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2020 (2) TMI 1168 - HC - CustomsRefund claim - Exemption from IGST on goods imported under EPCG Scheme - rejection on the ground that Notification No. 33/2015-2020 dated 13.10.2017 of the Ministry of Commerce and Notification No.79/2017-Cus dated 13.10.2017 of the Ministry of Finance under which such imported goods were exempted from payment of IGST, came into force only on 13.10.2017, but the petitioner had filed the bill of entry on 3.8.2017 - exemption of import of such goods from payment of IGST. HELD THAT - For the purpose of examining the validity of the petitioner s claim for exemption from payment of IGST in respect of capital goods imported by it on the strength of the authorisation held by it under the EPCG Scheme prior to the issuance of Notification No.79/2017-Cus exempting import of such goods from payment of IGST, it may be necessary to refer to the relevant provisions of the Foreign Trade Policy and the notifications issued in this regard from time to time - In the exercise of powers under section 5 of the Foreign Trade (Development and Regulation) Act, 1992, the Central Government has notified the Foreign Trade Policy 2015-20 vide Notification No.1/2015-20 which came into effect from 1st April 2015. The objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods and services to enhance India's export competitiveness. Towards that end, authorisations are issued to importers permitting them to import capital goods at zero customs duty. An authorisation is valid for import for eighteen months from the date of issue of authorisation, and under the authorisation the importer is allowed to import capital goods at zero customs duty. The scheme also casts an obligation on the importer who imports capital goods under the Scheme at zero customs duty to fulfill export obligation at six times of the duty saved. Thus, while granting exemption from payment of customs duty, a corresponding obligation has been cast on the importer to fulfill export obligation as provided under the EPCG scheme. Thus, exemption from payment of customs duty under the EPCG Scheme is not an exemption simpliciter, but is an exemption with a corresponding obligation on the authorisation holder to export goods equivalent to six times the duty saved on import of such capital goods. On conjoint reading of the Chapter 5 of the Foreign Trade Policy and Notification No.16/2015-Cus dated 1st April, 2015, it is evident that though the notification is a statutory notification issued in exercise of powers under section 25 of the Customs Act, it is not an exemption notification simpliciter, but an exemption notification issued to give effect to the EPCG Scheme floated under the Foreign Trade Policy which is an incentive scheme. Thus, in the opinion of this court, Notification No.16/2015-Cus dated 1st April, 2015 and the amending notifications cannot be equated with statutory notifications ordinarily issued under section 25 of the Customs Act, granting exemption from payment of customs duty - Considering the nature of the EPCG Scheme, it is evident that it is an incentive scheme whereby a promise has been held out that the importer would be charged zero customs duty on the goods imported by it, provided it exports goods equivalent to six times the duty saved on capital goods. The petitioner applied for and was issued an authorisation on 31.3.2017, and hence, was not required to pay any customs duty as well as additional duty of customs on such import in view of Notification 16/2015 dated 1st April, 2015. Since vide Notification No.26/2017, the words and figures sub-sections (1), (3) and (5) of section 3 of the Customs Tariff Act were inserted, the petitioner was not granted the benefit of exemption from payment of IGST, despite the fact that it was an additional duty introduced by way of sub-section (7) and sub-section (9) of section 3 of the Customs Tariff Act. The petitioner therefore paid the IGST - Subsequently, vide Notification No.33/2015-2020, dated 13th October, 2017, issued in exercise of powers conferred by section 5 of Foreign Trade (Development and Regulation) Act, 1992, read with paragraph 1.02 of the Foreign Trade Policy, 2015-20, as amended from time to time, the Central Government made amendments in the Foreign Trade Policy 2015-2020. Chapter 5 of the Foreign Trade Policy, 2015-2020 makes provision for the EPCG Scheme, which is an incentive scheme. The incentive given is that the importer holding a valid authorisation for capital goods covered under the EPCG Scheme would be exempted from payment of customs duty and additional duty under section 3 of the Customs Tariff Act, and correspondingly, the importer would