‘Ease of doing business’ – A look at certain key Customs rulings

‘Ease of doing business’ is the buzz-word at present and with the Indian Union Cabinet going ahead with the WTO’s Trade Facilitation Agreement, it seems that conditions for doing business in India are bound to improve with significant cut in number of forms, declarations and permissions. Role of Indian judiciary including the Tribunals in this regard is also worth noting. In this background, this article seeks to analyze few decisions of the Courts/Tribunals relaxing certain Customs procedures which otherwise were perceived as creating hindrances in growth of trade in India.

Registration as per Customs (IGCRDMEG) Rules is procedural

Requirements under Rules 3 and 4 of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 were recently held by CESTAT as merely procedural [see end note 1]. It was held that intention of the statute is to ensure that the goods imported by the manufacturer are used for the intended purpose as declared in the application. Exemption under Notification No. 21/2003-Cus., was allowed by the Tribunal while it rejected the contentions of the Revenue department that registration under the said rules has to be taken prior to import.  Revenue department’s case was also that the importer had mis-represented before the Central Excise Authorities by stating that they intend to import the material (in future), whereas they had already imported and cleared the material on payment of duty on merits. The Tribunal however highlighted the views of the Commissioner (Appeals) that there was nothing in the rules which cannot be done after the importation, but before the use of the goods, and which could and should have been done only before the importation.

It may however be noted that the new rules, in force since 16-3-2016, grant exemption based on submission of information by the importer rather than based on certificate from Central Excise authorities, and registration under Excise Rule 9 is called for only if the manufacturer is not registered with the authorities. Absence of this specific registration in the new rules vindicates the point that such registration was only procedural, and hence is no more relevant in this era of self-assessment. It is however to be seen whether Customs would allow benefit, under the new rules, if the exemption is not claimed at the time of import/clearance.

Refund – Assessment of B/E when deemed to be challenged

In one of the most cited cases, the Supreme Court had held that a refund claim is not an appeal proceeding, and hence unless the order of assessment has been reviewed under Customs Section 28 and/or modified in an appeal, a claim for refund would not be maintainable [see end note 2]. This ruling of the Supreme Court has often been distinguished by various Courts and Tribunal - be it a case of mistake in declaration by importer or mistake by the assessing officer or in case of absence of ‘lis’ between importer and the Department at the time of import. Recently, CESTAT has further enhanced the scope of challenge to the assessment, and held that seeking amendment of bills of entry and re-assessment amounts to challenging the assessment [see end note 3]. In this case, the importer had failed to claim the benefit of exemption notification in the bill of entry, but subsequently amendment and re-assessment of bill of entry were sought before filing refund claim.

Extra duty deposit (EDD) when not required

No conversation on valuation would be complete, without discussing EDD which the department insists in case of imports from related parties, till the final decision is reached on valuation. Madras High Court has recently held that EDD cannot be asked to be deposited by the appellate authority at the time of remand [see end note 4]. In another case, CESTAT has held that Commissioner (Appeals) cannot demand extra duty deposit more than the sanctioned 1% till the finalisation of the SVB Order [see end note 5]. In this case the first appellate authority had allowed the department’s appeal and remanded the case for de novo consideration while also directing the department to collect extra duty deposit of 5%. Other than these, there are numerous decisions [see end note 6] wherein collection of this deposit beyond the prescribed period of 4 months (during which an investigation is supposed to come to an end), has been held to be not correct.

Now, this unnecessary deposit has been dispensed with. CBEC in its recent Circular No. 5/2016-Cus., states that for the sake of reducing transaction cost and bringing uniformity across Customs Houses, no security in the form of EDD shall be obtained from the importers. 5% EDD however remains if the importer fails to provide documents and information required for SVB inquiries, within 60 days of such requisition. Importer is now further free to choose between cash deposit and bank guarantee for the purpose of this security deposit. It may be noted that this deposit was 5% till 1998 when it was reduced to 1% by Circular No. 1/98-Cus. However, in 2011 this was enhanced to 5% in respect of cases where the importer does not furnish complete reply to the questionnaire within 30 days, of receipt of the same.

Seizure – Bank account when cannot be frozen under Customs Section 110

The Allahabad High Court has held that power under Customs Section 110 cannot be exercised for passing an order prohibiting an individual from withdrawing from bank account unless the individual is charged with illegally transacting in the currency by way of import or export [see end note 7]. The Court relied on the decisions of the Gujarat High Court in Am Overseas and that of Karnataka High Court in Multitek Engineers [2013 (287) E.L.T. 44]. It was also held that for the same reason, no conditions can be imposed on an individual pursuant to Section 110A to allow the operation of the bank account pending an order of the adjudicating authority.

Here it will not be out of context to state that it is still not very clear as to whether the department under Customs Section 110(3), which provides for seizure of ‘any documents or things’, can freeze bank accounts of the importer/exporter. The Gujarat High Court [see end note 8] in the above mentioned case has held that department cannot issue any direction to prevent the assessee (exporter) from operating his accounts. The Court rejected the contention of the department that use of the term ‘things’ would include currency. It was observed that provisions were part of statute dealing with ‘goods’ and that the term ‘currency’ is also used only in the context of import or export of currency. Calcutta High Court has however held that ‘things’ include money lying in the bank account [see end note 9].

Penal provisions like arrest, seizure, etc., under Customs law have always acted as effective deterrent against different kinds of offences. But these powers in the hands of enforcement authorities can also be misused so as to harass law abiding citizens, but also to cause embarrassment to the government. Hence there is a need to build adequate safeguards into these provisions themselves so as to avoid any mis-adventure while exercising such powers.

Epilogue

India has come a long way from the times of normal value and strict appraisal based assessment in the era of transaction value and self-assessment. Much work has been done recently in order to ease doing business in India – implementation of Integrated Declaration under Indian Customs single window, extension of 24x7 customs clearance facility to 19 sea ports and 17 Air Cargo Complexes, implementation of electronic delivery order system, dispensation of SDF Form, etc., are some of the steps in the right direction by the authorities. However, much needs to done in order to bring more clarity in certain provisions.

[The author is a Manager, Knowledge Management Team, Lakshmikumaran & Sridharan, New Delhi]