Union Of INDIA And Ors. vs. Cosmo Films Limited

Held

The Supreme Court held that the High Court's judgment was not sustainable. The Court found that exporters were made aware of the changes brought about by the introduction of GST through Trade Notice 11/2017, which indicated that AAs would not operate in the same manner as before. The Court noted that the High Court had failed to consider this trade notice and paragraph 4.27(d) of the HBP, which stated that duty-free authorization for inputs subject to a 'pre-import condition' could not be issued. The Court also highlighted that the 'pre-import condition' was not alien to the policy, as Appendix-4J of the FTP listed several articles for which it was applicable prior to GST, and paragraph 4.13 of the FTP allowed the DGFT to impose such conditions on other articles. The Court reasoned that the introduction of GST was a fundamental overhaul of the indirect tax structure, and there was no constitutional compulsion to continue existing concessions in the same fashion. The inconvenience caused by the new regime, requiring exporters to import inputs, pay duties, and claim refunds, was insufficient to override the legislative choice. The Court concluded that the exclusion of benefit of imports in anticipation of AAs and requiring payment of duties with the 'pre-import condition' under Sections 3(7) and (9) of the Customs Tariff Act, 1975, could not be characterized as arbitrary or unreasonable. The impugned notifications were not faulted for arbitrariness or under-classification. The appeals were allowed, setting aside the High Court's judgment. However, the Revenue was directed to permit respondents who enjoyed interim orders to claim refunds or input credit where customs duty was paid, by approaching the jurisdictional commissioner within six weeks with documentary evidence.

Facts

The Union of India and Ors. appealed against a High Court judgment that set aside the mandatory fulfillment of a 'pre-import condition' for claiming exemption of IGST and GST compensation cess on inputs imported under an Advance Authorization (AA). The High Court deemed this condition arbitrary and unreasonable. The dispute arose after the introduction of the GST regime in 2017, when Notification No. 79/2017-Customs amended the existing customs notification to include IGST and compensation cess exemptions, subject to the 'pre-import condition' and physical exports. This condition was incorporated into the Foreign Trade Policy (FTP) and Handbook of Procedures (HBP). The petitioner, Cosmo Films Limited, challenged the applicability of this condition.

Key Issues

1. Whether the 'pre-import condition' incorporated into the Foreign Trade Policy (FTP) and Handbook of Procedures (HBP) by Notification No. 79/2017-Customs, requiring physical exports for IGST and GST compensation cess exemption on inputs imported under an Advance Authorization (AA), is arbitrary and unreasonable, violating the Foreign Trade (Development & Regulation) Act, 1992. - Petitioner's argument: The 'pre-import condition' is arbitrary and unreasonable, as it was not previously applicable to all goods and its mandatory fulfillment for claiming exemptions under the GST regime creates undue hardship and disrupts export trade. They relied on the High Court's finding that the condition was unsustainable. - Revenue's argument: The 'pre-import condition' is a valid exercise of power under the Foreign Trade Policy and is not arbitrary. The introduction of GST necessitated changes in the indirect tax structure, and exporters were made aware of these changes through trade notices. The concept of 'pre-import condition' was not new and the DGFT had the power to impose it on any goods. They relied on the fact that the FTP is statutory and the DGFT has the power to impose such conditions. They also argued that hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute.