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Union of India & Ors. vs. Cosmo Films Limited

Civil Appeal · 2023 INSC 463Decided 28 Apr 2023
Civil Appeal No. 290 of 2023
S. Ravindra Bhat · Dipankar Datta

Background

Exporters holding "Advance Authorisations" (AAs) under India's Foreign Trade Policy could import raw materials duty-free provided the goods were later used to manufacture exports. When GST/IGST was introduced in 2017, the government added a "pre-import condition" requiring the import to happen before the corresponding export (not after, as many exporters had been doing). Several manufacturer-exporters challenged this condition as arbitrary, and the Gujarat High Court struck it down, prompting the Union of India to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that imposing the pre-import condition for IGST/compensation-cess exemption was a valid policy choice tied to the new GST framework, not arbitrary or unreasonable, given the wide latitude courts must give the executive in economic and fiscal matters. It rejected the exporters' argument that a later 2019 notification withdrawing the condition proved it was always unworkable, holding that the 2019 change could not be read retrospectively. The Court set aside the High Court's judgment and allowed the Revenue's appeals, while permitting exporters who had relied on interim court orders to seek a refund/input credit of duties paid, on a case-by-case basis.

Lesson Learnt

Courts generally defer to the government's policy choices in complex tax and economic reforms (like GST) and will not strike them down as arbitrary merely because they cause inconvenience or disruption to a class of businesses, unless the choice is shown to be patently unreasonable or discriminatory.

Official source (sci.gov.in)View Judgment (PDF)

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