MARCH 23, 2013

By A Netizen

DO I need an introduction given the way the article is titled! To introduce myself as a frustrated importer is in reality underplaying my emotions. Recently I read Mr. Dutt Majumdar's article in TIOL (as an Ombudsman) and that's when I mustered courage to write this piece.

It's India and I deal with Indian Customs - hence the anonymity. Hence Netizens would not find reference to the exact location and name of the officer and details of specific files.

We are importers and amongst others also have imports from our related overseas entity. I was informed by our Customs House Agent (CHA) that related party imports are subject to scrutiny by the Indian Customs and that they have a special cell which investigates the valuation methodology adopted for goods imported from group entities.

So, our CHA declared to the Customs that we have related party imports. I was informed that a standard SVB questionnaire would be issued by the SVB Cell which would need to be replied by the importer within 30 days of receipt... Till such time, all imports from related party would be subject to 1 % Extra Duty Deposit (EDD) of the declared import value.

I asked the CHA the reason for depositing the 1% EDD and his answer was that this is law and all importers having related party transactions have to go mandatorily go through this routine exercise. Period.

Recollected reading " When all else fails, read the instructions" . I subscribed to TIOL Excuse. I conducted an extensive search on SVB and EDD. I searched the Customs Act, Customs Notifications and the Customs Valuation Rules ( yes, this is the summarized form of the legal name given to the said Rules I did not find any reference to the term 'SVB nor find mention of 1% EDD in the Customs Act, the Customs Valuation Rules and in the Notifications .

My search led me to the Boards Circular No 11/2001 – Cus dated 23 Feb 2001. What I could understand there from is that this document lays down the procedures to be followed in case of related party imports. The document also mentions about the SVB and its importance in providing the stamp of approval on the valuation of related party imports.

Simply said SVB is not a creature of the statute - the said cell does not find its origin from the Customs Act and the Valuation Rules. Charging 1% EDD on related party imports is a practice thrust upon importers since time immemorial and obviously worried about the demurrage, harassment and the nuisance value of Indian Customs, importers have borne this pain. Let me continue.

No doubt whenever Revenue wants to extract its pound of flesh, it is highly efficient. Our imports were charged to 1% EDD apart from the normal customs duty from day one. I waited for the SVB questionnaire to officially arrive at my doorsteps. The receptionist in my office was told to be on 'Top Alert' for a letter from the Indian Customs. After all, the Circular specifically mentions that the importer has to reply within 30 days of receipt of the Questionnaire which would be given by the SVB section else the 1% EDD would be increased to 5% EDD.

Days passed on to a month and then to months - my receptionist quit the job (I am told that in her HR exit interview she informed that she was tired of my probing query every day on the SVB questionnaire that never was !!!) – the wait continued. There was still no sign of the SVB questionnaire. I decided to file a reply suo moto and make a case for early hearing. I was told that getting back the 1% EDD as a refund was and is a nightmare and as the amount of 1% EDD increases, the changes of getting refund of the same decreases proportionately. Trust me, I am told by informed sources that the process for obtaining 1% EDD as refund is a akin to a horror story which none of our Bollywood film makers could have conceived. May be I will write a sequel of this 'Loot' story some other time.

So, I was convinced requesting the SVB section for a personal hearing and then the SVB Order was the only way forward.

And then my 'Rahu Kaal' started.

First the clerk at the SVB Cell, refused to accept the reply to the SVB questionnaire and the related documents. Reason – no file in our name was opened in the said Section and hence he could not accept this reply as the questionnaire was not issued by the section. After number of footfalls to the Custom House, one good Samaritan officer (and believe me there are quite a handful and more of genuinely good officers in the Department also) intervened to at least get my documents accepted and acknowledged. This was followed by a series of correspondences and visits to the SVB Cell for getting an early hearing allocated to us. And then finally the D-day arrived, personal hearing was granted and I genuinely dreamt that the days of 1% EDD are numbered.

The SVB officer – he is the Vishwaroop of the Indian Customs Department – arrogance personified. He neither quizzed me on the contents of the SVB questionnaire nor did he bother to go through the submissions. He informed me that the reply to questionnaire is a piece of paper, routine one to be dumped in garbage.

He probed me on the constitution of the Company, who is the parent entity, the family tree, the flow of money – equity participation etc for starting the Company in India. He quizzed me on the amount of EDD that has been paid till now and when he heard from me my plea that it already runs into multiple crores, he appeared to snap his fingers in delight. The glow was evident on his face. Thereafter we (I had taken my CHA along as I was told that is the practice in SVB) were carpet bombed with questions, bordering from irrelevant to completely insane ones. Every attempt to answer his queries and provide correct and logical answers to his queries fell to deaf ears. And I quickly came to the conclusion he does not want to listen and be convinced.

