Union of India and Others v. Cosmo Films Limited

Case snapshot

Sections / provisions: GST statutory provision - Section 2; GST statutory provision - Section 3; GST statutory provision - Section 3(1); GST statutory provision - Section 3(7); GST statutory provision - Section 3(9); GST statutory provision - Section 5; GST statutory provision - Section 8; GST statutory provision - Section 25

Questions before the Court / Tribunal

• Issue and context: At the same time, Notification No. 33 / 2015-2020 was issued, amending various provisions of the F TP, whereby this ‘pre-import condition’ was incorporated in paragraph 4.14 thereof with effect from 13.10.2017. The writ petitioners before the High Court / respondents herein claimed that they were unaware about this condition, and continued exports in anticipation of grant of AA, and consequently expected exemption from all custom duty levies, including IGST and compensation cess. Operative disposition: For the foregoing reasons, this court holds that the Revenue has to succeed. The impugned judgment and orders of the Gujarat High Court are hereby set aside. However, since the respondents were enjoying interim orders, till the impugned judgments were delivered, the Revenue is directed to permit them to claim refund or input credit (whichever appliable and/or wherever…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

WITH CIVIL APPEAL NO(S). 298 OF 2023 CIVIL APPEAL NO(S). 303 OF 2023 CIVIL APPEAL NO(S). 297 OF 2023 CIVIL APPEAL NO(S). 296 OF 2023 CIVIL APPEAL NO(S). 295 OF 2023 CIVIL APPEAL NO(S). 294 OF 2023 CIVIL APPEAL NO(S). 293 OF 2023 CIVIL APPEAL NO(S). 292 OF 2023 TRANSFER PETITION (CIVIL) NO(S). 1526 OF 2020

1. These appeals are directed against a judgment and order of the Gujarat High Court, 1 wherein mandatory fulfilment of a ‘pre-import condition’ 2 incorporated in the Foreign Trade Policy of 2015-2020 (“FTP”) and Handbook of Procedures 2015 -2020 (“HBP”) by Notification No. 33 / 2015 -20 and Notification No. 79 / 2015-Customs, both dated 13.10.2017, w as set aside . According to the High Court, such fulfilment in order to claim exemption of Integrated Goods and Services T ax (“IGST”)3 and GST compensation cess4 on input imported into India for the production of goods to be exported from India, on the strength of an advance authorization 5 (“AA”) was arbitrary and unreasonable. I. Background 2. In terms of the Foreign Trade ( Development & Regulation) Act, 1992 (“FTDRA”) the Central Government (“Union”) had been framing, from time to time, Export -Import Polic ies (or FTPs) for the development, regulation and control of imports and exports in the country. The Union announced duty

13. It was noted that while the ‘pre -import condition’ was levied on duties collected under Sections 3 (7) and (9) of the Customs Tariff Act, 1975, in respect of the levies under Sections 3 (1), (3) and (5) no ‘pre-import condition ’ was imposed. The result was that if the impor ter wanted benefit of exemption from the levy of integrated tax and compensation cess, the fact that other levies were not subject to ‘pre-import condition’ was immaterial because the same inputs

14. The court also concluded that though paragraph 4.27 of H BP clearly permitted exports in anticipation of authorisation by endorsing the file number or authorisation number to establish co -relation of export/supplies with authorisation issued, the Revenue wished to treat such permissible imports made in anticipation of authorisation as replenishment. This was despite the fact that for the purpose of exemption from the other levies imposed under Sections 3(1),

paradox, was based on the wrong set of facts, and was contrary to the provisions of the law. 18. It was argued that the High Court erred in setting aside paragraph 4.14 of the F TP and the corresponding provision s of the customs notification s, that imposed ‘pre-import’ and ‘physical export ’ conditions, and held that the contention of physical incorporation of the duty -free materials under paragraph 4.03 of the FTP was contrary to paragraph 4.27 of the H BP which specifically allowed imports in anticipation of authorization. The observation of the court was without merit. The court erroneously granted primacy to paragraph 4.27 of the HBP over paragraph 4.03 of the FTP, when infact the FTP had pre-eminence over the HBP for laying down the procedures to be followed by an exporter or importer in terms of paragraph 1.03 of the FTP. Therefore, provision of the HBP could not override the FTP in case of a conflict. It was argued that paragraph 4.27(d) limited and confined the scope of paragraph 4.27(a). The moment paragraph 4.27(d) came into picture, paragraph 4.27(a) became inoperative. 19. It was also urged that there was no conflict between paragraph 4.03 of the FTP and that of 4.27(a) of the HBP. The scope and field of operation of individual paragraphs were completely different. Paragraph 4.03(a) of the F TP provided that: “(a) Advance Authorisation is issued to allow duty free import of input, which is physically incorporated in export product (making normal allowance for wastage). In addition, fuel, oil, catalyst which is

