IGST liability for pre-import-condition breaches must be re-quantified Bill-of-Entry and raw-material-wise.

The appellant manufactured and exported Basic Chromium Sulphate, Chromic Acid and Chrome Oxide Green.

Between 13 October 2017 and 10 January 2019, it imported inputs under four Advance Authorisations and claimed IGST exemption under Notification No. 18/2015-Cus, as amended by Notification No. 79/2017-Cus, which introduced a pre-import condition for IGST exemption under the Advance Authorisation Scheme.

The Directorate of Revenue Intelligence alleged that certain exports had preceded the corresponding imports of raw materials, thereby violating the pre-import condition, and proposed recovery of IGST on 70 Bills of Entry.

The Principal Commissioner recomputed and confirmed IGST demand of ₹5,77,38,576 under Section 28(8) of the Customs Act, 1962, with interest under Section 28AA, and ordered confiscation, redemption fine of ₹4 crore and penalty under Section 114A.

The appellant contended that its export obligations had been fulfilled and the relevant authorisations had been redeemed or closed by the DGFT; alternatively, it challenged the authorisation-wise “last raw-material” method of quantification and asserted that its IGST liability was only ₹1,78,38,015.

1. Whether subsequent fulfilment of export obligations and issuance of EODCs or redemption of Advance Authorisations completely extinguished the IGST liability arising from breach of the pre-import condition?

2. Whether the alleged breach of the pre-import condition was required to be determined on a Bill of Entry-wise and raw-material-wise basis, including consideration of DGFT-approved clubbing of authorisations and the actual import-export chronology?

3. Whether interest, confiscation, redemption fine and penalty could legally be imposed in respect of the IGST liability arising from the alleged breach during the relevant period?

4. Whether the extended period of limitation was properly invocable in the circumstances of the case?

The Tribunal applied the pre-import condition contained in Notification No. 18/2015-Cus, as amended by Notification No. 79/2017-Cus, and held that its validity for the relevant period had been conclusively upheld by the Supreme Court in Union of India v. Cosmo Films Ltd., 2023 (5) Centax 286 (SC).

Subsequent fulfilment of export obligations does not, by itself, cure an established breach of the specific pre-import condition.

The Tribunal also considered CBIC Circular No. 16/2023-Cus dated 7 June 2023 and DGFT Trade Notification No. 07/2023-24, which prescribed a regularisation mechanism for imports made during the relevant period that did not satisfy the pre-import requirement.

In relation to consequential liabilities, the Tribunal relied on AR Sulphonates Pvt. Ltd. v. Union of India, GTN Engineering (India) Ltd. v. Principal Commissioner of Customs (Adjudication), Chiripal Poly Films Ltd. v. Commissioner of Customs, Ahmedabad, Sakar Industries Pvt. Ltd., and Suryadev Alloys and Power (P) Ltd. v. Principal Commissioner of Customs (Audit), Chennai, holding that interest, confiscation, redemption fine and penalty cannot be imposed merely by borrowing machinery provisions unless the substantive statutory framework authorises such levies in relation to the IGST liability.

The Customs authorities were also required to consider the legal effect of DGFT-approved clubbing of Advance Authorisations while determining liability.

The Tribunal rejected the appellant’s broad submission that EODCs, redemption or closure of the Advance Authorisations automatically eliminated the IGST liability.

Since Cosmo Films upheld the pre-import condition, an actual breach could still attract regularisation of IGST.

However, the Tribunal found that the adjudicating authority had quantified the demand using an authorisation-wise methodology instead of correlating each raw material with its actual import date, the corresponding export and the quantity attributable to exports made before import.

For example, if Chrome Ore had been imported before the first export of the finished product using that material, exemption could not be denied merely because other materials under the same authorisation were imported later.

The adjudicating authority had also failed to properly consider DGFT-approved clubbing of authorisations and the appellant’s supporting EODCs, redemption certificates and records.

The Tribunal therefore held that the confirmed figure of ₹5,77,38,576 could not stand.

Separately, in view of the statutory framework applicable during 2017–19, the regularisation mechanism, and the litigation surrounding the temporary pre-import condition, the Tribunal held that interest, confiscation, redemption fine and penalty were unsustainable.

The limitation question was left open for fresh consideration, with a direction to examine whether the ingredients of suppression or wilful misstatement were specifically alleged and proved.

Nevertheless, the IGST liability was required to be freshly determined through Bill of Entry-wise and raw-material-wise reassessment, taking into account the actual import-export chronology, quantities attributable to prior exports, DGFT-approved clubbing, EODCs or redemption certificates, the appellant’s self-computation of ₹1,78,38,015, and the regularisation procedure under Circular No. 16/2023-Cus.

The confirmed demand of ₹5,77,38,576 was set aside for the purpose of re-quantification and the matter was remanded to the Appraising Authority after granting a reasonable opportunity of hearing.

No interest was held leviable on the reassessed amount.

The orders imposing interest under Section 28AA, confiscation under Section 111(o), redemption fine of ₹4 crore under Section 125 and penalty under Section 114A were set aside.

The appeal was partly allowed and partly remanded.