Be careful while using Advance Authorisation for imports – Only Pre-import, and No IGST refund.

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Exporters who need to import Raw Material for their Export Product have traditionally been doing so using Advance Authorisation (AA) and thus getting the exemption on Basic Customs Duty(BCD) and additional duties like CVD, SAD etc. Since CVD/SAD could be taken the credit off and used in domestic sales, the real savings on import against AA was BCD only. However since additional duties were exempted unconditionally against AA, exporters could get a cash flow advantage, in the fact that they didn’t have to pay first, and then take credit etc.
This was the case even if the imports against AA were happening after exports were done, as many exporters used the replenishment way to avoid any chances of export obligation not being fulfilled. Still further some exporters who had their cenvat credit full, used exemption on import of inputs using AA and rebate of excise on output while exporting.

With the advent of GST, Govt abolished all exemptions including the ones on IGST even if imports were against AA. This gave a jolt to a lot of exporters, especially since IGST refunds were not coming through. Seeing the discomfort among exporters, Govt had relented and had allowed IGST exemption for the imports against AA and EPCG. However, the below conditions were inserted through notifications:

  1. Pre-import – Imports against AA can get IGST exempted only if the import is made before exports.
  2. No IGST refund – No refund of output GST paid on the final export product if import of inputs against AA has happened using exemption
Several exporters were oblivious to these clauses, and have been executing imports considering IGST is exempted if an export obligation is already met. Further many of them have exported against output IGST refund, as this is believed to be easier than taking the refund of input GST credit.

But such exporters are now stuck. Their IGST refunds are stuck. And DRI has started sending notices to them asking for the amount of IGST exemption with interest and penalty. We believe it’s high time now that Govt takes a balanced approach to deal with the situations, and also simplify the conditions so that exporters are no caught in future.