In a telling judgment, the Gujarat high court has, in the case of Maxim Tubes Company and Others vs Union of India, struck down the pre-import condition under the Advance Authorisation Scheme (AAS).
The verdict says the said condition in paragraph 4.14 of the Foreign Trade Policy (FTP) 2015-2020, inserted by Notification 33/2015-2020 and via clause (xii) in Notification 18/2015-Cus vide Notification 79/2017-Cus, both dated October 10, 2017, are ‘ultra vires’ (the phrase for something done beyond one’s power to so act or authorise) the AAS as contained in the FTP and in the provisions of the Handbook of Procedures. So, all proceedings initiated for violation of this pre-import condition “would no longer survive”.
When the Goods and Services Tax (GST) was introduced in July 2017, the central government summarily dismissed the representations of exporters and imposed Integrated GST (IGST) on all goods imported under advance authorisation. This resulted in blockage of working capital, a problem that worsened with the system glitches that delayed refund of the IGST paid on export goods.
So, in October 2017, the government granted IGST exemption for import under advance authorisation but tagged this with a wholly unrealistic and irrational ‘pre-import’ condition. It meant those who had already shipped goods in discharge of their export obligation by using duty-paid inputs were also required to pay IGST on import made in replenishment of such inputs. For 15 months, the government turned a deaf year to representations from exporters, before removing the pre-import condition in early January 2019.
Meanwhile, the department of revenue intelligence (DRI) had issued notices to many exporter,s placing wholly unsustainable and cavalier interpretations to the exemption notification and demanding payment of IGST on their import, along with interest. DRI also issued summons as a first resort, asking exporters to appear before it in Kolkata, and used high-handed methods to pressurise them to pay IGST and interest.
It also recorded statements from exporters to suit its own convenience, with a view to initiate proceedings for recovering IGST and interest on their import. Many exporters succumbed to the demands, incurring heavy cost in the process of falling in line. The GST laws do not specifically allow input tax credit against payment made through challans. So, exporters got their bills of entry re-assessed, a process involving the discretion of officers and consequent cost. Many who paid up have taken input tax credit of the IGST, adding to the unutilised credit in their books. Smaller exporters suffered more, some even deciding to cut their export.
Some exporters, however, approached the courts for relief and obtained stay orders, restraining coercive recovery by DRI. In the case of Vedanta Ltd, the decision of the Madras High Court went against the exporter. On appeal, that decision has been stayed. The Gujarat HC has, after taking that judgment into account, come to a different conclusion.
Now that the government has admitted its mistake by removing the pre-import condition, it should not hesitate to accept this reasoned and detailed judgment which stroke down the pre-import condition from the time it was imposed. It should also prescribe a procedure to refund the interest collected wrongfully. It should consider refund of IGST against suitable evidence that the exporter has not taken input tax credit of the same.
via Court orders halt to arbitrary govt | Business Standard Column