Delhi High Court remands Advance Authorization dispute to PRC over ICEGATE glitch and denial of hearing

Background of the dispute

The matter before the Delhi High Court concerned O.C. Sweaters LLP. Vs Union of India & Ors. and arose out of difficulties faced by an exporter in obtaining benefits under an Advance Authorization due to an alleged technical problem in the Customs electronic system (ICEGATE), coupled with non-consideration of its grievance by the Policy Relaxation Committee (PRC) and denial of a personal hearing.

The assessee, a limited liability partnership previously known as OC Sweaters Private Limited, is engaged in manufacture and export of garments and accessories from its facility at Plot No. 80, Sector 34, Hero Honda Chowk, Gurugram, Haryana. It had received an urgent export order from “EMJ Apparel Group LLC, Los Angeles, USA” vide Purchase Order No. 62557 dated 05.03.2021.

To fulfil this export order, the assessee obtained an Advance Authorization bearing No. 0511005106 dated 01.10.2021 issued by the Regional Authority (respondent No. 3), for a freight-on-board value of USD 8,062,000. Though the authorization entitled the assessee to import duty-free raw materials, it chose to procure inputs locally to save time and ensure dispatch within the strict delivery schedule.

Accordingly, the assessee applied for, and was issued, an invalidation letter dated 01.10.2021 by respondent No. 3, enabling indigenous sourcing of raw materials under the Advance Authorization.

Factual matrix: procurement and exports

Domestic procurement and manufacture

On the basis of this invalidation, the assessee obtained raw materials from a domestic supplier under the following GST invoices:

  • GST Invoice No. FI/OCT/858/2122 dated 20.10.2021
  • GST Invoice No. FI/OCT/945/2122 dated 23.10.2021
  • GST Invoice No. FI/NOV/945/2122 dated 08.11.2021
  • GST Invoice No. FI/OCT/776/2122 dated 01.12.2021

The assessee used these inputs, along with other stocks, to manufacture the export garments required under the purchase order. Upon completion of manufacturing, the finished goods destined for EMJ Apparel Group LLC, USA were dispatched under GST Invoice Nos. 130EOCS2122 and 131EOCS2122, both dated 01.12.2021.

Export shipping bills and ICEGATE transmission issue

For export, the consignments were presented before Customs through Export Shipping Bill Nos. 6482393 and 6483064, both dated 03.12.2021. The assessee stated that it specifically requested clearance under the Advance Authorization Scheme using Customs Scheme Code No. 63.

However, according to the assessee, the Advance Authorization details were not transmitted electronically from the office of respondent No. 3 to the Customs system/ICEGATE, allegedly due to a technical malfunction at the respondents’ end. Because of this non-transmission, the export consignments could not be processed in the system under the Advance Authorization Scheme.

Given the time-critical nature of the US order and the imminent risk of cancellation, the assessee opted to file the two shipping bills under the “zero-rated” scheme. At the same time, it claimed to have clearly indicated the relevant Advance Authorization details in both the GST invoices and the description column of the shipping bills to safeguard its position.

Attempts to resolve the ICEGATE glitch

The assessee asserted that it promptly informed respondent No. 3 and ICEGATE about the non-transmission of authorization data and repeatedly requested that the technical problem be rectified so that the shipments could be linked to the Advance Authorization.

Key steps pleaded by the assessee included:

  • Multiple communications to respondent No. 3 and ICEGATE before and immediately after export.
  • A specific request dated 07.12.2021 to respondent No. 3 to ensure transmission of the Advance Authorization data to the Customs port so that the exports could be recognized under the scheme.

Despite these representations, the assessee contended that no corrective action was taken and the technical issue persisted. Consequently, when the assessee later attempted to file an online application for redemption/EODC, the system continued to display that the authorization had not been transmitted to ICEGATE/Customs, thereby preventing filing of the EODC application.

The assessee therefore requested permission for the Regional Authority to entertain a manual EODC application in respect of Advance Authorization No. 0511005106 dated 01.10.2021.

Application to PRC under Para 2.58 and subsequent rejections

Initial application to PRC

Faced with a deadlock and no other efficacious remedy, the assessee approached the Policy Relaxation Committee (PRC) functioning under the Directorate General of Foreign Trade (DGFT) by invoking Para 2.58 of the Foreign Trade Policy (FTP), 2023 framed under the Foreign Trade (Development and Regulation) Act, 1992. This provision deals with cases involving “genuine hardship” to exporters and importers.