APRIL 11, 2017

By P G James

FINANCE BILL, 2017 received Presidential assent on 31.03.17 and consequently, the following major changes took place in the Customs Act, 1962:

i) Section 46(3) is substituted so as to make it mandatory to file the Bill of Entry before the end of the next day following the day (excluding holidays) on which the vessel or aircraft or vehicle carrying the goods arrives at a customs station.

ii) The provisions of Section 47(2) has been amended to provide that duty will have to be paid on the date of filing the Bill of Entry based on self- assessment or within one day after assessment otherwise interest will be payable.

Notification No 26/2017 –Customs (NT) & 27/2017-Customs (NT ), both dated 31.03.17 was issued in this regard wherein it has been stipulated that where the Bill of Entry is not filed within the prescribed time, the importer shall be liable to pay charges for late presentation of the Bill of Entry at the rate of rupees five thousand per day for the initial three days of default and at the rate of rupees ten thousand per day for each day of default thereafter if he fails to do so.

As per the erstwhile provision sin Sec 47, time period of two days was given to an importer to pay customs duty from the time of return of bill of entry. Now the importer shall have to make payment of duty on the same day in case of self-assessed BoE and in case of re-assessment or provisional assessment, within one day after the return of BoE.

Filing Bill of Entry within such short span of time may not be feasible in many cases either due to non-availability of accompanying documents like Certificate of Origin/Quality/Quality/ Insurance,Invoice, Bill of Lading etc. or due to lack of clarity in classification in which case, clarification is required to be sought from the supplier. It may also happen that supplier may not part with these documents unless full payment is made or owing to commercial disputes between the importer/exporter. In the case of Courier BoE etc.,situation is more vulnerable since duty may be much lesser or negligible but failure to file BoE will attract charge as high as Rs 5000/-.But it is highly undesirable to impose such a heavy charge/fine of Rs. 5,000 per day which extends to Rs 10,000 per day when delay exceeds three days.

It is an undisputed fact that Indian industries are gradually recovering from the vicissitudes of recession and demonetization and at this stage the unfriendly amendments brought about in the Customs Act isjeopardy especially to the importer manufacturers.

Now here comes the real double whammy under the guise of ‘Declared Service'.

According to  section 66E(e) of the Finance Act, 1994, as inserted by  Finance Act, 2012 , agreeing to the obligation to refrain from an act, or to tolerate on act or a situation, or to do an act shall be a declared service and liable to Service Tax.

It is obligatory on the part of importer to file Bill of Entry before the end of the next day following the day (excluding holidays) on which the vessel or aircraft or vehicle carrying the goods arrives at a customs station. For the failure to do so Customs authorities had tolerated an act or a situation and while collecting late payment fee for the delayed filing of BoE, they have agreed to the obligation to tolerate an act. Hence it is purported to be a ‘Declared Service' leviable to Service Tax.

The term "support services" in Section 66D(a)(iv) was omitted and replaced by "any service" vide the Finance Act, 2015 and corresponding amendments were made to Rule 2(1)(d)(i)(E) of the Service Tax Rules, 1994. The impact of the aforesaid amendment has been that all the services provided by the Government/Local Authority are taxable with effect from April 01, 2016 unless specifically excluded and it is incumbent on the recipient of service to discharge liability under reverse charge except for specified services like renting, transport of goods or passengers, services of Dept. of Posts, services in relation to aircraft or vessel inside or outside precincts of airport or port etc.

It has also been clarified in Circular No. 192/02/2016 – Service Tax dated 13th April, 2016 that any service provided by Government or a local authority to a business entity has been made taxable w.e.f 1st April 2016. Relevant extracts are quoted below:

"4. Service Tax on fines and penalties.

1. It is clarified that fines and penalty chargeable by Government or a local authority imposed for violation of a statute, bye-laws, rules or regulations are not leviable to Service Tax.

5. Services provided in lieu of fee charged by Government or a local authority.

It is clarified that any activity undertaken by Government or a local authority against a consideration constitutes a service and the amount charged for performing such activities is liable to Service Tax. It is immaterial whether such activities are undertaken as a statutory or mandatory requirement under the law and irrespective of whether the amount charged for such service is laid down in a statute or not. As long as the payment is made (or fee charged) for getting a service in return (i.e., as a quid pro quo for the service received), it has to be regarded as a consideration for that service and taxable irrespective of by what name such payment is called. It is also clarified that Service Tax is leviable on any payment, in lieu of any permission or license granted by the Government or a local authority."

At this juncture,it is pertinent to note that as per Notification No 26/2017 –Customs (NT) & 27/2017-Customs (NT ) dated 31.03.17, the importer shall be liable to pay ‘ charges ' for late presentation of the Bill of Entry. Hence ‘charges' payable to Customs are not in the form of ‘fine or penalty' for violation of a statute, bye-laws, rules or regulations so as to get the exclusion from the levy of Service Tax as per the above Circular.

Heavy charges prescribed for late filing of BoE accompanied by a reverse charge liability of Service Tax are nothing but excessive tax greed and will only debilitate Indian industries which are already in distress.

The above reminds one of the following Latin phrase:

"Nemo debet bis vexari pro una et eadem causa" - No one ought to be twice troubled or harassed.

(The views expressed are strictly personal.)