Removal of pre-import condition
In our earlier updates (please refer trail mail), we discussed the applicability of pre-import condition imposed on Advance Authorisation holders claiming exemption of IGST on imports and writ petitions challenging the constitutional validity of the same.
In this context, we wish to apprise you regarding recent amendments made in Foreign Trade Policy 2015-20 (‘FTP’) relating to Advance Authorisation scheme and corresponding amendments in the following Notifications:
- Notification No.18/2015-Cus dated April 1, 2015 (‘Advance Authorisation Notification’); and
- Notification No.48/2017-Central Tax dated October 18, 2017 (‘Deemed Exports Notification’)
The amendments in FTP and Advance Authorisation Notification are effective from January 10, 2019 whereas the changes in Deemed Exports Notification have been made applicable from January 15, 2019.
The gist of amendments is briefed as under:
- The pre-import condition for availment of exemption from IGST stands removed. Simply put, the exemption from IGST shall be available even where the finished goods have been exported first and inputs are imported under Advance Authorisation post such export.
NITYA Comments:
The amendment has brought parity in IGST exemption in both mechanisms i.e. pre-import as well as post-export and restored the exemption as existed prior to July 1, 2017. This heralds relief for the exporters’ community.
It is noteworthy that DRI conducted investigations against many exporters and sought to demand IGST on account of violation of pre-import condition. In that background and pursuant to representations made by the exporters’ community, these amendments have been made and seems curative in nature (to cure defects in a previous statute).
It is settled legal position that curative amendments operate retrospectively where a clear intention of the legislature to this effect exists. In the present case, there is no clear express indication of intent of legislature to bring this amendment with retrospective effect. In the absence of express intent, this will significantly limit the benefits arising out of such amendments (considering that exemption under Advance Authorisation is available till March 31, 2019). It is further pertinent to note that in the absence of such an amendment becoming retrospective, the exporters will need to litigate the issue for the earlier period.
(Refer amendment to Para 4.14 of the FTP and Advance Authorisation Notification)
- The benefit of such exemption is also extended to deemed export supplies under Deemed Exports Notification.
NITYA Comments:
Notably, the exemption from IGST has been extended only to supplies notified as deemed exports under the GST law. Other deemed exports under FTP (like supplies under ICB or supply to power projects) which were neither notified as deemed exports under the GST law, will not get the benefit of IGST exemption under the amended Notification.
(Refer amendment to Para 4.14 of the FTP and Advance Authorisation Notification)
- In case Advance Authorisation holders avails post-export exemption from IGST or avails IGST refund under Deemed Exports Notification, the exporter needs to use the tax free imported / domestic goods only for the manufacture of taxable goods. The exporter needs to submit CA certificate within 6 months from import of goods evidencing such usage.
There shall be no such restriction on usage of imported goods where the exporter did not avail credit on inputs used to manufacture export goods
NITYA Comments:
This condition is to ensure that the Advance Authorisation holder who has availed credit on inputs to be used for manufacture of export goods, does not subsequently use such inputs for manufacture of exempt goods. This avoids possibility of double benefit that may be taken by the exporter. This condition was existent for claiming CVD exemption on imported goods under Advance Authorisation scheme even before the advent of GST regime.
(Refer amendment to Advance Authorisation Notification and Deemed Exports Notification)
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