Fallout of Supreme Court Judgment in ITC Case
FEBRUARY 22, 2020
By Sreenivas Malyala, Appraiser, Bangalore Customs
THE decision of the Supreme Court in the case of ITC Ltd. v. CCE, Kolkata -IV Civil Appeal Nos. with 293-294 of 2009 and Ors., decided on 18.09.2019 - 2019-TIOL-418-SC-CUS-LB, has been a subject matter for many Tax Columnists ever since the judgment was delivered. Though, the Apex Court in the operative portion of the Order, reiterated the stand taken in Priya Blue - 2004-TIOL-78-SC-CUS, Flock India - 2002-TIOL-208-SC-CXcases, the uniqueness of this judgment comes from the fact that the Court has examined the amendment made to Customs Act introducing self-assessment w.e.f 8.4.2011 and reiterated that in the absence of any challenge to the order of the assessment in appeal, refund application against the assessed duty is not maintainable even in the self-assessment era.
BACKGROUND OF THE ISSUE
Before analysing the impact of ITC decision of Supreme Court, it is important to consider the relevant provisions of the Customs Act and their interpretation pre and post the introduction of the self-assessment regime. The concept of self-assessment under the Customs Act, was introduced vide the Finance Act, 2011 to Sections 2, 17 and 27 of the Customs Act on 08.04.2011.
- Section 2 (2) of the Customs Act, prior to the amendment by the Finance Act, 2011, defined assessment "to include provisional assessment, re-assessment and any order of assessment in which duty assessed is nil". Vide Finance Act, 2011, the definition of assessment was amended to include "provisional assessment, self-assessment, re-assessment and any assessment in which the duty assessed is nil."
- Section 17(2) of the Customs Act, 1962, prior to the amendment by the Finance Act, 2011, required that after the entry of the goods by the exporter or importer, the duty on the goods, if any leviable, shall be assessed(by the proper officer). Vide Finance Act, 2011, Section 17 was amended wherein as per new Section 17(1), an importer entering any imported goods under section 46, or an exporter entering any export goods under section 50, shall save as otherwise provided in section 85, self-assess the duty, if any, leviable on such goods.
- Section 27 of Customs Act, 1962, prior to the amendment read that any person claiming refund of any duty (i) paid by him in pursuance of an order of assessment; or (ii) borne by him, may make an application for refund of such duty and interest. After the amendment, Section 27 reads that any person claiming refund of any duty or interest, -(a) paid by him; or (b) borne by him, may make an application
The questions of law sought to be answered by the Supreme Court in ITC was covered by earlier judicial pronouncements governing the issue before introduction of self-assessment were the decisions of Priya Blue - 2004-TIOL-78-SC-CUS and Flock India - 2002-TIOL-208-SC-CX. In Flock India (supra) and Priya Blue Industries Ltd. (supra), the Supreme Court had held that where an adjudicating authority had passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal, it would not be open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing its order. Further, it was held that a refund claim is not an appeal proceeding, and the officer of similar rank cannot sit in appeal over as assessment made by a competent officer and review the assessment order. CBIC has also issued a Circular No. 24/2004-Cus dated 18.03.2004 directing the officers to follow the Apex Court decision in relation to the refund process.
However, after introduction of provisions relating to self-assessment vide Finance Act, 2011 w.e.f. 8.4.2011, in respect of appeals filed against rejection of refund applications on the grounds of non-maintainability for non-challenge of assessment, the appellants have raised the issue that self-assessment is not an assessment by proper officer and the bar of Priya Blue, Flock India will not apply in self-assessment era. In the above backdrop, the issue before the Supreme Court in ITC was to resolve the debate around the requirement of an appeal as a precondition for maintainability of a refund application in the self-assessment era. The following observations of Supreme Court are relevant to understand the impact of the judgment.
- It is apparent from provisions of refund that it is more or less in the nature of execution proceedings. It is not open to the authority which processes the refund to make a fresh assessment on merits and to correct assessment on the basis of mistake or otherwise.
- With regard to the contention that an appeal cannot be filed against self-assessment, Apex Court held that as the order of self-assessment is nonetheless an assessment order passed under the Act, obviously it would be appealable by any person aggrieved thereby. The expression 'Any person' is of wider amplitude. The revenue, as well as assessee, can also prefer an appeal aggrieved by an order of assessment. It is not only the order of re-assessment which is appealable but the provisions of Section 128 make appealable any decision or order under the Act including that of self-assessment. The order of self-assessment is an order of assessment as per section 2(2), as such, it is appealable in case any person is aggrieved by it. There is a specific provision made in Section 17 to pass a reasoned/speaking order in the situation in case on verification, self-assessment is not found to be satisfactory, an order of re-assessment has to be passed under section 17(4). Section 128 has not provided for an appeal against a speaking order but against" any order "which is of wide amplitude. The reasoning employed by the High Court is that since there is no lis, no speaking order is passed, as such an appeal would not lie, is not sustainable in law, is contrary to what has been held by this Court in Escorts.
- The refund proceedings are in the nature of execution for refunding amount. It is not assessment or reassessment proceedings at all. While processing a refund application, re-assessment is not permitted nor conditions of exemption can be adjudicated. re-assessment is permitted only under Section 17(3) (4) and (5) of the amended provisions.
