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Happy Intermission in 'SAD' Movie!

By CA Pradeep Jain & CA Preeti Parihar

THE importer-dealers are over the moon these days. Their SAD-ness is going to turn into happiness. Government granted exemption to the importers from Special Additional Duty which is levied @ 4% under Section 3(5) of the Customs Tariff Act, 1975 by way of refund. But due to a no. of procedural formalities and slackness at the departmental end, 80% of the claims were reviewed as pending at the major custom houses as on 31.3.2010. This induced the Board to issue a Circular for fixing a time limit for granting the refund of SAD. This critique is about the happy intermission of the SAD refund movie.

History behind refund:-

The refund is available to dealers only who pay VAT on his sale. Actually, this levy was in lieu of sales tax. The local manufacturer pleaded that they have to pay sales tax on sale to Indian customer but on import, there is no such tax for importer. As such, it is cheaper to import. So, the Government introduced this special additional custom duty. The Cenvat credit of the same was allowed to manufacturers and it can be adjusted for payment of Excise duty. But the dealer importers have to bear it and it became part of their cost. But while trading the goods, they have to pay sales tax again. They pleaded for the waiver if they are paying sales tax on their sale. The Government agreed to it and said that they will get exemption by way of refund. If they have not passed on Cenvat of such duty on his sale then he can claim refund. As such, this scheme of refund was formulated.

Utiltity of such levy:-

Further, in the opinion of the authors of this article, the goods are normally imported by manufacturers or dealers. A consumer rarely imports directly. The manufacturer gets the Cenvat credit of such duty and the dealer either pass on the credit to manufacturers or he gets this SAD refund. Then what is need of such levy? Everyone who is paying it, getting the benefit of the same.

Notification granting refund of Special Additional duty : -

Notification No. 102/2007-Cus, dated 14.09.2007 granted the exemption by way of refund of Special Additional duty (SAD) to the importer/ dealer of imported goods. The importer was to pay the duties at the time of import of goods and later claim the refund of 4% SAD from the Department.

The refund was subject to following conditions as prescribed in the said Notification:-

- Declaration regarding non-passing of Cenvat of SAD: - The dealer, while issuing the sale invoice, shall indicate on the invoice that Cenvat credit in respect of SAD is not admissible.

- No unjust enrichment: - The importer could not pass on the incidence of duty to the buyers.

- Payment of VAT/CST: - The importer was required to pay the appropriate CST/VAT on the sale of imported goods on which he has paid SAD.

- Time Limit for filing refund: - The refund claim is to be filed within one year from the date on which SAD has been paid by the importer.

•  Documents required to be filed with the refund claim: - In the Notification, it was provided that the claimant will have to attach the following documents: -

•  Document evidencing payment of the said additional duty;

•  Invoices of sale of the imported goods in respect of which refund of the said additional duty is claimed;

•  Documents evidencing payment of appropriate sales tax or value added tax, as the case may be, by the importer, on sale of such imported goods.

Documents to be filed with the Refund: -

The board circular prescribed minimum documents for the refund but the field formalities are real players and they have asked a number of documents from the poor dealer. With the refund claim of 4% SAD, the importer was required to file a lot of documents to satisfy the Department that they have complied with the conditions prescribed in the Notifications.

Following documents were being insisted upon by the Department to be attached by the claimant: -

(i) Original TR-6 Challan (Triplicate Copy)

(ii) Duplicate Bill of Entry (Importer's Original Copy).

(iii) All Original Sales Invoices along with Summary of Sales Invoices of imported goods of all Bills of Entry sold from various location/branch of the importer containing Invoices No. & dated and amount of ST/VAT paid on the imported goods for which Refund is claimed (Annexure – B)

(iv) Self Certified Copy of VAT Return

(v) Self Certified Copy of VAT Challan Paid of the respective month.

(vi) Sales Tax return and receipt along with 201A form

(vii) Declaration appointing Chartered Accountant for preparation of Annual Financial Accounts for Year--

(viii) Self Declaration regarding not passing the duty incidence of 4% (SAD) to the buyers of the imported goods (Annexure – C).

(ix) Self certified copy of Sales Register

(x) Self certified copy of Purchase and Sales

(xi) Balance sheet containing details for the particular (SAD) shipping bills. (Note: the same has to be certified by C.A)

(xii) Receivable Accounts for SAD (Note: the same has to be certified by C.A)

(xiii) Refund Calculation Worksheet with Declaration (Annexure- A)

As such, there is a long list of documents to be annexed with the refund claim. Department was insisting on furnishing of all these documents/certificates alongwith the refund claim. This made the filing of refund claim of SAD a very cumbersome process. Even after filing of all these documents, the Department was not keenly sanctioning the refund claim.

