1. Pre-import condition (i.e. import first and then export) was inserted in Notification No. 18/2015 – Customs (as condition no. (xii)) as well as Notification No. 20/2015 – Customs (as condition no. (xiii)) vide Notification No. 79/2017 – Customs dated 13-10-2017. Said condition was required to be met if IGST exemption was claimed on imports made against Advance Authorization. Now vide Notification No. 01/2019 – Customs dated 10.01.2019 said condition has been removed. The relevant text of the said Notification is reproduced below:
“(c) condition (xii) shall be omitted.” – Sr. No. 1 (with respect to Notification No. 18/2015 – Customs)
“(c) condition (xiii) shall be omitted.” – Sr. No. 2 (with respect to Notification No. 20/2015 – Customs)
2. It is noteworthy to observe that the pre-import condition has been “omitted”. Hence following two questions shall arise for our deliberations:
a) Whether the said omission can be said to take effect from 13.10.2017 (date from which pre-import condition was imposed) or from 10.01.2019 (date of notification) ? and
b) Whether the department can initiate any action on or after 10.01.2019 to recover the IGST (claimed exempt before 10.01.2019) on account of violation of pre-import condition ?
Let us explore both the issues.
3. As far as the fiscal legislation is concerned, it is cardinal principle (see Govinddas v. Income Tax Officer AIR 1977 SC 552) that a provision which affects existing rights or creates a new obligation is always presumed to be prospective unless the same is unambiguously worded to be applied retrospectively (assuming that it does not offend Article 14 of the Constitution). But in the situation before us, the Notification in question is in fact reducing an obligation (pre-import) and not creating one. Can it then be said to apply retrospectively ?
DOCTRINE OF FAIRNESS IN THE CONTEXT OF RETROSPECTIVITY
4. The doctrine of fairness (basis of every legal rule should be no more than simple fairness) in the interpretation of statute is based on the legal maxim “Secundum subjectam materiam”. The said latin phrase means that the interpretation should be “according to the subject matter or the context involved”. It has been held by the Apex Court in the case of Vijay v. State of Maharashtra (2006) 6 SCC 289 invoking the doctrine of fairness that when a new law is enacted for the benefit of the community as a whole, even in absence of a provision the statute may be held to be retrospective in nature. Hence retrospective application has to be decided considering the intent, nature of rights affected and the circumstances under which the statute is passed (elements for judging the fairness).
5. With the above background, it can be contended that the pre-import condition was not serving the interest of the industry as well as the Government. From the perspective of the industry, it becomes very difficult to gauge the possibility of exports (for fulfilling the obligation) post the import of inputs. Any shortfall in fulfilment of the export obligation is met with severe consequences. Even from the perspective of the Government, revenue is better protected if the industry makes exports first (and hence create a right to claim the benefits) and then do imports. Seen in this light, the removal of pre-import condition is for the benefit of the industry at large and hence can be argued to be applied retrospectively invoking the doctrine of fairness.
SAVINGS CLAUSE
6. Another question formulated earlier deals with the issue of whether the department can initiate any action on or after 10.01.2019 to recover the IGST (claimed exempt before 10.01.2019) on account of violation of pre-import condition ?
7. Under the common law rule (before our independence) the consequences of repeal of a Statute were very drastic. On repeal of a Statute, it gets obliterated as if it had never been enacted. Hence repeal of a Statute shall destroy all the causes of action (including initiation of proceedings) which could have arisen under the repealed Statute. To avoid such catastrophe, a practice of inserting savings clause in the repealing Statutes was followed. Later on to obviate the need of inserting a savings clause in each and every repealing Statue, a general provision was made in Sec. 38(2) of the Interpretation Act, 1889 (U.K. Act). A similar provision was made in India as Sec. 6 of the General Clauses Act, 1897. Said provision reads as under:
“Sec. 6. Effect of repeal – Where this Act, or any Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not-
(a) revive anything not in force or existing at the time at which the repeal takes effect; or
(b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or
(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or
(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or
(e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid;
and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.”
