The last budgetary changes, one leap ahead on the path of ease of doing business, has brought much needed respite to the importer of recovered waste paper by switching over from tedious practice of submission of utilization certificates in the form of End Use Certificates to trust based and self-regulated compliance. In this expatiation below, the attempts have been made to touch areas, which would be impacted by this change in relation to fulfilment of the post import compliance on after changes take place from 2nd February,2021.
POSITION PRIOR TO AMENDMENT
The waste and scrap of paper or paperboard falling under heading 4707 of the First Schedule to the Customs Tariff Act, is presently liable to the Basic customs duty (BCD) @10%, Social Welfare Cess (SWC) and IGST@5%. The aggregate of Customs duty leviable on tariff rate without exemption, comes to 16.55%. Though in an attempt to address environmental concern and encourage re-cycle process, the Central Government has provided the conditional exemption from BCD and Social Welfare Cess vide Notification No. 50/2017-Customs dated 30.06.2017. The said exemption notification at entry number 292 is subject to fulfillment of the condition no. 30 mentioned in the Annexure of the notification.
Here at this stage, it would be apposite to have a look upon the outlines of the condition no. 30 in the notification, which read as under;
(a) The importer shall furnish the undertaking to the Deputy/Assistant Commissioner of Customs that such imported goods will be used for the purpose specified and in the event of failure to comply with the condition, he shall be liable to pay an amount equal to the difference between the duty leviable but for exemption and
(b) The importer produces to the Deputy/Assistant Commissioner within six months or such extended period, a certificate issued by the jurisdictional Deputy/Assistant Commissioner of Central Excise or State Tax in whose jurisdiction the imported goods have been so used.
In the wake of budgetary changes, the Customs Notification No. 2/2021-Customs dated 01.02.2021 has come to further amend a number of entries in the parent jumbo exemption Notification No. 50/2017-Customs dated 30.06.2017. The exemption, if talk about waste paper import, at the entry number 292 is still subject to the fulfilment of post import conditions but vide this amendment, the earlier condition serial number 30 has been replaced by another condition number. 9 of the Annexure. This change in the condition number, has resulted change in to the nature of compliance in the manner that importer hitherto required to submit End Use certificates, are to observe the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 (In short IGCRD Rules,2017).
IGCRD RULES,2017-KEY PROVISIONS
In view of the above development, it shall not be out of place to have cursory glance upon the key provisions of the IGCRD Rules,2017 which has also undergone prominent amendments by Notification No. 9/2021-Customs(NT) dated 01.02.2021 in order to make more industry friendly and with the help of broad contours below, the whole scheme of the procedure may be understood quickly;
(a) The present set of the rules, in the present form, came into force with the advent of the GST regime vide Notification No. 68/2017(NT) dated 30.06.2017. Prior to this, such kind of procedural rules were in place with more or less changes as notified way back by Notification No. 36/96-Cus (NT) dated 23.07.1996 and later vide Notification No.32/2016-Cus (NT) dated 01.03.2016.
(b) These procedural rules are applicable to the importer who intends to avail the benefit of exemption notification, issued u/s 25(1) of the Customs Act,1962 and where the exemption is dependent upon the use of the imported goods covered by that notification for the manufacture of any commodity or provision of output services.
(c) The importer shall give prior information for his intention to observe the rules in persuasion to the exemption notification, to the Deputy/Assistant Commissioner of Customs having jurisdiction over the premises where the imported goods shall be put to use for manufacture of specified goods or for rendering output services. Here at this stage while filing intent to follow the rules, for the practical purposes, in terms of rule 5(2), it is imperative for the importer to submit the continuity bond with such surety or security as deemed appropriate by the Deputy/Assistant Commissioner of Customs in order to cover aggregate duty forgone amount in the upcoming import consignments. The benchmark for level of security has been defined in the Circular No. 48/2017-Cus dated 08.12.2017 in which besides setting out the quantum of BG/cash security for different classes of importers, it has also been clarified that bank guarantee/cash security may be given inbound consignment wise in order to obviate financial burden upon the importers. Though in these facilitation measure, it has also been clarified that importer against whom prosecution has been initiated/launched, shall be barred from claiming any relaxation from furnishing BG/surety.
(d) That after accepting the bond by the concern Customs Authority, the importer shall file, in duplicate, the intimation comprising of estimated quantity and value of the imported goods, exemption particulars and port of importation to the Deputy/Assistant Commissioner of Customs having jurisdiction over the premises where the imported goods shall be put to use for manufacture of goods or for rendering output services. The one set of such intimation shall also be, concurrently filed to the Deputy/Assistant Commissioner of Customs at the Customs Station of Importation.
