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SRF Judgment: Practical problems being faced by importers in claiming refund of CV Duty

March 17, 2017[2017] 78 taxmann.com 29 (Article)
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Akhilesh Kangsia

Principal Associate and Advocate, Lakshmikumaran & Sridharan

Chandni Patel

Associate, Lakshmikumaran & Sridharan

Introduction

1. Year 2016 was an era of 'Digital India', being part of Modi's Government dream project.

A bold step to bring the said dream to fruition has already been taken, i.e., demonetization of currency. However, the major success of said policy is making available digital mediums, viz., mobile phones (fashionably also knowns as 'smart phones'), tablets, etc., to every citizen in order to enable digital payments as substitutes to cash payments.

This article is an attempt to bring to light the practical difficulties being faced by the mobile phone importers in getting refunds under Section 27 of the Customs Act, 1962.

Importation of mobile phones and duty benefits:

2. Domestic mobile manufacturer industry is still growing and will taka few more years in order to have sufficient supply to meet the country's demand. This is the reason behind more import of mobile phones. Accordingly, the government has always given concession from tax burden on import of mobile phones. To our understanding this will be continued for a few more years.

The Central Government vide Notification No.12/2012-CE(Sl. No.263A) , dated 17.03.2012 extended the exemption from payment of central excise duty as well as benefit from payment of additional duty of Customs payable in terms of Section 3(1) of the Customs Tariff Act, 1975 ('CV duty') on mobile phones. Thus, mobile phones, whether imported or domestically manufactured, were entitled to exemption from payment of duty.

This exemption was subject to the condition that the assessee should not have availed of benefit of CENVAT credit on duty paid. However, the aforesaid exemption was restricted to the domestic manufacturers owing to the stand taken by the Customs department that the condition of non-availment of CENVAT credit of duty paid on inputs cannot be fulfilled by the importers.

Consequence of decision in SRF Ltd.

3. The dispute ultimately came before the Hon'ble Supreme Court in the SRF case. In SRF Ltd. v. CC reported at 2015 (318) ELT 607 (SC), the issue pertained to availability of CVD exemption to goods falling under Chapter 54 covered by Sl. No. 122 of Notification No. 6/2002-C.E. The condition attached to this exemption was that the importer should not have availed of credit under Rule 3 or Rule 11 of the Cenvat Credit Rules, 2002, in respect of the capital goods used for the manufacture of these goods. The Department denied the exemption on the ground that for importer the credit under the Cenvat Rules is not admissible and, hence, question of fulfilling the condition does not arise.

The Hon'ble Supreme Court in its judgment dated 26.3.2015 followed the principle which was laid down in Thermax Private Limited v. Collector of Customs (Bombay),New Customs House–1992 (61) ELT 352 (SC) which was affirmed by the Constitution Bench in the case of Hyderabad Industries Limited v. Union of India -1999 (108) ELT 321 (SC). and held that the assessees were entitled to exemption from payment of CVD in terms of Notification No.6/2002-C.E.

The principle followed was summarized at para 7 of the judgment dated 26.3.2015 which read as under:

"The ratio of the aforesaid judgment in Thermax Private Limited (supra) was relied upon by this Court in Hyderabad Industries Ltd. (supra) while interpreting Section 3(1) of the Tariff Act itself; albeit in somewhat different context. However, the manner in which the issue was dealt with lends support to the case of the assessee herein. In that case, the Court noted that Section 3(1) of the Tariff Act provides for levy of an additional duty. The duty is, in other words, in addition to the Customs duty leviable under Section 12 of the Customs Act, read with Section 2 of the Tariff Act. The Explanation to Section 3 has two limbs. The first limb clarifies that the duty chargeable under Section 3(1) would be the Excise duty for the time being leviable on a like article if produced or manufactured in India. The condition precedent for levy of additional duty thus contemplated by the explanation deals with the situation where 'a like article is not so produced or manufactured'. The use of the word 'so' implies that the production or manufacture referred to in the second limb is relatable to the use of that expression in the first limb which is of a like article being produced or manufactured in India. The words 'if produced or manufactured in India' do not mean that the like article should be actually produced or manufactured in India. As per the Explanation if an imported article is one which has been manufactured or produced, then it must be presumed, for the purpose of Section 3(1), that such an article can likewise be manufactured or produced in India. For the purpose of attracting additional duty under Section 3 on the import of a manufactured or produced article the actual manufacture or production of a like article in India is not necessary. For quantification of additional duty in such a case, it has to be imagined that the article imported had been manufactured or produced in India and then to see what amount of Excise duty was leviable thereon." …[Emphasis Supplied]

