The court ruled that interest and penalties under the Customs Tariff Act were not applicable prior to the amendment of Section 3(12), which is prospective in nature.

JUDGEMENT :

FIRDOSH P. POONIWALLA, J.

1. RULE. Rule made returnable forthwith and heard finally by consent of the parties.

2. The present Petition is filed challenging the Order dated 1^st August, 2024 passed by Respondent No.2 to the extent it seeks to demand interest, penalty and redemption fine from the Petitioner in lieu of payment of IGST leviable under Section 3(7) of the Customs Tariff Act, 1975 (herein after referred to as “the Tariff Act”). The Petitioner has also challenged Circular No.16/2023- Customs dated 7^th June, 2023 issued by the Central Board of Indirect Tax and Customs (herein after referred to as “CBIC”) to the extent it purports to levy interest upon the IGST payment.

3. The Petitioner is , inter alia, engaged in the manufacture, export and supply of Linear Alkyl Benzene Sulphonic Acid (herein after referred to as “LABSA”). In order to manufacture LABSA, the Petitioner procures input materials such as Linear Alkyl Benzene (herein after referred to as “LAB”) domestically as well as from foreign vendors. Section 12 of the Customs Act 1962 (herein after referred to as “the Customs Act”) is the charging Section which stipulates that duties of customs shall be levied on all goods imported into India or exported out of India at such rates as may be specified under the Tariff Act. Along with Basic Customs Duty (herein after referred to as “BCD”), Additional Customs duties (“CVD” and “SAD”), Anti-dumping duty and Safeguard duty were also levied by the Customs Act, read with the Tariff Act.

4. With the introduction of GST with effect from 1^st July, 2017, Additional Customs duties were subsumed into the newly introduced Integrated Goods and Services Tax (herein after referred to as “IGST”) and hence IGST was made payable instead of the Additional Customs duties.

5. Duty Exemption Schemes enable duty-free import of inputs required for export production subject to fulfillment of conditions prescribed therein. Advanced Authorization is a pre-export duty exemption scheme which is provided under Chapter 4 of the Foreign Trade Policy – 2015-2020 and is regulated as per Chapter 4 of the Handbook of Procedure 2015 – 2020. An Advance Authorization License is issued by the Directorate General of Foreign Trade (herein after referred to as “DGFT”).

6. Notification No.18 of 2015 – Customs dated 1^st April 2015 gives effect to the exemption of customs duty on import of inputs against Advance Authorization Licenses. Prior to the GST regime, and in terms of the said Notification, import of input materials under a valid Advance Authorization Licenses were exempted from payment of BCD, CVD, SAD, Anti dumping duty and Safeguard Duty.

7. The Petitioner had applied for eleven Advanced Authorization Licenses, which were duly granted by the DGFT.

8. Post introduction of GST, Notification No. 18 of 2015- Customs dated 1^st April, 2015 was amended by Notification No. 26 of 2017 dated 29^th June, 2017, to, inter alia, granting exemption from payment of BCD. There was no exemption provided on payment of IGST against the said imports.

9. Notification No. 18 of 2015-Customs dated 1^st April,2015 was also amended by Notification No. 79 of 2017 – Customs dated 13^th October, 2017 to provide exemption from payment of IGST and compensation cess, subject to, inter alia, following conditions: (i) discharge of export obligation shall only be by physical exports; and (ii) the exemption shall be subject to pre-import condition.

10. The pre-import condition in the said Notification simply meant that the goods should be imported prior to export of finished goods to comply with the actual user condition of exempt goods. In other words, the importer should first import exempt material and use them in the manufacture of finished goods in discharge of export obligation under Advance Authorization.

11. Simultaneously, the DGFT had also issued a Notification No. 33/ 2015- 2020 dated 13^th October, 2017 amending various provisions of the Foreign Trade Policy 2015-2020 whereby “pre