Sad refund

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ATUL BELEL (Querist)
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07 July 2013 What are the Terms and conditions to claim SAD refund?
And what are the consequent procedure to claim such refund?

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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11 July 2013 While Importing goods in India, the importer is required to pay Special Additional Duty (SAD). The rationale behind levying this import duty is to counterbalance VAT (i.e. tax revenues of government) and boost the domestic suppliers (which would have been purchased from domestic market otherwise). The SAD is levied as per Section 3(5) of Customs Tariff Act and also known as Counter Value Duty (CVD).

However, if the same goods are furthers sold out then refund can be available to importer to the extent of Special Additional Duty (SAD) paid. Here is an article to know the procedure and requirements of applying Special Additional Duty (SAD) refund.

Legal Backing

Notification No. 102/2007-Customs, New Delhi, dated 14th September, 2007 - Exemption granted to Additional Customs duty on imported goods

“In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the goods falling within the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), when imported into India for subsequent sale, from the whole of the additional duty of customs leviable thereon under sub-section (5) of section 3 of the said Customs Tariff Act (hereinafter referred to as the said additional duty).”

Conditions of the Refund:

(a) the importer of the said goods shall pay all duties, including the said additional duty of customs leviable thereon, as applicable, at the time of importation of the goods;

(b) the importer, while issuing the invoice for sale of the said goods, shall specifically indicate in the invoice that in respect of the goods covered therein, no credit of the additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975 shall be admissible; (Credit and refund is not available simultaneously)

(c) the importer shall file a claim for refund of the said additional duty of customs paid on the imported goods with the jurisdictional customs officer;

(d) the importer shall pay on sale of the said goods, appropriate sales tax or value added tax, as the case may be;

Both intra-sale or inter-state sale is considered as subsequent sale and therefore payment of VAT/CST is eligible.

Procedure of refund:

A detail Circular 16/2008 dated dated 13/10/2008 has been issued outlining clarification on refund of 4% SAD in pursuance of Notification No.102/2007-Customs dated 14.09.2007.

(i) Time-limit for filing of refund claim: Up to a period of 1 year from the date of payment of duty. As stated in para 4.1 of the Circular No.6/2008-Customs dated 28th April, 2008, an amending notification to this effect specifically providing for 1 year period from the date of payment of the additional duty of customs (4% CVD) was issued vide Notification No.93/2008-Customs dated 1.8.2008 amending para 2(c) of the above-said notification. Unsold stocks would not be eligible for refunds.

As per Circular No.6/2008-Customs instructions are given to importer to file monthly claim irrespective of the number of bill of entries processed by the Commissioner.

(ii) Processing Time of Refund: The refund claims should be processed within the prescribed period of 3 months time.

(iii) Declaration for non-admission of Cenvat Credit: Importer is required to make a specific declaration in the sale invoice that no CENVAT credit would be admissible in respect of 4% CVD. This ensures that there is no double benefit on account of refund to the importer and CENVAT Credit to the purchaser. Certain importers feel the same requirement shall be dispensed because they are not registered with the Central Excise. However, based on the Circular 16/2008 dated dated 13/10/2008, reason of non-registered dealer is not found to be acceptable.

Circular No.6/2008-Customs stated that a stamp on the sale invoice to state that the CENVAT Credit is not admissible is sufficient for the purpose of Para 2(b) of the principal Notification.

(iv) Qualification of refund claim: Circular No.6/2008-Customs stated that only those cases where 4% CVD was paid on or subsequent to 14.9.2007, will qualify for refunds under this scheme subject to fulfillment of prescribed conditions.

(v) Documents required for refund claim:

The list of documents required for any refund under Central Excise, Customs & Service Tax is available on http://www.cbec.gov.in. The same is reproduced here for easy reference to claim refund of SAD:

1. Document evidencing payment of the Special Additional Duty (SAD).
2. Invoices of sale of the imported goods in respect of which refund of the said SAD is claimed.
3. Documents evidencing payment of appropriate sales tax or value added tax, as the case may be, by the importer, on sale of such imported goods.
4. Certificate from a statutory auditor / CA who certifies the final accounts in respect of correlation of VAT payment, payment of 4% SAD amount and unjust enrichment as prescribed in Board’s circular No.6/2008-Customs dated 28.4.2008 and 16/2008-Customs dated 13.10.2008.
5. Copy of the Consignment Sale Agreement. (in case of sale through consignment agents / stockists).
6. Self-declaration / Affidavit (for e.g. in case of submission of invoice in soft form in lieu of paper documents, in case of fulfillment of the doctrine of unjust enrichment to the effect that the applicant has not passed on the incidence of 4% SAD to any other person).
7. Any other document considered necessary in support of the claim.

