The Gujarat High Court rejected a “pre-import condition” for a business to assert that it was eligible for duty-free imports of inputs under an exemption scheme.
The foreign trade policy of India’s federal government includes various “exemption schemes” (including an advance authorization scheme) that allow duty-free imports of inputs that are typically incorporated in export products. Guidance issued over a number of years related to the duty-exemption schemes and related advance authorization licenses, and one notice in particular allowed an exemption on imported inputs subject to a “pre-import condition.” A view of this condition was that the goods first had to be imported, followed by manufacture and then export of the final products.
A business challenged this position and also challenged the validity of the “pre-import condition” in the advance authorization exemption scheme. It was asserted that if the pre-import condition standard was accepted, then it would mean that the exemption would not be available in situations of a manufacturer-exporter that undertook to manufacture and export goods in a continuous cycle in situations when the goods were manufactured first and then allowed duty-free import of inputs but imported only after the advance authorization license was received.
The high court found the pre-import condition was contrary to the exemption guidelines. As noted by the court, because the time to complete a cycle from receipt of an export order to transport for export to foreign buyers was approximately six months, if the exporter had to manufacture goods for export only after receiving the advance authorization license, then it would not be possible for the exporter to make delivery to the foreign buyer within the “reasonable” delivery period as agreed to and stipulated in the contract.
Thus, the court held that all proceedings initiated for violations of the “pre-import condition” would no longer survive.
Read a March 2019 report [PDF 892 KB] prepared by the KPMG member firm in India
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