Coming to sense with absurdities

When the Goods and Services Tax (GST) was introduced in July 2017, the government withheld any exemption from IGST on import under all categories of advance authorization

Good sense has prevailed. The ‘pre-import’ condition for import of inputs without payment of Integrated Goods and Services Tax (IGST) under certain categories of advance authorisation has been removed. Also, the export obligation in such cases may be fulfilled through physical shipment, as well as certain categories of deemed export.
 
When the Goods and Services Tax (GST) was introduced in July 2017, the government withheld any exemption from IGST on import under all categories of advance authorisation. Responding to representations from exporters, it then granted such exemption (through notification 79/2017-Cus) under certain categories of advance authorisation, with effect from October 13, 2017. However, imposing some unreasonable conditions. These included the ‘pre-import’ condition that denied IGST exemption if the export in discharge of obligation had already been made before import. This condition has now been removed (notification 1/2019-Cus). It is a case of undoing a wrong that should not have been done in the first place. However, this change operates only with prospective effect, from January 10, 2019.

 
The present position is this. Holders of advance authorisation and annual advance authorisation may import their inputs (under notifications 18/2015-Cus or 20/2015-Cus, respectively, both dated April 1, 2015) without payment of IGST. They may be done before or after making export and discharging the export obligation through physical export or deemed export supply to advance authorisation holders or Export Promotion Capital Goods (scheme) authorisation holders or to export oriented units.
 

However, they must also take careful note of Rule 96 (10) of the Central GST Rules, 2017, that bar refund of IGST paid on export goods, if any of the inputs used in manufacture of an export product have been imported under advance authorisation without payment of IGST. There is also a separate exemption notification, 21/2015-Cus dated April 1, 2015, to enable import under advance authorisation for making deemed export that remains un-amended; so, import under that notification will continue to attract IGST.

 
The latest changes do not affect the demands made by the department of revenue intelligence (DRI) regarding IGST exemption availed of on import between October 13, 2017, and January 9, 2019, where the pre-import condition cannot be fulfilled. However, advance authorisation holders now get a better case to put before the courts on the ground of public interest. The notifications imposing a ‘pre-import’ condition, as well as the one withdrawing it, have been issued in the public interest. So, what public interest was being served by imposing the pre-import condition in the first place? If that question is raised before the courts, the chances are the government will find that difficult to justify. If that happens, the pre-import condition might be struck down with effect from October 13, 2017.

 
The government had unnecessarily imposed heavy costs on exporters who need duty-free import for export production. It also let the DRI issue notices and summons, as a first resort, asking exporters from all over the country to be in Kolkata for recording of statements. The DRI has also been pressurising them to pay IGST on their import under advance authorisations, even if a single export had been made before imports. The government has realised its folly and reversed the decision. It should now reign in the rampaging DRI and let exporters concentrate on their job. E-mail: tncrajagopalan@gmail.com