He trotted on "You get me the global price list at which goods are sold to other countries by the supplier. I know your supplier will sell goods to other countries at much higher prices and I will check the same. If the amounts are high, the difference would the loading factor" . My CHA made a humble effort to take him through some provision of the Valuation Rules and say that export to third parties cannot be a basis for arriving at the value of import into India. He was authoritatively told to shut up and produce the documents/ information. Then I was asked about the Valuation Methodology followed for our imports. I take him through my submission and global transfer pricing policy – Its resale minus method I inform him, expecting him to be happy. Pat comes the outburst – "What method is that? Are you creating your own valuation methodology". I had no answer. The CHA took him & showed him the Deductive Value Method from the Valuation Rules and informed that certified working has been annexed with the reply to the questionnaire. The CHA was now threatened to remain silent else he was informed that he would lose his CHA license for supporting fraudulent activity. What followed in the hearing was akin to hell – Never experienced Hell in Gods own Country but now I think I know what it feels like!!!

So the next set of requirements starts – Provide costing details of all the products imported into India. I inform him that apart from the fact that it would take time, there would be a lot of confidentiality around the same and we could provide a certificate justifying the profit margin maintained by the overseas entity rather than provide detailed costing of each and every product as they run into thousands. I informed him that in any case, we have provided the certification and relevant proof on the Deductive Value method with reasonable profit in India. The SVB officer is now a Tiger and he roars!!! What next! Take a Pause. Read on and Rock on!!

I am told that we are Fraud Company in India. We have been incorporated in India to take away foreign currency from India. We are sham companies in India. We are hawala operators. And the torture continued only to end after a painful two hour session. But for the fear that hitting a Government servant while on duty would be a punishable offence, I restrained.

We then get a letter which asks us to provide host of information in the next 15 days (later I came to know that this letter is a standard document and is the Brahmastra of this officer, which is always used to bully importers like me !!).

We provide the information that is readily available and request for more time as we had to interact with our global counterparts for some other information. And then we receive this letter from the SVB officer which plunges me into abyss – the letter informs that my imports would now attract an EDD of 5%. And pray why!! Because we have not responded to his laundry list of questions. And the letter shamelessly mentions that this increase in loading is as per Board Circular No 11/2001 – Cus dated 23 Feb 2001.

Let me elaborate the use of the term 'shamelessly' [it could have been worse, not for loss of words but for the media in which this would be published (if it does get published)] –the relevant text of the Circular reads as follows:

"The amount of extra duty deposit presently kept at 1% will be continued. Board has however decided that if the importer does not furnish complete reply to the questionnaire within 30 days, of receipt of the 'Questionnaire' by the importer, the extra duty deposit will be increased to 5% till the date of receipt of reply by the Department. It should therefore be impressed upon the concerned importers (in the public notice that is issued) to ensure timely replies being sent to the Questionnaire to avoid any higher deposit being insisted"

Tell me Netizens- how this para can legalise the imposition of 5% EDD in our case. And what punishment should be meted out to the SVB officer for this act. Will he sit in peace if income tax is deducted from his salary more than what is required to be under law and then be told that he would get refund of the same later?

Well, it is another story as to whether the salary or the lack of it does make any difference to the officers – these would be peanuts to them and there is nothing in this to be said in hushed tones. Couple of days ago, TIOL has again carried a scrolling news of CBI picking up a Superintendent of Customs. Am I hinting at anything, your guess is as good as mine!

The plight does not end here – we write to the Department. We plead for mercy. We inform that even if the Circular was to apply to us ( you always beg when at the receiving end – If a Fatwa can stop a band of budding young talented girls from following their heart and passion, imagine the Fatwa of the Customs officers whose import consignments are their mercy) , the 5% EDD would apply only till the date of receipt of reply to the Department and we have since then replied. No answers. No communication. Expect the Lord, All mighty to give you Darshan but do not expect any reply to your queries from the Indian Customs. Mercy I cried and all I received was another set of incomprehensible information list from whether I am registered under service tax, central excise, and the list goes on. The 5% EDD saga continues. And we are already seriously contemplating stopping all imports and shifting base.

Is someone listening? Why cannot Senior Officers from the Department respond to letters / request made by tax payers? Are they beyond law or what is their threshold of competency – will they reply after one year? Are they in existence only to issue unpalatable Circulars as the now trending and infamous "Recovery Circular".

