[Opinion] Circular Issued on the Direction of SC in Cosmo Films | Boon for Some but Bane for Many?

Neethu James, Kalirajan D & Ananya Raghavendra – [2023] 151 taxmann.com 352 (Article)

Background

Recently, the Hon’ble Supreme Court (‘SC’) vide its judgement in the case of Union of India v. Cosmo Films Ltd. [2023] 149 taxmann.com 473/2023 (72) G.S.T.L. 417/[2023] 97 GST 544 (SC) upheld the constitutional validity of the imposition of ‘pre-import’ condition in order to avail the exemption of IGST and compensation cess (‘cess’) under the Advance Authorisation (‘AA’) scheme, wherein such condition had been incorporated in paragraph 4.14 of the Foreign Trade Policy (‘FTP’) vide Notification No. 33/2015-2020 w.e.f. 13.10.2017.

While the judgement held in favour of the revenue, the SC vide paragraph 75 of the judgement also granted relief to the respondent who had continued claiming benefits under the AA scheme based on the interim orders of the Gujarat High Court1, thereby directing the department to issue a circular providing appropriate procedure to be followed in order for the respondent to claim refund or input tax credit (‘ITC’).

Summary of the Circular

Pursuant to such directions of the SC, the Central Board of Indirect Taxes and Customs (‘Board) has issued Circular No. 16/2023-Customs dated 07.06.2023 (‘Circular’) which has been made applicable not only to the Cosmo Films Limited but also to all assessees who intend to regularise the failure to fulfil ‘pre-import condition’ by paying applicable IGST and Cess.

The Board specifically noted that there exists no functionality permitting the payment of Customs duties on a Bill of Entry (‘BoE’) after giving the Out-of-charge (‘OOC’) to the goods and thus, such duties are to be paid only vide TR-06 Challan. Further, the Board also clarified that as per GST Law, TR-06 Challan is not a valid document for the availment of ITC and that there is no mechanism of transmission of details of IGST payment made vide TR-06 challan from ICEGATE portal to GSTN portal for flow of ITC. To resolve these aforementioned issues, the Board prescribed a procedure of cancellation of existing OOC, reassessment of such Bills of Entry and generation of ‘notional OOC’ upon payment of such re-assessed IGST. Under this procedure, the payment of IGST would be against the reassessed BOE and the details of such IGST payment would flow from ICEGATE portal to GSTN portal for flow of ITC.

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