Customs' view is different from legal position

EXIM MATTERS

Readers have raised a number of queries in response to my last week's column on Budget changes. I deal with some of them here.

The first issue relates the value on which the new 4% CVD must be charged on imported goods. The Customs determine the value on the aggregate of assessable value (AV), the basic customs duty (BCD), the old CVD that countervails the excise duty (usually 16.32%) and the education cess (ED) of 2%.

Conceptually, this method faithfully serves the intended purpose of the new 4% CVD to countervail the incidence of sales tax or VAT. The question is whether the calculations are faithful to the legal provisions.

Section 3(5) of the Customs Tariff Act, 1975, says that the 4% CVD must be levied on the AV plus the BCD plus "any other sum" collected as a "duty of customs" under any other law. It does not name the old CVD of 16.32% specifically, as the erstwhile 4% Special Additional Duty (SAD) did. So, can 4% CVD be collected on the old CVD component of 16.32%? Apparently, the customs have taken a view that any other sum collected as a duty of Customs includes the old CVD of 16.32%. The legal point is that "duty of customs" means duty levied under Section 12 of the Customs Act, 1962, ie, the BCD.

Secondly, in case of new 4% CVD, anti-dumping duty, education cess, safeguards duty etc, specific legal provisions exist to collect these duties as "duty of customs". Similar provision is not found in case of old CVD of 16.32%. Of course, Section 3(5) does specifically exclude 4% CVD, anti-dumping duty and safeguard duty for calculating the value for the purpose of new 4% CVD.

Another issue is collection of new 4% CVD on the education cess. It stands the test of scrutiny, considering an amendment made to Finance Act, 2004, last year. A very detailed analysis on this point appears in the website taxindiaonline.com Not many, however, are perturbed by the method of calculation of value for the purpose of the new 4% CVD because the method that customs adopt serves the intended purpose.

Secondly, manufacturers can take credit of whatever the customs charge as 4% CVD. Traders who are "Registered Dealers" under the Central Excise law can pass on the credit. It is the unregistered dealers and service providers who lose out on the credit.

In any case, they have few "inputs" that they import; the capital goods are one-shot affairs; and the overall impact of legal hairsplitting can at best gain them a marginal amount. Quite a few of the capital goods required by service providers may also be exempt by virtue of exemption that goods imported at zero BCD and zero CVD enjoy.

The notification no. 20/2006-Cus. dated March 1, 2006, that grants exemption to levy of new 4% CVD, lists 61 entries. The exemption does not cover goods imported under Duty Free Replenishment Certificate (DFRC), where CVD is payable or goods imported under Export Promotion Capital Goods (EPCG) scheme, where 5% BCD is payable. Meanwhile, it is learnt that customs insist on the new 4% CVD even on imports cleared at zero BCD and zero CVD under Target Plus certificates, Duty Free Credit Entitlement certificates etc.

The Central Board of Excise and Customs must look into all the aspects and issue suitable clarifications/directions.

tncr@sify.com