RECOVERY OF DUES AND REFUND OF CUSTOM DUTY AND INTEREST UNDER CUSTOMS ACT, 1962

INTRODUCTION

Customs duty is determined in terms of section 15 or section 16 of the Customs Act, 1962 in respect of imported or export goods. If the duty paid / levied is found to be less than due, the importer or exporter is required to pay the short levied / non levied or short paid / non paid amount of duty. In this regard, the Customs Act, 1962 empowers officers to issue a demand cum Show Cause Notice for recovery of the amount of duty short levied/ non levied from the importer/exporter. The Show Cause Notice is then adjudicated by the appropriate authority. 

Section 28 of the Customs Act, 1962 provides for the recovery of arrears and section 142 of the Act empowers the department to take coercive actions. 

On import or export of goods, at times, it is found that duty has been paid in excess of what was actually leviable on the goods. Such excess payment may be due to lack of information on the part of importer/exporter or non-submission of documents required for claim of lower value or rate of duty. Sometimes, such excess payment of duty may be due to shortage/short landing, pilferage of goods or even incorrect assessment of duty by Customs. In such cases, refund of excess amount of duty paid can be claimed by the importer or exporter. If any excess interest has been paid by the importer/exporter on the amount of duty paid in excess, its refund can also be claimed. Section 26 of the Customs Act, 1962 prescribes provision for refund of export duty, Section 26A of the Customs Act, 1962 deals with refund of import duty in certain cases and Section 27 of the Customs Act, 1962 prescribes claim for refund of duty in case of excess payment duty on importation. 

This article would throw light on the recovery of arrears and refund of custom duty and interest under the Customs Act of 1962.

LEGAL PROVISIONS FOR RECOVERY OF ARREARS

The main statutory provisions dealing with recovery of arrears in Customs are as follows:- 

(i) Section 28 of the Customs Act, 1962 provides for recovery of any duty which has not been levied or has been short levied or erroneously refunded or if any interest payable has not been paid, part paid or erroneously refunded by way of issue of demand and pursuing with the importer/exporter.

(ii) In case recovery is not effected under section 28, section 142 of the Customs Act, 1962 further empowers department to take coercive actions such as deducting any amount payable to the defaulter, restraining any movable or immovable property or referring the case to district collector for recovery of the dues as if it were an arrear of land revenue.

(iii) The process of recovery of arrears starts with confirmation of demand against the defaulter importer/exporter and includes a number of appellate forums wherein importer/exporter as well department can go for appeal.

PROCEDURE FOR RECOVERY OF ARREARS OF CUSTOMS

• Section 28 of the Customs Act, 1962 provides for recovery of any duty which has not been levied or has been short levied or erroneously refunded or if any interest payable has not been paid, part paid or erroneously refunded provided a notice demanding such duties/interests is issued within the time limit specified in that Section. Where the short levy is by reason of collusion or any willful misstatements or suppression of facts by the Importer the period for issuing the demand notice is five years from the relevant date specified in Section 28.
• When the short levy is discovered or pointed out by Audit, a notice is served on the importer or the persons chargeable with duty to show cause as to why the amount due should not be recovered from him. Normally a period of 15 days is given to show cause why he should not pay the amount The basis and the working of the short levy is required to be clearly stated in the Show Cause Notice. Copies of relied upon documents are also furnished to the notice, to enable him to represent his case. All such notices are required to be sent by Registered Post or given to the Agent under receipt/acknowledgement after being entered in the less charge demand register maintained in the respective sections of the Custom House.
• It is important that the demand should be served on the importer within the time limit under section 28 of the Customs Act as otherwise the demand shall become time barred and legally not recoverable. In the case of IAD or CRA objections, demands are issued immediately on receipt of the objection wherever it appears that there may be a short levy of duty as indicated in the objection.
• Demands issued for short levy of duty as a result of audit objection, arising out of assessment etc. are to be finalised within 6 months from the date of issue of the demands and cases which could not be finalised should be reviewed for examining the reasons for delay and adopting suitable remedial measures.
• Upon receipt of the reply from the Notice the matter is examined in detail and the Notice is offered an opportunity of Personal Hearing to explain his case before the adjudicating authority. After the Personal Hearing the adjudicating authority shall examine the material placed before him and shall come to the conclusion after taking into consideration the provisions of Law concerning the issue Generally, the issues involved are misdeclaration of the description of the goods resulting in wrong classification and levy of lesser duty, misdeclaration of value, quantity and weight having a bearing on duty, calculation error resulting in short levy of duty, non inclusion of certain components of value in the assessable value etc.
• The adjudicating authority is required to take an independent decision as an quasi-judicial authority and pass appropriate orders either determining the amount of short levy in terms of section 28 (2) of Customs Act or dropping the proceedings where it is found that there–is no short levy in either case an appealable order is to be issued by the adjudicating authority. The duties, fines and penalties imposed, if any, are required to be paid immediately, unless the party files an appeal and obtains a stay from the competent authority.
• As regards breach of condition of the notification after availing of the exemption thereunder, it has been held by the Apex Court that the obligation under a notification is a continuing one and the Customs authorities are well within their power to recover the duty whenever it comes to their notice that the importer has failed to fulfil the conditions. In such cases the demand can be issued irrespective of the time factor and the amount can be recovered in terms of the provisions of the Customs Act.
• The confirmed demands are enforced and recoveries effected in accordance with the provisions under Section 142 of Customs Act, 1962. Where it is not possible to recover the amount by adjusting against any money which the department owes to such persons, or by detaining and selling any goods belonging to such persons which are under the control of the Department, action is initiated to recover the Government dues through the District Collector as if it were an arrears of land revenue. Powers are also vested with Customs for attaching/detaining and selling any movable or immovable property belonging to/or under control of such person, and these can also be resorted to.

