Legal principle

Fulfilment of export obligation under an Advance Authorisation cannot erase an actual breach of the pre-import condition, but for imports from 13.10.2017 to 09.01.2019 interest, confiscation, redemption fine and penalty on the IGST are unsustainable because Section 3(12) of the Customs Tariff Act borrowed only recovery machinery, not penal consequences, and mere breach of a litigated pre-import condition is not suppression.

Court decision

Appeal partly allowed and partly remanded. The Tribunal held the appellant cannot claim complete immunity from IGST merely because export obligations were subsequently fulfilled — where the pre-import condition was factually violated, IGST must be regularised per Circular No. 16/2023-Cus. However, the quantification of Rs. 5,77,38,576 was set aside and the matter remanded to the Appraising Authority for fresh Bill of Entry-wise and raw material-wise re-assessment (considering actual import/export dates and quantities, clubbing, EODCs, the appellant's self-computation and entitlement to input tax credit), with no interest leviable thereon. The demand of interest under Section 28AA, confiscation under Section 111(o), redemption fine of Rs. 4,00,00,000 under Section 125 and penalty under Section 114A were all set aside. Limitation was left open for the adjudicating authority to examine afresh, with the direction that mere breach of the pre-import condition is not automatically suppression.

Facts

M/s Vishnu Chemicals Ltd., a manufacturer-exporter of Basic Chromium Sulphate, Chromic Acid and Chrome Oxide Green, imported raw materials under four Advance Authorisations between 13.10.2017 and 10.01.2019, claiming IGST exemption under Notification No. 18/2015-Cus as amended by Notification No. 79/2017-Cus, which had introduced a pre-import condition (omitted by Notification No. 01/2019-Cus dated 10.01.2019). DRI took the view that exports of finished goods had preceded the corresponding imports of raw materials in certain cases, violating the pre-import condition, and issued a Show Cause Notice dated 10.02.2021 proposing IGST recovery of Rs. 7,44,39,300 in respect of 70 Bills of Entry. The Principal Commissioner of Customs, Visakhapatnam confirmed IGST of Rs. 5,77,38,576 under Section 28(8) of the Customs Act, 1962 with interest under Section 28AA, held the goods liable to confiscation under Section 111(o), imposed redemption fine of Rs. 4,00,00,000 under Section 125 and penalty under Section 114A equal to the duty with interest. The importer appealed to CESTAT, Hyderabad.

Key provisions

• Section 28AA, Customs Act, 1962 — Interest on delayed payment of duty
• Section 28(8), Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 3(12), Customs Tariff Act, 1975 — Levy of additional duty equal to excise duty, sales tax, local taxes and other charges