Appellant / petitioner / assessee submissions

The judgment does not separately label this side’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Revenue / respondent submissions

7. The Revenue contended that exemption from paying duty was not a matter of right, and was granted by the State keeping in mind general public interest. The criterion for determination of legality of any notification was always whether the authority acted within its jurisdiction while issuing such notification or not, and not if the Union benefitted from the same . The Revenue contended that exporters were free to export first and import at a later stage in terms of paragraphs 4.27 and 4.28 of the H BP. Those provisions however did not offer absolute freedom to the importers to regulate their imports and exports without complying with other conditions imposed in the policy and the relevant customs notification. The provisions were an exception, to keep the option open for

willing exporters, subject to the condition that it would be availed at the ir risk. Further, exercising the option was available only when either of the ‘pre-import conditions’ was not fixed in the SION8, or exporters were willing to first fulfil their export obligation. As the process of fixing norms was time consuming, the provisions granted an opportunity to importers to export in advance, at the risk of not being considered towards discharge of export obligation. 8. The Revenue submitted that before the introduction of the GST regime, imports allowed under AAs were exempt from payment of many duties. 9 Thereafter, CVD and SAD were subsumed in IGST. Under Section 3 of the Customs Tariff Act, 1975 , IGST was made payable at specified rate s upon imports. However, a major change that was brought into the policy was to not allow exemption from payment of IGST directly at the time of import under AA. Such exemption was allowed indirect ly by allowing refund of IGST paid at the time of imports under AA within a specified time. The importers, therefore, started paying IGST on goods imported under AA with effect from 1.7.2017, and were getting outright exemption from BCD, ADD, safeguard duty, etc., and IGST paid was refunded. The legislative intent was clear in imposing IGST on all imports made under AAs, on or after 1.7.2017, without differentiating between the status of such authorisations, whether or not it was issued prior to or after

the importer could avail the benefit of export in anticipation of authorization. The Revenue contended that therefore paragraph 4.03 of FTP was not in conflict with paragraph 4.27 of the HBP. In the absence of 4.27(d), these two provisions were considered as complementary rather than in conflict. By inserting 4.27 (d), the intent was clarified that the importer ha d to follow the provision of paragraph 4.03 of the FTP. 21. It was urged that the High Court erred in holding that ‘pre-import condition’ had to be in respect of inputs, mentioned in paragraph 4.13 of the FTP, which was not so in the present case. The court’s insistence that pre-import goods were to be specifically mentioned under paragraph 4.13 of the FTP, it was submitted, was misplaced. The Revenue pointed out that paragraph 4.13 (1) itself left the issue of which inputs was to be subjected to ‘pre import condition’ open to the DGFT to notify:15 "DGFT may, by Notification, impose pre -import condition for inputs under this Chapter."

adopted as the basis of classification must have a rationale or reasonable nexus with the object sought to be achieved by the statute in question. 32. Counsel argued that the High Court concluded, correctly, that the introduction of the ‘pre-import condition’ was an instance of class legislation. The Union meted out differential treatment to the same class of license holders by enabling only certain class of license holders to avail the IGST benefit. This was because those who fulfil led the export obligation before importing the goods were denied the opportunity to avail the benefit of IGST exemption. 33. The imposition of ‘pre-import condition ’ on AAs issued prior to 13.10.2017 placed the exporter-respondents in the shoes of any importer who did not hold any license. The respondents had imported the goods after fulfilling the corresponding export obligation . It was impossible to fulfil the ‘pre-import condition’ mandated for old AAs through a retrospective application of an amendment in the i mpugned notifications, even though the respondents could demonstrate that all imported goods were subsequently used for manufacturing export products. 34. Learned counsel for the respondents highlighted that there was no reason for differential treatment of BCD and IGST under the AA scheme. When the levy of IGST on imported goods was treated like the levy of BCD, there was no reason why the unconditional exemption of BCD granted to license holders under the scheme c ould not be extended to the IGST exemption available for goods imported under the same scheme. This differential treatment meted out to

