The Budget Proposals announced by the Hon'ble Finance Minister include several amendments proposed in the Customs Act, 1962 ('Customs Act'), Customs Tariff and various Notifications. The key Budget proposals for the Customs law can broadly be summarized as those pertaining to Googly, Simplification and Tarrifisation which are explained below, albeit not in the same order.

  • Simplification by omitting unwanted exemptions:
    • The Hon'ble Finance Minister in her Budget Speech of 2020-2021 had emphasized on rationalization of Customs exemptions owing to some of them becoming outdated. A detailed review process in this regard is being undertaken ever since by inviting inputs from various stakeholders, including the public at large. While several such exemptions have been withdrawn till date, after an exhaustive review, further phasing out of around 350 exemption entries has been announced in this year's Budget Speech.
    • To avoid recurrence of a similar problem of exemptions being outdated, Section 25(4A) was inserted in the Customs Act last year whereby conditional exemptions have a limited validity i.e., upto 31st March falling immediately after two years from granting exemption. This is of course subject to certain exclusions such as exemptions pertaining to international commitments under Free Trade Agreements, Information Technology Agreements; Foreign Trade Policy benefits as in the case of Advance authorization; etc. which continue to remain valid for a longer period. In pursuance of this, the end date of exemption has been now specified for various conditional exemption notification entries.
  • Tarrifisation by moving to a simpler and comprehensive Customs tariff:
    • The Budget speech of the last year also mentioned putting in place a revised customs structure free from distortions. As a further step in this direction, unconditional exemption entries of various exemption notifications are being moved to the Customs tariff itself.
    • The amendments in the tariff are proposed to be effective from May 01, 2022 and the following approach has been adopted to implement this:
      • For items where there is no change in effective rate of Basic Customs Duty (BCD) – Amendments have been proposed in the tariff and would become effective from May 01, 2022. In the interim, the underlying exemption notifications would continue to operate.
      • For items where there is change in the effective rate of BCD – Amendments with the revised rates have been proposed in the tariff and would become effective from May 01, 2022. To operationalize the revised rates in the interim period, simultaneous amendments have also been made in the underlying exemption notifications.
  • Googly
    • Clause 96 of the Finance Bill, 2022 unfortunately gives validity to a lot of the past acts undertaken by officers of Customs in pursuance of their appointment and assigning functions by the Central Government or CBIC. This may effectively amount to giving retrospective validity to actions such as issuance of show cause notices undertaken by DRI officers which have otherwise been held to be ultra vires the Customs Act by the Hon'ble Supreme Court inter alia in the case of Canon India Pvt. Ltd. vs. Commissioner of Customs reported in [2021 (376) ELT 3 (SC)]. This is clearly one more retrospective amendment to overcome the law laid down by the Hon'ble Supreme Court, even when this Government has always maintained that they would not engage in such practices.
    • The proposed amendment in Section 14(1) of the Customs Act empowers the Government to prescribe rules to impose additional obligations on the importer and checks to be exercised with respect to valuation of the imported goods where there is a 'reason to believe' that the value of such goods may not be declared truthfully or accurately. This could have a far-reaching impact and one would need to see the actual fine print of the Rules in this regard.
    • The Finance Bill, 2022 has proposed various amendments in the Advance Ruling mechanism under the Customs Act. The proposed amendment in Section 28J of the Customs Act seeks to restrict the validity of an Advance Ruling for a period of three years or till there is a change in the underlying law / facts, whichever is earlier. While we have seen similar provisions existing in the past as regards extending validity of SVB orders beyond three years (till there is a change in circumstances), the present proposal is clearly going back in times. It is also unclear whether the assessee will be required to re-apply seeking validation of the ruling post completion of the three year time period.

While we do have some googlies, on an overall basis, the Customs proposals and amendments reflect a step in the right direction and moving towards a Good and Simpler Tax regime.

Originally published by Taxsutra.

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