The Apex Court held that the claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund; and in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Act.
Analysis of Apex Court Decision:
The Apex Court actually maintained the position that refund claim contrary to assessment is not maintainable and extended the applicability of Priya BLue, Flock India decisions to self-assessment era. Thus, in terms of the Apex court decision in ITC case, refund claim contrary to assessment made by an officer or the self-assessment by the importer are not maintainable in the absence of modification of assessment in appeal or under the relevant provisions of the Act.
The modification of an assessment under the provisions of Customs Act is possible under three different situations provided under the Customs Act, 1962 apart from proceedings of appeal under Section 128.
1. Self-assessment made by the importer or exporter can be modified and a re-assessment may be done by proper officer under Section 17(4) of Customs Act, 1962. However, generally no refund would arise in such re-assessment. Such refund, if any arises, the same would be maintainable under section 27 as the refund is consequent to re-assessment. As such, refund is as per assessment and not contrary to assessment since re-assessment is covered under the definition of assessment under Section 2(2) of Customs Act, 1962.
2. Section 149 provides for amendment of documents(Bills of Entry or Shipping Bills) even after clearance of the goods based on the documentary evidence available at the time of importation or exportation. These are cases of wrong currency, numerical and typographic errors while filing Bills of Entry or Shipping Bill. Consequent upon amendment of documents re-assessment would be necessary. The re-assessed Bill of Entry or Shipping Bill after amendment would form the basis for refund claim.
3. The third case is that of provisional assessment under Section 18. Refund consequent to finalisation of assessment is provided under Section 18 itself.
In all other cases, the assessment or self-assessment can only be modified through appeal under Section 128 of Customs Act, 1962. Such was the position before ITC case by virtue of Priya Blue, Flock India Cases and Circular No. 24/2004 dated 18.3.2004 and same is the position even after ITC case. In other words, ITC had no impact as far as the Tax officials are concerned as they are continued to be governed by Circular No. 24/2004. However, during the intervening period between 8.4.2011 and 18.09.2019 some appellate fora have held a view that in cases where there is no lis, refund claims contrary to self-assessment are maintainable. The High Court decision in Micromax International 2017-TIOL-1302-HC-MAD-CUS was followed by some Custom Houses in processing of refunds by resorting to re-assessment in cases where there is no lis, citing ease of doing business. However, CBIC did not modify instructions given in Circular No. 24/2004 dated 18.3.2004 in the wake of Micromax decision.
REACTION of DEPARTMENT:
From the department side, the Board has not given any specific directions, apparently since ITC has not changed the position from Priya Blue Flock India and Circular No. 24/2004 dated 18.3.2004 is still valid. Some Custom Houses have issued Standing Orders in the aftermath of ITC Case essentially directing that refunds may not be entertained in the absence of modification of assessment in appeal. Locally, Mumbai issued Standing Order No. 27/2019 dated 24.12.2019, Chennai Customs issued Public Notice No. 88/2019 dated 15.10.2019 Vizag Customs issued Standing Order No. 18/2019 dated 21.11.2019, Bangalore Customs issued Standing Order No. 1/2020 dated 5.2.2020.
Mumbai's Standing Order directed the assessing officers "to re-assess any Bill of Entry in commensurate with the order of the appellate authority. Su-moto re-assessment is not to be done by the Group". Chennai Customs directed that no re-assessment shall be allowed unless order of assessment including self-assessment is modified in appeal. Further, the earlier PN issued based on Micromax Decision of High Court has been rescinded. However, Chennai Customs may not be in a position to issue demands for refunds issued after the issuance of PN No. 65/2018 since in all these cases Bills of Entry were re-assessed by groups in terms of the PN. Vizag Customs followed Chennai PN No. 88/2019. Bangalore Customs issued Standing Order No.1/2020 date 05.02.2020 wherein it is directed that no re-assessment except under Section 17(4) and consequent upon Section 149, shall be done. The Bangalore SO considered the right of assessing officer under Section 17(4) and the obligation of re-assessment arising out of the right of assessee under Section 149 of Customs Act, 1962 for correction of clerical mistakes based on documentary evidence available at the time of import and directed that re-assessment shall not be done in any other case.
In essence, the Customs department shall not allow re-assessments to correct the self-assessments for downward duty adjustment unless as a consequence of amendment of document under Section 149. Some Custom houses may not allow such re-assessment also. Thus, if the assessee makes a mistake of wrong classification entailing higher duty or does not claim an exemption of Notification, there is no remedy except an appeal under Section 128 within the time limits specified for filing appeal.
CONCLUSION:
In view of the decision of Apex court in ITC Case, it is not open for various appellate fora to order refund in case of erroneous self-assessment, non-claim of a Notification etc on the ground that there is no lis. But, the cases of typographical errors, wrong mention of currency which are in the nature of mistakes that can be corrected under Section 149 of Customs Act, 1962, the bar of ITC case will not apply in as much as in ITC its clarified by the Apex Court that "in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Act."
The assessees have to be careful in future while making self-assessment and settle with the fact that if a self-assessment is made wrongly, they would not be in position to claim refund. This puts more responsibility on the compliance function of the companies and on the Customs Brokers.
[The views expressed are strictly personal.]
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