Can a manufacturer claim refund of Special additional duty paid under section 3(5) of Customs tariff Act?
Raghvendra Nawalgaria (Partner) (90 Points)
21 August 2012Can a manufacturer claim refund of Special additional duty paid under section 3(5) of Customs tariff Act?
CA. Subhash Dangi
(Chartered Accountant)
(1784 Points)
Replied 21 August 2012
Refer the following article for better clarity on refund of SAD u/s 3(5) of Customs Tariff Act, 1975
THE importer-dealers are over the moon these days. Their SAD-ness is going to turn into happiness. Government granted exemption to the importers from Special Additional Duty which is levied @ 4% under Section 3(5) of the Customs Tariff Act, 1975 by way of refund. But due to a no. of procedural formalities and slackness at the departmental end, 80% of the claims were reviewed as pending at the major custom houses as on 31.3.2010. This induced the Board to issue a Circular for fixing a time limit for granting the refund of SAD. This critique is about the happy intermission of the SAD refund movie.
History behind refund:-
The refund is available to dealers only who pay VAT on his sale. Actually, this levy was in lieu of sales tax. The local manufacturer pleaded that they have to pay sales tax on sale to Indian customer but on import, there is no such tax for importer. As such, it is cheaper to import. So, the Government introduced this special additional custom duty. The Cenvat credit of the same was allowed to manufacturers and it can be adjusted for payment of Excise duty. But the dealer importers have to bear it and it became part of their cost. But while trading the goods, they have to pay sales tax again. They pleaded for the waiver if they are paying sales tax on their sale. The Government agreed to it and said that they will get exemption by way of refund. If they have not passed on Cenvat of such duty on his sale then he can claim refund. As such, this scheme of refund was formulated.
Utiltity of such levy:-
Further, in the opinion of the authors of this article, the goods are normally imported by manufacturers or dealers. A consumer rarely imports directly. The manufacturer gets the Cenvat credit of such duty and the dealer either pass on the credit to manufacturers or he gets this SAD refund. Then what is need of such levy? Everyone who is paying it, getting the benefit of the same.
Notification granting refund of Special Additional duty : -
Notification No. 102/2007-Cus, dated 14.09.2007 granted the exemption by way of refund of Special Additional duty (SAD) to the importer/ dealer of imported goods. The importer was to pay the duties at the time of import of goods and later claim the refund of 4% SAD from the Department. The refund was subject to following conditions as prescribed in the said Notification:- - Declaration regarding non-passing of Cenvat of SAD: - The dealer, while issuing the sale invoice, shall indicate on the invoice that Cenvat credit in respect of SAD is not admissible. - No unjust enrichment: - The importer could not pass on the incidence of duty to the buyers. - Payment of VAT/CST: - The importer was required to pay the appropriate CST/VAT on the sale of imported goods on which he has paid SAD. - Time Limit for filing refund: - The refund claim is to be filed within one year from the date on which SAD has been paid by the importer. • Documents required to be filed with the refund claim: - In the Notification, it was provided that the claimant will have to attach the following documents: - • Document evidencing payment of the said additional duty; • Invoices of sale of the imported goods in respect of which refund of the said additional duty is claimed; • 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.
Documents to be filed with the Refund: -
The board circular prescribed minimum documents for the refund but the field formalities are real players and they have asked a number of documents from the poor dealer. With the refund claim of 4% SAD, the importer was required to file a lot of documents to satisfy the Department that they have complied with the conditions prescribed in the Notifications. Following documents were being insisted upon by the Department to be attached by the claimant: - (i) Original TR-6 Challan (Triplicate Copy) (ii) Duplicate Bill of Entry (Importer's Original Copy). (iii) All Original Sales Invoices along with Summary of Sales Invoices of imported goods of all Bills of Entry sold from various location/branch of the importer containing Invoices No. & dated and amount of ST/VAT paid on the imported goods for which Refund is claimed (Annexure – B) (iv) Self Certified Copy of VAT Return (v) Self Certified Copy of VAT Challan Paid of the respective month. (vi) Sales Tax return and receipt along with 201A form (vii) Declaration appointing Chartered Accountant for preparation of Annual Financial Accounts for Year-- (viii) Self Declaration regarding not passing the duty incidence of 4% (SAD) to the buyers of the imported goods (Annexure – C). (ix) Self certified copy of Sales Register (x) Self certified copy of Purchase and Sales (xi) Balance sheet containing details for the particular (SAD) shipping bills. (Note: the same has to be certified by C.A) (xii) Receivable Accounts for SAD (Note: the same has to be certified by C.A) (xiii) Refund Calculation Worksheet with Declaration (Annexure- A) As such, there is a long list of documents to be annexed with the refund claim. Department was insisting on furnishing of all these documents/certificates alongwith the refund claim. This made the filing of refund claim of SAD a very cumbersome process. Even after filing of all these documents, the Department was not keenly sanctioning the refund claim.