Circular No. 6/2008-Cus, dated 28.04.2008: -

The trade and commerce associations represented against the same. The board has adhere to their demands and issued Circular No. 6/2008-Cus, dated 28.04.2008 providing the procedure to be adopted by the field formations to settle expeditiously refund claims of 4% SAD filed by importers under the Notification No. 102/2007-Cus. In this circular, the Board had directed that the field formations will ensure the disposal of refund claims within a period of 3 months from the date of receipt.

The bulk of documents to be filed with the refund claim of SAD as mentioned above were also prescribed to be furnished in this Circular.

However, even with detailed instructions the refund claims were not being sanctioned speedily. Another aspect which was helping in the delay was that no interest was payable in case of delay in sanctioning of the refund claim. This was also prescribed in the Circular No. 6/2008-Cus.

Issuance of Circular for speedy sanctioning of refund of SAD: -

During the process of review at the major custom offices, it was noticed that around 80% of the claims were pending with the custom department. It was also noted that many refunds were being denied on one pretext or the other by the Department. On one hand they had paid the SAD at the time of import and had not passed on the incidence of this duty and on the other hand they had paid the VAT. Due to this, the delay and the denial of refund claims were causing a great hardship to the Trade and Industry. This induced the Board to issue a Circular clarifying certain issues to speed up the process of disbursing the refund claims. Circular No. 18/2010-Cus, dated 18/2010- Cus. has been issued for clearance of pending 4% SAD refund claims.

For the Accredited Clients in terms of Circular No.42/2005-Customs dated 24.11.2005 which were registered with the Customs, it was provided that refund claim should be sanctioned in full on preliminary scrutiny of following documents:

(a) TR-6 Challans (in original) for CVD payment;

(b) VAT/ST payment Challans (in original);

(c) summary of sale invoices; and

(d) certificate of statutory Auditor / Chartered Accountant, for correlating the payment of ST/VAT on the imported goods with the invoices of sale and also to the effect that the burden of 4% CVD has not been passed on by the importer to the buyer.

Thus, now only a few documents are required for sanctioning of the refund claim of SAD.

Another step taken was to do away with the procedure for pre-audit for ACP clients. And it has also been provided that the detailed scrutiny should be done only at the post-audit stage.

Further, the Board has provided that the refund claims should be sanctioned within maximum time period of 30 days.

Another step taken was that the sales invoices were prescribed to be filed only in electronic form (CD or other media) and submission of paper documents was done away with.

An option was given to the claimant to accept the payment of refund of 4% SAD through RTGS (Real Time Gross Settlement) or NEFT (National Electronics Funds Transfer) System. This has been done to enable timely payment of refund amount. The Board has also prescribed the form in Annexure-I for necessary authorisation for payment of refund directly in the Bank Account of the claimant.

Further, it has been provided that for examining the unjust enrichment aspect, the audited Balance sheet and Profit and Loss Account (PLA) will not be insisted upon. Thus, the claimant is not required to submit the said documents. With regard to unjust enrichment aspect, the certificate from Chartered Accountant for the purpose of satisfying the condition that the burden of 4% CVD has not been passed on by the importer to any other person as well as the self-declaration to the effect that he has not passed on the incidence of 4% CVD to any other person, have been provided to be sufficient documents.

The Board has also provided that only the following documents will be required to be filed alongwith the refund claim by the importer: -

1. Document evidencing payment of the Special Additional Duty (SAD).

2. Invoices of sale of the imported goods in respect of which refund of the said SAD is claimed.

3. Documents evidencing payment of appropriate sales tax or value added tax, as the case may be, by the importer, on sale of such imported goods.

4. Certificate from a statutory auditor / CA who certifies the final accounts in respect of correlation of VAT payment, payment of 4% SAD amount and unjust enrichment as prescribed in Board's circular No.6/2008-Customs dated 28.4.2008 and 16/2008-Customs dated 13.10.2008.

5. Copy of the Consignment Sale Agreement. (in case of sale through consignment agents / stockists).

6. Self-declaration / Affidavit (for e.g. in case of submission of invoice in soft form in lieu of paper documents, in case of fulfillment of the doctrine of unjust enrichment to the effect that the applicant has not passed on the incidence of 4% SAD to any other person).

7. Any other document considered necessary in support of the claim.

Not only this, but the Board has also directed that Commissioner of Customs shall personally monitor all cases of 4% CVD refund claims pending for more than 30 days so as to ensure that these are disposed of within the overall time limit of three months.

