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Tax Insights
26 September 2023
Pre-import condition in AAS – DGFT clarifies applicability to specified cases
In brief
Prior to July 2017, unconditional exemption from applicable customs duty was extended on imports under the Advance Authorisation Scheme (AAS). With the introduction of GST in 2017, initially, no exemption from Integrated Goods and Services Tax (IGST) (which subsumed the additional customs duty and additional duty of customs) and compensation cess was extended under the AAS. However, in October 2017, the exemption notif ication for AAS was amended with other exemption notifications, to allow exemption from IGST and compensation cess subject to meeting the export obligation through physical exports, and the said exemption being subject to the ‘pre-import’ condition. A corresponding amendment to introduce the ‘pre-import’ condition in the AAS was made effective in the Foreign Trade Policy 2015-20 (FTP) as well.
The Directorate General of Revenue Intelligence, Kolkata (DRI) initiated investigation vis-à-vis the compliance with the ‘pre-import’ condition in relation to the exemption claimed from IGST and compensation exemption on imports under the AAS. Aggrieved by the interpretation of the DRI, the trade approached the Gujarat High Court f or requisite relief. The Gujarat High Court, after going through the submissions of the appellant and the
Revenue, held1 that the amendments effected did not meet the test of reasonableness and are ultra vires the FTP, and extended relief.
However, the government, aggrieved by the Gujarat High Court decision1, filed an appeal before the Supreme Court2. The matter was considered based on the submission on behalf of the government, and trade and the Supreme Court allowed the appeal by setting aside the Gujarat High Court decision1. Moreover, the Supreme Court, pursuant to the interim order prior to its decision, directed the Revenue to allow refund or credit on merits f or which guidance is to be issued and directed trade to approach the jurisdictional customs authorities within six weeks from the date of the decision.
Pursuant to the above direction, in June 2023, the Central Board of Indirect Taxes and Customs (CBIC) had issued a circular3 implementing the Supreme Court decision on the refund and credit of the IGST paid by the trade against imports made against Advance Authorisation where the ‘pre-import’ condition is not satisfied as per the Supreme Court’s decision2. Based on the directions of the CBIC, the Directorate General of Foreign Trade (DGFT) also issued a Trade Notice4, with the direction that all the imports made under AAS on or after
1 Maxim Tubes Company Private Limited v. Union of India, 2019 (368) E.L.T. 337 (Gujarat)
2 Union of India and Others v. Cosmo Films Limited (2023-TIOL-45-SC-CUS)
3 Circular No . 16/2023-Cus dated 7 June 2023
4 Trade Notice No. 07/2023-24 dated 8 June 2023
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13 October 2017 upto and including 9 January 2019, which could not meet the pre-import condition, be regularised in terms of the guidelines issued by the CBIC.
However, difficulties are being faced by the Regional Licensing authorities in determining the treatment to be extended to specific import and export scenarios for the period mentioned in the Trade Notice. Taking the same into consideration, the DGFT has now issued a clarification5 on the treatment to be extended to specific cases relating to regularisation of the pre-import condition under AAS.
In detail
The DGFT has clarif ied the treatment to be given for certain export-import scenarios in respect of authorisations issued under the AAS between 13 October 2017 to 9 January 2019 (when the pre-import condition was
removed) in the following manner by the Regional Licensing authorities while dealing with such matter in terms of the CBIC guidelines.
Sl. No. Scenarios considered Applicability of pre-import condition
1 Authorisations where exports were made between 13 October 2017 to 9 January 2019 period, and the imports were made on or after 10 January 2019
No violation of pre-import condition
2 Authorisations were issued on or prior to 9 January 2019, and imports were made on or after 10 January 2019
Pre-import condition not applicable
3 If , against authorisation, imports were partly made up to and including 9 January 2019 and remaining imports were made on or after 10 January 2019
Import made on or after 10 January 2019 will not be subject to pre-import condition
4 In case of imports made against an authorisation on payment of IGST and compensation cess
Pre-import condition inapplicable irrespective of date of import
The takeaways
The clarif ication on the applicability of the pre-import condition in specific export and/ or import scenarios will enable the trade to evaluate their facts from a regularisation perspective and take steps as needed for
undertaking suitable compliances. At the same time, the clarification may also enable the authorities to handle and close regularisation requests more efficiently.
5 Trade Notice No. 27/2023 dated 25 September 2023
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