Firms seek refund after HC reaffirms pre-authorization benefit

Several companies that were under government scrutiny for taking advantage of duty-free benefits granted through a pre-clearance scheme are all set to approach the tax authorities for refunds following a court decision.

The Delhi High Court recently dismissed the government’s petition for review of an earlier order which said these benefits should not be reduced.

The government had filed a petition for review of an earlier order to extend the benefit of prior authorization licenses from July 1, 2017 to October 12, 2017, i.e. until the time the IGST exemption was terminated. officially notified by the government.

Prior authorization is a system by which a company can import raw materials without paying duties if it can demonstrate that these raw materials are to be used in a final product that will eventually be exported. The tax authorities had rejected several claims for companies. The recent order could benefit businesses, legal experts say.

“It will relieve a lot of those importers who might have taken advantage of this and got the claims,” ​​said Abhishek A Rastogi, a partner at Khaitan & Co, who represented some companies in the case. “There is also an option to seek a refund, as the court has now ruled in favor of importers claiming pre-clearance benefits.”

Companies obtain licenses to benefit from certain advantages of government programs such as prior authorization and promotion of exports of capital goods, among others. In most cases, the tax authorities ask exporters and companies to pay GST on the amount of the license paid to the government.

The government granted the benefits before the introduction of the GST in 2017. However, after the introduction of the GST, exporters no longer enjoyed full exemptions on imports. This meant that the exemption was not available against the IGST paid when the goods were imported.

Many companies had approached the Delhi High Court in this regard. The court also extended the benefits of the original duty exemptions on the import of licensed goods to IGST.

“The entire benefit of the previous scheme has been given so that Indian importers do not face the hassle of working capital and this aspect can be helpful for several other queries under this scheme,” Rastogi said.

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