FIEO seeks re-look at proposed Section 113(ja) in Customs Act

At the time of presenting the Union Budget, the government, besides altering the duty or tax rates that have a bearing on its revenue, proposes several amendments to the laws through the Finance Bill.

Usually, these are changes the bureaucracy wants for plugging loopholes in tax collection and bringing about technical changes to cope with the emerging trends in legal interpretations and technological changes. It is also for taking initiatives to make it easier to do business. Some of these changes are helpful.

However, where the intent is to plug revenue leakage, the government seeks to introduce some restrictions, prescribe harsher punishments for violations and give its officials more powers to deal with dishonest elements in the trade. The trade views these measures with suspicion and alerts the government to possible unintended consequences of the proposed amendments. This year is no different.

Clause 86 of the Finance Bill 2021 seeks to insert a new Section 113(ja) in the Customs Act, 1962 to provide that any goods entered for exportation under claim of remission or refund of any duty or tax or levy, to make a wrongful claim in contravention of the Act or any other law for the time being in force, shall be liable to confiscation.

The Federation of Indian Export Organisations (FIEO) says that confiscation of goods for wrongful claim of refund/remission is particularly harsh as it will not only hurt exporters but also affect the country’s exports as well as its image.

Moreover, the word “wrongful claim” is subject to various interpretations and will put exporters at the mercy of field formations even if the remission rates are wrongly calculated or disputes about classification of the product under a particular rate arise.

The remission rates may be 2 per cent of the product value and for such a small benefit, the entire goods should not be confiscated. The FIEO has requested the government to re-look at the proposed Section 113(ja) of the Customs Act, 1962.

Clause 87 of the Finance Bill 2021 proposes to insert Section 114C of the Customs Act, 1962.

It says that where any person has obtained any invoice by fraud, collusion, willful mis-statement or suppression of facts to utilise input tax credit on the basis of such invoice for discharging any duty or tax on goods that are entered for exportation under claim of refund, such person shall be liable for penalty not exceeding five times the refund claimed.

The FIEO is silent on this proposed change. Indeed, only a few can object to harsh measures against unscrupulous elements in the trade. However, many analysts have expressed serious concern that such harsh penalty may encourage the field formations to invoke this clause even in cases where genuine mistakes are made and no intent to defraud revenue is there.

The FIEO is especially worried about the proposed changes to restrict the facility of export of goods on payment of tax under the refund claim.

Challenges faced by the tax authorities should be discussed to find an amicable solution rather than dropping an excellent facility, says the FIEO.

Some restrictions and punitive measures are proposed in the goods and services tax (GST) laws also. As a rule, whenever the government gives more powers to its officials, genuine taxpayers have reasons to worry.