Invalidation of Pre-Import Condition: Boost Exports, Prevent Cash Blockage

The court held that the "pre-import condition" in the Foreign Trade Policy and Customs Notification was unreasonable, arbitrary, and not in line with the Advance Authorisation Scheme. The condition disrupted exporters' operations, negating the policy's objective of boosting exports and preventing cash blockage. The court invalidated the condition, finding it ultra vires and unsustainable, granting relief to affected parties. The retrospective deletion of the condition was deemed a curative amendment but not given retroactive effect, necessitating court intervention for grievances during the interim period.

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Issues Involved:
1. Validity of the "pre-import condition" in paragraph 4.14 of the Foreign Trade Policy 2015-2020 and clause (xii) in Notification No.18/2015-Cus.
2. Impact of the "pre-import condition" on the Advance Authorisation Scheme.
3. Whether the "pre-import condition" is reasonable and in consonance with the scheme of Advance Authorisation.
4. Whether the "pre-import condition" serves the objective of the Foreign Trade Policy and the Foreign Trade (Development and Regulation) Act, 1992.
5. The retrospective effect of the deletion of the "pre-import condition" by Notification No.01/2019-Cus dated 10th January 2019.

Detailed Analysis:

1. Validity of the "pre-import condition" in paragraph 4.14 of the Foreign Trade Policy 2015-2020 and clause (xii) in Notification No.18/2015-Cus:
The court examined the insertion of the "pre-import condition" vide Notification No.33/2015-2020 dated 13.10.2017 and clause (xii) in Notification No.18/2015-Cus introduced by Notification No.79/2017-Cus dated 13.10.2017. The court found that these conditions were ultra vires the scheme of the Foreign Trade Policy, 2015-2020, and the Handbook of Procedures. The court noted that the "pre-import condition" was not in line with the provisions of paragraph 4.13 of the Foreign Trade Policy, which specifically listed inputs subject to "pre-import condition." The imposition of the "pre-import condition" on all raw materials imported under Advance Authorisation for the purpose of availing exemption from integrated tax and GST compensation cess was found to be inconsistent with the scheme and objectives of the Advance Authorisation Scheme.

2. Impact of the "pre-import condition" on the Advance Authorisation Scheme:
The court noted that the "pre-import condition" made it nearly impossible for manufacturers-exporters to comply with the Advance Authorisation Scheme. The "pre-import condition" required that the entire materials covered by the Advance Authorisation should be imported first and used in the manufacture of finished goods, which would then be exported. This stringent requirement disrupted the continuous cycle of import-manufacture-export followed by exporters and rendered the benefit of exemption from integrated tax and GST compensation cess illusory.

3. Whether the "pre-import condition" is reasonable and in consonance with the scheme of Advance Authorisation:
The court held that the "pre-import condition" did not meet the test of reasonableness and was not in consonance with the scheme of Advance Authorisation. The court observed that the "pre-import condition" had no nexus with the objective of the Advance Authorisation Scheme, which is to boost exports. The condition was found to be arbitrary and illogical, as it disrupted the established and successful operation of the Advance Authorisation Scheme, which had been functioning without such a condition for many years.

4. Whether the "pre-import condition" serves the objective of the Foreign Trade Policy and the Foreign Trade (Development and Regulation) Act, 1992:
The court found that the "pre-import condition" did not serve the objective of the Foreign Trade Policy and the Foreign Trade (Development and Regulation) Act, 1992. The objective of the policy is to facilitate trade, boost exports, and prevent cash blockage of exporters due to upfront payment of IGST/Compensation Cess on import of inputs. The "pre-import condition" was found to be counterproductive to these objectives, as it created practical difficulties for exporters and led to cash blockage, thereby defeating the purpose of the policy.

5. The retrospective effect of the deletion of the "pre-import condition" by Notification No.01/2019-Cus dated 10th January 2019:
The court noted that the deletion of the "pre-import condition" by Notification No.01/2019-Cus dated 10th January 2019 was a curative amendment in public interest. However, the notification was not given retrospective effect. The court held that the grievances of the petitioners for the period between 13.10.2017 and 9.1.2019 had to be addressed by the court, as the Government could not grant retrospective effect to the notification.

Conclusion:
The court struck down the "pre-import condition" contained in paragraph 4.14 of the Foreign Trade Policy, 2015-2020, and clause (xii) in Notification No.18/2015-Cus, as they were ultra vires the Advance Authorisation Scheme and the Handbook of Procedures. All proceedings initiated for violation of the "pre-import condition" were rendered unsustainable. The petitions were allowed, and the "pre-import condition" was held to be unreasonable, arbitrary, and not in consonance with the objectives of the Foreign Trade Policy and the Foreign Trade (Development and Regulation) Act, 1992.

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