Chairman of the Board, Member Customs, Revenue Secretary, FM (which ever be the Order) – do you care for the Citizens Charter in the Ministry of Finance website . Why have such charters if you cannot acknowledge and reply to letters from the Trade –hang your head down in shame please.

Coming back, the number of visits to the Custom House gave me lots of shoulder to cry, as they say birds of a feather flock together and so I had company of other importers. And I came across a host of stories – some are thrillers, some would be delight to the CBI and some would drive you nuts and to suicide. Have a pick of what you like the best:

a) Imports made by EOU / import of exempted goods from related parties also subject to 1% and 5% EDD – but why?. When customs duty on imported goods itself is exempted, then how come there could be a 1% EDD. Who creates all this fancy theory and illegal levy? Is there any logic –Can a Government officer please explain this – If so please respond or use the discussion board to provide some inputs? And for God's sake, don't tell me to go for litigation .

b) When a valid SVB Order is already available for imports from related party, can the importer be compelled to go to SVB again and file for fresh SVB Order only because some new products are imported by the importer from the same related party entity, which was not imported at the time of issuance of the SVB order. Then if the reply to SVB Questionnaire is not filed in time, the EDD is suo motto increased to 5%. Really "the Gods must be Crazy !! Are we saying that every time there is a new product imported that the Company will keep going back to the SVB and keep getting a new order? Just imagine the plight for importers? Who issues these fancy Orders and how can they get away with such actions? What is this SVB all about? Is it a money spinning machine for a select few? And how can importers be held at ransom for the same? Can the Board dare clarify? Will somehow on behalf o f the Department speak out?

c) The SVB Order is supposed to be renewed every three years. So the importer files for renewal before the end of the three years period. The files / submissions are not attended to at all. Follow up letters are not considered and God knows which dustbin they find their way to. And then the day three years are complete, all further imports are charged to 1% EDD. So for no mistake of the importer, the torture of 1% EDD starts. So the importer even waives his right for personal hearing and request for issuance of SVB renewal order. But the same incoherent question and answer session continues and SVB renewal Order continues to be a dream? Why should the importer be taxed with 1% EDD if the SVB cell because of its inefficiency and/ or vested interests does not pass the SVB order in time? How can you hold the importer responsible for the Departments inefficiency or whims and fancies? How can they take recourse to the Board Circular? Who created this practice – where and in which Circular is it mentioned that 1% EDD would need to be deposited in case of non renewal of SVB Order. Which Government of India instructions allow for this highly autocratic stand? Is someone monitoring this or is this some sort of dictator rule in the Customs?

d) One of the Advocates that I met during the umpteen visits to the Custom House had this story for me - The Tribunal remands case back to the SVB after cancelling the illegal Order which had directed some arbitrary loading. This file remains untouched. Year after year information is called for but SVB order is not issued. There is no reason to keep the file pending. The loading continues and that too 5% EDD for all imports. Who is responsible? What is the magic mantra required to get SVB orders.

e) Compare the above with this story – Importer 'A' applies for SVB renewal Order, couple of months later the personal hearing is granted, the Order is drafted on the same day, the Order is signed on the same day, the same is handed over to Importer' A' on the same day. All in a day's work!!! See how efficient can the same SVB officer can be. So here comes the Rs Five crore question in the KBC!!! Go ahead Netizens, let us have your answer – What is the secret of the efficiency of the SVB officer and I am sure you do need no options, no life lines for answering this one!!! As my boss told me once "Super-competence is more objectionable than incompetence" . And Bosses are always right!!!

f) A visit to the SVB office would bear testimony of the fact that hundreds of SVB renewal submissions and reply to questionnaires are lying pending at the GATT Valuation Cell. The files remain unattended for years. Why then is the 1% EDD continued with? Read the following extract of the Board Circular:

10.   Furthermore, where provisional assessment is being resorted to, the investigation and finalisation of the assessment must be completed within four months from the date of reply. If no decision is taken within 4 months, the extra duty deposit should be discontinued and the concerned Deputy Commissioner/Assistant Commissioner will be held responsible for inexplicable delay in finalisation.

