CBIC
Legislation UpdatesRules & Regulations

   

On 30-6-2022, Ministry of Finance notified Courier Imports and Exports (Electronic Declaration and Processing) Amendment Regulations, 2022. By this amendment, Central Board of Indirect Taxes and Customs (CBIC) elaborates the provisions of import/export of jewellery sold on e-commerce exchanged through courier, which will come into force with immediate effect.

Key amendments:

  • Jewellery of precious metals and imitation jewellery are now included under the category of re-import which are being sold on any E-commerce [defined under Regulation 3(da)] platforms.

  • Application for assessment and clearance of imported or export goods, carried out by an Authorised Courier of jewellery of precious metals extends to their reimport in case of any return.

  • Regulation 6A has been newly inserted provides the conditions by which the jewellery is returned through courier mode on any e-commerce platform.

  • Importer/Exporter Code (IEC) holder which shall authorize the courier should remain the same along with the condition that terminal has to be unchanged.

  • Return of such jewellery is permitted through the same consignee and reasons for such return are to be provided to the Courier Bill of Entry.

  • Exporter, who is re-importing, will continue to have valid IEC and Registration-cum-Membership Certificate (issued by the Gems and Jewlery Export Promotion Council).

  • All the tax benefits that accrue on the export are neutralized.

  • Identity of re-imported jewellery will continue to be the same and will not be altered or enhanced.

*Shubhi Srivastava, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: In the case where the constitutionality of two Central Government notifications related to levy of Integrated Goods and Services Tax (IGST) was under scanner, the 3-judge bench of Dr. DY Chandrachud*, Surya Kant and Vikram Nath, JJ has held that since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.

The Court observed that,

“If Indian shipping lines continue to be taxed and not their competitors, namely, the foreign shipping lines, the margins arising out of taxation from GST would not create a level playing field and drive the Indian shipping lines out of business.”

Issue

Whether an Indian importer can be subject to the levy of Integrated Goods and Services Tax (IGST) on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis?

Discussion

It was argued before the Court that the transaction between the foreign exporter and the respondents is already subject to IGST under Sections 5 of the IGST Act read with Sections 3(7) and 3(8) of the Customs Tariff Act as “supply of goods”. An additional levy of IGST on imported goods, that is on the supply of transportation service, by designating the importer as the recipient would amount to double taxation.

The Court explained that any Ocean Freight transaction involves three parties- the foreign exporter, the Indian importer and the shipping line. The first leg of the transaction involves a CIF contract, wherein the foreign exporter sells the goods to the Indian importer and the cost of insurance and freight are the responsibility of the foreign exporter. In other words, the foreign exporter is liable to ensure that the goods reach their place of destination and the Indian importer pays the transaction value to the exporter. The second leg of the transaction involves an agreement between the foreign exporter and the shipping line (whether foreign or Indian) for providing services for transport of goods to the destination, i.e., in the territory of India.

On the first leg of the transaction, between the foreign exporter and the Indian importer, the latter is liable to pay IGST on the transaction value of goods under Section 5(1) of the IGST Act read with Section 3(7) and 3(8) of the Customs Tariff Act. Although this transaction involves the provision of services such as insurance and freight it falls under the ambit of ‘composite supply’.

The Union Government had, however, submitted that the impugned levy is on the second leg of the transaction, which is a standalone contract between the foreign exporter and the foreign shipping line. Thus, the contract between the foreign exporter and the foreign shipping line- of which the Indian importer is not a party- cannot be deemed to be a part of ‘composite supply’.  The Court, however, refused to agree with the submission and observed,

“The Union of India cannot be heard to urge arguments of convenience – treating the two legs of the transaction as connected when it seeks to identify the Indian importer as a recipient of services while on the other hand, treating the two legs of the transaction as independent when it seeks to tide over the statutory provisions governing composite supply.”

This observation was made in reference to the fact that the Court had agreed to Union of India’s submission to hold that when the place of supply of services is deemed to be the destination of goods under Section 13(9) of the IGST Act, the supply of services would necessarily be “made” to the Indian importer, who would then be considered as a “recipient” under the definition of Section 2(93)(c) of the CGST Act. The supply can thus be construed as being “made” to the Indian importer who becomes the recipient under Section 2(93)(c) of the CGST Act.

Stating that the Court is bound by the confines of the IGST and CGST Act to determine if this is a composite supply, the Court said that it would not be permissible to ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements.