(e) The Deputy/Assistant Commissioner of Customs, to whom the intimation filed in duplicate by virtue of having jurisdiction over the premises where the import goods is to be intended to put to use, shall forward one copy of such intimation to their counterpart at the port of the importation. Though the imported goods shall be cleared based upon the one set of intimation filed by the importer to the Deputy/Assistant Commissioner at Customs Station of Importation.
(f) That after Customs clearance, the importer shall be under obligation to file the intimation of receipt of goods in the premises to the jurisdictional Customs Authority within two days. The importer shall be bound to maintain an account of quantity, value of goods imported and consumed in terms of the provisions and on ending the quarter, file a quarterly return in the format given within the rules.
(g) The re-export or clearance of unutilized/defective goods is allowed and as a result of the present amendment, the job working and removal of capital goods shall also be allowed by observing prescribed procedure,
(h) The Deputy/Assistant Commissioner of Customs with whom the bond executed, shall be empowered to enforce the terms of bond in the event of non-compliance of the prescribed rules to recover the differential duty, interest and penalty as well.
(i) The present rules recognize any rule, notification, circular, instructions, standing order, and trade notice issued in pursuance of the earlier rules. Hence for practical purposes, the formats of bond and intimations given way back in the CBEC Circular No. 46/96-Cus dated 30.08.1996 still hold water and may be adopted with suitable changes.
In the foregoing para, the factual matrix surrounding the exemption and IGCRD Rules have been discussed and now the analyses of the possible complexities in the way of compliances has been discussed in the coming para.
The emerging trend of the international market of recovered waste paper suggests its volatility towards the pricing where the prices fluctuate ups and down mainly in view of the factors like seasonal effect, trade barriers or other market forces. In such position domestic importers strategically keep close watch for the downing the price and the moment they find margin, orders are placed in bulk to cater the need of raw material for a longer period. It is purely business acumen and nothing wrong in it but obfuscation creeps out when fulfillment of post import condition of the Customs calls for consumption of imported goods and furnish utilization certificates within six month from the date of importation.
The recent amendment would bailout importers from catch-22 situation as by virtue of change in the condition number, the importer shall come out from statutory compulsion to consume the huge stock within a time frame and submitting utilization certificates (commonly known as End Use Certificates) within six months as in the amended requirement, he is to file statement of consumption on quarterly basis which does not warrant consumption in specific time fame. In such a manner thereby, ease out on the compliance part shall enable the importer to concentrate more on the business in view of business needs in dynamic market scenario.
In the amended position henceforth the importer shall be required to follow the IGCRD Rules for availing the exemption under the Customs exemption notification. The immediate effect of such amendment can be seen as this would suffocate the full spirit of the exemption as trading of imported waste paper by the importer shall not be possible despite no adverse intent seems at the entry number of the notification. This may be understood with the help of the text of the related entry as appears in the notification.
|S.No.||Chapter or Heading or sub-heading or tariff item||Description of goods||Standard rate||Integrated Goods and Service Tax||Condition No.|
|292||4707||(A) All goods imported for use in, or supply to, a unit for manufacture of paper or paperboard other than newsprint;||Nil||–||9*|
|(B) All goods, imported for use in, or supply to, a unit for manufacture of news print||Nil||–||9*|
*condition number as substituted by Notification No. 2/2021-Cus dated 01.02.2021
Here at first blush reading of the entry no. 292, brings forward that the exemption is available to all goods falling under heading 4707 when these are imported for use in manufacture of paper, paper board or newsprint in the two manners, first by importer himself for own use in manufacturing specified goods or secondly by importer for supplying (trading) to such domestic manufacturer who is engaged in manufacturing these specified products.
In the above position of law, prior to change in the condition, there was no restriction on availing exemption either by manufacturer on actual user basis or by importer for trading as in case of trading, the bond in the Customs was to be executed by the trader importer alongwith filing bill of entry and utilization certificates (End Use Certificates) were used to be issued by the Customs Authorities having jurisdiction over the factory premises of the domestic manufacturer to whom the imported goods, imported under the exemption, has been supplied by the importer.
Since change in the condition, the fate of the trader importer has been shut down as provisions of the IGCRD Rules do not have scope for importer, other than manufacturer or service provider. This can be discerned wherein the “by importer” clause has been inserted in the definition of the “manufacture”. Besides this, the other procedural provisions as worded, amply manifest the legislative intent to check practice of change of hands by way of trading of imported goods to abridge the gap in between the person who availed upfront exemption and the person who actually uses imported goods.
Though upon opening the job work route in the amendment, there is no legal impediment in getting manufactured in own account specified goods out of imported goods through job workers in the ICGRD Rules.
