Indian Court Ruling Could Loosen Restrictions on Duty-Free Scheme for Imported Inputs

A recent court ruling in India makes the country’s “Advance Authorization Scheme” for duty exemptions on imported inputs more useful for exporters, KPMG India said in a recent client alert. Indian revenue authorities had made several changes to the program in 2017, making Goods and Services Tax potentially exempt but also creating a “pre-import condition” where the same goods had to be imported, used as inputs and exported for those goods to qualify as duty-free under the AA program. An exporter had sued, saying that the new interpretation made it impossible to use the scheme where goods are manufactured and exported in anticipation of an authorization, and then inputs are imported duty-free against the authorization for further manufacturing and export. The high court of Gujarat sided with the exporter, KPMG said. As a result, all enforcement proceedings against Indian companies for improper use of AA due to the “pre-import condition” rule “would no longer survive,” KPMG said. “This judgment comes as a big relief to these exporters as there would have been a cash flow and interest impact on account of the payment of the disputed IGST [the Integrated Goods and Services Tax]. However, it needs to be seen whether the government issues any clarification or challenges the judgment,” KPMG said.