Why does the Department not stop the 1% / 5%% EDD for all cases where four months have elapsed ? How can the Customs continue with a practice which is against its own Circular? Notwithstanding the fact that there is no legal basis to charge this 1% EDD, why cannot the pain be reduced by atleast following the Circular in word and spirit? Who should be held accountable this illegal activity of holding on to the importers money ? Is this not what we generally refer to as "extortionist"?

g) Agreed that there could be pendency and a lot of work in these sections. Then why does the Commissioner or the Chief Commissioner (whosoever is the Administrative authority) not post more SVB officers to this Section. Why not empower this section with clean, non corrupt, sensible and hard working officers who have no other hidden agenda?

h) Another facet that was informed to me by a CHA is that orders issued by the predecessor SVB officer are reviewed, left-right and centre. On highly frivolous, non legal perceived grounds and the litigation starts. The Commissioner Appeals is known for pro Revenue stand and the matter lands in Tribunal. Why should the importing community bear this time and again?

i) Importers having related party imports are required to execute SVB Bond and file 1%/5% EDD. And then some customs officer in his wisdom says that is not sufficient – He directs for providing Bank Guarantee to cover the imports else all goods would be held up resulting in demurrages. So the importer is compelled to file Bank Guarantee. He makes a request to release the Bank Guarantee and the answer is a outright categorical NO- well, not in writing but in verbal!!! This is worse that the best of Hitler, Mussoloni and come on whosoever, I am poor in History!! Who are all these officers? What are they made up of? Are they here to serve the community at large or only to milk the cow from the famine land? How can you ask an importer to have a Bond executed, charge 1% EDD and then also ask him to file Bank Guarantee for imports from related parties? Will someone in the CBEC take note?

I can go on cribbing and crying. But the moot question is where there is a solution and what is the solution? Is there light at the end of the tunnel? A google search revealed that the Directorate of Valuation will overlook the functioning of the SVB across India. I am not sure what triggered this move? I am not privy as to how and what this Directorate is made up of. Will this be a panacea to all the problems? I am an optimist and hope it will happen. I am sure some sane and humane officer with heart and mind would take stock of the situation and atleast attempt to set right these matters, at the earliest, within the limitation of his Chair, ofcourse.

My open suggestions to the DOV ( surprisingly google search gave me amongst others two results Directorate of Valuation and Directorate of Vigilance – so the following are addressed to both DOV's ) are:

a) Review the pendency in the SVB. Check why is that some importers are getting clean orders with minimal information being called for whereas the rest continue to languish. Why is that some keep getting personal hearings- 6 to 8 times and more without any result whereas some get away with their renewals and SVB Orders? What is the magic potion that differentiates the have's from the have not's (Those who get their renewal orders from those who do not)

b) Why is that there are importers who get out of turn renewals whereas for others the wait continues? Why is that in some cases files are kept pending for years whereas in some cases everything gets sorted out ever so quickly?

c) Why is that more officers are not posted to the section? Why sole proprietorship right is vested to one officer in such sections which are very important both to the Government and to the importers?

d) Why cannot there be a proper set of rules and codified methodology for SVB renewal and a clear time frame limitation which says unless decided within four months, the order is deemed to be renewed? Why has the importing fraternity to be at the mercy of these officers and interpretation of the Board Circular?

e) Probe each and every order issued by the SVB Cell, say in the last three years and find out what sort of consistency of legal position is maintained in these Orders? Some orders simply mention that the Order is renewed whereas in some other cases even in case of identical facts and circumstances, the issuance of order or process of renewal continues to languish or if issues, is slapped with arbitrary loading.

f) Issue orders to stop 1% EDD in case where renewals have not been done by the Department in time.

g) Issue orders to stop 5% EDD immediately in all cases where party has filed submissions. Take stock as to why only in some cases such orders have been issued whereas in other cases no such orders have been issued?

h) Have a 'white paper' on SVB and what are the requirements from the importing fraternity in the case of related party transactions – make this important stakeholder feel part of the system!!!

i) And last if not the least, post officers who have basic decorum and know how to interact with the importer fraternity. Some of the present ones give speeches as if the importers are fraudsters and treat them as one. Horrendous. Would have still given the benefit of doubt to such officers if they were clean and non corrupt.

Let me stop . My wife who happened to browse through this piece (she was worried see me sit on the laptop on a Sunday – she felt I am drafting my will and a suicide note to see a lazy husband who would otherwise sleep throughout Sunday to work for hours) reminded me of Howe's law : Everyone has a scheme that will not work. And she believes, the above write up and suggestions would be part of dustbin. Hope she is proved wrong (though, I must admit that I could never do so in my last five years of marriage). And as she mockingly gave me a final word on this piece - "The solution to a problem changes the nature of the problem". And I paused to shudder- Hope this does not land us from the frying pan to the FIRE!!!

Passing by: May I request TIOL to carry the responses of the many who have been at the receiving end of this SVB Tamasha. Then please collate / forward them to the Finance Minister and CBEC. It's high time there is real democracy in Indian Customs. Help end the Dictator Rule and the LOOT!!!