Judgement update Filing of refund claims under Customs Law

This is to apprise you regarding the recent judgment of the Apex Court in the case of ITC Limited v. Commissioner of Central Excise, Kolkata, 2019-VIL-32-SC-CU wherein it was held that a refund claim contrary to an assessment order is not maintainable unless the assessment order is reviewed or modified in appeal.

Relevant legal provisions

Section 17 of the Customs Act, 1962 (‘Customs Act’) deals with the assessment of duty and Section 27 deals with claim of refund of duty. Both these provisions had undergone significant amendments in 2011.

The scheme of assessment (pre-amendment) was that Section 17 mandated the proper officer to pass an order of assessment on filing of bill of entry, post due examination and testing of the imported goods. Further, as per unamended Section 27, any person who paid duty in pursuance of an order of assessment and a person who had borne the duty, could claim refund.

The scheme of assessment (post-amendment) is that Section 17 allows bill of entry to be self-assessed by an importer subject to verification by the proper officer. Further, the proper officer has discretion to reassess duty and pass a speaking order within fifteen days from the date of reassessment. The existence of assessment order for claiming refund is no more a pre-condition under Section 27.

Court’s view

In the instant case, the Apex Court was dealing with the refund proceedings that where the valuation of duty had not been assessed / reassessed by the proper officer. The Court relied on the decisions of the Supreme Court in the cases of Priya Blue Industries Ltd. v. Commissioner of Customs (Preventive) 2004 (172) ELT 145 (SC) and Collector of Central Excise v. Flock (India) (P.) Ltd. 2000 (120) ELT 285 (SC) wherein it was held that a refund claim contrary to an assessment order, was not maintainable unless the assessment order was reviewed or modified in appeal.

The Court came to this conclusion on the premise that Section 128 of the Customs Act allows filing of an appeal against a bill of entry as well. The Court held that in case an adjudicating authority passes an appealable order and the taxpayer does not challenge its correctness by filing an appeal; the taxpayer cannot question the correctness of the same order subsequently by filing a refund claim.

NITYA’s comments: In the absence of a statutory requirement to appeal a self-assessed order; an imposition of an extraneous restriction on refund is untenable. Section 27 of the Customs Act is a complete code in itself as far as refund of duty is concerned and it will always prevail over general provisions. Section 27 does not put filing of an appeal as a pre-condition to claim refund.

As of now, the judgment will have far-reaching implications on businesses. The judgment rules out the option of filing a refund claim against a finalized bill of entry by taxpayers. It is likely that the authorities will take adversarial action for the refund claims already filed or sanctioned in light of the Apex Court judgment.

The taxpayers can consider taking following action going forward:

• A review of all self-assessed bills of entry filed to examine excess payment of customs duty for examining eligibility of refund in such cases.

• Filing appeals against self-assessed bills of entry within ninety days (including period for condonation of delay) where refund is eligible. For self-assessed bills of entry falling outside the appeal period, taxpayers should continue to file a refund application to claim refund if the Government amends the law or ITC judgment gets overruled.

• Section 149 of the Customs Act provides for amendment of bills of entry post customs clearance provided a documentary evidence exists at the time of clearance of goods. At present, no time limit is prescribed for undertaking such amendment. For the past period, the taxpayers can also consider filing for amendment of bills of entries and thereafter, file for a refund claim after amendment is done.

• Going forward, the taxpayers must also write letters with their jurisdictional officers to pass a speaking order under Section 17(4) of the Customs Act for multiple bills of entry on a fortnightly basis for administrative ease for both the taxpayers and the revenue.

• A natural corollary of the above judgment is that where an importer does not deposit full customs duty, the revenue can issue a show-cause notice to the taxpayer under Section 28 of the Customs Act for short payment of duty only if the revenue has challenged the bill of entry. The taxpayers can defend all show-cause notices issued by the revenue till date in the light of this judgment.