Claiming Refund Sans Challenge to Assessment in Customs Law: The Controversy Explained

A technical yet interesting controversy has arisen in the context of indirect tax laws, particularly customs laws. The issue relates to availability of refund despite failure to challenge assessment proceedings. This issue has witnessed multiple rounds of litigation in the context of customs law and is an interesting one.

 


Background: Understanding the Assessment Scheme


It is expedient to examine the scheme of the assessment in order to appreciate the issue in greater detail. Most of the indirect tax laws were earlier based on the “assessment” regime where a tax officer would pass an order of assessment determining the rights and liabilities of the taxpayers concerned. Subsequently this assessment scheme was replaced by “self-assessment” scheme. Under this scheme, the obligation to comply with the law concerned rests upon the taxpayers who must ensure compliance with the provisions tax law, including filing of tax return along with the attendant consequences. This scheme where the taxpayer is obliged to assess and determine the correct tax liability is commonly understood as the self-assessment scheme. In such scenario the role of the tax officer is limited to verifying the self-assessment of the taxpayer and initiate recovery proceeding, if required, in order to recovery short paid tax, besides ensuring that the other provisions of the tax law are complied with by the taxpayer.

 


The First Round of Litigation in Customs Law


The question as to the manner in which a taxpayer could apply for refund arose for the first time in the context of the assessment regime under the customs law. The Supreme Court in CCE v. Flock (India) (P) Ltd.[1] opined that it is obligatory on the part of the taxpayers to challenge the assessment orders, without which a refund is not maintainable. In this decision it was observed that “there is little scope for doubt that in a case where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal, it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order”.

Subsequent, in Priya Blue Industries Ltd. v. Commr. of Customs[2] the Supreme Court refused to change its opinion and reiterated that the assessment order being in appealable order and refund being a consequence of the assessment, in the absence of a challenge to an assessment order a refund claim could not be entertained much less considered on merits. Thus the issue rested conclusively in the context of the assessment regime under the customs law.

 


Change to Self-Assessment Scheme under Customs Law


In 2011 the Customs Act, 1962 was substantially amended. One of the major changes was the switchover from the assessment scheme to the self-assessment mechanism. Given that the self-assessment regime implied absence of an order of assessment, a view emerged that the earlier decisions of the Supreme Court were not applicable in the case of self-assessment as in such cases the assessment having been made by the taxpayer himself, it was not possible for the taxpayer to challenge the assessment order. Inter alia (a) on such legal interpretation; (b) grounds of practical exigencies; and (c) citing lack of a provision providing for appeal by the taxpayer against his own self-assessment, it was being contended on such account that there was no requirement to challenge the assessment order in order to claim refund. This view came to be rejected by the tax officers who refused to grant refund citing the self-assessment order but the view came to be vindicated by the Delhi High Court. In its decision in Micromax Informatics Ltd. v. Union of India[3], the Delhi High Court examined the new provisions of the customs law and the self-assessment scheme therein to opine that the process of self-assessment there was “no assessment order as such passed by the customs authorities” and thus there was no necessity to file an appeal any appeal in order to claim refund. This decision of the Delhi High Court was agreed by the Calcutta High Court[4] and Madras High Court[5] amongst others.

 

The issue subsequently thereafter came up for consideration of the Supreme Court. Unable to subscribe to the High Court reasoning, the Supreme Court in ITC case[6] reversed this view to the detriment of the taxpayers. In the opinion of the Supreme Court, notwithstanding the change in the customs law framework, there was no change in the legal position emerging from its earlier decisions. The Supreme Court explained that self-assessment also resulted in an “order” under the customs law which could not be wished away and its effect could be invalidated only by way of appropriate proceedings under the customs law. In conclusion, the Supreme Court noted the following:

 

  1. 47. When we consider the overall effect of the provisions prior to amendment and post amendment under the Finance Act, 2011, we are of the opinion that the claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund; and in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Act.

 

A critical observation of the Supreme Court in ITC case[7] was in relation to the refund proceedings. It inter alia observed that refund “is more or less in the nature of execution proceedings. It is not open to the authority which processes the refund to make a fresh assessment on merits and to correct assessment on the basis of mistake or otherwise”.


The Third Round: Amendment/Rectification as an Alternative to Appeal


One would have assumed that with the decision in ITC case[8] the issue would no longer have been res integra and the controversy would have subsided. However, that the ingenuity of the lawyers knows no bounds is best reflected in the scenario that followed. Faced with the law emanating from the ITC case[9], an innovative approach was adopted in subsequent matters where the taxpayer had claimed refund without challenging the self-assessment order.