To see the documents requirements for other refund claims please click on this link - Click here

Issues clarified for claiming SAD refund

All the following issues are discussed under Circular 16/2008 dated dated 13/10/2008:

(i) Payment of VAT by cash or input tax credit: In some cases the VAT credit is available with the importer due to credit of VAT paid on local purchase of other products. Although the imported goods are sold and VAT is being paid on such sale, instead of cash payment, the input tax credit is used. Hence, the payment of VAT by input tax credit adjustment should be acceptable in lieu of VAT paid challan as instructed in Circular 16/2008 dated dated 13/10/2008.

In terms of the requirement under para 2(d) of the said notification, it is stated that appropriate VAT is to be paid by the importer on sale of goods. The importer can then claim the refund of 4% CVD paid at the time of import. It is noticed that most of the VAT legislation provide for payment of VAT by utilizing the input tax credit. If the Sales Tax Authorities accept payment of VAT through cash or adjustment of input tax credit, the same shall be treated as effective discharge of VAT payment on imported goods.

Further, a certificate from statutory auditor/Chartered Accountant correlating the payment of VAT on the imported goods with the invoices of sale, along with supporting documents of proof of payment of appropriate VAT is acceptable for the purpose of refund. Hence, it is clarified that discharge of VAT liability by the importer, through cash or other authorized form of payment to the concerned VAT authority or input tax credit adjustment, could be accepted by Customs field formations for the purpose of fulfillment of the condition in para 2 (d) considering sanction of refund.

(ii) Submission of original copy of VAT Challan: Importers pay the appropriate VAT to the concerned State Government where the sale of imported goods is effected. There is a genuine difficulty in case of importers selling the goods through various States or those importing goods at various ports and subsequently, selling in different States to obtain the original copy of VAT challan evidencing payment of appropriate VAT for the purpose of claiming 4% CVD refund with various Customs Commissionerates at different ports Further, payment of VAT after adjusting input tax credit is made through different forms such as deposit of cash, cheque, demand draft or other authorized mode of payment through banking channel or payment directly to the VAT Department. In some States, even e-payment is also accepted.

The Circular 16/2008 dated dated 13/10/2008 instructed that the importers may submit copies of VAT challan along with a certificate from the Chartered Accountant, who either certifies the importer’s financial records under the Companies Act, 1956 or any VAT Act of the State Government or the Income Tax Act, 1961, confirming the payment against the aforesaid documents. This would be considered sufficient to fulfill the requirement in terms of para 2(e)(iii) of the Notification No.102/2007-Customs dated 14.9.2007. However, the importers may be required to submit the original VAT payment challans or other similar documents, in doubtful cases for verification by Customs authorities, which shall be returned to the importer after verification.

(iii) Unjust enrichment and its Certification by Chartered Accountants: The intention of the Government is not to allow the importer to recover 4% CVD from the buyer and to claim the refund from Customs as well. The only method to ensure this is to make it conditional to satisfy the principle of unjust enrichment. Hence, circular represented that the burden of SAD has not been passed on by the importer to any other person, for which a certification from an independent Chartered Accountant may be accepted by the Customs authorities.

However, in this regard, it is clarified that the Customs field formations shall accept the certificate given only by such a Chartered Accountant who either certifies the importer’s financial records under the Companies Act, 1956 or any ST/VAT Act of the State Government or the Income Tax Act, 1961. A certificate by any other independent Chartered Accountant would not be acceptable for this purpose.

(iv) Consignment Agents: The importers who operate through consignment agents / stockists, it is found that the imported goods are held by these agents / stockists in the capacity of bailee. The goods are sold by them on behalf of the importer and the payment for the sale is made to the importer. These agents also pay the appropriate VAT on behalf of the importer and get the same reimbursed from the principal i.e. importer. Unlike in other transactions, while the bill of entry for imported goods under consignment sale is filed by the importer and the bill of entry will be in the name of the importer, the sale invoices are issued by the said consignment agents / stockists in their own names. Hence, SAD refund in such cases should be allowed to them based on the correlating documents evidencing payment of VAT by their agents / stockists.

Circular has observed that in ‘consignment sale’ transaction, goods are dispatched to Consignment agents by importer as Principal; and the imported goods remain the property of the importer. Similarly, the responsibility of Stockist is confined to stocking of goods and forwarding such goods to persons and places as instructed by the importer. Hence Consignment agent/stockist sells goods on behalf of the importer. The said agent collects sales proceeds and remits the same to importer; however he may recover his commission, godown charges, insurance charges etc., from the importer. In terms of the various State VAT laws, ‘sale’ is defined to mean transfer of property in goods for a valuable consideration. For the purpose of VAT, transfer of property involved in the sale of imported goods, through an agent, by whatever name called, whether for cash or for deferred payment or other valuable consideration, shall be deemed to be a sale, by such agent.

