UNION OF INDIA AND ORS. versus COSMO FILMS LIMITED (28/04/2023) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

Notifications of 13.10.2017 exempted inputs imported under Advance Authorisations from IGST and GST compensation cess, but only subject to a 'pre-import condition' and fulfilment of the export obligation by physical exports; the Gujarat High Court struck the pre-import condition down as arbitrary and contrary to the Advance Authorisation scheme. The Supreme Court reversed, holding that the Foreign Trade Policy itself empowered the DGFT to impose pre-import conditions on any input, that hardship to exporters who exported in anticipation of authorisation is no ground to invalidate a fiscal condition, that the different treatment of the new GST levies from basic customs duty is a rational classification, and that the later withdrawal of the condition in January 2019 cannot be given retrospective effect.

Issues

Whether the 'pre-import condition' imposed by Notification No. 79/2017-Customs (inserting condition (xii) in Notification No. 18/2015-Customs) and by Notification No. 33/2015-2020 (amending paragraph 4.14 of the Foreign Trade Policy) as a condition of exemption from IGST and compensation cess on imports under Advance Authorisation is arbitrary, unreasonable or ultra vires the scheme of the Policy.
Whether paragraph 4.13 of the Foreign Trade Policy confined pre-import conditions to the goods listed in Appendix 4-J, or empowered the DGFT to impose the condition on all inputs.
Whether applying the pre-import condition only to IGST and compensation cess, while leaving basic customs duty and other levies exempt without that condition, is discriminatory under Article 14.
Whether the omission of the pre-import condition by Notification No. 01/2019-Customs dated 10.01.2019 shows that the condition was unworkable and should be disregarded for the period 13.10.2017 to 09.01.2019.
What relief is due to exporters who imported under interim orders of the High Court.

Provisions considered

Paragraphs 4.03, 4.13, 4.14 and 4.16, Foreign Trade Policy 2015-2020 (under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992)Advance Authorisation allows duty-free import of inputs physically incorporated in export products; paragraph 4.13(i) reserves to the DGFT the power to impose a pre-import condition on any inputs under the Chapter, so the condition is not confined to Appendix 4-J goods; paragraph 4.14 as amended made the IGST and cess exemption subject to the pre-import condition. (¶¶ 40, 41, 48, 56, 57, 65, 69)
Paragraph 4.27 (including clause (d)), Handbook of Procedures 2015-2020Exports in anticipation of authorisation remain permitted, but the Handbook merely implements the Policy and cannot override it; clause (d), which the High Court overlooked, bars duty-free authorisation for inputs subject to a pre-import condition. (¶¶ 42, 43, 50, 52, 57)
Section 3(7) and 3(9), Customs Tariff Act, 1975After the GST regime, imported goods became liable to integrated tax and compensation cess under these sub-sections; the exemption notification of 2015 did not originally cover them, and the 2017 amendment exempted them only on the stated conditions. (¶¶ 44, 45, 46, 47, 48)
Section 25(1), Customs Act, 1962Source of power for Notification No. 18/2015-Customs and its amendment by Notification No. 79/2017-Customs imposing the physical-export and pre-import conditions. (¶¶ 44, 47)
Sections 2(e) and 5, Foreign Trade (Development and Regulation) Act, 1992The Policy is statutory, framed under Section 5, which confers no power to make retrospective amendments; 'export' means taking goods out of India, and only physical exports (including to SEZ) qualify for the exemption. (¶¶ 52, 58, 59, 70, 71)
Article 14, Constitution of IndiaNo blanket right to exemption exists; the new GST levies operate through a unified credit and refund system that sets them apart from basic customs duty, so treating them differently is a rational classification, and the legislature is allowed experimentation and phased reform in economic matters. (¶¶ 63, 65, 66, 67, 68, 69)

Held

Paragraph 4.13(i) of the Foreign Trade Policy empowers the DGFT to impose a pre-import condition on any inputs under Chapter 4; the listing of some goods in Appendix 4-J never meant other articles could not be subjected to it. The High Court erred in assuming otherwise and in failing to notice paragraph 4.27(d) of the Handbook. (¶¶ 56, 57, 65, 69)
The Foreign Trade Policy is statutory and has primacy over the Handbook of Procedures, which merely implements the policy and does not prevent the Central Government from changing it. (¶¶ 52, 53, 54)
Hardship or inconvenience to exporters who had to restructure their import-export cycle to pay IGST and cess and claim refunds is not a ground to hold the pre-import condition arbitrary; courts give wide latitude to the legislature and executive in fiscal and economic regulation and interfere only with patently arbitrary, discriminatory or mala fide policy. (¶¶ 62, 67, 68, 74)
Insisting on the pre-import condition only for IGST and compensation cess is not discriminatory: basic customs duty is a one-point levy with no credit, while IGST is a multi-point levy with input credit flowing to the end user, so separate treatment is justified; there is no blanket right to an exemption, and a new fiscal regime may introduce reform in phases. (¶¶ 65, 66, 67, 69)
The exemption is available only where the export obligation is discharged by physical exports, meaning actual exports out of India or supplies to SEZ; intermediate supplies, deemed exports and other Chapter 7 supplies do not qualify. (¶¶ 58, 59)
Exporters were forewarned by Trade Notice 11/2017 that under GST no exemption from IGST and cess would be available on Advance Authorisation imports; the High Court did not consider this notice. (¶¶ 49, 50, 51)
The withdrawal of the pre-import condition by Notification No. 01/2019-Customs cannot be read as operating from 13.10.2017; Section 5 of the 1992 Act confers no power to make retrospective amendments and the court cannot impart retrospectivity by interpretation. A tax concession may be withdrawn at any time, and what applies to refunds applies equally to exemptions. (¶¶ 64, 70, 71, 72, 73)

Result

Revenue's appeals allowed; Gujarat High Court's judgment set aside. Because the respondents imported under interim orders, they may apply to the jurisdictional commissioner within six weeks, with documentary evidence, for refund or input credit of customs duty paid, to be examined on merits case by case; the Revenue to prescribe the procedure by circular.