be obliged to fulfill export obligation to the extent provided in the Scheme. Since exemption from payment of customs duty and additional duty can only be granted under section 25 of the Customs Act, to give effect to the promise held out in Foreign Trade Policy 2015-2020, Notification No.16/2015-Customs dated 1st April, 2015 came to be issued exempting import of goods covered by a valid authorisation issued under the EPCG Scheme in terms of Chapter 5 of the Foreign Trade Policy, from the whole of the customs duty leviable under the First Schedule to the Customs Tariff Act and the whole of the additional duty leviable under section 3 of the Customs Tariff Act. In the facts of the present case, though the exemption notification has been issued under section 25 of the Customs Act, it has been issued for the purpose of implementing the EPCG Scheme which holds out a promise that import of capital goods under the scheme would be exempt from payment of additional duty under section 3 of the Customs Tariff Act. Therefore, the notification has to be read in the context of the EPCG policy keeping in mind the object envisaged by the policy and not in the strict sense as in the case of a general exemption under section 25 of the Customs Act. It is held that the amendment of Notification No.16/2015-Cus vide Serial No.1 of Notification No.79/2017 dated 13th October, 2017, would also apply to imports made during the period 1.7.2017 to 13.10.2017. Trade Notice 11/2018 dated 30.6.2017 to the extent it is stated therein that under Chapter 5 importers would need to pay IGST is hereby quashed and set aside - Petition allowed - decided in favor of petitioner.
Issues Involved:
1. Challenge to Notification No.26/2017-Customs and Trade Notice No.11/2018. 2. Claim for refund of IGST paid under protest. 3. Application of promissory estoppel. 4. Validity of the amendment to Notification No.16/2015-Customs. Detailed Analysis: 1. Challenge to Notification No.26/2017-Customs and Trade Notice No.11/2018: The petitioner challenged Notification No.26/2017-Customs dated 29.6.2017, which amended Notification No.16/2015-Customs dated 1.4.2015, and Trade Notice No.11/2018 dated 30.6.2017 issued by the Director General of Foreign Trade (DGFT). The amendment excluded IGST from the exemption granted under the EPCG Scheme, requiring importers to pay IGST on imported capital goods and take input tax credit as applicable under GST rules. 2. Claim for Refund of IGST Paid Under Protest: The petitioner, holding an EPCG authorization, imported capital goods and was initially exempt from customs duty under Notification No.16/2015-Cus. However, due to the amendment by Notification No.26/2017, the petitioner was required to pay IGST of ?2,38,83,203/-, which was paid under protest. The petitioner claimed a refund on the grounds that the amendment was unfair and arbitrary, especially since the exemption was later reinstated by Notification No.79/2017-Cus dated 13.10.2017. 3. Application of Promissory Estoppel: The petitioner argued that the principle of promissory estoppel should apply, as the exemption under Notification No.16/2015-Cus was a promise held out by the government, which the petitioner relied upon. The court referred to several precedents, including Shree Renuka Sugars Ltd. v. Union of India, where it was held that inadvertent errors or unintentional withdrawals of exemptions should be viewed as clarificatory or curative in nature. The court concluded that the petitioner had a legitimate expectation of exemption from IGST based on the original notification and the subsequent reinstatement of the exemption. 4. Validity of the Amendment to Notification No.16/2015-Customs: The court examined whether the amendment to Notification No.16/2015-Cus by Notification No.26/2017 was valid. It was found that the amendment was repugnant to the policy declared in the Foreign Trade Policy 2015-2020, which aimed to facilitate import of capital goods at zero customs duty under the EPCG Scheme. The court held that the amendment was an inadvertent error and that Notification No.79/2017-Cus, which reinstated the exemption, should be considered clarificatory and curative, applying retrospectively to the period between 1.7.2017 and 13.10.2017. Conclusion: The court allowed the petition, quashing Trade Notice No.11/2018 and the order-in-original dated 29.9.2018. It held that the petitioner is entitled to a refund of ?2,38,83,203/- paid towards IGST, with interest at the statutory rate, and that the amendment to Notification No.16/2015-Cus by Notification No.79/2017-Cus applies retrospectively to cover imports made during the period 1.7.2017 to 13.10.2017.
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