Further, consignment agent/stockist who has the authority to sell the goods belonging to the importer/ principal on their behalf is also included in the scope of the term ‘dealer’ under the VAT Act, and the said agent/stockist are required to pay appropriate VAT on sale of such goods. In these transactions, normally, an Agreement is entered into between the importer and agent, which provides for the terms and conditions of sale and offers a commission for the work done by the agent / stockist. Payment of VAT on behalf of the importer may also be specified as one of the arrangement as per such agreement. Since such sale is an accepted form of commercial transaction, payment of VAT made by such agents and submission of VAT challan by the agents on behalf of principal (Importer) is permitted by VAT authorities.

In view of the above, Circular clarified that SAD refund shall be granted subject to the condition that the Consignment agent/ stockist has been authorized to sell the imported goods in terms of the agreement entered into between the importer and consignment agent/stockist and that each of the sale invoices issued by the consignment agent/stockist indicates that the sale is made by him on behalf of the importer in the capacity of consignment agent/stockist. These conditions shall be verified by the Customs officers before sanction of 4% CVD refund claims in these cases. Further, in such cases, it is also required that the applicant submits a certificate from a Chartered Accountant appointed by the importer, who either certifies the importer’s financial records under the Companies Act, 1956 or any VAT Act of the State Government or the Income Tax Act, 1961, to the effect that appropriate VAT has been paid by consignment agent/stockist on behalf of importer and that the importer, in turn, has paid or reimbursed the VAT to his consignment agent/stockist along with the correlation of VAT payment with 4% CVD paid on imported goods.

(v) Submission of refund claim for part of goods in a consignment: There are cases of subsequent part sale where a significant part is already sold and an undertaking is furnished by the importer that no more refund claim would be filed for the remaining part and on that basis even prior to the said one year period the refund claim shall be approved. Moreover, in some cases, there may be short landing or part of the consignment is unlikely to be sold due to some defects, damage etc. In such cases too, the importers may prefer to claim refund for such part of consignment that were actually sold.

The circular stated in favor of importers that where certain quantity of goods were lost or short-landed or damaged resulting in sale of part quantity and the importer submitting a refund claim for the quantity that was sold along with the declaration that for the remaining quantity they would not claim refund, the claims shall be entertained even for part quantity by the Customs. However, since some Customs field formations have raised this doubt, it is hereby clarified that in such cases as stated above, the filing of refund claim for part quantity shall be accepted by the Customs field formations during the same month and such cases need not await till the end of the one year period.

(vi) Early processing of refund claims: The refund claims are not processed within the prescribed period of 3 months. This aspect has been explained in detail in para 4.3 of the Board’s Circular No.6/2008-Customs. Hence, the jurisdictional Commissioners and Chief Commissioners at respective Custom Houses / zones are pressurized that there is no delay in the disposal of the 4% CVD refund claims in terms of Notification No.102/2007-Customs. Further, the status of the refund claims should be placed on the website of the Commissionerate and updated periodically for monitoring of timely disposal of refund claims. Wherever refund claims are sanctioned necessary defacement of the original bill of entry may be carried out in order to ensure that in no case refund is entertained on the same grounds for same goods covered under a bill of entry again. In case of refund claim not being disposed of in 3 months, the matter should be reported to the Board within a fortnight mentioning the reason for delay and any area of doubt which needs to be clarified.

(vii) Sale invoices to be submitted in soft form for claiming refund: It has also found that number of copies of sale invoices are required to be produced in view of the Condition No.2 (e) (ii) of the principal Notification. As these are voluminous, it is difficult for the importers as well as the Department to handle such invoices in hard copy.

Therefore, the importers can submit the copy of invoices in electronic form (including the form of CD) as prescribed in Information Technology Act, 2000, for the purpose of fulfillment of the condition in para 2 (e) (ii) of the principal Notification No.102/2007. The electronic media containing the information about sale invoices should, however, be submitted along with a paper declaration by the applicant indicating the invoice numbers contained in the media and subscribing to their truthfulness.

Issues NOT clarified for claiming SAD refund

One of the conditions of SAD refund is that document evidencing payment of appropriate VAT/CST on sale of such imported goods must be produced by the importer. In line to this, payment of VAT/CST will become a pre-requisite for claiming the refund of SAD. What shall be the situation in case the subsequent sales are exempt under VAT/CST because the specified goods are exempt from VAT/CST.