FEBRUARY 27, 2020

By K Srinivasan

WHEN the Central Excise Department changed over from physical control and Department made assessment of manufactured goods to self-assessment, it ensured there was no interference by either the Department or Department-made Laws with regard to such assessments either in respect of classification or rate of duty or value.

Accordingly, the manufacturer of goods was to file a self-assessed tax return, assessing the goods so cleared to the duty of excise, as per his best understanding and judgement.

If the Department had any disagreement with regard to the said assessment in respect of either the classification, rate of duty or value, it was up to the Department to challenge the assessment through the proceedings of natural justice followed by a quasi-judicial speaking order.

However, when the Customs Department changed over from Department assessments of Imports to self-assessments, in the year 2011, it apparently did not replicate the procedure followed by its sister tax Department, and thus started the above trouble.

The importer of the goods, accordingly had to file a bill of entry under Section 17(1) of the Customs Act, 1962 based on self-assessment without any intervention of the proper officer of customs.

But, while introducing such self-assessment mechanism, the provisions of Section 17 underwent an amendment though not Section 47, by corresponding amendment in the said Section 47 of the Customs Act, 1962.

Therefore, even today an importer under the so called self-assessment mechanism of Customs has to obtain an out-of-charge order from a proper officer of customs under Section 47 of Customs Act, 1962 as it was required during the Department assessment era.

A question arose as to whether the self-assessment mechanism under Customs is really a self-assessment in the spirit of Law or is it a make believe one, in the sense it is still an assessment made by the customs authorities physically, but masquerading as self-assessment?

In this regard, it was not impossible for the Department to argue that such an out-of-charge order passed under Section 47, was only a clerical/administrative order as the proper officer merely ensured that the duty was paid properly as per the self-assessment of bill of entry and prohibited goods are not cleared by the importers.

Hence, the proper officer giving out of charge for the imported goods is not to be regarded as validating the assessment done by the importer under Section 17(1), is always one of the arguments.

Hence the said bill of entry was not to be considered an assessment order passed by a proper officer of customs, was the argument of the Department, in defence of its interference in the said self-assessment scheme of Imports.

The Hon'ble High Court of Madras in case of Best & Crompton Engineering [1997 (93) ELT 21 (Mad)] has held that the order passed under Section 47 is not merely a clerical/administrative order but is a quasi-judicial order which can be appealed against.

The said view of the Madras High Court was further echoed by the High Court of Kerala in case of Arvind Export (P) Ltd. [2010 (253) ELT A81 (Ker)].

This led to an inevitable conclusion that, even under self-assessment system, the self-assessed excess customs duty paid under self-assessment system under a bill of entry, would amount to order passed by a proper officer of customs.

As per the provisions of Section 17(1) read with Section 47 of Customs Act, 1962, when a self-assessed bill of entry could become an order of proper officer and thus can be appealed against before appropriate appellate authorities, arguably there could be a bar on obtaining refund of excess duty paid in the self-assessment era, on a self-assessed Bill of Entry, without challenging the said self-assessed order, before an Appellate Authority.

Hence, refund of erroneous duty paid would be available only upon setting aside the said assessment order of proper officer by an appropriate appellate authority as held by Supreme Court in case of Priya Blue Industries Ltd. - 2004-TIOL-78-SC-CUS.

However, it was also learnt that an appeal filed by an importer against an erroneous self-assessed bill of entry filed under amended Section 17(1) was rejected by the Commissioner (Appeals) only on the sole ground that the self-assessed bill of entry filed under Section 17(1) is not an order passed by a proper officer of customs.

Therefore, an importer had to think he had the only option to file an application for amendment under Section 149 of the Customs Act, 1962 to rectify any mistake in the bill of entry based on the documents available at the time of importation.

Further Section 149 does not prescribe any time limit within which the importer has to file an application for amendment.

However, such applications of the importer for seeking amendment in the bill of entry under Section 149 are reportedly not entertained by the officer of customs in timely manner as it takes a lot of time to pass an order either allowing or rejecting such an amendment application by the importer.

