The Hindu Business Line : Customs: Key proposals

Reduction in the peak rate of Customs duty, imposition of secondary and higher education cess, changes in respect of provisions relating to valuation, refund, payment of interest with regard to recoveries of drawback and the Settlement Commission are the highlights relating to Customs in this year's Budget.

No ASEAN Levels of duty

The peak rate of Customs duty in respect of non-farm products has been brought down to 10 per cent from 12.5 per cent. The industry expected reduction to the ASEAN level of 8 per cent. The reduction of the import duty to ASEAN levels could have ensured better tax compliance.

One more Education Cess

In terms of Clause 126 of the Finance Bill 2007, a new levy of 1 per cent cess — termed Secondary and Higher Education Cess — will be levied on imported goods, among others. This levy is purportedly to fulfil the commitment of the government for providing finance to secondary and higher education. This will be in addition to the education cess now being levied and will be charged twice. The effect of this levy will be to increase the overall duty liability on imported goods offsetting reduction in peak rate of duty to certain extent. The education cess under 2004 Finance Act was to provide finance for basic education. A rationalisation of the cess could have been attempted by increasing the cess rate and applying it for both basic and secondary and higher education.

Deemed valuation of imported goods

Section 14 of the Customs Act is being amended and the concept of deemed valuation of imported goods inherent in the present section is being removed. Now, the valuation will be on the basis of transaction value and Customs Valuation Rules. A number of valuation disputes arise because the Customs department wants to enforce uniformity in value of imported goods. With this change, the irritant relating to arbitrary enhancement of values should disappear.

Refund of import duties

The decision of the Supreme Court in the case of Priya Blue Industries stipulated that no refund can be claimed in terms of Section 27 of Customs Act without first challenging the assessment by way of appeal proceedings. This has lead to difficulties with regard to the relevant date by which the claim has to be filed as appeal proceedings can be time consuming.

The relevant date as per Section 27 is being amended to compute the time from the date of the appeal order. This is a welcome amendment.

Recovery of interest

Claiming of drawback incentive by making bogus exports is rampant and the present provisions, while enabling the government to recover the drawback paid in such cases, provide for recovery of interest only after the order for recovery of drawback is passed.

Now, Section 75A of the Customs Act is being amended to recover interest from the date the drawback was sanctioned. This will plug the loopholes in the present scheme. Overall, the proposals contain a mixed bag.

Settlement Commission unsettled

Large number of changes have been proposed relating to the Settlement Commission. From June 1, 2007, the minimum duty liability to be admitted before the Settlement Commission will be Rs 3 lakhs and cases pending before adjudicating authorities on the basis of remand orders passed by Tribunal or Court cannot be brought before the Commission. Further, the Settlement Commission is being debarred from granting immunity from prosecution in terms of Indian Penal Code and other Central Acts. It also debars the Commission to grant immunity from payment of interest. An applicant can approach the Commission only once. The changes being brought about as above will have far-reaching implications on the functioning and utility of the Commission. Till now, various Benches of the Commission have done goodcommendable work and settled hundreds of crores of rupees in tax cases. But these changes will only result in more number of cases being fought and dragged on in other forums.

(The author is a Chennai-based advocate.)

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