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Cus - By not allowing exemption of IGST at time of import, no benefit in AA scheme is altered - choice of policy is for decision maker, Government, and not for Court: HC

Published: Nov 01, 2018

By TIOL News Service

CHENNAI, NOV 01, 2018: PRIOR to the introduction of GST on 01.07.2017, duty free exemption under Advance Authorizations (AA) issued, was available to most/all the duties leviable at the point of import and the same was governed by Notification No 18/2015-Customs dated 01.04.2015.

With the advent of the GST regime, the exemption to IGST/ Compensation cess portion of import duties leviable respectively under Sec 3 (7) and 3(9) of the Customs Tarrif Act got withdrawn to the AA holders. This change was given effect by Notification No 26/2017–Cus dated 29.06.2017 that amended the parent notification No. 18/2015-Customs.

For administrative exigencies, the relief in respect of this portion of taxes are extended as Input Tax Credits which can be utilized for paying taxes on finished goods or shall be drawn as refund in the event they are exported.

In other words, the full exemptions enjoyed by the petitioners against the AAs continued for all import duties at the point of import except for the GST Component of import duties, where the exemption is deferred to a later date. The new regime required the importers to first pay IGST at the time of Imports and then offset the same as Input Tax Credit if used in the manufacture.

Be that as it may, on 13.10.2017, vide notification No. 79/2017 the IGST exemption at the time of import was restored temporarily up to 31.03.2018 by suitable amendment to the parent notification No 18/2015-Cus that was further extended up to 30.09.2018 vide notification no 35/2018-Cus dated 28.03.2018. [Note that this exemption has been extended till 31.03.2019 by notification 66/2018-Cus.]

The restoring of the exemption to the IGST portion of import duties and taxes, however, was subject to two conditions viz.

i. The export obligation shall be fulfilled by physical exports only.

ii. That the exemption from IGST is subject to pre-import condition.

In effect, the exemption to IGST and compensation cess on imported goods under AAs was completely unavailable with the advent of GST regime and the same was temporarily restored for the period from 01.10.2017 to 30.09.2018 through an array of notifications issued under DGFT and Customs with conditions and with sun set clauses.

The petitioner contends that the aforesaid amendments are inter alia arbitrary, unconstitutional and violative of Article 14 of the Constitution of India and seek for quashing of the same.

The High Court considered the submissions and inter alia observed thus -

+ A harmonious reading of the above provisions together with the concepts of physical export and actual user condition indicate that pre-import simply means import of raw materials before export of the finished goods to enable the physical export and actual user condition possible and negate the revenue risk that is plausible by diverting the imported goods in the local market.

+ In the perspective of revenue risk, it is not out of place to point out that the eligibility of AAs is determined on the basis of SION Norms or self declaration of the licence holder which may not reflect the actual quantity of inputs gone into the manufacture of exported goods on a case by case basis.

+ A careful reading of the Foreign Trade policy indicates that the actual user condition or physical export is imposed with an intention not to allow diversion of imported raw materials to the local market apparently on the prudence that allowing the same is fraught with revenue risks.

+ Post export AA can act as a conduit for substituting local raw materials into manufacturing export goods and for diverting the imported inputs in the local market and that is sought to be negated by the flurry of the notifications issued consequent to the implementation of GST.

+ It is clearly the policy of the government and it is the same to all the tax paying assesses/exporters of the same class and not discriminatory.

+ The Advance Authorization scheme for post export benefits in the GST regime does not allow exemption from IGST at the point of import. While DFIA is specifically a post export scheme that is tailored to the likes of the petitioner.

+ It is not open for the petitioner to chose one scheme and insist the government to modify that scheme to its convenience . Least, the Court can be persuaded to interfere with the policy matters of the government, particularly when the government is better placed to take the decisions in the matter involving revenue risks.

+ What is disallowed to the petitioner and allowed to others of the same class should be demonstrated by the petitioner. That is the test for arbitrariness. The petitioners had no occasion to demonstrate their case in the test of arbitrariness.

+ Needless to mention, GST laws are a self contained legislations. The laws were promulgated after necessary constitutional amendments. The preposition that the GST levy subsumes the erstwhile levies of CVD and SAD in lieu of Excise duty and VAT can be of no avail to the petitioner. More so, the petitioner is estopped from claiming relief in view of Para 4.02 of the FTP that AAs are issued in accordance with the policies and procedures in force as on the date of the issue of Advance Authorization.

+ Even by not allowing exemption of IGST at the time of import, no benefit in the AA scheme is altered by the Government, though collateral costs get fastened on the petitioner and the likes by way of blockages in cash flow and attendant interest liabilities. And clearly, it is a matter of public policy. And rightly, the choice of policy is for the decision maker, in this case, the Government, to make and not for the Court . Nor has it been established before this court that the decision suffers from perversity, irrationality or arbitrariness.

The Writ Petitions were dismissed.

(See 2018-TIOL-153-HC-MAD-GST)