Thereafter, the Revenue challenged the aforesaid judgment by way of a review petition which also was dismissed. Thus, judgment in SRF case is now law land that imported goods are eligible to avail of benefit of notifications which impose a condition that credit should not have been availed on inputs/input services/capital goods, etc. However, this is not an end to the dispute but starting point.

Now, the assessee hopes for implementation of the aforesaid judgment and same treatment being given to interpretation of other entry, for example, Sl. No. 263 of Notification No. 12/2012-CE. Therefore, the assessee hopes for refund of whatever CV duty paid in excess on mobile phone imported in the past. At this point of time we should not forget that getting a refund from revenue is and will always remain a Himalayan task for every assessee.

Practical difficulties in implementation of the judicial decisions

4. In order to get refund, many assessees have challenged bills of entry already assessed on payment of excess CV duty by way of an appeal before lower appellate authority, considering self-assessed bill of entry as an order under Section 128 of the Customs Act, 1962(which is also correct in light of various judicial precedents). Further, applications, for refund of duty paid under Section 27 of the Customs Act, 1962 were also submitted. Assessees have been adopting both the options of appeal as well as refund in order to avoid hurdles of statutory limitation period.

The lower appellate, owing to huge pendency and transfer of authorities, takes almost a year to dispose of such appeals. In many cases orders are passed in assessee's favor where direction is given to the Assessing Officer for reassessment of the bill of entry in order to extend the exemption benefit. The custom department rejects refund applications filed in absence of reassessed bill of entry. This leads to a fresh litigations.

Assessee's, being aggrieved by such rejection of refund, have approached their respective jurisdiction at Hon'ble High Courts. Illustratively, the Hon'ble High Court in YU Tele ventures Pvt. Ltd. case reported at 2016-TIOL-1641-HC-DEL-CUS allowed the petition filed and held that refund should be granted under Section 27 without insisting on re-assessment of bill of entry within a time bound period. Similar decisions are also passed in other assessee's cases, viz., Lava International,Intex Technologies, Micromax India. Thus, a clear guideline has been issued by the Hon'ble Court stating that the customs department should not insist on reassessment and should not reject refund application in absence of appeals against assessment of bill of entry.

However, in spite of the aforesaid judicial precedents which need to be followed and implemented in toto, certain custom houses are still demanding reassessed bill of entry in order to grant refund under Section 27 of the Custom Act, 1962. This move is in clear violation of doctrine of judicial precedents and rule of law. Still letters have been issued by the certain Customs Houses directing assessees to submit reassessed bill of entry in order to process the refund.

It is a settled position of law that lower authority is bound by the decision of the higher appellate authorities/courts. If it is not followed, then the same will be contempt of higher judicial precedents.

Conclusion

5. Such a move, not adhering to direction of established judicial precedents by the executive, is a move of defiance of the judiciary. Also, such a stand of custom house is resulting in multiplicity of proceedings and wastage of time. Besides, it leads to additional financial burden to the mobile importers which is ultimately passed on to the ultimate consumers by way of higher price. Furthermore, the same is going against the policies and vision of the present government.

In the light of such contrary stands taken by the different customs houses, time has come to adhere to uniform practice by all customs houses for sanctioning refund and also to honor the judicial precedents.

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