Union of India & Ors. v. Cosmo Films Limited

01 · Facts of the case and issues

The advance-authorisation (AA) scheme permitted duty-free imports of inputs for manufacture of export products, subject to its conditions. Before GST, Notification No. 18/2015-Customs covered specified customs levies. On GST's introduction on 1 July 2017, import IGST and compensation cess were payable because the notification did not then exempt those new levies. Delays in obtaining refunds affected exporters' working capital. On 13 October 2017, Customs Notification No. 79/2017 and DGFT Notification No. 33/2015-2020 introduced an upfront IGST/cess exemption subject to physical exports and a pre-import condition. The dispute concerned the condition applying between 13 October 2017 and 9 January 2019, before its removal from 10 January 2019. Manufacturer-exporters following continuous production cycles or exporting in anticipation of authorisation challenged the requirement to import inputs before exporting the corresponding finished goods. DRI investigations treated later replenishment imports as ineligible for this exemption. The exporters argued that the condition conflicted with the AA scheme, disrupted commercial cycles, differentiated between levies and was impossible to satisfy for exports already completed under older authorisations. The Gujarat High Court set aside the condition as arbitrary and unreasonable. The Union appealed. The issues were the validity of the conditional exemption, the significance of the FTP and procedural handbook, and whether the 2019 removal could negate the condition for the preceding period.

Source: Paragraphs 1-6, 12-14, 25, 28-37 and 38-48; official PDF pages 2-5, 9-11, 18-24 and 24-31. Historical period: paragraph 28, pages 19-20; later removal: paragraphs 13 and 70-71, pages 10 and 47-48.

02 · Discussion and reasoning of the Hon’ble Court

The Court rejected the premise that the pre-import condition was alien to the AA scheme or could apply only to a fixed list of inputs. Certain goods had already been subject to it, and FTP paragraph 4.13(i) reserved power to impose it on further goods by notification. The High Court had overlooked this retained power and the significance of HBP paragraph 4.27(d). The FTP was statutory, framed under section 5 of the 1992 Act; the handbook implemented policy and could not prevent its alteration. Trade Notice No. 11/2017 of 30 June 2017 had also warned that the GST regime would require payment of IGST/cess and recourse to applicable input-credit rules. The October 2017 exemption was conditional, rather than a continuation of an unrestricted entitlement. For its physical-export limb, exports abroad and supplies to SEZs qualified under the relevant FTP provisions, but other deemed/intermediate supplies did not. The Court held that an AA not wholly discharged through qualifying physical exports did not satisfy this exemption condition.

The exporters' commercial hardship did not establish unconstitutional arbitrariness. GST introduced a new credit and refund framework, and the Constitution did not require earlier concessions to continue unchanged. The Court recognised latitude for experimentation and adjustment in fiscal and economic policy, while retaining review for patent arbitrariness, discrimination or mala fides. It also rejected the alleged equivalence between basic customs duty and IGST: BCD was a levy at import without the same credit mechanism, whereas IGST entered a multi-stage credit chain. Their different treatment was therefore justified in the context of the new regime. An exemption or refund depended on the governing statutory scheme, not an unconditional constitutional right.

The later removal of the pre-import condition did not establish that it had been invalid while in force. Treating the notification of 10 January 2019 as effective from 13 October 2017 would impermissibly confer retrospective effect. Relying on Kanak Exports, the Court noted that section 5 did not confer power to make the policy retrospective merely because it permitted amendment. It therefore rejected the High Court's reasoning that withdrawal should erase the earlier condition. This reasoning concerns the historical import exemption, not a general prohibition on every statutory retrospective tax amendment.

Source: Paragraphs 49-59 (notice, policy hierarchy and exemption requirements), 60-69 and 72-74 (GST framework, hardship and classification), and 70-71 (no retrospective removal); official PDF pages 31-37, 37-47 and 48-49, and 47-48 respectively.

03 · Judicial decision and operative relief

The Supreme Court set aside the Gujarat High Court's impugned judgment and orders and allowed the Revenue's appeals subject to the terms in paragraph 75. The respondents had enjoyed interim orders before the High Court's judgments. The Court therefore directed the Revenue to permit them to claim refund or input credit, whichever was applicable and/or wherever customs duty had been paid. The respondents were required to approach the jurisdictional Commissioner with documentary evidence within six weeks from 28 April 2023, the date of this judgment. Each refund/credit claim was to be examined on its merits, case by case, and the Revenue was to issue a circular prescribing a convenient procedure. This was a historical application window, not a recurring six-week period available to every later applicant. The Court neither awarded a quantified refund nor declared that every payment generated admissible ITC or a cash refund. It did not dispense with the need to establish eligibility. The signed judgment's operative paragraphs expressly allow the appeals; although the transfer petition is on the cover, no separate transfer-petition direction is stated there.

Source: Paragraphs 75-76; official PDF pages 49-50. The connected appeals and transfer petition are listed on official PDF page 1.

04 · In favour of

In favour of the Union of India / Revenue on the validity of the pre-import condition and against retrospectively removing it for the disputed period. The exporter respondents obtained a limited, evidence-based opportunity to seek whichever refund or input credit was legally available. That procedural protection was not a merits finding that any particular claim had to be granted, and did not preserve the High Court's invalidation of the condition.

Source: Paragraphs 67, 69-71 and 75-76; official PDF pages 44-48 and 49-50.