Advance Authorisation imports and IGST liability challenged; absence of proof and prospective amendment led to setting aside IGST and penalties

Importers availed Advance Authorisation benefits for raw materials and faced IGST, interest, redemption fine and penalty on the ground that pre-import conditions and one-to-one incorporation into exported goods were not established; the adjudicating authority confirmed demand without adducing documentary proof. The decision finds Revenue failed to prove non-fulfilment of notification conditions, and observes amendments enabling imposition of interest and penalties apply prospectively from 16.08.2024, thus not covering the disputed 20172019 period; consequence: IGST demand, interest, redemption fine and penalty set aside and appeal allowed.

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Issues: (i) Whether imports made under Advance Authorisation during the disputed period satisfy the conditions of Notification No.18/2015-Customs (including pre-import condition) so as to entitle the importer to duty exemption; (ii) Whether interest, redemption fine and penalty can be imposed for IGST demands relating to imports during the disputed period prior to amendment of Section 3 of the Customs Tariff Act, 1975.

Issue (i): Whether duty exemption under Advance Authorisation was properly denied.

Analysis: The records include Export Obligation Discharge Certificates (EODC)/Redemption Letters issued by the Regional Licensing Authority in respect of the Advance Authorisations and Customs authorities cancelled bonds after verification. Accounting of inputs and fulfilment of export obligations are evidenced for the imports in dispute, with only a small admitted shortfall for which duty was paid. The reliance on an absence of one-to-one component-size correlation was evaluated against FTP, HBP and Notification conditions and available redemption documentation.

Conclusion: Duty exemption under Notification No.18/2015-Customs is sustained and the denial of exemption is not justified; the appeal is allowed on this issue in favour of the importer.

Issue (ii): Whether interest, redemption fine and penalty are legally sustainable for the disputed period.

Analysis: The machinery to levy interest, penalties and related enforcement for IGST under Section 3 of the Customs Tariff Act was not in force during the disputed period; the enabling amendment (Finance (No.2) Act, 2024 s.106 amending s.3) is effective from 16.08.2024. Prior to that amendment, the statutory scheme did not borrow Customs Act machinery to impose interest and penalty on IGST for the relevant period.

Conclusion: Interest, redemption fine and penalty imposed for the IGST demands relating to the disputed period are not sustainable and are set aside in favour of the importer.

Final Conclusion: The adjudged demands, including IGST demand to the extent covered by accepted EODCs and the consequential interest, redemption fine and penalties, are set aside; the appeal is allowed and relief granted to the importer.

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