-import conditions. So, in my opinion, a challenge to the judgment by way of a review petition is unlikely to succeed. Even otherwise, the government’s right to allow exemption subject to certain conditions is a part of Section 25 of the Customs Act, 1962.
 

Now, the exporters who violated the pre-import condition have to pay within six weeks, the IGST (Integrated Goods and Services Tax) on their imports during the period between October 13, 2017, and January 9, 2019. The Supreme Court has asked the government to issue a suitable circular regarding taking input tax credit (ITC) of the IGST paid and claiming refund of the same where eligible. Exporters should wait for the circular and then decide on how to pay the IGST and then take ITC and then claim refund of any unutilised credit.
 

Some advocates are of the view that in a revenue neutral situation of taking exemption instead of payment of IGST that is eligible for ITC or refund, any demand for interest can be challenged. Some have also raised the issue of extended period of limitation, as the matter is one of interpretation and not willful default.
 

Many exporters ask whether the pre-import condition can be considered as satisfied when goods imported as partial or full replenishment under one advance authorisation are used in the manufacture of products exported in discharge of obligation against the same or a different authorisation. Well, the notifications prescribe the pre-import condition without any other qualifications. Nonetheless, they should try to club the advanced authorisations and see if treating all the clubbed authorisations as a single authorisation will help them reduce their liability.
 

The pre-import condition applies to imports made without payment of IGST under advance authorisations between October 13, 2017, and January 9, 2019. Exporters complain that some authorities are talking of applicability of the pre-import condition for advance authorisations issued during that period. In fact, redemptions of many advanced authorisations are held up and even the revenue department is raising demands based on such an understanding. It would help if the government clarifies this point so as to avoid confusions at the operating levels.
 

Under Rule 96(10) of the CGST Rules, 2017, many claims for refund have been denied on the grounds that the exporters have used inputs imported without payment of IGST under advance authorisations. Now, payment of IGST on the inputs would make such denials unsustainable. Also, where the exports were made without payment of IGST, the IGST that exporters now pay on imports would be entitled for refund, under Rule 89(4) of the CGST Rules, 2017.
 

Finally, the exporters must appreciate that a bad law need not be illegal and sometimes, it is better to agitate the matter before the  government and get the issue resolved rather than approach the courts.  

Email: tncrajagopalan@gmail.com