The Finance Bill proposes some changes in the Customs laws, two of which are noteworthy.
One relates to refund of duty on imported goods found to be defective and the other relates to retrospective amendment to notification dealing with Duty-Free Import Authorisation.
The Finance Bill proposes introduction of Section 26A in the Customs Act, 1962, so as to comply with the standards under the International Convention on the Simplification and Harmonisation of Customs Procedure (Revised Kyoto Convention).
It seeks to provide for refund of import duty paid at the time of clearance of imported goods, capable of being easily identified as such, if the goods have been found to be defective or not in conformity with the specifications agreed upon between the importer and the supplier of goods.
The refund will be available if the importer re-exports the goods or relinquishes the title to the goods and abandons them to the Customs or destroys the goods or renders them commercially valueless in the presence of the proper officer within one month of the date of import clearance.
The commissioner may grant further three months period. The refund claim must be filed within six months from the date of 'let export' order or date of relinquishment or date of destruction.
The refund will not be available for perishable goods or goods which have exceeded their shelf life or recommended storage-before-use period or goods regarding which an offence appears to have been committed.
The major difference between the proposed Section 26A and existing Section 74 of the Customs Act, 1962, in case of re-exports is that Section 74 envisages re-export even in situations when the goods are not defective.
Secondly, Section 74 gives 98 per cent of the duty drawback if the goods are not used but allows drawback at reduced rates even if the imported goods are used and re-exported. The time available under Section 74 is 18 months.
The proposal for retrospective amendment of the DFIA notification (no. 40/2006-Cus. dated 1.5.2006) intends to recover duty and interest from exporters who had stayed within the law and obtained certain benefits, which the government very well knew to be legitimate but later on claimed to be unintended.
The DFIA scheme drafted by the commerce ministry was faulty and so was the notification (no. 40/2006-Cus. dated 1.5.2006) drafted by the finance ministry. Despite repeated representations the government did not react till February 17, 2009, when the notification was amended.
The Central Board of Excise and Customs tried to give the notification retrospective effect through its circular no. 11/2009-Cus. dated February 25, 2009.
As recoveries cannot be effected unless the law permits, the law is now being amended with retrospective effect. However, the explanatory notes to the Finance Bill do not clearly tell Parliament the real intentions behind the retrospective amendment.
In case of JK Spinning & Weaving Mills Ltd [1987 (032) ELT 0324 (SC)], the Supreme Court upheld the power to make retrospective amendments creating duty liability but held that confiscation and penalty are not imposable.
Mercifully, the proposed amendment does not seek to levy penalty but does propose recovery of duty and interest.
Even so, the proposed amendment, if it goes through Parliament, may be open to challenge on the grounds that the government misled Parliament.