Before parting: -

The Board Circular No. 18/2010-Cus, is a welcome step. The Board has taken notice of the difficulties faced by the importers claiming refund of 4% SAD and have provided for steps that will ensure speedy disposal of refund claims. Also, Board has prescribed fewer documents to be filed alongwith the refund claim. This will reduce the burden of the importer and will help him in filing refund claim with lesser difficulty.

In the end, it is said that although the Board has issued Circular for speedy sanctioning of the refund claim but this goal can only be achieved if the provisions of the Circular are implemented in spirit by the Departmental officers. But expecting the full implementation of the Board Circular is wishful thinking as they are not going to do so and the only sufferer will be the importer. So, we can not say it is happy ending. Seeing the behavior of field formalities, we can say that it is intermission only, PICTURE TO ABHI BAKI HAI DOST.

(With inputs from Sukhvinder Kaur, LLB(FYIC)


 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: SAD NOTFN LACUNA

Many have been ignorant of the fact that there exists a lacuna in the notfn. The notfn stipulates that the importer has to file refund claim with 12 months of the date of paymenty of duty on the imported goods.
Thereafter the claim can be lodged once the goods are sold in the domestic market upon payment of ST/ VAT and the evidence of such payment should be submitted along with the claim.
Now if the importer sell gods say in the 12th month of the import, how can an importer lodge a claim in 12th month itself when he pays the ST/ VAT in the subsequent month or 13th month. He can lodge a claim only after one year or else he has to forgo the claim on sales taking place in the 12th month>>>> isnt that SAD???

Posted by NITIN KUNKOLIENKER
 
Sub: Refund of SAD

It is to state that the notification no.102/2007-Cus. is an exemption notification by way of refund of the additional duty of Custom imposed under section 3(5) of the Custom Tariff Act, 1975 to stitch the legal cleavage left in the imposition of the same nature of tax at the time of subsequent sale of the goods in absence of corresponding provisions in the VAT and central sales tax Laws resulting in imbalance of counter balance of the levy of duty by way of notification no.19/2006-Cus.
Herein, I am submitting few lines regarding the history of the imposition and exemption of the said duty:

Brief History: The Central Government imposed 4% Additional duty of Customs ( herein after referred as ‘special CVD’] under Section 3 (5) of the Custom tariff Act, 1975, as amended by clause 72 of the Finance Bill, 2005 under the Provision Collection Of Taxes Act, 1931.

Sec.3 (5) of Custom Tariff Act, (CTA) 1975 before amendment: “The duty chargeable under this section shall be in addition to any other duty imposed under this Act or any other law for the time being in force.”

Clause 72 of Finance Bill, 2005: For Sec. 3 of the Custom tariff Act, 1975, the following section shall be substituted, namely-
Sec. 3(5): If the Central Government is satisfied that it is necessary in the public interest to levy on any imported article (whether on such article duty is leviable under sub-section (1) or as the case may be , sub-section (3) or not, such additional duty would counterbalance the sales tax, VAT, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India, it may, by notification in the Official gazette, direct that such imported article shall, in addition, be liable to an additional duty at a rate not exceeding 4% of the value of the imported article as specified in the notification.

The brain child of the Central Government was first snapped for a trial show in the Finance Bill, 2005 vide Notification No. 19/2005-Custom, dated.1-3-2005 considering the non- implementation of VAT regime by all the States and hence, it had been imposed only on items bound under the Information Technology Agreement and on specified inputs/ raw materials for manufacture of electronics / IT goods whereas the full show may be viewed under notification no. 19/2006-Cus., dated: 1-3-2006

It is to be noted that the education cess is not chargeable on the said special CVD.

The Legislative intent of imposition of the said duty under section supra is to counterbalance sales tax and VAT whereas there has not been any corresponding amendment either in the Central Sales Tax and VAT Acts, consequently, if the imported material is further dealt in and the importer is making inter-state sale (except during the course of import), he was under obligation to charge CST, which is likely to be included as the purchase cost in the buyer’s account, therefore, it results in double taxation of the same nature and increasing transaction cost irrespective of making 4% special CVD cenvatable vide notification no. 13/2005-C.E. (N.T.) dated 1st March, 2005 featuring in clause (viia) in rule 3(1) of the Cenvat Credit Rules, 2004.


BEFORE PARTING,
I WOULD LIKE TO STATE THAT THE DIMENSION OF COMPLEXITY OF LAWS AND PROCEDURAL COMPLIANCE IN OUR COUNTRY IS MORE THAN THE SPIRIT OF LAWS AND KNOWLEDGE OF TAX PAYER.


Posted by Natasha verma
 

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