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Issues: (i) Whether the pre-import condition and physical export requirement imposed for exemption from IGST and compensation cess under Advance Authorisation were ultra vires, arbitrary, or contrary to the Foreign Trade Policy; (ii) Whether the later deletion of the pre-import condition by notification dated 10.01.2019 could invalidate the earlier condition for the period it operated.
Issue (i): Whether the pre-import condition and physical export requirement imposed for exemption from IGST and compensation cess under Advance Authorisation were ultra vires, arbitrary, or contrary to the Foreign Trade Policy.
Analysis: Advance Authorisation is a duty exemption scheme intended to permit duty-free import of inputs physically incorporated in export products. The policy and handbook reserved power in the DGFT to impose a pre-import condition for inputs under Chapter 4, and the relevant handbook provisions also restricted exports in anticipation of authorisation where such a condition applied. The GST regime introduced new levies, and the exemption from IGST and compensation cess was extended only with conditions that export obligation be discharged by physical exports and that the imports satisfy the pre-import condition. The Court held that inconvenience to exporters, or the fact that earlier duties had not carried such a restriction, did not make the new fiscal arrangement arbitrary. In fiscal and economic matters, the State enjoys a wide latitude, and the classification between old levies and the new GST-linked levies was not unreasonable.
Conclusion: The condition was held valid and not violative of Article 14 or the scheme of Advance Authorisation.
Issue (ii): Whether the later deletion of the pre-import condition by notification dated 10.01.2019 could invalidate the earlier condition for the period it operated.
Analysis: The later omission of the condition did not confer any retrospective benefit. The Court held that the power to amend the foreign trade policy did not include an implied power to make the amendment retrospective, and a subsequent policy change could not be used to nullify a valid condition for the prior period. Judicial interpretation could not give the later withdrawal retrospective effect where none existed in law.
Conclusion: The later deletion did not affect the validity or enforceability of the earlier pre-import condition for the relevant period.
Final Conclusion: The impugned High Court judgment was set aside, and the Revenue's challenge succeeded; the exporters were left to pursue refund or credit claims in accordance with the procedure directed by the Court.
Ratio Decidendi: In a fiscal policy regime, the State may validly impose a pre-import condition and physical export requirement for a newly introduced exemption, and a later policy withdrawal does not operate retrospectively unless such retrospectivity is expressly authorised.
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