REFUND OF CUSTOMS

The refund of any duty and interest, can be claimed either by a person who has paid the duty in pursuance to an order of assessment or a person who has borne the duty. Any person claiming refund of any duty or interest, has to make an application in duplicate in the form as prescribed in the Customs Refund Application(Form) Regulations, 1995, to the jurisdictional Deputy/Assistant Commissioner of Customs. Such application is to be made before the expiry of six months from the date of payment of duty and interest. However, in case of any import made by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, application for refund can be made before the expiry of one year from the date of payment of duty and interest. The application for refund is required to be filed with documentary or other evidence including documents relating to assessment, sales invoice and other like documents to support the claim that the duty and interest was paid in excess, incidence of duty or interest has not been passed on by him to any other person, and the refund has not been obtained already. Where on scrutiny, the application is found to be complete in all respects, the Customs issues an acknowledgement in the prescribed Form as per the Customs Refund Application(Form) Regulations, 1995. However, in case the application is found to be incomplete, the Customs has to return the application to the applicant, pointing out the deficiency. The applicant has to re-submit the application after making good the deficiency, for scrutiny by Customs again for admissibility of the refund claim.

PROCESSING OF REFUND CLAIM

The application of refund found to be complete in all respects by Customs, is processed to see if the whole or any part of the duty and interest paid by the applicant is refundable. In case, the whole or any part of the duty and interest is found to be refundable, an order for refund is passed. However, in view of the provisions of unjust enrichment enshrined in the Customs Act, the amount found refundable has to be transferred to the Consumer Welfare Fund. Only in following situations, the amount of duty and interest found refundable, instead of being credited to the Consumer Welfare Fund, is to be paid to the applicant:

1. if the importer has not passed on the incidence of such duty and interest to any other person;
2. if imports were made by an individual for his personal use;
3. if the buyer who has borne the duty and interest, has not passed on the incidence of such duty and interest to any other person;
4. if amount found refundable relates to export duty paid on goods which has returned to exporter as specified in section 26;
5. if amount relates to drawback of duty payable under section 74 and 75;
6. if the duty or interest was borne by a class of applicants which has been notified for such purpose in the Official Gazette by the Central Government.

INTEREST ON DELAYED REFUND

The Customs has to finalize refund claims immediately after receipt of the refund application in proper form along-with all the documents. In case, any duty ordered to be refunded to an applicant is not refunded within 3 months from the date of receipt of application for refund,  the appliant shall be paid to that applicant interest at such rate, [not below five per cent] and not exceeding thirty per cent per annum as is for the time being fixed. The interest is to be paid for the period from the date immediately after the expiry of 3 months from the date of receipt of such application till the date of refund of such duty. For the purpose of payment of interest, the application is deemed to have been received on the date on which a complete application, as acknowledged by the proper officer of Customs, has been made. Where any order of refund is made by the Commissioner (Appeals), Appellate Tribunal or any Court against an order of the Assistant Commissioner/Deputy Commissioner of Customs, the order passed by the Commissioner (Appeals), Appellate Tribunal or by the Court, as the case may be is deemed to be an order for the purpose of payment of interest on delayed refund. The interest on delayed refund is payable only in respect of delayed refunds of Customs duty and no interest is payable in respect of deposits such as deposits for project imports, security for provisional release of goods etc.

INDIAN JUDGMENTS ON REFUND UNDER CUSTOMS ACT, 1962

The Hon’ble Supreme Court in the case of Priya Blue Industries Ltd v. Commissioner of Customs (Prev.), held that “Once an Order of Assessment is passed the duty would be payable as per that order. Unless that order of assessment has been reviewed under Section 28 and/or modified in an Appeal that Order stands. So long as the Order of Assessment stands the duty would be payable as per that Order of Assessment. A refund claim is not an Appeal proceeding. The Officer considering a refund claim cannot sit in Appeal over an assessment made by a competent Officer. The Officer considering the refund claim cannot also review an assessment order” 

In the case of Vimal Alloys Pvt. Ltd v. Commissioner of Customs, held that the amount paid by the importer could not be said to be duty. At best it was a deposit converted into duty. In that view, refunds filed beyond the prescribed period could not be said to be time-barred.

In the Case of Southern Petrochem. Indus. Corpn. Ltd. v. Collector of Customs, held that “ It is now well settled that the refund claim cannot be enlarged before the Appellate Forum after the expiry of statutory period under Section 27 of the Customs Act. Therefore, we have to reject the claim of the appellants for refund of additional duty and CV duty as available under Notification No. 132/88-C.E. as being a fresh claim, which is inadmissible in law, as having been made beyond the prescribed time limit under Section 27 of the Act

The Hon’ble Tribunal larger bench in the case of DCM Shriram Consolidated Ltd. v. Commissioner of Customs, held that “though refund claim was filed on 22-4-1997 the assessment was finalized on 16-2-2001 only and the refund, if any, has become due to them only from that date. Thus, interest, if any, will be payable from 3 months after 16-2-2001 and not from 22-4-1997 as at that time no refund was due to the Applicants.