OCTOBER 04, 2019

By R Sridhar, Consulting Editor, TIOL

THE Supreme Court recently decided the legal issue arising in the context of refunds under the Customs Act, 1960 ("CA") and the Central Excise Act ("CEA") in a batch of matters, in which the lead matter was ITC Limited v. CCE, Kolkata IV ("ITC") - 2019-TIOL-418-SC-CUS-LB. The legal issue for consideration as regards the CA, was whether in the regime of self-assessment (post amendment of Section 27 CA in 2011 read with Section 17 CA) refund of duties of customs can be made when an order of assessment is not challenged. The judgment discussed the pre-amended law and the law post amendment and the Supreme Court ruled that no refunds are possible within the parameters of the law without challenging the order of assessment which includes self- assessment.

It is pertinent that there were two streams of cases that went to the Supreme Court. Category A. cases, where an assessment order was passed and a refund application was made without challenging the assessment order and Category B. cases, where there were no speaking orders passed due to self -assessment and the assesse made certain errors in not claiming benefit of certain notifications /exemptions while clearing imported goods which consequently led to a refund situation.

The objective of this article is draw attention to cases falling under Category B as reflected above, to find what possible changes can be made to law, initiatives that the Government can take and alternatives that are available to the assessees post the ITC judgment, as there are appeals of various assessees pending in other forums as of date. In order to drive home the factual differences we will take up facts of Category A first and then dwell upon facts of Category B.

LIST OF LANDMARK MATTERS FALLING UNDER CATEGORY A

CCE Kanpur v. Flock India Private Limited - 2002-TIOL-208-SC-CX- (Decision affirmed by Supreme Court in the case of ITC Limited)

M/s. Flock (India) Pvt. Ltd, was manufacturer of jute hessian flocked with nylon flocks under licence issued under the CEA. The company filed a classification list, in which it was claimed that the said product comes under a particular tariff item of the tariff. The Adjudicating Authority after examining the particulars furnished by the company passed an order holding that the product in question is classifiable under alternate tariff item and not under tariff item as claimed by the company, and the applicable duty would be 25% ad valorem. In the said order the Adjudicating Authority expressly stated that the Company may prefer an appeal against the order to the Appellate Authority. The assesse neither challenged the said order by filing any appeal nor did it pay the duty under protest.The assesse filed an application claiming refund of duty paid alleging inter alia that the product in question was wrongly classified under another tariff item, instead it ought to have been classified under tariff item as it had filed and that the differential duty should be refunded. The Authority handling refunds after service of notice on the Company passed an order dated dismissing the claim for refund on the ground that the order classifying the product under a specific tariff item had attained finality, and therefore, the claim for refund was not maintainable.

Priya Blue Industries Limited versus Commissioner of Customs - 2004-TIOL-78-CUS ( Affirmed by the judgment in ITC case)

The assesse imported a ship for breaking purposes. They filed a Bill of Entry. The amount of duty payable was assessed under the CA. The assesse paid the duty under protest. They then filed a claim for refund of duty, on the ground that duty had been wrongly levied. Their refund was rejected and the appeal filed by them was rejected by the appellate authority. They further filed an appeal before the Tribunal which was dismissed by the Tribunal. The Tribunal followed the Judgment of the Supreme Court in the case of  Collector of Central Excise vs. Flock (India) Pvt. Ltd. reported in - 2002-TIOL-208-SC-CX. The Tribunal held that as no Appeal had been filed against the Assessment Order the refund claim was not maintainable.It is pertinent that whether under CEA or CA the facts of these landmark cases of Category A were different from Category B cases wherein the duty was paid under self- assessment and in certain cases the assesse made mistakes in claiming reliefs / exemptions as allowed by Notifications.

BROAD LIST OF LANDMARK MATTERS FALLING UNDER CATEGORY B-FACTS

Aman Medical Products Limited - 2009-TIOL-566-HC-DEL-CUS (Decision of Hon'ble Delhi High Court now overruled by the Hon'ble Supreme Court in the case of ITC) -Facts

Assesse entitled for concessional rate of duty but pays the higher duty under CA by inadvertence. In this case, on the factual scenario, the assesse contended that in the case as no 'order' was passed because the assessee simply filed the bill of entry and paid the duty by mistake without taking the benefit of the notification No. 6/2002 dated 1.3.2002 due to ignorance. The matter reached the Hon'ble High Court of Delhi which remanded the matter back to the adjudicating authority to consider appropriate reliefs.

Micromax Informatics Private Limited v/s UOI - 2016-TIOL-978-HC-DEL-CUS (Decision of Hon'ble Delhi High Court now overruled by the Hon'ble Supreme Court) -Facts

Micromax imported mobile phones on which it paid both customs duty as well as additional customs duty (commonly known as countervailing duty - CVD). They lodged a refund claim under Sections 27(1) (a)/ 27(1) (b) of the Customs Act, 1962 ('Act'). The reason given for making the claim was that they were liable to pay only 1% CVD whereas they had paid 6% CVD. A reference was made to Serial No. 263A of Notification No. 12/2012 - CE dated 17th March 2012, as amended by Notification No. 4/2014 and further amended by Notification No. 12/2015-CE dated 1st March 2015, applicable to mobile phones which provided for an effective rate of duty of 1% CVD for mobile phones provided that no Central Value Added Tax ('CENVAT') credit on input or capital goods have been availed. The matter reached the Hon'ble Delhi High Court which allowed the appeal of the assessee.

