SUPREME COURT FINDINGS ON PRE-IMPORT CONDITIONS & IGST EXEMPTIONS

SUPREME COURT FINDINGS ON PRE-IMPORT CONDITIONS AND IGST EXEMPTIONS: SUPREME COURT

REPORTABLE

IN THE SUPREME COURT OF INDIA

UNION OF INDIA AND ORS.

Vs.

COSMO FILMS LIMITED

(Civil Appeal No. 290 of 2023)

Date of Judgment-28 April, 2023

HEADNOTE-

Foreign Trade Policy (FTP) 2015‑2020 – Advance Authorisation Scheme – IGST & Compensation Cess Exemption – Validity of Pre‑Import Condition – Notifications No. 79/2017‑Customs and No. 33/2015‑2020 introduced a pre‑import condition for exemption of IGST and compensation cess on inputs imported under Advance Authorisation. Gujarat High Court decision struck down the condition as arbitrary. Held: The Impugned judgments and orders of the Gujarat High Court are set aside. The Revenue’s Appeals are allowed. 

IMPORTANT PARAS-

PARA 1. These appeals are directed against a judgment and order of the Gujarat High Court,1 wherein mandatory fulfilment of a ‘pre-import condition’2 incorporated in the Foreign Trade Policy of 2015-2020 (“FTP”) and Handbook of Procedures 2015-2020 (“HBP”) by Notification No. 33 / 2015-20 and Notification No. 79 / 2015-Customs, both dated 13.10.2017, was set aside. According to the High Court, such fulfilment in order to claim exemption of Integrated Goods and Services Tax (“IGST”)3 and GST compensation cess4 on input imported into India for the production of goods to be exported from India, on the strength of an advance authorization5 (“AA”) was arbitrary and unreasonable.

Para 62. In this court’s opinion, the introduction of the ‘pre-import condition’ may have resulted in hardship to the exporters, because even whilst they fulfilled the physical export criteria, they could not continue with their former business practices of importing inputs, after applying for AAs, to fulfil their overseas contractual obligations. The new dispensation required them to pay the two duties, and then claim refunds, after satisfying that the inputs had been utilized fully (wastage excluded) for producing the final export goods. The re-shaping of their businesses caused inconvenience to them. Yet, that cannot be a ground to hold that the insertion of the ‘pre-import condition’, was arbitrary, as the High Court concluded. It was held, in Rohitash Kumar & Ors. v Om Prakash Sharma & Ors that inconvenience or hardship is not a ground for the court to interpret the plain language of the statute differently, to give relief.

“In Mysore SEB v. Bangalore Woolen Cotton & Silk Mills Ltd. AIR 1963 SC 1128 a Constitution Bench of this Court held that, “inconvenience is not” a decisive factor to be  considered while interpreting a statute. In Martin Burn Ltd. V. Corpn. Of Calcutta AIR 1966 SC 529, this Court, while dealing with the same issue observed  as under: (AIR p. 535, para 14)

“14. . A result flowing from a statutory provision is never an evil. A Court has no power to ignore that provision to relieve what is considers a distress resulting from its operation. A statute must of course be given effect to whether a court likes the result or not.” 

26. Therefore, it is evident that the hardship caused to an individual, cannot be a ground for not giving effective and grammatical meaning to every word of the provision, if the language used therein is unequivocal.”

        Again, in State of Madhya Pradesh v Rakesh Kohli it was observed that the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as Parliament and State Legislatures and that “hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law.” 

Para 69. The object behind imposing the ‘pre-import condition’ is discernible from paragraph 4.03 of FTP and Annexure-4J of the HBP; that only few articles were enumerated when the FTP was published, is no ground for the exporters to complain that other articles could not be included for the purpose of ‘pre-import condition’; as held earlier, that is the import of paragraph 4.03 (i). The numerous schemes in the FTP are to maintain an equilibrium between exporters’ claims, on the one hand and on the other hand, to preserve the Revenue’s interests. Here, what is involved is exemption and postponement of exemption of IGST, a new levy altogether, whose mechanism was being worked out and evolved, for the first time. The plea of impossibility to fulfil ‘pre-import conditions’ under old AAs was made, suggesting that the notifications retrospectively mandated new conditions. The exporter respondents’ argument that there is no rationale for differential treatment of BCD and IGST under AA scheme is without merit. BCD is a customs levy at the point of import. At that stage, there is no question of credit. On the other hand, IGST is levied at multiple points (including at the stage of import) and input credit gets into the stream, till the point of end user. As a result, there is justification for a separate treatment of the two levies. IGST is levied under the IGST Act, 2017 and is collected, for convenience, at the customs point through the machinery under the Customs Act, 1962. The impugned notifications, therefore, cannot be faulted for arbitrariness or under classification.