Many Indian exporters approached the Delhi High Court last week against the government for not extending the benefits of EPCG (Export Promotion Capital Goods) scheme to goods and services tax (GST) regime.

The exporters claimed that some of the services that were earlier allowed under the EPCG scheme were discontinued under the GST regime. According the exporters, the government has set some conditions if exporters were to claim benefits of the scheme.

These amendments meant that some exporters were unable to meet export obligations resulting in losing out on the benefits of the EPCG scheme under which an exporter can import certain amount of capital goods without paying any duty for upgrading technology related with exports. “The incentives announced prior to GST have been curtailed in some form and may be unintentional in various cases, thereby raising the situation of court intervention. It is impossible to meet the obligation for the EPCG licence issued prior to GST regime, the principle of supervening public interest will have to be tested,” argued Abhishek A Rastogi, partner at Khaitan & Co.

In October, the government, through an EPCG notification, gave some leeway but created some problems for certain section of the exporters. Directorate General of Foreign Trade extended the timeline for availing benefits of the EPCG scheme by six months through a notification.

The notification meant that exporters were required to make sure that the average export obligation is maintained during a time. The specified services that qualified to meet export obligation have been removed. “Various issues of notification have been a subject matter of judicial review on various legal parameters,” said Rastogi. This is the second time the exporters moved the court after some benefits available under the earlier tax regime were not transitioned under GST.

Giving respite to several exporters issued notices by the tax department, the Madurai bench of the Madras HC held that pre-import conditions led to absurdity and were not relevant when the exporter had already exported the goods. The issue pertained to the tax treatment of transactions where exporters ship the finished products before import of raw material and then claim the benefits. The Directorate of Revenue Intelligence, India’s primary anti-smuggling intelligence agency, started issuing show-cause notices to exporters for wrongfully availing exemptions in cases where exports preceded imports.