Bombay High Court Rules No Interest or Penalty on IGST for Past Imports under Advance Authorisation

In a landmark judgment, the Bombay High Court has provided long-awaited clarity on the levy of interest and penalties on IGST (Integrated Goods and Services Tax) for imports made under the Advance Authorisation Scheme. The ruling specifically addresses the impact of the 2024 amendment to Section 3(12) of the Customs Tariff Act, 1975, and is expected to bring relief to several exporters who have faced retrospective demands from customs authorities.

This development is especially significant for businesses relying on Advance Authorisation License Clubbing and other duty exemption schemes, ensuring that past imports are not unfairly penalised under new legal interpretations.

Background: What Was the Dispute?

Under the Advance Authorisation Scheme, importers are allowed to bring in inputs duty-free, provided they fulfill specified export obligations. While the scheme clearly exempts Basic Customs Duty (BCD), it has historically led to ambiguity regarding IGST exemptions—especially for imports made prior to August 16, 2024, when the law was amended.

Customs authorities, based on internal circulars, were demanding interest and penalties on such past imports—claiming that IGST was not legally exempt during those periods. This resulted in confiscations, redemption fines, and litigation, leaving exporters uncertain and financially burdened.

The Court’s Ruling: Key Highlights

The Bombay High Court’s judgment has now put this issue to rest. Here’s what the court held:

1. No Interest on Past IGST Payments

The court ruled that interest cannot be charged on IGST for imports under Advance Authorisation prior to August 16, 2024, because there was no statutory backing for such a levy under Section 3(12) of the Customs Tariff Act during that period.

2. Confiscation and Penalties Deemed Invalid

The confiscation of goods, imposition of redemption fines, and penalties by customs were found to be legally untenable and were set aside by the court.

3. Amendment Is Prospective, Not Retrospective

The amendment introduced in Section 3(12) via the Finance (No. 2) Act, 2024, which enables the levy of interest and penalties on IGST, is applicable only from August 16, 2024. It does not apply to past transactions.

4. Circular Without Statutory Authority Held Invalid

The court invalidated the CBIC Circular No. 16/2023-Customs, which attempted to enforce interest recovery without a statutory provision. The court emphasised that administrative circulars cannot override statutory law.

What Does This Mean for Exporters?

This judgment has wide-reaching implications for exporters operating under the Advance Authorisation Scheme:

Relief from Past IGST Demands: Any demand raised for interest or penalty on IGST payments made before August 16, 2024, can now be legally challenged.

Restoration of Confidence in Advance Authorisation: Exporters can continue to benefit from Advance Authorisation License Clubbing and other procedural tools without fear of retrospective penalties.

Increased Legal Certainty: The decision reinforces the principle that taxation must be backed by clear statutory provisions, not just departmental circulars.

Impact on Ongoing Litigation: Many pending cases involving similar disputes are likely to be resolved favourably in light of this ruling.

Understanding Section 3(12) – What Changed in 2024?

Before the 2024 amendment, Section 3(12) of the Customs Tariff Act did not include provisions enabling the levy of interest on delayed IGST payments under duty exemption schemes.

The 2024 amendment, effective from August 16, 2024, introduced such provisions, allowing customs to levy interest and penalties going forward. However, the court clarified that these changes cannot be used to justify retroactive enforcement.

Strategic Takeaways for Exporters

Here’s what businesses should do now:

Review Past IGST Demands: If any notices or penalties were issued for past Advance Authorisation imports, consider filing a review or appeal based on this ruling.

Strengthen Documentation: Maintain comprehensive import-export documentation to simplify the clubbing of authorisations and ensure quick resolution during audits.

Use Advance Authorisation License Clubbing Wisely: Now, more than ever, exporters should leverage Advance Authorisation License Clubbing to consolidate obligations and reduce the risk of errors or lapses.

Consult Trade Law Experts: If you’ve been affected by retrospective demands, consult legal or DGFT professionals to understand your eligibility for relief.

Conclusion: A Win for Legal Certainty

The Bombay High Court’s decision reaffirms a fundamental principle: taxation and penalties must flow from law, not circulars. For businesses under the Advance Authorisation Scheme, this judgment not only removes a major compliance burden but also reinstates trust in the policy framework.

As we move forward, exporters should continue to make the most of tools like Advance Authorisation License Clubbing, stay updated on legal changes, and ensure all obligations are met within prescribed timelines.

This is a major relief for the export community and a reminder of the importance of lawful and equitable tax administration.