There have been several significant changes recently in Indian Customs laws, which have perhaps not received the attention they deserve. These changes include introduction of the concept of ‘self assessment' and post-import audit.

Before these regulations came in, the primary onus of verifying correctness of classification, value, Customs duty and exemptions, etc, vested with Customs authorities, even though the importer/exporter were required to make all appropriate disclosures in the Customs documents, essentially Bill of Entry/Shipping Bill.

With the introduction of ‘self assessment', businesses are expected to discharge their Customs duty liability, with no or minimal involvement of authorities at the port. Therefore, the onus in terms of correctly complying with the law substantially shifts to the businesses.

As a logical extension, the authorities have carved out a right to undertake a detailed audit of the Customs processes, documentation and compliance of the businesses, at a later point in time.

In line with WCO aim

The stated objective of these changes is to move towards a trust-based compliance management through partnering with trade so that compliance levels become robust and the requirement of intervention by Customs authorities is minimised. This is in line with one of the ten objectives laid down by the World Customs Organisation (WCO).

Self-assessment and audit are not new to businesses in India, with the concepts being in existence under Excise, Service tax and VAT laws. However, there are several aspects that make Customs stand out from other indirect tax laws.

For instance, so far, the verification andscrutiny of import/export documents at ports were very transaction-oriented. With post-clearance audit, it is now expected to acquire a much larger spectrum, and the focus is likely to shift from individual transactions to the overall business operations of the company. Also, it is important to note that the audit would be conducted by Excise and Service tax authorities (at least initially), who have been specifically trained for this purpose.

They may take time to appreciate the nuances of Customs law and practice, which are different from those under excise and service tax.

Revisit practices

While the concept of ‘self-assessment' is yet to take off in the real terms, post-import audit has already commenced for importers registered under the Accredited Client Programme (ACP). While the audit currently covers only imports from April 2011 onwards, it is possible that on the basis of the outcome of audit, the authorities may choose to go beyond this period and open past disclosures as well. In order to prepare for the new regime, it is imperative for the industry to revisit the practices and processes currently being followed by the trade and logistics teams to handle Customs-related matters.

It is important to ensure that matters such as dealings with the Customs House Agents (CHAs), disclosures made during the course of imports (e.g. GATT declaration, SVB questionnaire, etc), post-import compliances (e.g. handling of excess/short shipments, price adjustments) are all appropriately handled and monitored.

For multinational corporations, it is also important to align the Customs and transfer pricing policies and compliances. There is a greater interaction between these authorities now, specifically aimed as identifying cases where there is inconsistency in the approach and disclosures made by businesses under these separate laws. These developments definitely call for a closer monitoring of Customs strategy and compliance by the senior management, as the risk involved has suddenly gone up significantly.

The author is Partner, Tax – KPMG in India

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