2019 (1) TMI 85 - HC - Customs

Advance authorization scheme - Import Policy after GST - duty free import of inputs which are physically incorporated in the exported goods - exemptions in terms of Para 4.01 (a) (i) of Foreign Trade Policy, 2015-20 - Held that - The import is actually a replenishment of inputs used in the already exported goods. As such, it was averred that complying with condition No. 1 cannot be fulfilled by the petitioner at the time of import of inputs - Similarly, the petitioner expresses difficulty in fulfilment of pre- import conditions in the absence of explicit definition for pre- import condition. What is disallowed to the petitioner and allowed to others of the same class should be demonstrated by the petitioner. That is the test for arbitrariness. The petitioners had no occasion to demonstrate their case in the test of arbitrariness. Needless to mention, GST laws are a self contained legislations. The laws were promulgated after necessary constitutional amendments. The preposition that the GST levy subsumes the erstwhile levies of CVD and SAD in lieu of Excise duty and VAT can be of no avail to the petitioner. More so, the petitioner is estopped from claiming relief in view of Para 4.02 of the FTP that AAs are issued in accordance with the policies and procedures in force as on the date of the issue of Advance Authorization - Even by not allowing exemption of IGST at the time of import, no benefit in the AA scheme is altered by the Government, though collateral costs get fastened on the petitioner and the likes by way of blockages in cash flow and attendant interest liabilities. And clearly, it is a matter of public policy. And rightly, the choice of policy is for the decision maker, in this case the Government, to make and not for the Court. Nor has been established before this court that the decision suffers from perversity, irrationality or arbitrariness. The petitioner s plea of vagueness in the definition of pre-import condition is hollow. The intend and purpose of pre-import condition can be made out from Para 4.03 of FTP and Annexure 4 J of the HBP. The multiple schemes available in the FTP is only to have a fine balance between the policy entitlements of the exporters and to safeguard the interests of revenue. Petition dismissed - decided against petitioner.

Summary

Issues:
Challenge to the conditions of Notification No 79/2017-Customs and Notification No 33/2015-20 under Article 14 of the Constitution of India, Pre-import conditions in Advance Authorizations, Exemption of IGST and compensation cess on imported goods, Interpretation of Foreign Trade Policy (FTP) 2015-20, Allegations of arbitrariness and unconstitutionality, Investigation by Directorate of Revenue Intelligence (DRI).

Analysis:

1. Challenge to Notification Conditions:
The petitioner challenged the conditions of Notification No 79/2017-Customs and Notification No 33/2015-20 as arbitrary and violative of Article 14 of the Constitution of India. The High Court examined the impact of GST on duty exemptions under Advance Authorizations (AAs) and the temporary restoration of IGST exemption. The court noted the conditions imposed and their rationale, emphasizing the government's intention to prevent revenue loss and maintain policy consistency.

2. Pre-import Conditions in Advance Authorizations:
The court analyzed the concept of pre-import conditions in AAs under the FTP 2015-20. It discussed the purpose of such conditions to ensure physical exports and prevent revenue risks. The petitioner's argument regarding the difficulty in fulfilling these conditions was considered in light of the policy objectives and the distinction between different export schemes like Duty-Free Import Authorization (DFIA) and AAs.

3. Exemption of IGST and Compensation Cess:
The judgment highlighted the deferment of IGST and compensation cess exemption on imported goods under AAs in the GST regime. The court explained the rationale behind this deferment, considering the impact on cash flow and interest liabilities for AA holders. It emphasized that policy decisions regarding tax exemptions fall within the government's domain and are not subject to judicial interference unless arbitrary or irrational.

4. Interpretation of Foreign Trade Policy (FTP) 2015-20:
The court interpreted various provisions of the FTP 2015-20 related to AA schemes, actual user conditions, and post-export benefits. It analyzed the balance between exporters' entitlements and revenue protection, emphasizing the government's prerogative in designing export schemes to align with GST laws and revenue considerations.

5. Allegations of Arbitrariness and Unconstitutionality:
The judgment addressed the petitioner's claims of arbitrariness and unconstitutionality in the government's actions. It scrutinized the legal basis for the notifications and the compatibility of the conditions with the FTP and GST laws. The court rejected the petitioner's arguments, emphasizing the government's policy discretion in tax matters.

6. Investigation by Directorate of Revenue Intelligence (DRI):
In Writ Petition No. 18437 of 2018, the court considered the challenge to a notice issued by the Directorate of Revenue Intelligence. It directed the petitioner to cooperate with the investigation and instructed the DRI to expedite the inquiry, considering the complexities of GST laws and the deferred exemption scheme. The court underscored the nascent nature of GST legislation and the need for thorough investigations without prejudicing exporters.

In conclusion, the High Court dismissed the Writ Petitions with directions for cooperation in the investigation by DRI, highlighting the complexities of GST laws and the government's policy decisions in tax matters. The judgment underscored the importance of balancing revenue protection with exporters' entitlements under the FTP 2015-20, emphasizing the government's authority in designing tax schemes to align with GST regulations.