Court / Tribunal analysis and reasoning

the importers, who followed those two conditions, even in respect of the AAs issued to them earlier. A cut-off date would have made exporters ineligible for the benefit. Therefore, policy makers, in their own wisdom, kept the door open for the eligible importers, to enjoy the benefit, irrespective of the date / period of issuance of AA, subject to compliance with the conditions imposed. 10. The Revenue further stated that paragraph 4.13 of the FTP had been in existence under different paragraphs in different policy periods for years. Since 2003, all drug companies h ad been importing their raw materials sourced from unregistered sources, under the ‘ pre-import condition ’. Silk in any form, raw sugars, natural rubbers, tea, spices and precious metals etc., were allowed to be imported under ‘pre-import condition’ only. The ‘pre-import condition’ was inbuilt within the AA scheme itself under paragraph 4.03 of the policy. 11. Additionally, the AA scheme was not a replenishment scheme. Were it so, the DGFT would not have l aunched other schemes like ‘Duty-Free Incentive Scheme’, which allowed exports prior to import, and transferable licences under the FTP. To prevent cash blockage of exporters due to upfront payment of IGST and compensation cess on imports of inputs, the exemption from their payment was granted, subject to ‘pre-import condition’. In case of replenishment imports after exports, the issue of cash blockage did not arise. Since exports had already taken place and GST legislation provide d for complete zero -rating, extending IGST exemption on replenis hment imports would imply double benefit to the

authorisation holder. Therefore, the AA holders were not adversely affected and not prejudiced by the impugned notification s. The IGST paid on replenishment material could be availed as input tax credit for payment of GST.

were subject to it. This resulted in inputs being subject to ‘pre-import condition’ in respect of all the levies . The High Court then took note of the objects of the FTDRA and the FTP, and the subsequent Notification No. 01/2019-Cus dated 1001-2019, whereby condition (xii) was omitted . The court held that the Union found it to be in public interest not to continue with the ‘pre-import condition’, for availing exemption from IGST and compensation cess leviable on material imported against an AA. This, according to the impugned judgment, vindicated the exporter/respondents’ stand. It was held accordingly that: “The condition of pre -import militates against the Advance Authorisation Scheme and therefore, the impugned condition (xii) in Notification No. 18/2015 -Cus dated 1st April, 2015 i ntroduced vide Notification No. 79/2017 : MANU/CUST/0095/2017 dated 13th October, 2017 as well as the amendment in paragraph 4.14 of the Foreign Trade Policy made vide Notification No. 33/2015 -2020 dated 13th October, 2017, to the extent the same imposes a "pre-import condition" in case of imports under Advance Authorisation for physical export for exemption from the whole of the integrated tax and GST compensation cess leviable under sub -section (7) and sub -section (9) respectively, of section 3 of the Customs Tariff Act, do not meet with the test of reasonableness and are also not in consonance with the scheme of Advance Authorisation”.12

15. Mr. N. Venkatraman, learned Additional Solicitor General ( “ASG”) appearing for the Union, urged that the essence of the AA was that the exporters were expected to import duty-free materials first, and use them for the purpose of manufacture of products to be exported out of India or be supplied under deemed export, if allowed by the FTP or the customs notifications. This aspect of physical incorporation of input materials in the export goods was covered under paragraph 4.03 of the FTP, which specifically demanded physical incorporation of imported materials in export goods which was possible only if imports were made prior to export. Therefore, such authorizations principally had an inbuilt ‘pre-import condition’ which had to be followed. Paragraph 4.27 of the HBP for the relevant period allowed exports / supplies in anticipation of an authorization. This was an exception, to meet requirement in case of exigencies. However, importers and

