Analysis of Pre-Import Condition Violation: Chiripal Poly Films Ltd. Judgment

Detailed Analysis of Violation of PRE-IMPORT Condition in light of Recent Judgement of Chiripal Poly Films Ltd

Summary: The Chiripal Poly Films Ltd. case revolves around the alleged violation of the “pre-import” condition as per Notification No. 79/2017-Customs, which was in force from October 13, 2017, to January 9, 2019. Under the Advance Authorisation scheme, duty-free imports were permitted on the condition that imported goods be used in manufacturing export products. The Customs Department claimed that Chiripal Poly Films Ltd. failed to comply with this requirement, leading to demands for IGST, interest, penalties, and redemption fines. However, the company argued that all imports were utilized for exports, thus fulfilling the scheme’s core conditions. The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that interest and penalty provisions of the Customs Act, 1962, cannot be applied to IGST due to the absence of specific provisions in the Customs Tariff Act, 1975. The tribunal also found the demand time-barred and unsupported by evidence of suppression of facts, thus precluding the extended period of limitation. This judgment highlights significant legal nuances but leaves the precise interpretation of the “pre-import” condition unresolved, emphasizing the need for clearer legislative guidelines.

Detailed Analysis of Violation of  PRE-IMPORT Condition  in light of Recent Judgement of Chiripal Poly Films Ltd. delivered by Hon’ble CESTAT, Ahmedabad.

1. Background of Issue of Pre-Import Condition:

The Government has issued Notification No. 79/2017-Customs, dated 13^th Oct, 2017, vide which introduced the condition of “PRE-IMPORT” for availing benefit of IGST on Import of goods against Advance Authorisation.

Further, the Government after realizing commercial difficulties faced by Importer and Trade at large, issued the Notification No.01/2019-Cus dated 10.01.2019 was issued wherein the pre-import condition was deleted.

Thus, the Condition of Pre-Import condition existed between 13^th Oct-2017 to 9^th -Jan-2019.

The condition of Pre-Import as alleged by department that exporter should first import the goods and use such goods in Manufacturing and then export the goods.

2. Brief Facts of the Case : Chiripal Poly Films Ltd.-

The appellant, Chiripal Poly Films Ltd, imported goods under the Advance Authorisation scheme, which allowed duty-free imports on the condition that the imported goods are used for manufacturing export products.

The dispute arose regarding the alleged violation of the “Pre-Import Condition” imposed by Notification No.18/2015-Cus dt. 1.4.2015 issued u/s 25(1) of Customs Act.

The said Notification No. 18/2015-Cus was amended by Notification No.79/2017-Cus on 13.10.2017 allowing such exemption, subject to ―PRE-IMPORT condition against producing a valid Advance Authorisation issued by Regional DGFT Authority in terms of paragraph 4.03 of Foreign Trade Policy, from the whole of duty of customs leviable, which is specified in the First Schedule to Customs Tariff Act 1975 and from the whole of additional duty, safeguard duty, transitional product specific safeguard duty and antidumping duty leviable, respectively, under sections 3, 8B, 8C and 9A of Customs Tariff Act 1975.

The Said notification stipulated that goods imported under this scheme must be physically incorporated into export products without being used in the domestic market. The appellant was subsequently issued show-cause notices demanding duty, interest, and penalties for the alleged violations.

The Appellant has paid IGST (Duty) and contested for Interest, Penalty and redemption fine.

3. Case of the Department

The Department argued that the appellant violated the pre-import condition by not fulfilling the requirement that the imported goods must be used directly in the production of export goods.

This violation allegedly rendered the duty exemption invalid, necessitating the payment of IGST, interest, redemption fine, and penalties under various sections of the Customs Act, 1962, and the Customs Tariff Act, 1975.

4. Arguments by Appellant:

The appellant contended that:

• All imported goods were utilized in manufacturing export products, complying with the core conditions of the Advance Authorisation scheme.
• There was no statutory provision under the Customs Tariff Act, 1975, specifically Sections 3(7) and 3(12), for imposing interest, redemption fines, and penalties for delayed IGST payment.
• The demand for interest and penalties was not sustainable as it was a revenue-neutral situation where the IGST paid could be claimed as input tax credit (ITC).
• There was no intent to evade duty, and the invocation of the extended period of limitation under Section 28(4) of the Customs Act, 1962, was unjustified.

5. What is Held by Tribunal

The Court held that:

• The interest and penalty provisions of the Customs Act, 1962, could not be applied to IGST levied under the Customs Tariff Act, 1975, due to the absence of specific charging provisions for such levies in the latter Act.
• The imposition of interest, penalties, and redemption fines was not justified in the absence of clear statutory authority.
• The demand was time-barred as there was no suppression of facts by the appellant, and the entire situation was revenue-neutral.

6. Judgement Relied Upon

The Court relied upon several judgements, including:

• Mahindra & Mahindra Ltd. vs. Union of India (2022) 10 Tax Management India 212 – Bombay High Court, upheld by the Supreme Court
• CCE Surat vs. Ukai Pradesh Sahkari Khand Udyog Mandli Ltd. (2011) 271 ELT 32 (Guj.)
• DEVI DASS GOPAL KRISHAN LTD vs UOI – 2002 (140) E.L.T. 56 (P & H)
• Indo Swiss Embroidery Industries Ltd vs CCE, Vapi-2017 (356) E.L.T.
• 226 (Bom.)
• Sterlite Optical Technologies Ltd. V/s. CCE, Aurangabad 2011 (270) ELT 266 (Tri-Mum),
• Emcure Pharmaceuticals Ltd. 2014(307) ELT 180, and
• M/s. Madhu Silica Pvt. Ltd-2016 (344) E.L.T. 1072 (Tri. – Ahmd.)

Various other decisions supporting the principle of revenue neutrality, Extended period cannot be invoked.

7. Conclusion and Way Forward

The issue at hand pertains to the violation of the pre-import condition as stipulated in Notification No. 79/2017 Customs, dated 13th October 2017, which is currently under investigation by the Customs Department. This investigation has gained further momentum following the recent judgment by the Hon’ble Supreme Court in the case of Cosmo Films Ltd., where the Apex Court upheld the validity of the pre-import condition

In the present case, the appellant contended with issues concerning interest, penalty, and fine, while the levy of duty was not contested since the duty had already been paid. The core of the argument did not delve into the interpretation of the “pre-import” condition, a term notably absent from the explanatory scope of the notification. This omission necessitates a meticulous examination of relevant documents by importers under investigation to substantiate their compliance with pre-import conditions.

It is imperative to elucidate the essence of the “pre-import” condition to the authorities, as the department’s interpretation appears to conflict with the objectives and intent of the Advance Authorization (AA) Scheme, potentially rendering the scheme ineffective.

The recent Order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) sets a significant precedent regarding matters involving interest, penalty, and fine. However, the tribunal did not address the definition of the “pre-import” condition, leaving this area open to interpretation.

Importantly, the tribunal determined that there was no suppression by the appellant, thereby precluding the invocation of the extended period under the statute of limitations.

This judgment is pivotal as it offers much-needed clarity on the legal and procedural nuances pertaining to interest, penalty, fine, and the limitation period. Nevertheless, the issue of defining “pre-import” remains unresolved.

The ruling underscores the necessity for precise legislative provisions and highlights the importance of judicial discipline in the interpretation and application of tax laws – expressio unius est exclusio alterius (the express mention of one thing excludes all others).

For further understanding of the legislative history and details regarding the issue of violation of the PRE-IMPORT condition, you may follow the link below:

Violation of Pre-Import Condition: A Never-Ending Tale