In a landmark ruling earlier this month, the Gujarat High Court set aside a government notification under the Foreign Trade Policy (FTP) allowing the Directorate of Revenue Intelligence (DRI) to penalise exporters for wrongfully availing GST exemption in cases where exports preceded imports.
Amendments made to the Goods and Services Tax (GST) rules implemented from July 2017, and to the FTP, made by the Commerce Ministry notification later that year, brought in a "pre-import" condition that every exporter holding advance authorisation licences must follow to avail duty exemptions.
The government's Advance Authorisation Scheme, prior to its amendment, allowed duty-free import of inputs which are physically incorporated in export products.
In the pre-GST period, the advance authorisation licence allowed an exporter to import raw materials used for manufacturing exported goods without payment of taxes on import of raw material used for past exports.
With amendments introducing the pre-import clause, exemption on Intergrated GST (IGST), applicable on inter-state transactions, came to be denied to those imports which had taken place after exports.
Exporters in various states approached the courts last year after more than a hundred of them received DRI notices of wrongfully claiming IGST exemption in cases where exports preceded imports, and which said the exporters must pay IGST first as per the amended FTP.
The exporters argued in the petition that the "pre-import condition" introduced post-GST violates Article 14 of the Constitution which relates to equality before the law "to the extent that it creates an artificial discrimination between exporters who proactively fulfil their export obligations prior to import of goods (i.e. import for the purpose of replenishment of stocks) vis-a-vis other assessees."
The petitioners also submitted that policy or executive decisions are not beyond the pale of judicial scrutiny.
Setting aside the October 2017 notification, which amended the FTP regulated by the Foreign Trade Development and Regulation Act, as being ultra vires of the Constitution, the Gujarat High Court struck down the Commerce Ministry's specific linkage with end-use and has restored the status quo ante to when there was no duty if imported raw materials were used for exports, even where the export of goods preceded imports.
"The 'pre-import condition' contained in paragraph 4.14 of the Foreign Trade Policy, 2015-2020, inserted vide Notification No.33/2015-2020 dated 13.10.2017 and inserted vide... are hereby struck down as being ultra vires the Advance Authorisation Scheme as contained in the Foreign Trade Policy, 2015-2020 as well as the provisions of the Handbook of Procedures," the Court order said.
"Consequently, all proceedings initiated for violation of "pre-import condition" would no longer survive," it added.
According to experts, the pre-import condition opens the way to interpretation and discretionary powers to officers of DRI, the government's anti-smuggling intelligence agency.
"The term 'pre-import' was not defined in the notification. The authorities, including the DRI, narrowly interpreted this condition to mean that the export obligation should be fulfilled only after all imports under the advance authorisation licence are completed and that there should be a one-to-one correlation between imports and exports," Khaitan & Co, which is arguing various writ petitions on behalf of exporters, said in a note.
"This condition was challenged in various courts and we obtained interim relief in a few petitions.
The government in a notification last month removed the "pre-import" condition prospectively.
"It is hoped that the government issues appropriate amendment/clarification so that the 'pre-import' condition is made redundant since its very inception," the exporters' solicitors said.
Earlier, the Delhi High Court had allowed exporters to import raw materials used for exported goods.
--IANS
bc/rs/nir
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