Never-ending tale of “Pre–Import Condition”

[Navjot Singh]

In a world where global trade has become the backbone of the economy, the import/export industry plays a vital role in keeping the wheels of commerce turning. From exotic fruits to cutting-edge technology, goods traverse the globe in a complex dance of logistics, regulations, and the occasional mishap.

Governments have a significant role to play in boosting exporters. With their assistance, exporters can navigate the challenges of the global marketplace with a smile, knowing that their governments have their back. But at present, Industry is going through a challenging environment wherein the exporters are dealing with revenue-neutral and irrational provisions such as “Pre-Import” or Rule 96(10). Seeing the chaos at ground level, wherein the assessee is piled up with multiple notices, Raids & Summon hearings, it seems like the government is concerned.

Recently, The Hon’ble Supreme Court's in its judgment dated 28.04.2023 in the matter of Civil Appeal No. 290 of 2023 (UNION OF INDIA & ORS. VERSUS COSMO FILMS LIMITED - 2023 (5) TMI 42 - SUPREME COURT) confirmed that mandatory fulfillment of ‘pre-import condition' incorporated in para 4.14 of FTP 2015-20 vide the Central Government (DGFT) Notification No. 33/2015-20 dated 13.10.2017 and reflected in the Notification No. 79/2017-Customs dated 13.10.2017, relating to Advance Authorization scheme.

This implies that the relevant imports that do not meet the said pre-import condition requirements are to pay IGST and Compensation Cess to that extent.

While allowing the appeal of Revenue, the Hon'ble Supreme Court has however directed the Revenue to permit a claim of refund or input credit (whichever is applicable and/or wherever customs duty was paid).

We are entailing this write-up not to debate the Supreme Court’s judgment but the way forward in the matters related to the regularization of the “Pre-import” issue.

Now, in this regard, the government has issued a Circular No. 16/2023-Cus dated 7^th June 2023 stating the below-mentioned key points/procedure: -

1. ICES does not have functionality for payment of customs duties on a bill of entry (BE) (unless it has been provisionally assessed) after giving the Out-of-Charge (OOC) to the goods. In this situation, duties can be paid only through a TR-6 challan.

Keeping the above aspects in view, noting that the order of the Hon’ble Court shall have bearing on importers other than the respondents, and to carry forward the Hon'ble Court's directions, the following procedure can be adopted at the port of import (POI):

1. The importer (not limited to the respondents in judgment) may approach the concerned assessment group at the POI with relevant details for purposes of payment of the tax and cess along with applicable interest.
2. The assessment group at POI shall cancel the OOC and indicate the reason in remarks. The BE shall be assessed again to charge the IGST and cess.
3. The payment of tax and cess, along with applicable interest, shall be made against the electronic challan generated in the Customs EDI System.
4. on completion of the above payment, the port of import shall make a notional OOC for the BE on the Customs EDI System [to enable transmission to GSTN portal of, inter alia, the IGST and Compensation Cess amounts with their date of payment (relevant date) for eligibility as per GST provisions].

Our 2 Cents

1. Even today, no one knows the exact definition of “Pre – Import Condition”! i.e. Calculation of the Violation to be done based on the Bill of Entry or Advance Authorization wise?
2. What if, one has already paid the IGST through TR-06 Challan?
3. And even if paid through TR-06, on what basis it has been said that, the TR-06 challan is not a valid document for claiming the credit?

As per Rule 36 of the CGST Rule, 2017 in this regard states, a bill of entry or any similar document prescribed under the Customs Act, 1962, or rules made thereunder for the assessment of integrated tax on import. TR-06 is a valid document for assessment of “payment of IGST”, thus a valid document for availment of Credit.

4. If any Show Cause Notice was issued earlier, then the same will be dropped off.
5. If anyone pays by following the above-mentioned procedure, can take credit and avail of the refund as per Rule 89(4B) or 89(4), as it may apply to the assessee.
6. We do not wish to make it a debate of “Whether IGST is a Custom Levy or GST Levy’ but one important judgment by the Bombay High Court in the case of MAHINDRA & MAHINDRA LTD. (AUTOMOTIVE SECTOR) , VERSUS THE UNION OF INDIA, THE SETTLEMENT COMMISSION, ADDITIONAL BENCH, CUSTOMS & CENTRAL EXCISE, MUMBAI, THE COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI, THE ADDITIONAL DIRECTOR GENERAL, DGCEI, MUMBAI - 2022 (10) TMI 212 - BOMBAY HIGH COURT concerning “Interest Levy” on such payments must be considered.

We have written our suggestions to CBIC and assisted numerous Export Promotion Councils in writing said representations for seeking clarifications.

Thus, we believe that the matter affects the exporter/importer community at large, thus a proper clarification is needed.

The author is Principal Advisor, Customs, Foreign Trade Policy and Other Indirect Tax Matters at TaxTru Business Advisors.

Feel free to reach the author at [email protected]/+919953357935

Discussions to this article

[Subhash Modi]

CBIC ought to clarify on the following questions:

1) Vide Para 3 in the Circular 16/2023-Cus and also vide the Para 5.2(a) therein it has been stated that the relevant imports that do no meet the pre-import condition requirement are to pay IGST and Compensation Cess to that extent. Between 13-10-2017 up to 09-01-2019 if a part of the import sans IGST failed to meet the pre-import condition and the remaining part did meet the said condition, will the POI re-assess such BEs partially to the extent and e-Challan issued for payment to that extent and credit made available to that extent via GSTR 2A/2B?

2) Once the tax/cess has been paid with interest in the manner prescribed vide the said Circular, can the bar placed with effect from 09-10-2018, under the CGST Rule 96(10), against refund of the tax paid on zero-rated outward supplies shall have no effect, force and virtue against such refunds already obtained? And no recovery of the output refund is made basis the fact that import IGST thus paid with interest is deemed to have been paid ab initio?