The Court explained that the supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. Hence, to levy the IGST on the supply of the service component of the transaction would contradict the principle enshrined in Section 8 and be in violation of the scheme of the GST legislation.

It was, hence, held that while the impugned notifications are validly issued under Sections 5(3) and 5(4) of the IGST Act, it would be in violation of Section 8 of the CGST Act and the overall scheme of the GST legislation.

Conclusion

(i) The recommendations of the GST Council are not binding on the Union and States for the following reasons:

(a) The deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that the Parliament intended for the recommendations of the GST Council to only have a persuasive value, particularly when interpreted along with the objective of the GST regime to foster cooperative federalism and harmony between the constituent units;

(b) Neither does Article 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A. The Parliament and the State legislatures possess simultaneous power to legislate on GST. Article 246A does not envisage a repugnancy provision to resolve the inconsistencies between the Central and the State laws on GST. The ‘recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST. It is not imperative that one of the federal units must always possess a higher share in the power for the federal units to make decisions. Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation; and

(c) The Government while exercising its rule-making power under the provisions of the CGST Act and IGST Act is bound by the recommendations of the GST Council. However, that does not mean that all the recommendations of the GST Council made by virtue of the power Article 279A (4) are binding on the legislature’s power to enact primary legislations;

(ii) On a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, read with Section 2(93) of the CGST Act, the import of goods by a CIF contract constitutes an “inter-state” supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service;

(iii) The IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes. The specification of the recipient – in this case the importer – by Notification 10/2017 is only clarificatory. The Government by notification did not specify a taxable person different from the recipient prescribed in Section 5(3) of the IGST Act for the purposes of reverse charge;

(iv) Section 5(4) of the IGST Act enables the Central Government to specify a class of registered persons as the recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation;

(v) The impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST Act. Since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.

[Union of India v. Mohit Minerals Pvt. Ltd., 2022 SCC OnLine SC 657, decided on 19.05.2022]


*Judgment by: Justice Dr. DY Chandrachud


Counsels

For UOI: ASG N Venkataraman

For respondent: Senior Advocates V Sridharan, Harish Salve, Arvind Datar, Vikram Nankani and Advocate Uchit Sheth

For intervenors: Advocate Rajesh Kumar Gautam

Case BriefsForeign Courts

Court of Appeal of the Democratic Socialist Republic of Sri Lanka: The Division Bench of M. T. Mohammed Laffar and S. U. B. Karalliyadde, JJ. decided over a petition which was filed seeking reliefs, inter alia, to issue writs of Certiorari to quash the order informing the Petitioner to pay the short-paid levies with immediate effect and a writ of Mandamus directing the Respondent to seek opinion of the WCO regarding the appropriate HS Code.

Petitioner was a Company duly incorporated under the Companies Act, No. 7 of 2007 and the Respondent is the Director General of Sri Lanka Customs. The Petitioner was engaged in importation and distribution of ‘Pringles’ brand Potato chips in Sri Lanka. For the purpose of clearing the Potato chips, from the Customs, Petitioner used the Harmonized Code (HS Code) 2005.20.00.

Counsel for the Petitioner submitted to the Court that since the Post Clearance Audit Directorate of the Sri Lanka Customs (PCAD) did not communicate any determination and/or change in respect of the HS Code under which the Potato chips were imported, the Petitioner continued to import the good under the same HS Code believing genuinely that HS Code 2005.20.00 is the correct HS Code. The learned SSC appearing for the Respondent submitted to Court that in pursuant to the post-clearance audit, a Customs Inquiry had been conducted by the PCAD under the reference No. PCAD/HQO/070/2017 and at the Inquiry it was found that the appropriate HS Code for the product is HS 1905.90.20. Notably, the Custom duties payable for the goods imported into Sri Lanka under HS Code 1905.90.20 are higher than the Custom duties payable for the goods imported under the HS Code 2005.20.00. In pursuant to the Customs Inquiry, the Respondent decided to charge Rs. 54 576 752.76 as short-paid levies from the Petitioner for 17 consignments imported into Sri Lanka. The argument of the learned Counsel for the Petitioner is that the decisions of the Respondent to categorise the ‘Pringles’ Potato chips under HS Code 1905.90.20 and to charge Rs. 54 576 752.67 as short levies are ultra vires the powers conferred on the Respondent and those decisions were unreasonable, irrational, illogical and contrary to the principles of natural justice and therefore, the Petitioner has a legitimate expectation of directing the Respondent through Court to refer the dispute to the WCO for determination of the correct HS Code.

