Pre-import condition for Advance Authorisation IGST exemption struck down as ultra vires and unworkable.

The Gujarat HC held that the pre-import condition attached to the Foreign Trade Policy, 2015-2020 and the corresponding customs exemption for IGST and compensation cess under Advance Authorisation was invalid. The Court found that the condition, as interpreted by the revenue authorities, made the exemption impracticable for exports undertaken in anticipation of authorisation or in a continuous import-manufacture-export cycle, created an anomaly within the scheme, and lacked a rational nexus with export promotion and trade facilitation. It was therefore struck down as ultra vires the Advance Authorisation framework and the Handbook of Procedures, and action taken solely on that basis could not survive.

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Issues: Whether the pre-import condition introduced in the Foreign Trade Policy, 2015-2020 and the corresponding customs exemption notification, insofar as it made exemption from integrated tax and compensation cess under Advance Authorisation subject to prior import of inputs, was valid and enforceable.

Analysis: Advance Authorisation under the Foreign Trade Policy permits duty-free import of inputs physically incorporated in export goods, and the Handbook of Procedures also permits exports in anticipation of authorisation. The impugned amendment subjected the IGST and compensation cess exemption to a pre-import requirement, and the revenue authorities construed that requirement so strictly that exports made in anticipation of authorisation or on a continuous import-manufacture-export cycle would fail the test. That interpretation made the exemption illusory, created an anomaly between the GST-linked levies and the other customs levies under the same scheme, and had no rational nexus with the object of export promotion or trade facilitation. The subsequent deletion of the condition by the Government also supported the view that the restriction was not warranted in public interest.

Conclusion: The pre-import condition was held to be ultra vires the Advance Authorisation scheme and the Handbook of Procedures and was struck down.

Final Conclusion: The petitions succeeded, the impugned condition was quashed, and action taken solely on the basis of that condition could not survive.

Ratio Decidendi: A fiscal exemption condition that renders an export incentive scheme unworkable and lacks a rational nexus with the object of the scheme is invalid as being unreasonable and ultra vires the parent policy framework.

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