MARCH 03, 2011

RMS in import clearances gets legal backing – Better late than Never

By J M Kishore

FINANCE BILL 2011 , vide Clauses 35 and 37 , proposed amendments to the provisions of The Customs Act,1962 by amending/substituting the existing Sections 2(2) and 17 to provide a strong legal backing to the existing procedure of facilitated clearance for imported goods. More than 5 years back, when CBEC introduced The Risk Management System (RMS) as a measure of trade facilitation, by way of issuing a Circular , several questions were raised regarding statutory backing for the stipulated procedure. In the RMS system, Bill of entry is processed by system itself on the basis of declarations by importer and it is almost akin to self-assessment by importer.

As per Section 2(2) of The Customs Act,1962, the definition of assessment “ includes provisional assessment, reassessment and any order of assessment…..”. Thus the so called “self-assessment” procedure stipulated in RMS does not find a legal backing as it exists. Further, in terms of the existing Section 17 , the proper officer has to assess the Bill of entry. This position, apparently created problems as system processes the bill of entry on the basis of declarations purely based on “ tariff item” and “the exemption notifications claimed” by importer. The valuation aspect is also not taken care of in the RMS system. Of late, CESTAT held that incorrect declaration of Tariff Item and improper claim of exemption notification do not amount to mis-declaration. In view of the possibility of an importer to classify wrongly or to claim incorrect exemption benefit and then get away without penalties even if caught, finally , Board had proposed these amendments to the existing Law.

Vide Clause 35 of the Finance Bill 2011, it is proposed to include the word “ self-assessment ” in the definition of the term “Assessment” in Section 2(2). Further, vide Clause 37, the existing Section 17 is proposed to be substituted so as to :

•  Provide for self-assessment by an importer,

•  Provide power to proper officer for verification of the self-assessment by calling for required documents from the importer/exporter ,

•  Provide power to re-assess if it is found on verification, examination or testing of the goods or otherwise , that the self-assessment is not done correctly and even take appropriate action ,

•  Provide for passing a speaker order within 15 days from the date of re-assessment, if necessary, on re-assessment of any self-assessment when it is found that the self-assessment is incorrect in respect of valuation of goods, classification, exemption/concessions claimed under a Notification

•  Provide for audit of self assessed Bill by the proper officer either at the office or at the premises of the importer .

Every Bill of entry , now to be self-assessed ?

As seen from the wording of the Section, all the Bills of entry filed for clearance of import goods are now to be self-assessed. Proper officer may resort to verification ,examination or testing of goods only if it necessary. As per the present practice, certain Bills are not to be processed on self-assessment and these bills would be directed to the assessing officer on the basis of certain risk parameters. These bills are assessed as usual and the clearance is accorded after due examination/inspection. However, with the proposed amendment, it appears that initially all the bills have to be processed for full facilitation and only in case of some incorrect claim/declaration the bill has to be called back for the purpose of re-assessment .

What about the violations in provisions relating to FTP and other Allied Acts ?

When any re-assessment is done contrary to the self-assessment done by the importer regarding the valuation of goods, classification, exemption or concessions of duty availed consequent to any notification issued , the proper officer is under obligation to pass a speaking order in case importer does not confirm his acceptance to the re-assessment. Other possible issues such as violation in respect of Foreign Trade Policy (FTP) provisions and that of other Allied Acts are apparently missing here and it is opined that they also should have been covered/included in the above Section 17 so that litigation in such cases could be avoided.

Post Clearance Audit (PCA) and Onsite PCA – find their place in statute!!

Though the existing RMS mechanism consisted of the procedure relating to Post Clearance Audit (PCA) as stipulated in the Board's Circular NO. 43/2005 DATE 24/11/2005, there was no legal backing till now for the same. However, vide the Finance Bill 2011, the proposal to substitute the Section 17 of The Customs Act,1962 covers the Post Clearance Audit in the office as well as the Onsite Post Clearance Audit at importers' premises. It is appreciable that CBEC had already called for the views, comments and suggestions on the draft scheme of Post Clearance Audit (PCA) in Customs vide F.No.450/1/2010-Dir. (Cus) Dt. 10.09.2010 . The basic idea is to cause necessary verification in self-assessed cases periodically at the importer's premises by looking at the business records kept by the importer with regard to such imports. While the importer can have possession of the goods quickly, interests of the government are protected by resorting to post clearance audit at the premises of the importer by auditing individual transactions undertaken over a period of time. I hope CBEC may stipulate the procedure for Onsite PCA soon.

Consequential amendments in Section 18

Clause 38 of the Finance Bill 2011 proposes amendments to the Sub-Sections (1) and (2) of Section 18. The effect is that in case any importer is unable to make self-assessment, he may opt for assessment on provisional basis by making a request in writing to the proper officer for the same. It is interesting to note that in the existing Section 18, there is no provision for importer to seek provisional assessment.

(The views expressed are personal of the author)