'Interest demand in pre-import regularisation cases can be contested'

Q. CBIC Circular no.16/2023-Cus dated June 7, 2023 asks us to pay IGST along with interest for violation of the pre-import condition. Is there any way to reduce the interest liability? The interest amounts to almost the same as the IGST amount, as the imports were made more than five years ago.

Section 47(2)(b) of the Customs Act, 1962 says that “the importer shall pay the import duty within one day (excluding holidays) from the date on which the bill of entry is returned to him by the proper officer for payment of duty in the case of assessment, reassessment or provisional assessment and if he fails to pay the duty within the time so specified, he shall pay interest on the duty not paid or short-paid till the date of its payment at such rate…”

The CBIC Circular referred to above says that the bill of entry will be assessed again and then you have to make the IGST payment. So, if you make the payment within one day of such assessment/reassessment, you can very well take a view that no interest is payable in accordance with Section 47(2)(b). You can also contest the demand for interest on the basis of revenue neutrality by applying the ratio of the Bombay High Court decision in Mahindra and Mahindra Ltd. [2022-TIOL-1319-HC-MUM-CUS]. However, the concerned officers will ask for interest as per the Board’s Circular. So, you may pay the interest along with IGST, redeem the advance authorisation, and then contest the demand for interest later.

Q. CBIC Circular no. 16/2023-Cus dated June 7, 2023 says that the TR-6 <i>challan<p> is not a prescribed document for taking input tax credit (ITC). We have already paid duty (including IGST) through the TR-6 challan towards regularisation default under advance authorisation and taken ITC of the IGST. Will the ITC taken be under jeopardy due to this circular?

Para 7.1 of Chapter 3 of the Customs Manual 2023 says that the duty can be paid in the designated banks through the TR-6 challan. The facility of e-payment of duty through multiple banks has also been available since 2007 at all major Customs locations. Para 3.3 of the CBEC Circular 09/2023-Cus dated March 30, 2023 says that payments through the TR-6 challan through authorised banks at various customs locations are exempted from the provisions of payment through electronic cash ledger.

So, payment through the TR-6 challan is a legitimate form of payment of customs duties. The Customs at many ports were refusing to reassess the bill of entry and so, there was no option but to pay the duty through TR-6 challans. I think the departmental officers and auditors understand this and do not dispute the ITC taken but if they do, you will have to litigate on the issue.

Q. Can we adjust the payables for services imports against receivables for goods exports, and vice-versa?

No. Condition (f) at Para C.26.1 of the Reserve Bank of India FED Master Direction no.16/2015-16 dated January 1, 2016 does not allow that.