At a time when Indian merchandise export has been falling consecutively for the last three months due to global economic slowdown, Indian exporters across various sectors such as pharma, textile, oil & gas and others have to cope with adverse impact on their liquidity arising from the recent Supreme Court verdict. This verdict has struck a body blow to exporters as it will deprive them exemption from payment of IGST and Compensation cess and thereby block their working capital.

On April 28, 2023, the Hon’ble Supreme Court reversed the decision of Gujarat High Court and held that the ‘pre-import condition’ stipulated in grant of exemption from payment of IGST & Compensation Cess is not ultra vires.

Mr. Jain recommended that the adverse impact of this Supreme Court judgement on exporters could have been counteracted in two ways. One way is that the amendment made by Government vide Notification no 01/2019 dated 10.01.2019 ought to have been made retrospective i.e. from October 2017 itself. Now, in view of law laid down by Hon’ble Supreme Court in Cosmo Films, what will be the position is to be seen”, said Mr. Ratan Jain, Advocate & Partner, Lakshmikumaran & Sridharan Attorneys at an interactive session on Foreign Trade Policy 2023 at WTC Mumbai.

The second way to counter the impact of the Supreme Court judgement is to issue a clarification that assessees who exported taxable finished goods under Letter of Undertaking (LUT) are not required to surrender IGST exemption and they can be considered as complying with ‘pre-import condition’, Mr. Jain suggested.

The situation can also be considered otherwise as revenue neutral so relief should be given from levy of interest as well. In addition, while adjudicating the pending matters, lenient view may be taken by department.

Mr. Jain also recommended the government to introduce definition for ‘pre-import’ to prevent any ambiguity or arbitrary implementation of the above customs notification. “On October 13, 2017, the CBIC and DGFT issued notifications on ‘pre-import condition’ without defining this term, which also causes ambiguity in interpretation among authorities and exporters,” Mr. Jain pointed out.

In order to improve the global competitiveness of exporters, Mr. Jain suggested the government to make RoDTEP scheme applicable for Export Oriented Units, units in Special Economic Zones (SEZs) and Advance Authorisation (AA) holders. The government implemented the RoDTEP scheme in January 2021 to reimburse embedded indirect taxes and duties which are not refunded in the process of input procurement, manufacturing and export of finished goods. However, this scheme is not applicable for units Export Oriented Units, units in Special Economic Zones (SEZs) and Advance Authorisation (AA) holders, which hurts their cost competitiveness in the global market. “Incidence of these taxes makes these units uncompetitive in the global market and hence the government may bring these units under RoDTEP scheme,” Mr. Jain suggested.

The session was also addressed by Mr. Shobhit Jain, Advocate & Senior Associate, Lakshmikumaran & Sridharan Attorneys.

Earlier in his welcome remarks, Dr. Vijay Kalantri, Chairman, MVIRDC WTC Mumbai pointed out, “Last year, India attained USD 440 billion merchandise exports by surpassing the target of USD 420 billion. Indian MSMEs have managed to perform well despite complex policies and regulations, which affect their global competitiveness. In order to attain the USD 2 trillion export target, government should promote trade settlement in local currencies, expedite FTA negotiations and effectively implement One District One Product Scheme. The government should expedite negotiation of FTAs with EU, UK and other prominent countries to attain the USD 2 trillion export target.”

Dr. Kalantri suggested that the government may set up a dedicated ministry for foreign trade. This proposed Foreign Trade Minister should be of cabinet rank and should work closely with Ministry of External Affairs to promote Indian goods in global market.

Dr. Kalantri also called for strengthening transport and supply chain infrastructure in the country to reduce cost of logistics, which is far higher than that in China and other comparable developing countries.