The IGCRD Rules vide provision u/r 8, contemplate for recovery of differential duty in the event, the importer fails in using the goods imported in accordance with the conditions mentioned in the concerned exemption notification by invoking the Bond to initiate the recovery proceedings of the amount equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of importation, along with interest.
Adding into the above stated position, this time penalty provision vide rule 8A has also been injected to say that importer or job worker shall be liable to a penalty to an extent of amount specified u/s 158(2)(ii) which presently prescribes maximum penalty amount to two lakh rupees.
That insertion of penalty provisions at this time kicks in the argument that hitherto, in case of non-compliance, penal provisions under the Customs Act were not invokable on the premise that the IGCRD Rules are complete code in itself for entire substantive and procedural law governing the import and compliance fulfilment. This argument gets support from the fact that the bond accepting Customs Authority instead of section 28, is empowered to enforce the bond under rule 8 through the direct recovery mechanism prescribed under section 142(2) or 143(3) of the Customs Act. Here it is critical to note that the importer stands as obligor in the bond, only for the differential customs duty and interest, not for penalty.
In case the Revenue does not accept above argument and go ahead by way of issuance of demand notice u/s 28 to impose penalty u/s 112 and redemption fine u/s 125 in persuasion to the section 111(o) of the Act, then the penalty u/r 8A can be seen as extra burden in addition to the extant penalties. Here at this stage the recent decision in the matter of S.Balasubramanian v/s C,CE,C & ST, Hyderabad-III [2019(370)ELT 1412(Tri)] is worth reading to understand the thin line in between scope of rule 8 vis a vis section 28 of the Customs Act and Supreme Court decision which preferred the rule 8 to the section 28 in the matter Commissioner of C.Ex.Ahmedabad v/s Gujrat Ambuja Exports Ltd[ 2016(338)ELT 481(SC)].
The bare reading of the rules reveals the requirement to submit the continuity bond with surety/security to the Deputy/Assistant Commissioner of the Customs for binding the importer to pay the differential duty alongwith interest in the event of non-compliance. Legally speaking, the bond is an instrument by which the obligation to pay money is created expressly and it is also a legal agreement whereby a person undertakes to do or not to do anything subject to conditions stipulated in the agreement. In taxation matters more specific in Customs, the primary purpose of the bond is to secure due compliance with the rules and procedures laid down and put revenue safeguard. In such undisputed positions of law, it is worth noting that bonds are preserved as long as they are valid and shall be returned/cancelled once the obligation under the bond stands discharged.
In furtherance to the above, it is to be noted that the importer’s obligations under the bond from the Customs Authority’s perspective, are not legally extinguished so long as the same is not returned to the obligor/importer or cancelled. In such situations the sword of damocles always hangs over the importer’s head as Customs Authority may come out with the demand notice even after exhausting stipulated period prescribed in section 28 of the Customs Act. Though on this aspect, the rivalry precedents are available. The CESTAT’s Zonal Mumbai bench in the matter of Bombay Hospital Trust v/s Commissioner of Customs, Sahar, Mumbai [2005(188)ELT 374(Tri-LB)] held that the duty demand does not relate to short levy or non levy at the time of initial assessment on importation, but has arisen subsequently on account of failure to fulfil the post-importation conditions under the Notification No. 64/88-Cus., thereby Section 28 has no application. Similar views also came in the matter Hindustan Lever Ltd v/s Commissioner of Customs (EP)Mumbai[2012(281)ELT 241(Tri)] but for paradoxical approach, the precedents in the matter of Commissioner of C.Ex. Pune-I v/s Emcure Pharmaceuticals Ltd[2014 (307) ELT 180 (Tri. – Mumbai)], Dharampal Lal Chand Chug v/s Commissioner of C.Excise, Nashik[2015(323)ELT 753(Bom)] and Moser Baer India Ltd v/s Commissioner of Customs Noida[2015(325)ELT 236(SC)] may be consulted in detail in order to borrow and apply the ratio of these precedents on the facts of case in hand.
In view of above judicial precedents, as can be seen that after execution of bond, the potential risk continues due to two reasons. First, in extenso reading of the complete rules does not talk about closure of the bond procedure, therefore importer in the ordinary due course, fails in thinking about bond cancellation as non-cancellation of bond does not have immediate ramifications, therefore it remain in non-priority profile in the hands of operational stakeholders . Nonetheless, the rules lacks on containing bond cancellation procedure, the suitable provisions are in place in section 143(2) of the Act which mandates to cancel the bond in case of fulfilment of the obligation but most of the importers do not avail this positive provision owing to unawareness which is the second reason for not retiring the bonds in most of cases.