Situation and Suggestions

In the above factual scenario wherein there is genuine overpayment of duty of Customsetc., it is possible to consider the following

Option A

The GOI can consider suitable amendment in the CA, wherein a specific provision for mistakes of these kindsare addressed through rectification, by having a provision akin to section 154 of the Income Tax Act. The provisions to be inserted for exceptions such as rectification of Bill Of Entry (BOE) can be made within specific timelines .This remedy can be considered for cases where the BOE filed have been cleared for home consumption and the duties paid on the BOE's filed were accepted as they were presented by ICEGATE.

It would be beneficial at this stage to refer to section 102 of the CGST Act (GST), wherein rectification of orders, on account of errors apparent on record can be made by an Advance Ruling Authority or an Appellate Advance Ruling Authority, if the same is brought to its notice or the AAR can consider rectification on its own accord. While the provision for Rectification of errors apparent on record is not available in the CGST law in a manner akinto Sec154 of the Income Tax Act, it is desired, that there is aprovision made in the CA and GST as suggested so as to cover duties paid due to inadvertent mistakes because of non -application of beneficial notifications.

Option B

It is pertinent to note that in the proviso to Section 149 of the CA, it is provided an amendment that can be made to BOE before goods have been cleared for home consumption but generally these kind of mistakes (errors like not claiming effect of beneficial notifications etc.) are discovered after some time period post clearances through audits etc.It is relevant to note that vide Finance Act 2019, Clause (n) to section 157 of the CA, was inserted, which empowers the Board to make regulations as regards time limit and conditions for amendment of documents referred in section 149. One hopes that these regulations, pursuant to amendment referred above are notified liberally and expeditiously so that the parties affected /impacted by the judgment of the Hon'ble Supreme Court, can take action as per regulations to be notified.

Option C

It would be worthwhile to refer the judgment of Hero Cycles v/s Union of India - 2009-TIOL-317-HC-MUM-CUS wherein the Hon'ble High Court of Mumbai intervened to direct refund under the CA through its extraordinary powers under Article 226, as it was duty paid erroneously which was a mistake of law. Considering this, it would be worthwhile for assessees impacted by the above Larger Bench judgment, to evaluate whether it would be appropriate for them to approach the Jurisdictional High Court and seek reliefs depending upon their factual pattern .It is important however to read one para of the Hon'ble High Court of Mumbai judgment which is para 8 of the decision (quoted below)

"8. In the instant case, the Petitioners admittedly, based on the said notification were being granted benefit of the notification previous to the imports in issue and also subsequent to the imports in question. In other words, both the parties were aware of the said notifications. If the Petitioner on account of an inadvertent error chose not to apply for the benefit, would that result in denial of the benefit. In our opinion that by itself would not be answer as a duty is cast on the authority to assess the goods and impose duty according to law which includes a statutory notification, if duty cannot be demanded if otherwise not payable. Once there be a power to assess there is a corresponding duty to assess according to law. The fact that the Petitioner has paid the duty under mistake of law and or in the instant case by oversight, cannot result in being assessed to duty which was otherwise not payable. In our opinion, this will be a case of manifest injustice and on the face of it erroneous.

The facts of this case being so obvious, this would be a fit case for us to exercise our extra ordinary jurisdiction."

Option D

The CBEC Customs Manual of Instructions vide Chapter 3 as regards Procedure for Clearance of Imported and Exported Goods in sub heading 3 (Circular 26/2013 dated 19/7/2013) in para 3.1 and 3.2 elucidates as follows :

"3.1 Section 17 of the CA, 1962 provides that an importer entering any imported goods under section 46 or an exporter entering any export goods under section 50 shall self-assess the duty. Thus, under self-assessment, it is the importer or exporter who will ensure that he declares the correct classification, applicable rate of duty, value, benefit of exemption notifications claimed, if any, etc. in respect of the imported / export goods while presenting Bill of Entry or Shipping Bill.

3.2 The declaration filed by the importer or exporter may be verified by the proper officer when so interdicted by the Risk Management Systems (RMS). Such verification will be done selectively on the basis of the RMS, which not only provides assured facilitation to those importers having a good track record of compliance but ensures that on the basis of certain rules, intervention, etc., high risk consignments are interdicted for detailed verification before clearance. On the basis of interdictions under RMS, Bills of Entry may either be taken up for verification of assessment or for examination of the imported goods or both. If the self-assessment is found incorrect, the duty may be reassessed. In cases where there is no interdiction by RMS or non- existence of any other factor, there will be no cause for the declaration filed by the importer to be taken up for verification, and such Bills of Entry will straightaway be facilitated for clearance without assessment and examination, on payment of applicable duty, if any."(Emphasis supplied)

A careful perusal of para 3.1, 3.2 would reveal that where there is no interdiction by the RMS, the relevant BOE will be facilitated for clearance without assessment. In the light of the above, it is prayed that adequate checks be built in the RMS for the beneficial notifications etc. so that if they are not claimed, they should be allowed even at the stage of facilitating BOE for clearance in the light of observations of the Hon Mumbai High Court in para 8 of the judgment in the case of Hero Cycles (referred above).

It is also pertinent that in para 10.4 of Chapter 3, Post Clearance audit (PCA) of cases selected under RMS is discussed. In this para also there is no discussion about not claiming impact of beneficial notifications, though Consultative Letters to importers have been discussed regarding short levies. A suitable insertion in PCA para to bring to the attention of importers benefits not availed by them, by the Revenue, will foster trust and cement assessees and tax department relationship.

Summary

In the light of the above, the GOI should look at all the above options and provide solutions for inadvertent mistakes made by assessees in not claiming the beneficial notifications while making payment of duties.