Main issue to be decided in this Application was whether the correct HS Code for the ‘Pringle’ Potato chips imported by the Petitioner should be 2005.20.00 or 1905.90.20.

The Court discussed in detail the guidelines in the National Imports Tariff Guide issued by Sri Lanka Customs and was of the opinion that the respondents had failed to satisfy that Customs Inquiry had been conducted fairly and reasonably adhering to the principles of natural justice. Furthermore, the Court observed that no reasons have been given in R5 for the classification of the product under HS Code 1905.90.20 and therefore, the decision taken at the Customs Inquiry is arbitrary and unreasonable.

The Court further reiterated that in Karunadasa v. Unique Gem Stones Ltd and Others, (1997) 1 SLR 256 it was held that “Natural Justice means that a party is entitled to a reasoned consideration of his case; and whether or not the parties are also entitled to be told the reasons for the decision, if they are withheld, once judicial review commences, the decision may be condemned as arbitrary and unreasonable.”

The Court finally was of the opinion that the petitioner was entitled to a writ of Mandamus not to the extent that is prayed for in prayer (d) to the amended Petition dated 11.06.2019 but to the extent that the matter should be referred to the Nomenclature Committee of the Respondent to determine the appropriate HS Code. Therefore issuing writ of Certiorari as prayed for in prayer (c) to the amended Petition quashing the contents of the letters and a writ of Mandamus directing the Respondent to refer the matter to the Nomenclature Committee of the Respondent for determination of the appropriate HS Code.[Hayleys Consumer Products Ltd v. Director General of Customs, CA / WRIT / 31/2019, decided on 26-01-2022]


Suchita Shukla, Editorial Assistant has reported this brief.


Thishya Weragoda with Kasun Illangatillake and Mahela Liyanage for the Petitioner

Manohara Jayasınghe SSC for the Respondent

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Rachna Gupta (Judicial Member) allowed an appeal which was filed against the order of Commissioner (Appeals) in which he had wrongly invoked the principle of unjust enrichment while rejecting the refund of the appellant.

The appellant in the present case had imported 3000 MT of Aluminium Nitrate from Indonesia. At the time of filing home consumption clearance, appellant had claimed preferential rate of Basic Customs Duty (BCD) @ 5% under Notification No.46/2011 Entry No. 358(1) against BCD @ 7.5%. However, at that time, he could not produce original certificate of origin with authentic signatures. Accordingly, provisional assessment was resorted for. The bills were, therefore, assessed provisionally in terms of section 18(1) of the Customs Act, 1962, however, by extending the aforesaid notification benefit. The appellant later submitted the original certificate of origin along with original revenue deposit challans with the request for finalization of the provisional assessment. The appellant also requested for refund of aforesaid revenue deposit of Rs.15,09,146/-. The original authority after examining the applicability of principles of unjust enrichment and considering the certificate issued by the appellant’s Chartered Accountant, sanctioned the aforesaid refund. However, review order passed under section 129D(2) of the Customs Act, 1962 that the Deputy Commissioner of Customs, Visakhapatnam was required to file an appeal against the said Order-in-Original. The said appeal of the department had been adjudicated thereby setting aside the Order-in-Original. Being aggrieved, the importer had filed the present appeal before this Tribunal.

The appellant had submitted that the BCD as was applicable to the import of Aluminium Nitrate made by the appellant was @ 5% in terms of Notification No.46/2011 Entry No. 358(1). However, a provisional assessment was resorted to for want of certain documents and customs duty @ 7.5% was paid by the importer. At the time of final assessment, the benefit of notification was extended. Accordingly, the appellant became entitled for the refund of the duty paid to the extent of excess 2.5% thereof.

The Tribunal assessed the two findings given by the Commissioner (Appeals) while rejecting the refunds:

  1. i) that the appellant/assessee has not proved constructively with the supporting documents that the duty paid is not charged to the buyer and whether there was any change in the price of the goods produced by them to that effect.

(ii) CA certificate is not sufficient to show that burden has not been passed on to other persons.

The Tribunal was of the view that the said document was opined to be a sufficient document to ascertain whether the incidence of duty has or has not been passed on to the customers as the cost of the product because the books of account are the only way for examining the same. If an amount is shown in books of accounts as cost of material the amount has to be debited from the cash account and has to be credited towards expenses of materials account in the profit and loss statement. On the other hand, if the burden of duty has been borne by the manufacturer itself, the amount shall be debited in the cash account and a credit as receivables shall be shown in the books of accounts. The tribunal drew support from various decisions of Uniword Telecom Ltd. v. CCE, 2017 (358) ELT 666 (Tri-All.), Savita Oil Technologies Ltd. v. CCE, 2017 (358) ELT 331 (Tri-Mumbai).

