The Central Board of Excise and Customs (CBEC) has issued fresh guidelines for furnishing security in provisional assessment cases.
The instructions aim to bring uniformity of practice, transparency and predictability for the taxpayer and give more favourable dispensation to those having certification as authorised economic operators (AEO).
The idea of provisional assessment is to enable immediate clearance of imported or export goods against a bond to pay the differential duty - for the payment of the deficiency, if any, between the duty as may be finally assessed and the duty provisionally assessed. The provision is mostly useful when there are classification or valuation disputes or when the Customs wants to subject the goods to some tests or analysis before finalising the assessment.
When self-assessment was introduced in 2011, the Customs law was amended to spell out the situations when provisional assessment could be resorted to. Broadly, the law allowed the assessment where the importer or exporter was unable to make self-assessment or if the goods have to be tested or if the Customs wanted to make further enquiries. Instead of holding up the goods, the law allowed release of goods against bond backed by surety or security and prescribed cash deposit of 20 per cent of the differential duty. This meant additional costs and the usual problems of refund of duty deposit upon finalisation of assessment. Also, in the absence of any guidelines, the Customs officer had the discretion to demand surety or security in any form and to any extent.
Now, the finance ministry has rescinded the Customs (Provisional Duty Assessment) Regulations, 2011, and the requirement of 20 per cent cash deposit has been abolished. CBEC now wants only a bond for the differential duty backed by security by way of cash or bank guarantee. The guidelines specify the extent of security for types of transactions and categories of exporters and importers.
The essence of the new guidelines is that importers having certification as AEO, public sector companies and government undertakings will get a favourable dispensation by way of waiver of security or reduced security. Also, no security will be necessary for cases selected on random basis for verification of certificate of origin under free trade agreements (FTAs) and cases where the differential duty cannot be computed. In most other cases, 100 per cent bank guarantee or cash deposit will be required. Principal Commissioner of Customs or the Commissioner of Customs can reduce the security amount if there are justifiable reasons. In case of related party transaction, where a reference is made to the special valuation branch, bond and security must be furnished in accordance with CBEC Circular dated February 9, 2016.
These new guidelines would help reduce transaction costs by doing away with duty deposit. Secondly, the taking away of discretion at the operating levels represents a definite step towards ease of doing business. Finally, the guidelines would encourage more importers and exporters to seek certification as AEO.
However, it does appear a bit harsh that all parties not having AEO certification will have to furnish security for 100 per cent of differential duty in most cases of valuation and classification disputes, or where the goods are sent for testing or where the Customs suspect the genuineness of certificate of origin under FTAs. CBEC should consider a liberal dispensation for those having export house recognition and also for small-scale industries.
Email: tncrajagopalan@gmail.com