8. Plain reading of the above provision suggests that repeal of any enactment shall not affect the obligations or liabilities incurred under the repealed enactment.
OMISSION V. REPEAL
9. Apex Court in the case of Rayala Corporation v. Director of Enforcement AIR 1970 SC 494 followed by the case of Kolhapur Cane Sugar Works Ltd. v. Union of India AIR 2000 SC 811 (both Constitution Bench decisions) held that provisions of the General Clauses Act (referred above) only applies to Central Act or regulation and not to the rules. Hence Sec. 6 shall not apply to cases where a rule is repealed by another rule. An additional observation was also made in the referred cases that “repeals” & “omissions” are different and hence Sec. 6 shall not apply to the cases of “omissions”. Although the said view of the Apex Court was doubted subsequently in the case of General Finance Co. v. Assistant Commissioner of Income Tax AIR 2002 SC 3126, three judge bench of the Apex Court however followed the earlier decisions and did not refer the issue to a larger bench. Hence as of today, the above referred view of the Apex Court holds the ground.
10. With the above background, we must now consider whether the omission of pre-import condition can be said to be a repeal by the Central Act or the Regulation so as to apply the savings clause contained in Sec. 6 of the General Clauses Act, 1897.
11. Pre-import condition was inserted by the Government vide Notification No. 79/2017 – Customs by exercising the powers granted by Sec. 25(1) of the Customs Act, 1962. Said provision enables the Government to issue a notification granting such exemptions as deemed fit. Can an omission of any condition in the Notification issued u/s 25 by another Notification be said to be a repeal by any Central Act or Regulation ?
12. The answer seems to be no. This is because the Notification issued to omit the pre-import condition cannot be regarded as a “Central Act”. The term “Central Act” has been defined u/s 3(7) of the General Clauses Act, 1897 as under:
“(7) “Central Act” shall mean an Act of Parliament, and shall include –
(a) an Act of the Dominion Legislature or of the Indian Legislature passed before the commencement of the Constitution, and
(b) an Act made before such commencement by the Governor-General in Council or the Governor-General, acting in a legislative capacity”
13. A Notification issued by the Government by exercising the powers u/s 25(1) of the Customs Act, 1962 omitting the pre-import condition cannot be regarded as a Central Act since the same is not an Act of Parliament. As held in the case of Rayala Corporation (supra), an omission of a certain Rule by issuance of a Notification by the Central Government cannot be considered as a repeal by a Central Act or Regulation so as to apply the savings clause contained u/s 6 of the General Clauses Act, 1897. In the present case also, omission of pre-import condition by issuance of a Notification cannot be regarded as repeal by a Central Act so as to apply the savings clause contained u/s 6.
14. Further the word “regulation” has been defined u/s 2(35) of the Customs Act, 1962 to mean the regulations made by the Board. Board has been granted powers to make the regulations u/s 157 of the said Act. Hence a notification omitting the pre-import condition, being issued u/s 25(1), cannot be treated as an amendment by way of a regulation. Hence it is submitted that the savings clause contained u/s 6 of the General Clauses Act, 1897 cannot be applied to the present Notification omitting the pre-import condition.
15. It must also be noted that in the case of Rayala Corporation (supra) omission was made of the Rule with a savings clause and still the Apex Court held that “omission” is different from “repeal” and hence even on this ground savings clause contained u/s 6 of the General Clauses Act, 1897 cannot be applied. Present issue stands on a far stronger footing since the “omission” of pre-import condition is not expressly with the savings clause.
CONCLUSION
16. On the basis of the above discussions one will appreciate that the retrospective applicability of the omission of the pre-import condition can be contended. However the said contentions are not free from doubts. Author thus hopes that the Government should issue a favourable clarification in this regard. This shall go a long way in avoiding the disputes.
(views are strictly personal)
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