Circular No. 6/2008-Cus, dated 28.04.2008: -
The trade and commerce associations represented against the same. The board has adhere to their demands and issued Circular No. 6/2008-Cus, dated 28.04.2008 providing the procedure to be adopted by the field formations to settle expeditiously refund claims of 4% SAD filed by importers under the Notification No. 102/2007-Cus. In this circular, the Board had directed that the field formations will ensure the disposal of refund claims within a period of 3 months from the date of receipt. The bulk of documents to be filed with the refund claim of SAD as mentioned above were also prescribed to be furnished in this Circular. However, even with detailed instructions the refund claims were not being sanctioned speedily. Another aspect which was helping in the delay was that no interest was payable in case of delay in sanctioning of the refund claim. This was also prescribed in the Circular No. 6/2008-Cus.
Issuance of Circular for speedy sanctioning of refund of SAD: -
During the process of review at the major custom offices, it was noticed that around 80% of the claims were pending with the custom department. It was also noted that many refunds were being denied on one pretext or the other by the Department. On one hand they had paid the SAD at the time of import and had not passed on the incidence of this duty and on the other hand they had paid the VAT. Due to this, the delay and the denial of refund claims were causing a great hardship to the Trade and Industry. This induced the Board to issue a Circular clarifying certain issues to speed up the process of disbursing the refund claims. Circular No. 18/2010-Cus, dated 18/2010- Cus. has been issued for clearance of pending 4% SAD refund claims. For the Accredited Clients in terms of Circular No.42/2005-Customs dated 24.11.2005 which were registered with the Customs, it was provided that refund claim should be sanctioned in full on preliminary scrutiny of following documents: (a) TR-6 Challans (in original) for CVD payment; (b) VAT/ST payment Challans (in original); (c) summary of sale invoices; and (d) certificate of statutory Auditor / Chartered Accountant, for correlating the payment of ST/VAT on the imported goods with the invoices of sale and also to the effect that the burden of 4% CVD has not been passed on by the importer to the buyer. Thus, now only a few documents are required for sanctioning of the refund claim of SAD. Another step taken was to do away with the procedure for pre-audit for ACP clients. And it has also been provided that the detailed scrutiny should be done only at the post-audit stage. Further, the Board has provided that the refund claims should be sanctioned within maximum time period of 30 days. Another step taken was that the sales invoices were prescribed to be filed only in electronic form (CD or other media) and submission of paper documents was done away with. An option was given to the claimant to accept the payment of refund of 4% SAD through RTGS (Real Time Gross Settlement) or NEFT (National Electronics Funds Transfer) System. This has been done to enable timely payment of refund amount. The Board has also prescribed the form in Annexure-I for necessary authorisation for payment of refund directly in the Bank Account of the claimant. Further, it has been provided that for examining the unjust enrichment aspect, the audited Balance sheet and Profit and Loss Account (PLA) will not be insisted upon. Thus, the claimant is not required to submit the said documents. With regard to unjust enrichment aspect, the certificate from Chartered Accountant for the purpose of satisfying the condition that the burden of 4% CVD has not been passed on by the importer to any other person as well as the self-declaration to the effect that he has not passed on the incidence of 4% CVD to any other person, have been provided to be sufficient documents. The Board has also provided that only the following documents will be required to be filed alongwith the refund claim by the importer: - 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. Not only this, but the Board has also directed that Commissioner of Customs shall personally monitor all cases of 4% CVD refund claims pending for more than 30 days so as to ensure that these are disposed of within the overall time limit of three months.
Before parting: -
The Board Circular No. 18/2010-Cus, is a welcome step. The Board has taken notice of the difficulties faced by the importers claiming refund of 4% SAD and have provided for steps that will ensure speedy disposal of refund claims. Also, Board has prescribed fewer documents to be filed alongwith the refund claim. This will reduce the burden of the importer and will help him in filing refund claim with lesser difficulty. In the end, it is said that although the Board has issued Circular for speedy sanctioning of the refund claim but this goal can only be achieved if the provisions of the Circular are implemented in spirit by the Departmental officers. But expecting the full implementation of the Board Circular is wishful thinking as they are not going to do so and the only sufferer will be the importer. So, we can not say it is happy ending. Seeing the behavior of field formalities, we can say that it is intermission only
Raghvendra Nawalgaria
(Partner)
(90 Points)
Replied 21 August 2012
But the manufacturer operates in an excise free zone at Uttaranchal and pays VAT on local sale of finished product.Is he still not eligible for refund of SAD as their is double taxation?
CA. Subhash Dangi
(Chartered Accountant)
(1784 Points)
Replied 21 August 2012
The basic logic behind refund of SAD is when the VAT is actually paid on sale of goods.
When you are not liable for local VAT on sale by virtue of fre trade zone at Uttaranchal or SEZ or any other specific notification or exemption, the question of refund does not arise.
Raghvendra Nawalgaria
(Partner)
(90 Points)
Replied 21 August 2012
The manufacturer is paying VAT on sale of goods as Uttaranchal is not a VAT free zone.Is he still not eligible for refund?
CA. Subhash Dangi
(Chartered Accountant)
(1784 Points)
Replied 21 August 2012
Then he is elgible for refund subject to fulfilling the conditions of Notification No. 102/2007-Cus, dated 14.09.2007 granted the exemption by way of refund of Special Additional duty (SAD) to the importer/ dealer of imported goods
RAMESH KUMAR VERMA
( CS PURSUING )
(43853 Points)
Replied 21 August 2012
in the light of cbec Notification No. 102/2007 dtd 14.09.2007 will be applicable.
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