SUPREME COURT ON COMPENSATION CESS

[Dr. Sanjiv Agarwal]

 

Title	UNION OF INDIA & ORS. VERSUS COSMO FILMS LIMITED - 2023 (5) TMI 42 - SUPREME COURT
Decision	Revenue Appeal allowed
Provision involved	Section 6 of IGST Act, 2017 Section 2(22) and 11 of CGST Act, 2017

Gist of Case

In the instant case, revenue filed an appeal against Gujarat High Court order in MESSRS MAXIM TUBES COMPANY PVT LTD. VERSUS UNION OF INDIA - 2019 (2) TMI 1445 - GUJARAT HIGH COURT, wherein mandatory fulfillment of pre import condition was set aside. The GST regime was introduced with effect from 1-7-2017. However, no amendment was made to Notification No. 18/2015-Customs with respect to IGST and compensation cess, resulting in the collection of these levies for the inputs imported into India against AAs. On 13-10-2017, six existing notifications were amended. Notification No. 79/2017-Customs amended Notification No. 18/2015-Customs by granting IGST and compensation cess exemption.

At the same time, Notification No. 33/2015-2020 was issued, amending various provisions of the FTP, whereby this ‘pre-import condition’ was incorporated in paragraph 4.14 thereof with effect from 13-10-2017. The writ petitioners before the High Court/respondents herein claimed that they were unaware about this condition, and continued exports in anticipation of grant of AA, and consequently expected exemption from all custom duty levies, including IGST and compensation cess.

In view of this development, the exemption granted by Notification No. 18/2015-Customs was inadmissible where manufacturer-exporters, who undertook manufacturing and export of goods in a continuous cycle, could not prove the above. Exemption was also not admissible when goods manufactured were exported in anticipation of licence/authorisation, since they were exports made first, with duty-free import against the authorisation having been undertaken later. Consequently, the manufacturer-exporters aggrieved by this interpretation approached the High Court.

The following is the summary of judgment of Apex Court allowing the appeal of Union of India:

• Exemption from levy of IGST under section 3 (7) and compensation cess leviable under section 3 (9) of Customs Tariff Act, 1975 were subject to the conditions that the export obligation shall be fulfilled by physical exports only and shall also be subject to ‘pre-import condition’.
• Mandatory fulfilment of ‘Pre-import condition’ incorporated in Foreign Trade Policy of 2015-2020 and Handbook of Procedures 2015-2020 through Notification No. 33/2015-20 and Notification No. 79/2017-Customs, both dated 13-10-2017 for availing exemption from IGST and GST compensation cess, can not be characterized as arbitrary or unreasonable.
• The introduction of the ‘pre-import condition’ may have resulted in hardship to the exporters, because even whilst they fulfilled the physical export criteria, they could not continue with their former business practices of importing inputs, after applying for Advance Authorization (AA), to fulfil their overseas contractual obligations.
• Inconvenience or hardship is not a ground for the court to interpret the plain language of the statute differently, to give relief.
• The exemption from the requirement of pre import conditions continues in respect of the old levies, which are, even as on date, not part of the GST regime. That clearly sets them apart from the new levies, the payment of which is insisted (after which refund can be sought) as a part of a unified system of levy, assessment, collection, payment, and refund.
• When reform by way of new legislation is introduced, the doctrine of classification cannot be applied strictly, and that some allowance for experimentation, to observe the effect of the law, is available to the executive or legislature.
• There is no constitutional compulsion that whilst framing a new law, or policies under a new legislation - particularly when an entirely different set of fiscal norms are created, overhauling the taxation structure, concessions hitherto granted or given should necessarily be continued in the same fashion as they were in the past.

When reform by way of new legislation is introduced, the doctrine of classification cannot be applied strictly, and that some allowance for experimentation, to observe the effect of the law, is available to the executive or legislature. This was emphasized in STATE OF GUJARAT VERSUS AMBICA MILLS LTD. AHMEDABAD - 1974 (3) TMI 108 - SUPREME COURT

There is no constitutional compulsion that whilst framing a new law, or policies under a new legislation, particularly when an entirely different set of fiscal norms are created, overhauling the taxation structure, concessions hitherto granted or given should necessarily be continued in the same fashion as they were in the past. When a new set of laws are enacted, the legislature’s effort is to on the one hand, assimilate- as far as practicable, the past regime. On the other hand, the object of the new law is creation of new rights and obligations, with new attendant conditions. Inevitably, this process is bound to lead to some disruption. In this case, the disruption is in the form of exporters needing to import inputs, pay the two duties, and claim refunds. Yet, this inconvenience is insufficient to trump the legislative choice of creating an altogether new fiscal legislation, and insisting that a section of assessees order their affairs, to be in accord with the new law. Therefore, the exclusion of benefit of imports in anticipation of AAs, and requiring payment of duties, under sections 3 (7) and (9) of Customs Tariff Act, 1975, with the ‘pre-import condition’, cannot be characterized as arbitrary or unreasonable.

The impugned order of Gujarat High Court were therefore, set aside with the direction that interim orders permitting the refund claim be allowed till the judgment was delivered.