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22. The ASG urged that the High Court erred in construing the purpose of Appendix 4J- issued in tandem with paragraph 4.22 of the FTP during the material period (under paragraph 4.42 of the HBP), which stated the export obligation period with respect to various goods that were allowed to be imported. Paragraph 4.22 was a general provision, specifying 18 months as the export obligation period in general. It also provided that such a period was different for a set of goods mentioned in Appendix-4J. Therefore, Appendix-4J was a part of paragraph 4.22 and not a part of paragraph 4.13. Further, Appendix-4J was a negative list for the purpose of paragraph 4.22, which specified a set of goods for which export obligation period was different from the general provision. In addition, in respect of those items additionally the ‘pre-import condition’ was applicable. The heading of Appendix-4J ("Export Obligation Period for Specified Inputs") clearly referred to paragraph 4.22 of the FTP and paragraph 4.42 of the HBP. It was clear that its purpose was to define export obligation period of specified goods. It was submitted that merely because Appendix-4J provided for compliance of ‘pre-import condition’, that did not mean that it became the list meant for only goods on which the ‘pre-import condition’ was applicable.

23. It was argued that there was no conflict between paragraph 4.14 of the HBP and paragraph 4.13 of the FTP because paragraph 4.14 imposed ‘pre-import condition’ even in case of inputs not falling within the ambit of paragraph 4.13. This conclusion was drawn based on an erroneous understanding that only limited items covered under Appendix-4J were covered by paragraph 4.13. All articles intended to be imported under AA, availing exemption from payment of IGST, were covered by the Notification No. 33 / 2015-20 dated 13.10.2017, issued in terms of paragraph 4.13 of the FTP. By virtue of the said notification, the moment any manufacturer decided to import any item under AA availing IGST benefit, the ‘pre-import’ requirement, as enumerated under paragraph 4.14, was attracted. The notification acted as a bridge between paragraph 4.13 and 4.14 of the FTP. They were in harmony with the spirit of the FTP.

56. It would be necessary to first analyse the introduction of the ‘pre-import condition’. The FTP, inter alia, facilitated AAs for duty-free import of input, which is physically incorporated in export product, making normal allowance for wastage (paragraph 4.03 of the FTP). No doubt, the rationale or object behind this was to smoothen and facilitate export trade, ensuring that finished goods, meant for export, did not suffer a competitive price disadvantage. However, the concept of ‘pre-import condition’ was not alien – Appendix-4J (mentioned in paragraph 4.13 (ii) of the FTP) listed several articles, such as spices, penicillin and its salts, tea, coconut oil, silk, drugs from unregistered sources, precious metals, etc. as articles for which the ‘pre-import condition’ was applicable, prior to the GST regime. Furthermore, by paragraph 4.13 of the FTP, the DGFT could impose ‘pre-import conditions’ on articles other than those specified:

“(i) DGFT may, by Notification, impose "pre-import condition" for inputs under this Chapter.”

57. The retention of the power to impose ‘pre-import conditions’ on articles other than those specified in Appendix-4J, meant that the DGFT could exercise it, in relation to any goods. The High Court has not discussed this aspect, and proceeded on the assumption that only specified goods were subject to the ‘pre- import condition’. The existence of paragraph 4.13 (i) reserving the power to insist upon the ‘pre-import condition’, meant that the policy was capable of change, depending on the exigencies of the time. This omission, together with the High Court’s failure to notice paragraph 4.27 (d) of the HBP are serious infirmities in the impugned judgment.