FM should clear the air on 'pre-import' matter

The Customs have started sending show-cause notices (SCN) to several exporters alleging violation of 'pre-import' condition in case of imports without payment of IGST under advance authorisations

The Customs have started sending show-cause notices (SCN) to several exporters alleging violation of ‘pre-import’ condition in case of imports without payment of Integrated Goods and Services Tax (IGST) under advance authorisations. The exporters are surprised because the matter regarding the validity of the ‘pre-import’ condition under advance authorisation scheme is pending before the Supreme Court.

When the government introduced the Goods and Services Tax regime on July 1, 2017, IGST on imports under advance authorisations was not exempted. The exporters protested against the decision and so, the government decided to grant IGST exemption on imports under advance authorisations for physical exports, with effect from October 13, 2017. But this exemption was subject to ‘pre-import’ condition’, meaning thereby that the IGST exemption would be available only where the imports are made before making exports towards discharge of export obligation against the advance authorisation.

The ‘pre-import’ condition was misconceived because it meant that if imports are made after exports, IGST would be levied. So, the exporters complained and the government withdrew the ‘pre-import’ condition on January 9, 2019. However, the said withdrawal was with prospective effect leaving the door open for the Customs to demand duty in respect of all imports made after exports availing the IGST exemption during the intervening period i.e. October 13, 2017 and January 1, 2019.

A number of writ petitions were filed in various High Courts challenging the ‘pre-import’ condition. The Madras High Court, in the case of Vedanta Ltd. [2018 (19) GSTL 637(Mad.)] upheld the ‘pre-import’ condition, whereas the Gujarat High Court struck down the ‘pre-import’ condition’ in the case of Maxim Tubes Company Pvt. Ltd. [2019 (368) ELT 337 (Guj.)]. The matter is now before the Supreme Court.

Most exporters start discharging export obligations from the time they file their applications for advance authorisations and replenish their inputs later through duty-free imports because it is not feasible to wait for imports and then start executing the export orders. Such exporters do not ask what is wrong in taking the IGST exemption upfront rather than pay IGST on their imports and take input tax credit (ITC) of the same.

Many exporters have received SCN even in respect of advance authorisations that have been redeemed and the Customs have released the bond furnished to them. They wonder what is the sanctity of the redemption letters and discharge of bonds by the government authorities, if the same Customs department can reopen the cases at will. The Customs have not only asked for IGST on imports that violate the ‘pre-import’ condition but have also asked for interest and penalties. Complying with the demands of the Customs would involve severe financial losses by way of interest and penalties and cash flow problems by way of upfront payment IGST that can be taken as ITC.

The government should now take a pragmatic view and try to close the matter. The government has already admitted that the ‘pre-import’ condition was wrong and has withdrawn it. Any violation of that condition can only be seen as a technical breach. There is no fraud or loss of revenue. The government should now give the withdrawal of ‘pre-import’ condition retrospective effect from October 13, 2017.  The finance minister should intervene to stop the bureaucracy from harassing the exporters and help exporters look ahead. 

email: tncrajagopalan@gmail.com