exporters were availing the benefit of th at provision without exception and the export goods were made out of domestically or otherwise procured materials and duty-free imported goods were used for purposes other than for the manufacture of the export goods. Paragraph 4.27 (d) of the HBP barred benefit of exp ort in anticipation of authorization for the inputs with ‘pre-import condition’. The ASG contested the exporters’ argument that there was no change in paragraph 4.27 of HBP and that it merely imposed conditions in terms of paragraph 4.14 of the FTP by way of ‘pre-import condition’. 16. It was stated that under paragraph 4.27(d), exports / supplies made in anticipation of authorisation were not eligible for inputs with ‘pre-import condition’. That meant that t he moment input materials were subject to ‘preimport condition’, they were ineligible for export in anticipation of authorization, by virtue of paragraph 4.27 (d). Therefore, the respondent pleaded based on wrong notion and understanding and knowledge of the relevant provisions, and the High Court erroneously relied upon such an incorrect submission. 17. It was argued that paragraph 4.27 (a) & (b), i.e., export in anticipation of authorization and the ‘pre-import condition’ on the input materials were mutually exclusive and could not go hand in hand. The impugned order did not take into consideration this aspect of paragraph 4.27(d). Therefore, holding ‘pre-import condition’ as unreasonable as the same was in contrast with paragraph 4.27 (a) and also that the Government did not take enough care to eradicate such apparent

20. The object and spirit of the AA scheme to allow duty free import of input, which was to be physically incorporated in export product , was clear. The relevant customs notifications too, referred to paragraph 4.03, which provided that the AA was issued in terms of its provision for extending exemption. The provision of physical incorporation of the inputs in the export goods, was necessary for the purpose of the scheme, for two reasons. One, that input materials actually imported were to be physically incorporated in the export goods and two, that the goods physically incorporated in the export goods only could be imported as input. As far as the first situation was concerned, there was no question of replenishment, because the inputs imported be came part of the exports. Such goods were to be imported prior to the commencement of export to enable the importer to manufacture finished goods from them. Therefore, for one had to follow the ‘pre-import condition’ and at the same time they could not avail the benefit of export in anticipation of authorization. In the second situation however, the importer could use materials procured otherwise, instead of duty -free materials to manufacture export goods, but the nature of materials (so procured) had to be identical in all respects with the input materials to be imported. In other words, materials which were to be used in export goods could only be allowed for import. In this case, there was no need to follow the ‘pre-import condition’ -

Operative decision and relief

four corners thereof but otherwise fulfilled the criteria laid down by this court in P. J. Irani v. State of Madras26. The court held that if by a notification, the Act was effaced, it was liable to be struck down. 37. It was submitted that the entire AA scheme was effaced by virtue of the ‘pre-import condition’ and therefore, such condition was required to be struck down. Reliance was placed upon Laxmi Khandsari (supra), where the court held that in imposing restrictions, the State ought to adopt an objective standard amounting to social control by restricting t he rights of the citizens ·where the necessities of the situation demand. When the validity of a law placing restrictions upon the exercise of fundamental rights in Article 19(1) (g) is challenged, the onus of proving to the satisfaction of the court that the restriction is reasonable lies upon the State. It was submitted that this is not a case of first - time exemption. As the Union sought to place restrictions, it had to show that the conditions were remedial and necessary. It was hence contended that as there was no rationale behind introducing the ‘pre-import condition’ (which had no nexus with the object sought to be achieved by the AA scheme), it violated Article 19(1) (g) of the Constitution, and was accordingly set aside.

Such a transformation cannot be painless; disruptions – especially in the beginning will be felt. Yet, that in the process of unification, if a certain section of the business is inconvenienced, and would have to pay taxes (which exist as levies, newly introduced) and conditions are imposed upon their ability to freely import inputs (for the purpose of export), this alone cannot lead the court to conclude that such a change is unreasonable or arbitrary. 75. For the foregoing reasons, this court holds that the Revenue has to succeed. The impugned judgment and orders of the Gujarat High Court are hereby set aside. However, since the respondents were enjoying interim orders, till the impugned judgments were delivered, the Revenue is directed to permit them to claim refund or input credit (whichever appliable and/or wherever customs duty was paid).

date of this judgment. The claim for refund/credit, shall be examined on their merits, on a case -by-case basis. For the sake of convenience, the revenue shall direct the appropriate procedure to be followed, conveniently, through a circular, in this regard. 76. The Revenue’s appeals are allowed, subject to the above terms.

