The Hon’ble Supreme Court (SC), vide the order dated 28 April 2023 [TS-162-SC-2023-GST]1, upheld the validity of ‘pre-import condition’ (as incorporated in para 4.14 of the Foreign Trade Policy 2015-20 (FTP), vide the DGFT Notification no:33/2015-20 dated 13 October 2017) and held that goods imported under the Advance Authorisation (AA) scheme will be exempt from whole of the Integrated Goods and Services Tax (IGST) and GST Compensation Cess (Cess) only on fulfilment of the pre-import condition.
Further, the SC had also directed the Tax Authorities to allow refund or input tax credit (ITC) of IGST and Cess, as the case maybe, payable by the Respondents (in the aforesaid matter). For this, the Respondents were required to approach the jurisdictional Commissioner and provide the relevant documents within 6 weeks of the aforesaid judgement in case of past imports where IGST and Cess was paid, and the tax authorities were directed to issue a circular for appropriate procedure in this regard.
Pursuant to the above, the Central Board of Indirect Taxes and Customs (CBIC) has issued a circular in this regard which observes the following:
- The ICES portal does not have the functionality for payment of customs duty on a Bill of Entry (BoE) (except in case of provisional assessment) after giving Out-of-Charge (OoC) to the goods. Accordingly, in such a situation, duties can only be paid through TR-6 challan.
- Under the GST law, ITC of IGST and Cess can only be availed based on the BoE and not based on the TR-6 challan.
- The facility for suo moto payment of customs duty in case of bona fide default in export obligation (in terms of Circular no:11/2015 dated 01 April 2015) is inadequate to transfer of relevant details between Customs and GSTN for availing ITC by the importer.
- Section 143AA of the Customs Act, 1962 empowers CBIC, for facilitation of trade, to take measures for a class of importers-exporters or categories of goods to inter alia maintain transparency in import documentation.
Keeping the above in view and considering that the order of the SC will also have bearing on the importers other than the Respondents as well, the following procedure is to be adopted at the Port of Import (POI) to give effect to the directions by the SC:
- The importers (including the Respondents as well as others, who did not fulfil pre-import condition) should approach the concerned assessment group at the POI, with relevant details for payment of IGST and Cess along with applicable interest.
- The assessment group at the POI will cancel the OoC to the goods and in the remarks field, mention the reason for cancellation i.e., the BoE will be assessed again to charge the IGST and Cess as per the aforesaid judgement.
- The importer would discharge applicable IGST and Cess along with interest against the challan generated in the EDI system.
- After the payment, the POI will make a notional OoC for the BoE on Customs EDI system to enable transmission to GSTN portal of, inter alia, the IGST and Cess along with their date of payment (relevant date) for eligibility as per GST provisions, enabling the importer to avail the following benefits:
- Claim ITC on such imports, subject to the provisions of Sections 16 to 18 of the Central Goods and Services Tax Act, 2017 (CGST Act).
- Where such ITC is utilized for payment of IGST on outward zero-rated supply, then the benefit of refund will be available subject to the relevant provisions of the CGST Act.
- The aforesaid procedure can be applied once to a BoE.
BDO India Comments
The issuance of the Circular, clarifying the process to be adopted for payment of tax (IGST and Cess) and its consequential claim of ITC, is a welcome move. It is important to note that the CBIC has taken a trade friendly view in respect of this matter and has made the process applicable to all the concerned importers, instead of making it applicable only to the Respondents before the SC. This addresses the uncertainty about availability of ITC to the importers, who were not a party before the SC.
While the importers may discharge applicable IGST and Cess along with interest and claim ITC in respect of IGST and Cess, the interest component would be an incremental cost. For this, the importers may evaluate the possibility of claiming refund of interest by applying the ratio of the Hon’ble Bombay High Court decision in Mahindra and Mahindra Ltd. Vs. Union of India [2022-TIOL-1319-HC-MUM-CUS].
[Source – Circular no:16/2023-Customs dated 07 June 2023]
1 Our analysis on this ruling can be accessed here.
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