Background
The role of import and export in the growth of an economy cannot be overstated. They are vital components in the development of any nation, facilitating the flow of goods, services, technology, and capital. Trade policies and laws are crafted to promote fair trade and economic growth. However, any policy or law that inadvertently hampers import and export can significantly impact a country’s economic trajectory. Such outcomes are rarely the intent of the government, whether knowingly or unknowingly.
The Pre-Import Condition: Notification 79/2017 of Customs Dated 13-10-2017
The Government has issued Notification No. 79/2017-Customs, dated 13th Oct, 2017, vide which introduced the condition of “PRE-IMPORT” for availing benefit of IGST on Import of goods against Advance Authorisation.
It is totally incomprehensible as to why this PRE-IMPORT condition was inserted at the first instance particularly in the light of the fact that previously, all the duties have been exempted under the Advance Authorization Scheme. Further, once the Government realized the absurdity, the Notification No.01/2019-Cus dated 10.01.2019 was issued by deleting the pre-import condition. I
The condition of Pre-Import as understood by department is the exporter should first import he goods and use such goods in Manufacturing and then export the goods. The department’s understanding was to ensure compliance and prevent misuse of the exemptions. However, this pre-import condition has led to numerous disputes and litigations, highlighting its complex and often contentious nature.
Investigation by Department
The importer and holder of Advance Authorization had imported goods under the Advance Authorization Scheme by availing the exemption from IGST without understanding the significance of “Pre-Import” condition.
As a matter of fact, some of the exporters had already exported the goods and had imported the goods subsequently in accordance with the prevailing practice. The DRI have observed this violation and after analyzing the contravention of the said pre-import condition, the DRI and other Customs authorities started investigations in the matter.
Significance of Apex Court Judgement in case of Cosmo Films Ltd.
The said matter travel to Supreme court and Judgment in Civil Appeal No. 290 of 2023, in case of Cosmo Films Ltd., is delivered by Apex court.
The Supreme Court, held that the pre-import condition laid down in Notification 79/2017 Customs dated 13-10-2017 was valid. The court observed that the notification’s intent was to ensure the genuineness of the transaction and prevent misuse of exemptions.
Key highlights of the judgment include:
1. Validation of the pre-import condition, ensuring compliance with the statutory framework.
2. Acknowledgment of the revenue-neutral nature of IGST paid on such imports.
3. Clarification on the eligibility of input tax credit (ITC) for IGST, emphasizing that the ITC is allowable despite the pre-import condition.
This judgment has far-reaching implications, particularly on the IGST already paid under disputed imports, reinforcing the principle of revenue neutrality and the right to ITC.
Circular No. 16/2023-Cus: Key Highlights
The issuance of Circular No. 16/2023-Cus dated 7th June 2023, further clarifies the department’s stance on the pre-import condition. Key notes from the circular include:
1. Emphasis on compliance with the pre-import condition as stipulated in Notification 79/2017.
2. Guidance on procedural adherence for importers to avail exemptions.
3. Reinforcement of the department’s commitment to preventing misuse of exemptions while ensuring legitimate trade practices are not unduly hampered.
Analysis by author:
A. The word Pre-Import is not defined in said notification.
The Supreme Court’s judgment has not laid down new law but has validated the pre-import condition under Notification 79/2017-Customs.
B. The extended period cannot be invoked, hence notice cannot be issued within 2 years from date of Import
Under Section 28 of Customs Act, 1962 the Show cause notice are issued for “Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded”, there is two time limit are prescribed in which are as below
Section 28(1)(a) of the Customs Act, 1962 the time limit to issue a show cause notice is two years for any reason other than the reasons of collusion or any wilful mis-statement or suppression of facts and under section 28 (4) of Customs Act, 1962 the time limit of issuance of show cause notice is five years where reason is collusion or any wilful mis-statement or suppression. Given that the issue at hand is bonafide, the relevant date for considering the time limit is the date of import and not the date of the Supreme Court’s judgment. Thus, the time limit for issuing a fresh show cause notice is already elapsed, rendering any such action time-barred.
Moreover, the Supreme Court’s allowance of ITC on IGST paid underscores the principle of Revenue neutrality. Given this, the extended period for invoking demands cannot be justified.
C. DRI does not have jurisdiction to issue SCN under section 28 of Customs Act.
The Hon’ble Supreme Court in the judgment of Canon India Pvt. Ltd. v. Commissioner of Customs, 2021 (376) ELT 3 (SC) has held that the preventive officers are not ‘THE PROPER OFFICER’ to issue show cause notice under Section 28 of the Customs Act hence DRI does not have jurisdiction to issue SCN under section 28 of Customs Act.
D. Violation of Doctrine of Comity
Further The amendments made in the Customs Act vide Finance Act, 2022 continue to violate the principle of comity.
E. Conclusion
In conclusion, while the pre-import condition under Notification 79/2017 has been validated by the highest court, the practical implications, procedural compliance, and the need for clear guidelines remain critical. The interpretation of the department is against the object and purpose of AA Scheme and would result in redundancy of the scheme.
The onus is on the authorities to ensure that genuine trade practices are not adversely affected while safeguarding against misuse. The legal community and tax professionals must navigate these complexities with an informed understanding of the law and judicial pronouncements.
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