 

It began to be canvassed that the Supreme Court in ITC case[10] itself had opened the door for another remedy to the taxpayer when it observed that the refund provision “cannot be invoked in the absence of amendment or modification having been made in the bill of entry on the basis of which self-assessment has been made”. Stressing upon this observation, the taxpayer contended that a refund proceeding could be supplemented with a request for amendment, which once allowed would imply that the self-assessment order did not stand in the way of claim refund. This assertion came to be accepted by the Bombay High Court in Dimension Data India (P) Ltd. v. Commr. of Customs.[11]

 

In this decision, the Bombay High Court concluded that it was obligatory upon the tax officers to address a formal request for amendment of documents when accompanied by a refund claim, in view of the power of amendment (Section 149) and the power of rectification (Section 154) being statutorily vested on the tax officers. Declaring the legal position, the High Court inter alia observed as under:

 

“… in the judgment itself Supreme Court has clarified that in case any person is aggrieved by an order which would include an order of self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Customs Act before he makes a claim for refund. This is because as long as the order is not modified the order remains on record holding the field and on that basis no refund can be claimed but the moot point is Supreme Court has not confined modification of the order through the mechanism of Section 128 only. Supreme Court has clarified that such modification can be done under other relevant provisions of the Customs Act also which would include Sections 149 and 154 of the Customs Act.

*                                              *                                              *

In the instant case, petitioner has not sought for any refund on the basis of the self-assessment. It has sought reassessment upon amendment of the Bills of Entry by correcting the customs tariff head of the goods which would then facilitate the petitioner to seek a claim for refund. This distinction though subtle is crucial to distinguish the case of the petitioner from the one which was adjudicated by the Supreme Court and by this Court.”

 

Thereafter the Telangana High Court followed suit, albeit independently, to opine in Sony India (P) Ltd. v. Union of India[12] to opine that it was obligatory on the part of the tax officer to ensure that the documents were amended so as to being conformity with law and also that refund was made the taxpayer wherever due. In this case the High Court inter alia observed as under:

  1. 48. Further, it is the duty and responsibility of the Assessing Officer/Assistant Commissioner to correctly determine the duty leviable in accordance with law before clearing the goods for home consumption. The assessing officer instead, having failed in correctly determining the duty payable, has caused serious prejudice to the importer/petitioner at the first instance. Thereafter, in refusing to amend the Bill of Entry under Section 149 of the Act, to enable the importer/petitioner to claim refund of the excess duty paid, the assessing authority/Assistant Commissioner caused further great injustice to petitioner.

 

These decisions of the Bombay and Telangana High Court has thereafter been followed to various ends. For illustration, in Kirloskar Ferrous Industries Ltd. v. Commr. of Customs,[13] the Customs Tribunal directed the tax officers to treat the taxpayer’s request for reassessment as a request for amendment of the documents and thereafter process the refund claim. Thereafter, as another illustration, the Customs Tribunal in Commr. of Customs v. Vivo Mobile India (P) Ltd.[14] agreed with the contention of the taxpayer to the effect “that even if the refund applications that were filed cannot be entertained, then too it is open to the respondent to invoke the provisions of Section 149 or Section 154 of the Customs Act for either seeking amendment in the bill of entries or seeking correction in the bills of entry and then refund applications can be filed”. In this case the Customs Tribunal disposed the appeal permitting the taxpayer to file an application for amendment even at the second appellate stage with a direction to the tax officer to consider such application.


Conclusion


The aforesaid discussion reveals that two rounds of litigation and decisions of the Supreme Court have failed to course correct the taxpayers into initiating the appropriate proceedings and approaching the correct forum for seeking refund in customs matters. The courts, nonetheless, have been benevolent to the cause of the taxpayers and have sustained claims to creative options albeit within the statutory framework. As the law stands today, to the benefit of the taxpayer, the absence of a formal challenge to self-assessment under customs by way of an appeal is not fatal to the refund claim. In such instances, the taxpayer who may choose to supplement the refund claim with request for amendment/rectification, even belatedly, in order to get the refund claim addressed on merits.


† Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics.

[1] (2000) 6 SCC 650 : (2000) 120 ELT 285.

[2] (2005) 10 SCC 433 : (2004) 172 ELT 145.

[3] 2016 SCC OnLine Del 1238 : (2016) 335 ELT 446.

[4] SGS Marketing v. Union of India, 2016 SCC OnLine Cal 4915 :  (2016) 341 ELT 47.

[5] Micromax Informatics Ltd. v. Commr. of Customs, 2017 SCC OnLine Mad 22043

[6] ITC Ltd. v. CCE, (2019) 17 SCC 46, 69.

[7] (2019) 17 SCC 46.

[8] (2019) 17 SCC 46.

[9] (2019) 17 SCC 46.

[10] (2019) 17 SCC 46.

[11] (2021) 376 ELT 192.

[12] 2021 SCC Online TS 982.

[13] 2021 SCC OnLine CESTAT 225.

[14] 2021 SCC Online CESTAT 2578.

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