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Budget 2018: Revenue department failed to rationalise duty rates

Sukumar Mukhopadhyay/ 02 Feb 18 | 05:57 AM

The Budget of 2018-19 had given ample opportunity to the Department of Revenue, Ministry of Finance to rationalise the customs duty structure because the other taxes namely excise duty and service tax were not changed this time since they are a part of Goods and Services Tax (GST).  The bureaucracy in the Department of Revenue had ample time before the Budget to devote their energy to bring about rationality in the structure of the customs duty.  But what they have done is simply to increase and decrease some duties on specific items. They did not even realise that the customs duty structure is a completely irrational amalgamation of different rates with conditions, requirement of certification and huge list attached.  At present there are nearly 19 rates in customs duty like 150, 100, 85, 70, 65, 60, 50, 40, 35, 30, 25, 15, 10, 7.5, 5, 3, 2.5, nil & some specific duties. Then there are hundreds of exemptions and conditions and lists, which make customs duty classifications quite complicated. There has been no move in removing the exemptions in a big way in customs which would have given a lot of extra revenue. More over the classification would be simpler.  The rates could be combined at 150, 100, 50, 25, 15, 10 & 5.  There could be more of self-declaration rather than bonds that would make clearance much easier. On the other hand, what has been done is only to tamper with a few rates of duty, sometimes increasing them and sometimes decreasing them. One cannot say that it is always for higher revenue though, in many cases, there is logic behind the changes in duty rates. The reduction in duties in capital goods and electronics has been well justified. Also the increase in the duty in the case of automobile parts, cellular mobile phone, watches and clocks, toys and games, footwear, cigarette lighters, etc. is justifiable. However, increase in the rate of duty on articles of sports and outdoor games etc. should not have been increased from 10 per cent to 20 per cent.

An important administrative improvement is being introduced. To smoothen dispute resolution process and to reduce litigation, certain amendments are being made to provide for pre-notice consultation, definite timelines for adjudication and deemed closure of cases if those timelines are not adhered to. Legally speaking, this “deemed closure" will be meaningless because they can always be revived. It should have been simply closure.

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A highly retrograde measure has been proposed in the Section 125 of the Customs Act. This section is being amended so as to insert sub-section (3) to provide that where redemption fine has not been paid within a period of 120 days from the date of option given under sub-section (1), then such option shall become void, except in cases where any appeal against such order is pending. If this law is passed, there will be huge amount of accumulation of goods, which have not been cleared (redeemed) in the port trust. For all these past years, the procedure which we have been following is that if the goods are not cleared, or appeal has not been filed, we used to initiate the process of auctioning the goods. In the meantime, if the importer comes up with the money to redeem the goods, we used to give it to them. Now if we start saying that we will not give it to him because 120 days are over, the net result will be accumulation of goods in the port trust. The port trust is already jammed with goods not disposed of. Anybody who has put up this change for being passed into a law just does not understand the ground reality of customs administration. I hope the finance minister will act in time to scotch this retrograde amendment.

Another very retrograde proposal is that Section 128A is being amended to allow Commissioner (Appeals) to remand back the matters to original adjudicating authority where an order of decision has been passed without following principles of natural justice. There are two other reasons as well. Whoever has made this proposal has no background as to why the Commissioner (Appeals) was legally stopped from remanding cases back to the original authority. Commissioners (Appeals) started to remand cases at a very large scale — almost a scandalous scale — to original authority. The sufferers were taxpayers whose cases went up and down. It is very easy for the Commissioner to say that natural justice has been denied. So whenever there is a tricky issue, they were remanding cases back to the original authority. Therefore, going back to the old system will be nothing but a retrograde measure.

The name Central Board of Excise and Customs (CBEC) is proposed to be changed with the roll out of GST, to Central Board of Indirect Taxes and Customs (CBIC).  There are two clear mistakes in this proposal. First, the abbreviation comes to CBITC and not CBIC. Secondly, “customs" need not be separately mentioned as it is an indirect tax.  The correct name should be CBIT (Central Board of Indirect Taxes).

In the Annexure-VI to Part B of the Budget Speech it is said that the duty on some medical devices has been reduced from 2.5 per cent to nil. This has been done to correct inversion in the rate of duty. But in reality, there is no inversion and the concept itself is wrong. The 2.5 per cent levy is only on the inputs. After the value addition on the output, it is not necessary that the duty on the output must be less than 2.5 per cent. Admitting that there is an inversion of duty has been a very illogical admission which will be quoted by the importers in future.

In conclusion, the customs portion of the Budget is not well thought out though the increases in the rates of duty on several commodities have been appropriate.

The writer is retired member of the Central Board of Excise and Customs;


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