Goods & Services Tax (GST) in IndiaLimitation on Extended Period for IGST Demands eligible for Input Tax Credit

The Customs, Excise and Service Tax Appellate Tribunal of Hyderabad , in the case of M/s Himadri Speciality Chemical Ltd. V Pr. Commissioner of Customs Visakhapatnam, [Customs Appeal No. 30069 of 2024] decided on 08.04.2024, held that the invocation of an extended period of limitation is impermissible for raising a demand on the Integrated Goods and Services Tax (herein referred to as ‘IGST’) portion of Customs duty, which is eligible for Input Tax Credit (herein referred to as ‘ITC’) under the Goods and Services Tax (herein referred to as ‘GST’) regime.

FACTS

M/s Himadri Speciality Chemical Ltd., (herein referred to as “the Appellant”) was involved in producing Coal Tar Pitch, Carbon Black, and other products, which were sold both within India and abroad. The Appellant  was  registered with the GST authority and was utilizing the benefit of ITC under GST regulations to settle their output taxes, including CGST/SGST/IGST.

The Appellant received an Advance Authorization (herein referred to as “AA”) from the DGFT on December 30, 2019, as a replacement for the invalidated AA issued to Hindalco Industries Ltd. Under this authorization, the Appellant could import raw materials without paying customs duty, provided these materials were used in manufacturing goods for export by Hindalco. In the present case, the goods imported by the Appellant were indeed used to manufacture final products exported by Hindalco. The DGFT had issued a discharge/redemption certificate on March 2, 2022, confirming that the export obligation associated with the AA has been fulfilled. Thus, it’s established that the imported input goods were utilized in the production of final goods exported outside India.

The Appellant imported 6 consignments through 6 separate bills of entry between January 2020 and July 8th, 2020. These consignments comprised Coal Tar Pitch (Tar Pitch). The Show Cause Notice was issued under Section 28(4) of the Customs Act, 1962 (hereinafter referred to as “Act”) proposing to deny the exemption in respect of the 6 bills of entry as filed under AA No. 0210209652 dated 30.12.2019 issued under Customs Notification No. 21/2015–CUS.

Being aggrieved by the decision of the Principal Commissioner dated 20.11.2023, demanding Customs Duty (IGST) Rs. 1,33,68,646/- invoking the extended period of limitation for imports made during January 2020 to July 2020 along with the order of confiscation under Section 111(m) of the Act, redeemable on payment of redemption fine of Rs.70 lakhs and imposition of equal penalty of Rs. 1,33,68,646/- under Section 114 A of the Act the Appellant has preferred the present appeal.

ISSUE BEFORE THE SUPREME COURT

Whether the Appellant is eligible for IGST exemption at the time of import of input materials?

CONTENTIONS OF THE PARTIES

The Appellant submitted that they were entitled to claim the benefit under Notification No. 18/2015-CUS, which grants complete exemption of basic customs duty as well as IGST. Moreover,  the demand/Show Cause Notice (herein referred to as “SCN”) was issued under Section 28(4) of the Act by invoking an extended period of limitation, which is considered bad in law as there has been no suppression of facts or willful misstatement by the Appellant.

The Appellant further contented that the situation is wholly revenue neutral, causing no loss to the exchequer, and that even if the IGST had been paid, the same would have been available to the Appellant as ITC.

The Appellant also alleged that the customs EDI issued registration of AA under Notification No. 21/2015-CUS which grants exemption of basic customs duty only, while the physical copy of the authorization reflected Notification No. 18/2015-CUS. Thus the Appellant argued that due to this oversight, the authorization was submitted for assessment of the relevant bills of entry, and they did not have any intention to claim the benefit of exemption/nonpayment of IGST against the particular AA.

On the contrary, the Respondent has submitted that since the AA granted were specifically for claiming benefits under Notification No. 21/2015–CUS, thus the Appellant was not eligible to claim exemption benefits under Notification No. 18/2015–CUS.

The Respondent further contended that the Appellant should have been diligent and precise when claiming the exemption while submitting the bill of entry. They argued that the bills of entry were self-assessed and cleared under RMS, and under such circumstances, it could not be alleged that the Department was in the knowledge of the various declarations made by the Appellant, and thus the charge of misdeclaration could not be labeled.

The Respondent also argued that just because the Appellant was entitled to credit, the demand for IGST could not be waived on this basis alone.

DECISION AND FINDINGS

The Hon’ble Tribunal observed that the question whether the Appellant had paid the IGST at the time of import so that they would have been eligible for input tax credit is not disputed. Additionally, it was acknowledged that the goods imported by the Appellant were used as inputs for manufacturing other goods, which were then exported to Hindalco. The DGFT has also issued an ‘Export Obligation Discharge Certificate’ to the Appellant. It’s recognized that the government’s policy does not involve exporting taxes.

Furthermore, it was observed that there was contributory negligence on the part of the Respondent, as they allowed the exemption of IGST despite the Appellant being registered under AA and being entitled to exemption under Notification No. 21/2015–CUS.

Considering the situation is revenue neutral and no malafide intentions are evident on the part of the Appellant, and following the precedent set by the Supreme Court in the case of Nirlon Ltd., Vs CCE, Mumbai [2015 (320) ELT 22 (SC)]it was held that the demand cannot be enforced by invoking an extended period of limitation.

As a result, the appeal was allowed, and the impugned order was set aside. Thus, the Appellant was entitled to consequential benefits as per the law.

AMLEGALS REMARKS

This case made a significant ruling regarding the invocation of an extended period of limitation for IGST demands eligible for ITC under the GST regime.

Upon thorough consideration of the facts and contentions presented by both parties, the Tribunal reached a balanced decision. It recognized the appellant’s entitlement to IGST exemption and the subsequent utilization of imported goods as inputs for exported products. Moreover, it noted the contributory negligence on the part of the Revenue Authority in allowing the exemption of IGST despite the appellant’s registration under Advance Authorization.

In alignment with principles of fairness and legal precision, the Tribunal concluded that invoking an extended period of limitation was unjustified in this revenue-neutral scenario.

This decision not only upholds the rights of the appellant but also reinforces the importance of procedural accuracy and equitable application of tax regulations. As per the Tribunal’s ruling, the appellant shall be entitled to consequential benefits in accordance with the law, ensuring a just outcome in this matter.

– Team AMLEGALS assisted by Ms. Prishita Saraiwala (Interns)