2026-VIL-1577-CESTAT-HYD-CU
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CUSTOMS CESTAT Cases

Customs – IGST Exemption under Advance Authorisation Scheme – Pre-import Condition – Appellant was engaged in manufacture and export of Basic Chromium Sulphate, Chromic Acid and Chrome Oxide Green and imported inputs under Advance Authorisation claiming IGST exemption – During the period from 13.10.2017 to 10.01.2019, a pre-import condition was introduced which required that before availing exemption from IGST, the import of corresponding raw materials must precede the export of finished products – Department alleged that in respect of certain imports, exports of finished products had preceded the corresponding imports of raw materials and therefore appellant had violated the pre-import condition – Appellant contended that export obligations had been discharged as evidenced by issuance of Export Obligation Discharge Certificates and therefore entire demand must disappear – Whether the fulfilment of export obligation by itself can erase the breach of pre-import condition where such breach is otherwise established – HELD – The pre-import condition applicable during the relevant period was valid and the Hon'ble Supreme Court in Union of India Vs Cosmo Films Ltd., has upheld the validity of the pre-import condition. The fulfilment of the export obligation by itself cannot erase the actual breach of the specific pre-import condition where such breach is otherwise established. The subsequent regularisation mechanism provided under CBIC Circular No. 16/2023-Cus dated 07.06.2023 and Trade Notification No. 07/2023-24 issued by DGFT expressly recognises that imports under the Advance Authorisation Scheme made from 13.10.2017 to 09.01.2019 which could not satisfy the pre-import condition may be regularised by making payment as prescribed. The appellant cannot claim complete immunity from payment of IGST merely on the ground that the import obligation under the Advance Authorisations was subsequently fulfilled. To the extent the pre-import condition was factually violated, the IGST is required to be regularised in accordance with the procedure prescribed pursuant to Cosmo Films Ltd. – The appeal cannot be allowed on the ground that export obligations have been discharged but the matter requires fresh determination on re-assessment on Bill of Entry-wise and raw material-wise basis - the appeal is partly allowed and partly remanded - Customs – IGST Demand – Quantification Methodology – Advance Authorisation – Appellant challenged the quantification of IGST demand at Rs. 5,77,38,576/- computed by Adjudicating Authority on an authorisation-wise basis treating the entire Advance Authorisation as one unit without examining each raw material and each Bill of Entry separately – Appellant quantified the IGST at Rs.1,78,38,015/- without prejudice and also contended that the pre-import condition should be examined in relation to the actual import and export correlation for each raw material – Whether the Adjudicating Authority was correct in adopting the methodology of quantifying demand on the basis of the entire Advance Authorisation without Bill of Entry-wise and raw material-wise examination – HELD – The pre-import condition cannot be examined in the abstract for the entire Advance Authorisation without correlating the individual raw material, its import, the corresponding exported product and the chronology relevant to that particular material. The finding that export should be treated as satisfying the pre-import requirement only when at least one consignment of every raw material in an Advance Authorisation has already been imported requires reconsideration. Such an approach may artificially deny exemption even in respect of a raw material which had admittedly been imported before its corresponding export. The violation has to be determined having regard to the actual import-export correlation and the wording of the applicable notification. The plea concerning clubbing of Advance Authorisations cannot be ignored. Where the competent DGFT authority has permitted clubbing and the relevant procedure provides that the clubbed authorisations shall be treated as one authorisation for the prescribed purposes, the Customs Authorities are required to take the legal effect of such clubbing into account while quantifying the liability. The impugned order does not satisfactorily deal with this aspect – The figure of Rs. 5,77,38,576/- cannot be sustained merely on the basis of the methodology adopted in the impugned order without a fresh Bill of Entry-wise and raw material-wise exercise. The matter is remanded to the Appraising Authority for limited purpose of requantification on re-assessment basis - Customs – Interest, Confiscation, Redemption Fine and Penalty – IGST on Breach of Pre-import Condition – Adjudicating Authority imposed interest under Section 28AA, ordered confiscation under Section 111(o), imposed redemption fine of Rs. 4,00,00,000/- under Section 125 and penalty under Section 114A – Appellant contended that during the relevant period 2017-19, Section 3(12) of the Customs Tariff Act, 1975 incorporated provisions of the Customs Act only in relation to recovery of duties and taxes and did not provide the substantive machinery for levy of interest, confiscation, redemption fine and penalty in relation to IGST levied under Section 3(7) of the Customs Tariff Act – Whether interest, confiscation, redemption fine and penalty could be sustained for IGST liability arising from breach of pre-import condition during the relevant period – HELD – The Bombay High Court in the case of AR Sulphonates Pvt Ltd., examined the statutory framework governing imports which violated the pre-import condition prior to the subsequent legislative amendment and found that there was no statutory authority for consequential levy of interest and penal consequences during the relevant period. The Ahmedabad Tribunal in the case of Chiripal Poly Films Ltd., in the context of the very same pre-import condition dispute, held that in the absence of a specific statutory provision authorising levy of interest in IGST paid through the regularisation procedure, such interest could not be sustained. These authorities are applicable to the present dispute pertaining to the period 2017-19. The Revenue cannot impose a fiscal or penal liability merely by borrowing machinery provisions, unless the substantive statute creating the levy so authorises. Apart from the statutory issue, the case arises from interpretation and implementation of a temporary pre-import condition which remained in force only from 13.10.2017 to 09.01.2019 and thereafter became subject matter of extensive litigation. Mere breach of the pre-import condition by itself cannot automatically be equated with suppression or wilful misstatement. The records disclosed the Advance Authorisation numbers in the Bills of Entry and Shipping Bills and these circumstances do not justify sustaining the penalty in the manner imposed – The demand of interest under Section 28AA, confiscation under Section 111(o), redemption fine of Rs. 4,00,00,000/- under Section 125 and penalty under Section 114A are set aside.
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