Based on the outcome of the order of the customs officer under Section 149, the importer can file a refund claim in case the application is allowed.

Further in case of a rejection order under Section 149, the importer will have to pursue only the appellate remedy as prescribed under the Customs law against the said rejection order.

Further, if no appeal is maintainable against the self-assessed bill of entry as held by a Commissioner of Appeals, the importer can only directly file a refund claim of excess duties paid on account of erroneous bill of entry without challenging the self-assessed bill of entry.

In such cases, the refund claim were held to be allowable by the customs officer in light of the decision of Delhi High Court in the case of Aman Medical Products Ltd. - 2009-TIOL-566-HC-DEL-CUS

After introduction of provisions relating to self-assessment vide Finance Act, 2011 with effect from 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, 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 pre-condition for maintainability of a refund application in the self-assessment era.

The Supreme Court in Re  ITC Ltd. v. CCE, Kolkata -IV Civil Appeal Nos. with 293-294 of 2009 and Ors. dated 18.09.2019 -  2019-TIOL-418-SC-CUS-LB, in the operative portion of the Order, reiterated the  stand taken in Priya Blue -   2004-TIOL-78-SC-CUS.

However, in this case the Court had an occasion to also examine the amendment made to Customs Act while introducing self-assessment with effect from 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.

In view of all the above, following two alternatives got opened up for obtaining refund under self-assessment system:

1. Appeal against self-assessed BOE under Section 128 of the CA, 1962.

2. Filing application for amendment or modification of self-assessed BOE, under other provisions of the CA, 1962 and then appeal against adverse order if resulted in rejection of the amendment/modification sought.

Filing of refund claim under Section 27 of the Customs Act, 1962, however, has been relegated to after the outcome of either option 1 or option 2 above, in any case.

And either way without exhausting the above two options, on the ground that there's no litigation blocking the assessment, a claim for refund won't be entertained, is the main takeaway from the recent SC judgement of ITC.

Like there is a time limit for the assesse to claim refund which is relatively much longer say one year, even there is a time limit under Section 128, for the Department to challenge an assessment in litigation, which is much shorter, say ninety days.

The argument put forth by ITC before the SC was that post amendment vide Finance Act, 2011, a direct route has been given for refund under Section 27 of the Act without a challenge to the assessment, which is a good route and does not hurt either.

It was also further explained that Section 27 remedy is analogous remedy available with the department under Section 28 of the Act wherein recovery of erroneous refund can be made without challenge to the original assessment, from two to five years.

But, despite all the above explanations, a claim of refund without a challenge to the self-assessment in appeal, having been held by the SC to be non-maintainable, certainly strikes a discordant note to both the Government and the importer alike, in the light of history and Law detailed above, is the humble view of the Author.

As per the Author, the dispensation of Law has been subject to much misunderstanding. The following are the logical steps clearly visible to us, as you could see for yourself.

The straight route open to the importer is to claim any erroneous payment of customs duty based on the self-assessed BOE, without having to subject his self-assessment to a challenge in appeal.

The Department need not constrain itself into a straightjacket, to pursue hurriedly the self-assessment, under section 128 of the CA, 1962 within a short time 90 days, in appeal.

The Department is empowered under Section 28, independent of Section 128, by a natural dichotomy built into the Customs statute, without challenging the self-assessment made under Section 47, to recover the erroneous refund of duty, within a period of two to five years, as the case may be.

The above proposition is a win-win situation to both the importer and the Department, without having to hazard their basket of eggs on any self-imposed stumbling blocks, which otherwise would look inevitable to escape.

But, as things stand post the ITC judgement of the SC, the above issue is likely to remain a conundrum as to which one is the most appropriate and expeditious solution?

From the position of the importer:-

++ To obtain refund of excess customs duties paid erroneously by the importer, in the self-assessment era, whether before a challenge to his assessment in appeal or not?

From the point of view of the Department:-

++ To recover the refund/short payment of duty arising out of self-assessment, if any, then which route to take, the long one or the short?

(The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.)