This tax alert summarizes a recent ruling of the Supreme Court (SC). The question involved was whether the pre-import condition for claiming exemption of integrated tax and compensation cess on import of goods against Advance Authorisation (AA) is arbitrary and unreasonable.
Gujarat High Court (HC) had struck down the pre-import condition contained in
para 4.14 of Foreign Trade Policy 2015-2020 (FTP). Aggrieved, Revenue preferred
an appeal before the SC.
SC upheld the validity of pre-import condition under Advance Authorization (AA)
scheme on the following grounds:
- Upon introduction of GST,
exporters, through trade notices, were made aware that AA and its
utilization would not continue in the same manner as the AA scheme
operating earlier.
- Para 4.13 of FTP gave powers to
the Directorate General of Foreign Trade (DGFT) to impose pre-import
condition. Also, para 4.27 of Handbook of Procedure (HBP) was amended to
provide that duty free authorization cannot be issued for inputs which are
subject to pre-import condition.
- The exporter’s argument that
there is no rationale for differential treatment of Basic custom duty
(BCD) and IGST under AA scheme is without merit. There is justification
for a separate treatment of the two levies as BCD is a customs levy at the
point of import with no question of credit. On the other hand, IGST is
levied at multiple points (including at the stage of import) and input
credit is available.
- Undue hardship to the taxpayer
cannot be a sufficient ground to hold the insertion of pre-import
condition as arbitrary.
Comments
- Importers may need to examine
the applicability of SC ruling in their case and identify non-fulfilment
of pre-import condition while responding to notices received in this
regard.
- Earlier, the Madras HC in case
of Vedanta Ltd. [2018-VIL-490-MAD] had upheld the pre-import condition
imposed under AA scheme.
- Further, it would be relevant
to determine whether the recovery of integrated tax and compensation cess
should be made under the Customs law or GST law since it may impact the
powers of officer who can initiate the recovery and invoke the limitation
period.
- In case the tax dues are paid
through TR-6 challan, its credit eligibility will need to be analyzed
under the GST law.
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