FEBRUARY 12, 2018

By Debasish Bandyopadhyay

THERE has been much excitement in the trade about this year's union budget, being the first after the roll out of the Goods and Services Tax in the country. However, on the indirect tax front, since the central excise duties to a large extent and service tax have been subsumed in GST, budget proposals are mainly focussed on the customs side. Sensing ocean of opportunities in the cross border transactional front, Hon'ble Finance Minister has made huge changes in customs law in order to further improve ease of doing business, to align certain provisions with the commitments under the Trade Facilitation Agreement, to smoothen dispute resolution processes and to reduce litigation. In this budget, many interesting new ideas are proposed in Customs Act, which may create enough turmoil in the oceanic waters of customs in the coming days.

This piece discusses the significant proposals of the Union budget as part of introduction of certain new concepts/modalities in the customs law:

Provision for Audit under Customs Act

In terms of section 157 of existing Customs Act, 1962, under the head "General power to make regulations", the Board has the power to make regulation for conducting audit of the assessment of duty of the imported or export goods at the office of the proper officer or the premises of the importer or exporter, as the case may be. Though, till now, no urge for conducting such audit has been felt. Now, Hon'ble FM has introduced a new provision for audit in the Customs Act by insertion of a new Chapter XIIA vide clause 88 of the Finance Bill, 2018, and which reads:

"99A. The proper officer may carry out the audit of assessment of imported goods or export goods or of an auditee under this Act either in his office or in the premises of the auditee in such manner as may be prescribed.

Explanation.––For the purposes of this section, "auditee" means a person who is subject to an audit under this section and includes an importer or exporter or custodian approved under section 45 or licensee of a warehouse and any other person concerned directly or indirectly in clearing, forwarding, stocking, carrying, selling or purchasing of imported goods or export goods or dutiable goods."

Hon'ble FM has justified the saying that patience is the art of concealing your impatience. It is not understandable whether the introduction of audit provision in the Customs Act, is an endeavour to ease of doing business or to reduce litigation or the impatience of collecting revenue in the murky uncharted terrain of customs.

It is pertinent to note that as per this year's Economic Survey released on 29th January 2018, the claims for indirect and direct tax stuck in litigation by the quarter ending March, 2017, amounted to nearly Rs.7.58 lakh crore which is over 4.7% of GDP. Thus, it can be clearly said that tax litigation is seriously taking a toll on economy of the country. However, the proposal introducing audit in Customs is inconsistent with the factual reality of the economic health of the country. Trade is eagerly waiting to observe as to how the drama of audit is practically unfolded in the field and how the procedures for audit are prescribed for implementation in the days to come.

Introduction of Electronic Cash Ledger

Another significant new proposal which worth noting is the introduction of electronic cash ledger in customs. Taking a cue from GST law, the said concept of Electronic Cash Ledger is introduced as a facilitation measure. The said provision is proposed to be introduced in Customs Act, vide Clause 78 of the Finance Bill through a new Chapter VIIA which reads:

"51A. (1) Every deposit made towards duty, interest, penalty, fee or any other sum payable by a person under the provisions of this Act or under the Customs Tariff Act, 1975 or under any other law for the time being in force or the rules and regulations made thereunder, using authorised mode of payment shall, subject to such conditions and restrictions, be credited to the electronic cash ledger of such person, to be maintained in such manner, as may be prescribed.

(2) xxx.

(3) xxx.

(4) xxx."

Generally, electronic cash ledger in an account which is maintained to keep a record of cash receipts and payments. The electronic cash ledger contains a summary of all the payments made by a taxpayer. This is a welcome move but it is also important to look at the mode or manner in which such new concept is to be implemented, because any idea or concept, does not implement itself.

Exemption for Goods Re-imported/ Re-exported for Certain Purpose

It is to be noted that under the existing law, import duties of Customs are leviable and no distinction is made whether the goods being imported had earlier paid duties thereon and they are being re-imported after exportation for particular purposes such as repair, processing etc. Similarly, even if goods are manufactured which had been exported earlier, when these are re-imported, they attract and have to discharge the customs duty leviable on like import goods as applicable. The aforesaid is in compliance with section 20 of the Customs Act, 1962 which reads as under:

"Re-importation of goods. - If goods are imported into India after exportation therefrom, such goods shall be liable to duty and be subject to all the conditions and restrictions, if any, to which goods of the like kind and value are liable or subject, on the importation thereof."

There is genuine difficulty in the trade with respect to the aforesaid provision.

