Realisation of export proceeds through a mode other than Irrevocable Letter of Credit – Chhattisgarh HC clarifies on export duty exemption

Background

It is a known factor that unlike import duties, which are widely applied across product categories, export duties are imposed only on a small set of commodities. These could be typically raw materials, minerals, or essential food products whose unrestricted export could distort domestic availability or prices. The government uses export duty as a targeted tool for market stabilization, food security, or price control during specific economic circumstances. Rice is one of the most prominent examples where export duties have been selectively imposed to ensure domestic food security and price stability. Levy of export duty on such goods flow from Second Schedule of the Customs Tariff Act, 1975 (‘Export Tariff’). 

Generally, any duty including export duty is levied prospectively and not retrospectively. Government through Notification can provide certain relaxation and exemptions subject to fulfilment of prescribed conditions even for future exports. In case of rice export, exemption from export duty has been provided subject to fulfilment of conditions namely, (i) goods meant for export shall have entered the customs station for the purpose of export before 25 August 2023, and an order permitting clearance has not been issued by the proper officer and (ii) goods meant for export are backed by irrevocable Letter of Credit. 

Hon’ble High Court of Chhattisgarh, in Eastman International v. UOI [2025 (12) TMI 1087] has examined the true scope and meaning of the requirement relating to ‘irrevocable Letter of Credit’.

Emergence of dispute

Notification 55/2022-Cus. dated 31 October 2022 (‘Parent Notification’) provided export duty exemption to specified varieties of rice subject to condition mentioned in the said Notification. However, with effect from 25 August 2023, the Central Government vide Notification 49/2023-Cus. dated 25 August 2023 (‘NN 49/2023’) levied export duty @ 20% on parboiled rice falling under Tariff Item 1006 30 10 of the Customs Tariff Act, 1975.

Vide Notification No. 50/2023-Cus. dated 25 August 2023 exemption from payment of export duty on parboiled rice was extended by amending the Parent Notification i.e., Notification No. 55/2022-Cus dated 31 October 2022 through insertion of Sr. No. 2A and Sr. No. 2B which reads as under:

Condition 5 reads as rate of duty shall come into force on the 16th day of October, 2023. 

Condition 6 provides that the said exemption was subject to following conditions:
 

1. Goods meant for export shall have entered the customs station for the purpose of exportation before 25 August 2023, and an order permitting clearance has not been issued by the proper officer; and 
2. Goods meant for export shall be backed by irrevocable Letter(s) of Credit, wherein the said letter(s) of credit has been opened before the 25 August 2023, and the message exchange date between the Indian and Foreign bank/swift date should be before the 25 August 2023, and such Letter(s) of Credit should have been authenticated by the Recipient Bank. 
    

The above exemption was for a limited period i.e., 25 August 2023 to 15 October 2023. With effect from 16 October 2023, the Parboiled rice became subject to nil rate of duty in terms of Sr. 2A read with Condition 5. 

In the instant case, the Petitioner /Assessee engaged in the trade of rice had exported consignments of parboiled rice which entered the customs station of ICD CONCOR Naya Raipur between 14 August 2023 to 25 August 2023. No Let Export Order was issued by the proper officer, and the exports proceeds were realised by the methods of ‘cash upon delivery’.

Seeking exemption from export duty under Notification No. 50/2023-Cus. dated 25 August 2023, the Petitioner/Assessee approached customs for export of rice without payment of duty. However, the exemption was denied on ground that Condition 6 is required to be fulfilled concurrently. Mainly the controversy arose from the interpretation of 2nd limb i.e., whether fulfilment of requirement of irrevocable Letter of Credit was also mandatory even where export proceeds were realised through different lawful mode such as cash upon delivery. 

Findings of Hon’ble Chhattisgarh High Court 

Court held that export through irrevocable letter of credit is neither compulsory nor statutorily mandated. Export transactions may lawfully be undertaken through various recognised modes including open account, documentary collection, advance remittance, wire transfer and cash-upon-delivery.

The High Court observed that Clause (ii) of Condition No. 6 is clearly premised on the existence of an irrevocable Letter of Credit. Where no LoC exists at all, the question of compliance with such a condition does not arise. Consequently, the department’s contention that the word ‘and’ in Condition 6 must be read conjunctively was rejected as legally untenable as an exporter who does not transact through LoC cannot be compelled, retrospectively, to have opened one prior to 25 August 2023. According to the Court, such an interpretation would render the exemption illusory and untenable. It was hence held that the interpretation of the Department was violative of Article 14 and Article19(1)(g) of the Constitution. 

The Court further held that clause (ii) of Condition No. 6 is applicable only to those exporters who export goods are backed by irrevocable Letters of Credit, and is inapplicable to exporters who do not transact through such mechanism. The petitioner having fulfilled Clause (i) and having realised the export proceeds, was held entitled to the benefit of exemption under Notification No. 50/2023-Cus. Accordingly, the Hon’ble Chhattisgarh High Court directed Department to refund the amount of INR 2,01,28,295/- deposited by the petitioner towards export duty, along with interest in accordance with law.

Conclusion

Authors feel that the instant decision is a welcoming move and offers significant relief to exporters facing denial of exemption solely on the ground of not operating through an irrevocable Letter of Credit.  Further, it also holds good on true interpretation of the word ‘and’ attached to the notification.  The decision is likely to settle a long-standing dispute by clarifying that the exporters are entitled to the exemption irrespective of the mode of realisation of export proceeds, provided clause (i) of Condition No. 6 is satisfied. Consequently, eligible exporters who have paid export duty under protest may explore the option of seeking refund of duty paid in accordance with law. 

[The authors are Executive Partner and Senior Associate, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]