The Tribunal distinguished the decisions of Hindustan Petroleum Corprn. Ltd. v. Commissioner of Customs, 2015 (328) ELT 410 and UOI v. Solar Pesticides (P) Ltd., 2000 (116) ELT 401 (SC) stating that they were wrongly applied to the facts of the present case which simply talks about the documents to be mandatorily provided in terms of section 27(1A) of the Customs Act to prove that there has been no unjust enrichment.

The Tribunal allowed the appeal and finally held that the findings of Commissioner (Appeals) while rejecting the refund of Rs.15,09,146/- which admittedly was an excess amount paid by the appellant, over and above his liability of paying BCD @ 5% in terms of Notification No. 46/2011 Entry No. 358(1), was not sustainable.[Indian Explosives (P) Ltd. v. Commr. Of Customs & ST, Customs Appeal No. 30258 of 2019, decided on 03-09-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of AM Khanwilkar, Dinesh Maheshwari and Sanjiv Khanna, JJ has held that the provisions of Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act) are in addition to, and not in derogation of, the provisions of any other law for the time being in force and that Section 9A of the FTDR Act does not elide or negate the power of the Central Government to impose restrictions on imports under sub-section (2) to Section 3 of the FTDR Act.

Issue before the Court

The notifications dated 29th March 2019 bearing S.O. Numbers. 1478-E,1479-E, 1480-E and 1481- were challenged for being in the nature of ‘quantitative restrictions’ under Section 9A of the FTDR Act, which could be only imposed by the Central Government after conducting such enquiry, as is deemed fit, and on being satisfied that the “goods are imported into India in such quantities and under such conditions as to cause or threatens to cause serious injury to domestic industry.” Further, in exercise of power under sub-section (3) to Section 9A the Central Government has framed the Safeguard Measures (Quantitative Restrictions) Rules, 2012, that prescribe mandatory and detailed procedure for initiation, investigation, hearing to parties and adjudication by the Authorised Officer, which statutory mandate has not been followed.

On applicability of Section 3(2) of the FTDR Act on imposition of quantitative restrictions on imports or exports

Section 3 of the FTDR Act, as enacted, had undergone amendments by addition of proviso to sub-section (2) and by insertion of sub-section (4) vide Act 25 of 2010.

Sub-section (1) of Section 3 states that the Central Government may, by an Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. It is a general provision which has no reference to GATT-1994. It authorises the Central Government to publish an order in the Official Gazette for development and regulation of foreign trade, i.e. imports and exports.

Sub-section (2) states that the Central Government can, by an order in the Official Gazette, make a provision for prohibiting or restricting or otherwise regulating, in all or specified cases and subject to such exceptions, if any, the import or export of goods and after the amendment vide Act 25 of 2010, services or technology.

“Sub-section (2) to Section 3, therefore, authorises the Central Government to, by an Order published in the Official Gazette, make provisions restricting the imports or exports. Imposition of quantitative restrictions on imports or exports would clearly fall within sub-section (2) to Section 3 of the FTDR Act.”

On Section 9A of the FTDR Act being an escape provision

Section 9A has to be interpreted as an escape provision when the Central Government i.e. the Union of India may escape the rigours of paragraph (1) of Article XIX of General Agreement on Tariff and Trade (GATT)-1994. Section 9A is not a provision which incorporates or transposes paragraph (1) of Article XI into the domestic law either expressly or by necessary implication. To hold to the contrary, would mean holding that the Central Government has no right and power to impose ‘quantitative restrictions’ except under Section 9A of the FTDR Act. This would be contrary to the legislative intent and objective.

“Section 9A of the FTDR Act does not elide or negate the power of the Central Government to impose restrictions on imports under sub-section (2) to Section 3 of the FTDR Act.”

Conclusion

The impugned notifications would be valid as they have been issued in accordance with the power conferred in the Central Government in terms of sub-section (2) to Section 3 of the FTDR Act. The powers of the Central Government by an order imposing restriction on imports under sub-section (2) to Section 3 is not entirely curtailed by Section 9A of the FTDR Act.

[Union of India v. Agricas LLP, 2020 SCC OnLine SC 675, decided on 26.08.2020]