Now, the Hon'ble FM has addressed the issue by inserting two new sections 25A and 25B in the Customs Act, after section 25, by clause 60 of the Finance Bill, 2018, the said insertion is extracted below;

"25A. Where the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification, exempt such of the goods which are imported for the purposes of repair, further processing or manufacture, as may be specified therein, from the whole or any part of duty of customs leviable thereon, subject to the following conditions, namely:––

(a) the goods shall be re-exported after such repair, further processing or manufacture, as the case may be, within a period of one year from the date on which the order for clearance of the imported goods is made;

(b) the imported goods are identifiable in the export goods; and

(c) such other conditions as may be specified in that notification.

25B. Notwithstanding anything contained in section 20, where the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification, exempt such of the goods which are re-imported after being exported for the purposes of repair, further processing or manufacture, as may be specified therein, from the whole or any part of duty of customs leviable thereon, subject to the following conditions, namely:––

(a) the goods shall be re-imported into India after such repair, further processing or manufacture, as the case may be, within a period of one year from the date on which the order permitting clearance for export is made;

(b) the exported goods are identifiable in the re-imported goods; and

(c) such other conditions as may be specified in that notification."

Hence, aforesaid exemption from customs duties on the goods which are to be re-imported after being exported for the purposes of repair, further processing or manufacture, is a welcome amendment in the Customs law. However, it should be noted that such relief has come with the rider in forms of certain conditions and/or restrictions, as the case may be. There may be challenges for the trade in respect of stipulated condition for imported goods that are identifiable in the export goods and exported goods that are required to be identifiable in the re-imported goods as laid down in the said sections. Moreover, there is a prescribed time frame of one year for such re-export from or re-import into India.

At this point, it is also important to mention Notification No. 158/95-Cus. Dated 14-11-1995 wherein exemption is provided for re-import of goods and parts thereof for repairs, reconditioning, reprocessing, remaking or similar other process. The said notification as amended has the following conditions:

1. Such re-importation takes place within 3 years from the date of exportation;

2. Goods are re-exported within six months of the date of re-importation or such extended period not exceeding a further period of six months as the Commissioner of Customs may allow;

3. The Assistant Commissioner of Customs is satisfied as regards identity of the goods;

4. The importers at the time of importation executes a bond undertaking to -(a) export the goods after repairs or reconditioning within the period as stipulated; (b) pay, on demand, in the event of his failure to comply with any of the aforesaid conditions, an amount equal to the difference between the duty levied at the time of reimport and the duty leviable on such goods at the time of importation but for the exemption contained herein.

"…When the main condition of notification has not been violated by the appellant, therefore the benefit of notification cannot be denied merely on the ground that appellant did not seek extension of time within 6 months of re-import…"

On a similar issue in the matter of Kunj Forgings (Final Order No. A/89372/2016), it was held -

"…We find that the issue involved is the eligibility of the Notification No. 158/95-Cus. for re-import of the goods which contains the condition that the re-imported goods after repair should be re-exported within a period of six months and a further period of another six months if it is extended. In the present case, from the first shipping bill, it is observed that the shipping bill was filed within one year from the date of re-import of the goods. As regard the contention of the lower authority that goods were not exported within six months and no further extension of another six months was sought for therefore the exemption is not available. We observed that the shipping bill for the re-export of the goods was admittedly filed within one year. As regard second shipping bill that was filed by the appellant only in order to comply the requirement of computer system. Therefore it cannot be said that the date of filing of shipping bill is online shipping bill but it is continuation of the first shipping bill filed by the appellant. Therefore the shipping bill was filed within one year for export of the goods. As regard the extension of six months period, we find that the bond executed under Notification No. 158/95-Cus. has been extended and such extension has been accepted by the Revenue. In this fact the period of six months for re-export of the goods stand extended till the validity of the extended period of the bond. Therefore it cannot be said that the appellant has violated the condition prescribed under Notification No. 158/95-Cus….."

As can be seen from the above that in spite of having prescribed provisions under the law, unnecessary disputes always manage to raise their hood perhaps due to lack of clarity on the procedures or over-enthusiasm of field formations in the name of protecting the interest of the revenue. The effectiveness of such new provisions proposed as sections 25A and 25B would certainly depend on the structural formation of procedural formalities and/or conditions to be prescribed in the coming days. It is sincerely hoped that the new provisions would certainly provide clarity as well as comfort to the trade in respect of such re-import/re-export of goods for repair, further processing or manufacture, as the case may be.

Conclusion:

From the above, it can be said that though the intent of the government may be to improve the ease of doing business and to reduce litigation but the success is entirely dependent on its proper implementation.