Public interest and pre-import clauses

Many exporters have asked me whether the pre-import condition for inward shipment under advance authorisation without payment of Integrated Goods and Services Tax (IGST) could be challenged in the courts and, if so, on what grounds.

It must be understood that there is no right to claim an exemption, unless the government notifies this in the official gazette. It may exempt goods of any description from all or any part of the customs duty leviable. These may be granted without conditions or subject to any such as specified in the notification. These conditions may be required to be fulfilled before or after clearance of the imported goods. The power to grant such exemption flows from the provisions of Section 25(1) of the Customs Act, 1962. The power to exempt includes the power to modify or withdraw these, too.

IGST on imported goods is levied and collected in accordance with Section 3(7) of the Customs Tariff Act, 1975. Under Section 3 (12) of this Act, provisions of the Customs Act, 1962, and the rules and regulations made thereunder, including those relating to drawbacks, refunds and exemption from duties, apply to IGST on imported goods. So, exemption from IGST on imported goods is also granted through an exemption notification issued under Section 25 (1) of the 1962 Act.  

However, this Section 25 (1) does not bestow an unfettered right to the government for grant of exemptions. It allows the government to grant or modify or withdraw or supersede the exemption only if satisfied that this is necessary in the public interest. If asked to do so, the government must place before the courts the material justifying what and how the public interest was intended to be served through the exemption notification. If the government fails to place enough material to show public interest, the exemption notification can be set aside as arbitrary.

The notification 79/2017-Cus dated October 13, 2017, amended the notification 18/2015-Cus dated April 1, 2015, exempting goods imported under advance authorisation from payment of IGST. There is no doubt that the IGST exemption was granted in the public interest, on items required for use in the manufacture of export goods. However, the exemption was subject to a pre-import condition. By imposing the latter, the exemption was denied where export had already taken place and goods were being imported only to replenish the stock of inputs already used in the manufacture of export goods.

Whether such a denial is in the public interest (and if so, how) is a matter that can be agitated before the courts.  If asked to do so, the government might find it difficult to justify the denial of exemption for replenished goods. In other words, the challenge to the pre-import condition could be on the ground that this serves no public interest.  

Similarly, even the condition denying the facility to discharge export obligation against Ex port Promotion Capital Goods (scheme) authorisation through deemed export, where IGST exemption is claimed (notification 16/2015-Cus dated April 1, 2015, as amended by notification 79/2017-Cus dated October 13, 2017, can be challenged on the ground that it does not serve any public interest.  

Email: tncrajagopalan@gmail.com


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