What could be seen as major relief for the exporters, the Gujarat High Court has struck down the October 2017 notifications of the Central Board of Indirect Taxes & Custom (CBIC) and correspondingly by the Directorate-General of Foreign Trade (DGFT) prescribing pre-import conditions to avail I-GST (Integrated Goods and Services Tax) exemption.

The ruling will bring clarity on liquidity issue being faced by the exporters. “The Gujarat High Court, through a landmark decision pronounced in various cases, put a permanent end to this misery by striking down the pre-import condition as arbitrary, ultra-vires and violative of the Constitution,” Abhishek A Rastogi, Partner at Khaitan & Company, who argued in this matter, said.

Commenting on the decision, Ajay Sahay, Director-General at FIEO, said, “This will end all doubts on the liquidity issue during the intervening period between October 2017 and January 2019).”

The CBIC notification dated October 13, 2017, prescribed certain conditions, which in practical term denied benefits to exporters who import input goods after their finished products are exported. This notification was challenged in the High Court. Though, the Finance Ministry did issue another notification in January this year to remove pre-import condition and include specified deemed export supplies for exemption from integrated tax and compensation cess for materials imported against Advance Authorisations and Advance Authorisations for Annual Requirement. However, this relief was given prospectively while demand was to allow relief from October 2017 itself.

Accordingly, the petitioners continued challenging the issue in the High Court. It was said that exporters importing duty-free items under Advance Authorisation licences have been going through unfair and undue hardships ever since the GST introduced from July 1, 2017.

Advance Authorisation

While BCD (Basic Customs Duty) exemptions continued under GST, the Government did not extend the exemption to IGST on imports under Advance Authorisation. Though, the Government extended exemption to IGST as well, when imported against valid Advance Authorisation licences but with ‘pre-import’ condition. The petitioners argued that the ‘conditions were arbitrary and violative of Article 14 of the Constitution.’

Rastogi said the imposition of ‘pre-import’ condition on imports made under Advance Authorisation licences by the Government on October 13, 2017 was causing enormous hardships to exporters. Advance authorisation licences are issued to allow duty-free import of inputs, which are used to make finished products for export. There was no such condition imposed on the scheme in the pre-GST period. Change in the condition meant that imports done after exports cannot avail exemptions from IGST and compensation cess. The Directorate of Revenue Intelligence (DRI), the anti-smuggling agency, started issuing show-cause notices to exporters for wrongfully availing of exemptions in cases where their exports preceded imports. They were asked to pay IGST in cases where raw material was imported only after goods were partially or fully exported. Now, after the ruling, exporters will not face such problems.

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