The class of importers, inclined to maintain higher degree of compliance is to put the internal system in place to monitor the fulfilment of the obligation in the bonds and to close the bond immediately on fulfilment of the obligation in proactive manner as it is not the priority of the Customs Authority who are not duty bound to close bonds in specific time line. In case the bonds are cancelled diligently, this exercise would not only mitigate unpredictable risk but would also help the importer in offloading the burden of contingent liabilities, reportable in the notes to accounts in the annual financials in terms of Indian Accounting Standard (Ind AS) 37.
In the earlier attached condition, the importer is to submit indemnity bond every time with each bill of entry at the Customs port of importation to claim upfront exemption from the Basic Customs duty and SWC. The execution of bond with each bill of entry, except where Customs allowed continuity bond, was rendering the Customs clearance process more tiresome to importers due to increase in number of documents, cost and procedural wrangles.
Besides above, the utilization certificates (End Use Certificates) were to be issued by the Central Excise/ Customs Authority having jurisdiction over the premises where imported goods are consumed. In this position, the importer is to reach out to the said Authority with consumption details where the said Authority used to validate the detail so submitted and on after due verification, used to issue the requisite certificates in the due course. As can be seen, in this process the importer has to depend upon the jurisdictional Customs Authority and the importer is to obtain these certificates from one Customs Authority to submit another Customs Authority at the port. In such procedure, the importer has to keep consistent follow up for ensuring compliance within the timeline.
In the amended position, the importer will not require to furnish indemnity bond with each bill of entry upfrontly and would not be subject to the dual jurisdiction of the same department i.e. Customs. His interfacing would reduce to with the jurisdictional Customs Authority only in so much as fulfilment of post import compliance, where summarily in few words, in one time exercise, he is to execute the bond and on event basis, he is to file intimations, first prior to import and second on receipt of goods in the premises and file the quarterly return.
The amendment in such manner may be seen as a welcome step towards minimizing the interaction level drastically with the Customs Authority and in view of the launching e-Office, the importer may explore the possibility of filing event basis intimation through mail to avoid in person visit to submit hard copy in conventional mode. In addition to this, the interaction level would hopefully further reduce once the common Customs Electronical Portal becomes functional.
COMPLIANCE- CONTROL BASED VIS A VIS TRUST BASED
The comparison of the compliance nature pre and post amendment, prima facie, gives the chill out feeling amongst the operational stakeholders but ex facie study from legal perspective, gives reasons for deep concern needing due consideration.
Prior to the amendment, the jurisdictional Central Excise/Customs Authority used to issue the utilization certificate in the form of End Use Certificates. These certificates were issued after the verification of the details furnished by the importers. Therefore the End Use Certificates so issued, demonstrate that the consumption details so submitted is in order and imported goods has been used in the intended purpose and it was construed as evidence that the importer is discharged from the obligation in the particular bond as condition stands fulfilled in relation to the corresponding bill of entry.
The cardinal difference in the amended compliances can be observed as departure from control based to trust based regime. The trust based compliances have their inherent risk factors which are always ignored while enjoying upfront liberalized ease outs. In the trust based compliance, the onus to establish observance of compliance in fool proof manner always remains on the taxpayer and as far concern IGCRD Rules, the importer is to maintain account and file quarterly return in own accord by demonstrating the data of utilization in the intended purpose. Practically, the returns so filed, are never subjected to scrutiny, resultantly these are calmly found place in the departmental files without any communication to the taxpayer about the result of scrutiny/assessment of the returns in absence of a system in place. That on the flipside, the taxpayer is also happy with this ecosystem, he has made the compliance of filing the return but at the end of the day, fails in realizing that actually he has only filed the return but he has not been discharged from the onus to prove correctness of the submissions. It has been seen over the period, in such situations, upon surfacing any irregularity later, the department always charges the taxpayer for mis-declaration and suppression of facts with the intent of evasion of duty. Here it is needless to say, it is legally settled after plethora of decisions that in case of failure in post import compliance, the limitation period prescribed under section 28 does not come to save the importer as the recovery notice are to be issued u/s 142 or 143(3) of the Customs Act without limitation to enforce the bond. Therefore to mitigate such risk, the only remedy left, the importer is to get the bond cancelled diligently and proactively too, on after fulfillment of obligation in the particular continuity bond.
In the above detailed discussion, it is clear that on the one side, if the Central Government has obliged the waste paper importers by dispensing with upfront bond execution and simplifying the post clearance compliance than on the other side the penalization provisions have been strengthened in the balancing act. Therefore, while enjoying upfront procedural ease out, the potential and hidden risks as discussed above must keep in mind at operational level.