Importers must study exemption notifications carefully

A Division Bench of the Bombay High Court has held [Dimexon Vs. UOI 2009 (241) ELT 519 (Bom.)] that “once a notification is issued under Section 25 of the Customs Act, 1962, that notification alone would govern the issue of exemption of Customs duty”. The judgment is significant because there are many situations when the Foreign Trade Policy (FTP) provisions are different from the Customs exemption notifications.

In the case of Dimexon, the Export and Import (Exim) Policy allowed duty exemption on certain items whereas the exemption notification did not. The Court held that “the Exim Policy is issued pursuant to powers conferred under the provisions of Import and Export Control Act, 1947. Section 3 confers the powers on the government to prohibit and restrict import of goods. This Act neither confers the power on the government to impose either duty or to exempt from payment of such duty”.

“When there be two Acts, may be two special Acts, what has first to be examined is the field they cover. Duty is payable pursuant to the Customs Act. The Import and Export Control Act regulates the import or export of goods. In so far as the levy of Customs duty is concerned, the Customs Act is the special Act. The issue whether any goods can be imported or exported has nothing to do with the assessment of duty. The Exim Policy cannot have the effect of reading down the Notification issued under the provisions conferred under Section 25 of the Customs Act,” held the Division Bench.

The Export Import Control Act of 1947 has been repealed and now what we have is the Foreign Trade (Development and Regulation) Act, 1992. Even so, the judgment will equally apply in the present context. The principles enunciated by the high court are not new. Some earlier judgments have also upheld the primacy of the Customs exemption notifications. What makes the Bombay High Court judgment relevant and timely is that of late, the number of instances when the FTP says one thing and the exemption notification says something else, is on the rise.

The latest example is the notification number 112/2009-cus dated September 29, 2009, allowing duty-free import of goods under Advance Authorization for Deemed Exports. Para 4.1.4 of the FTP says that “Advance Authorizations are exempted from the payment of basic customs duty, additional customs duty, education cess, anti-dumping duty and safeguard duty, if any. However, imports for supplies covered under paragraph 8.2 (h) & (i) will not be exempt from payment of applicable anti-dumping duty and safeguard duty, if any”.

However, according to Para 2 of the notification number 102/2009-cus dated September 29, 2009, exemption from safeguard duty and anti-dumping duty shall not be available for materials required for supplies covered under paragraph 8.2 (a), (c), (h) and (i) of the FTP. This means that imports of raw materials made under Advance Authorization for deemed exports under claim of exemption under the said notification will have to suffer the burden of anti-dumping duty or safeguard duty, if the final products are supplied against Advance Authorization or Duty Free Import Authorization, or EPCG (Export Promotion Capital Goods) authorisation. This is not in accordance with the FTP.

Importers must, therefore, carefully study the exemption notifications before deciding to import under claim of any exemption.

E-mail: tncr@sify.com