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High Court stays action against some exporters for wrongly availing GST benefits
October, 04th 2018

In what may provide a respite for many exporters, the Gujarat High Court has asked the primary anti-smuggling intelligence agency to not initiate any action against some exporters charged with wrongly availing tax exemptions in cases where exports proceeded imports.

The court, in an interim order on Wednesday, asked the Directorate of Revenue Intelligence (DRI) to not take any coercive action against the petitioners and stayed the proceedings around ‘pre-import’ condition set by the tax

An amendment in the GST law had brought in a pre-import condition that every exporter holding advance authorisation licences must follow to avail duty exemptions. The condition essentially denies IGST benefits to those imports which had happened after exports.

IGST, or integrated goods and services tax, is the GST applicable to interstate transaction of goods and services. The high court bench of Justices Akil Kureshi and BN Karia went into details on the objective and scope of the ‘pre-import condition’, and issued notices to DRI and others.

The court studied the background of the case, starting from a Delhi High Court decision in the case of Narendra Plastic versus Union of India where the order favoured the petitioner that is an advance authorisation license holder.

Advance authorisation licence holders are issued these to allow duty free import of inputs, which are then used to make finished products for exports.

The Gujarat HC also heard the administrative problems faced by the exporters that have been issued the notice, because no matter where they are based they are required to travel to Kolkata for the summons.

“It is very encouraging that the Gujarat High Court ordered that no coercive action can be taken against the petitioners,” said Abhishek A Rastogi, partner at Khaitan & Co law firm, who argued for the petitioners. “The moot point before the court was that the term has not been defined and the objective sought to be achieved by the preimport condition,” he said.

DRI, the country’s primary anti-smuggling intelligence agency, started issuing showcause notices to exporters for wrongfully availing exemptions in cases where exports preceded imports. The notices asked exporters to pay IGST in cases where raw material was imported only after goods were partially or fully exported. The tax department also claimed the exporters must pay IGST first as the foreign trade policy had been amended and several notifications have been issued by the government in the last six months.

“The issue would be keenly contested by DRI and the importer fraternity, given that the implications are substantive,” said Suresh Nair, partner at EY. “Even otherwise, the benefit of appearing before the nearest zonal office of DRI rather than attending summons at Kolkata is a relief which DRI should consider, even without the Court intervention,” he said.

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