Ratio and legal principle

The narrow proposition associated with Union of India and Others v. Cosmo Films Limited concerns issue and context: at the same time, notification no. 33 / 2015-2020 was issued, amending various provisions of the f tp, whereby this ‘pre-import condition’ was incorporated in paragraph 4.14 thereof with effect from 13.10.2017. the writ petitioners before the high court / respondents herein claimed that they were unaware about this condition, and continued exports in anticipation of grant of aa, and consequently expected exemption from all custom duty levies, including igst and compensation cess. operative disposition: for the foregoing reasons, this court holds that the revenue has to succeed. the impugned judgment and orders of the gujarat high court are hereby set aside. however, since the respondents were enjoying interim orders, till the impugned judgments were delivered, the revenue is directed to permit them to claim refund or input credit (whichever appliable and/or wherever… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in Civil Appeal No. 290 of 2023 and connected matters.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Disposed” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: Issue and context: At the same time, Notification No. 33 / 2015-2020 was issued, amending various provisions of the F TP, whereby this ‘pre-import condition’ was incorporated in paragraph 4.14 thereof with effect from 13.10.2017. The writ petitioners before the High Court / respondents herein claimed that they were unaware about this condition, and continued exports in anticipation of grant of AA, and consequently expected exemption from all custom duty levies, including IGST and compensation cess. Operative disposition: For the foregoing reasons, this court holds that the Revenue has to succeed. The impugned judgment and orders of the Gujarat High Court are hereby set aside. However, since the respondents were enjoying interim orders, till the impugned judgments were delivered, the Revenue is directed to permit them to claim refund or input credit (whichever appliable and/or wherever… Its practical value lies in the way the Supreme Court of India connected the governing provisions—GST statutory provision - Section 2; GST statutory provision - Section 3; GST statutory provision - Section 3(1); GST statutory provision - Section 3(7); GST statutory provision - Section 3(9); GST statutory provision - Section 5; GST statutory provision - Section 8; GST statutory provision - Section 25—to the procedural posture and evidence before it.

The authority level is Supreme Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of GST statutory provision - Section 2; GST statutory provision - Section 3; GST statutory provision - Section 3(1); GST statutory provision - Section 3(7); GST statutory provision - Section 3(9); GST statutory provision - Section 5; GST statutory provision - Section 8; GST statutory provision - Section 25 and the decision date 2023-04-28; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Union of India and Others v. Cosmo Films Limited, the proceeding is Civil Appeal No. 290 of 2023 and connected matters, and the decision is dated 2023-04-28. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as Hon'ble Mr. Justice S. Ravindra Bhat; Hon'ble Mr. Justice Dipankar Datta. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with GST statutory provision - Section 2; GST statutory provision - Section 3; GST statutory provision - Section 3(1); GST statutory provision - Section 3(7); GST statutory provision - Section 3(9); GST statutory provision - Section 5; GST statutory provision - Section 8; GST statutory provision - Section 25. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Disposed. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is SUPREME_COURT_FINAL_REVIEW_CURATIVE_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• GST statutory provision - Section 2 — apply the exact version considered in the judgment.
• GST statutory provision - Section 3 — apply the exact version considered in the judgment.
• GST statutory provision - Section 3(1) — apply the exact version considered in the judgment.
• GST statutory provision - Section 3(7) — apply the exact version considered in the judgment.
• GST statutory provision - Section 3(9) — apply the exact version considered in the judgment.
• GST statutory provision - Section 5 — apply the exact version considered in the judgment.
• GST statutory provision - Section 8 — apply the exact version considered in the judgment.
• GST statutory provision - Section 25 — apply the exact version considered in the judgment.

Case network

• National Insurance Co Ltd Vs Harsolia Motors and others — Supreme Court of India · Disposed
• STANLEE (INDIA) ENTERPRISES PVT. LTD. v. THE COMMISSIONER OF CGST, DELHI NORTH — Delhi High Court · Disposed
• GAMELOFT SOFTWARE PRIVATE LIMITED v. ASSISTANT COMMISSIONER OF CENTRAL TAX, RANGE 152 & ANR. — Delhi High Court · Disposed
• M S G S INDUSTRIES v. COMMISSIONER OF CENTRAL TAX AND GST DELHI WEST — Delhi High Court · Disposed

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