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09 十一月 2020

Integrated tax and compensation cess leviable on imports/re-imports not covered under phrase ‘duty of customs’

Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the phrase ‘duty of customs’ in Sl. No. 2 of Notification No. 45/2017-Cus.  effective from 1 July 2017 and dealing with exemption to certain goods re-imported after repairs abroad, does not cover integrated goods and services tax (‘IGST’ or ‘integrated tax’) and compensation cess.

The Appellant had claimed exemption from IGST on re-imports of aircrafts and parts, arguing that as per the notification the importer is required to only pay ‘duty of customs’ on the fair cost of repairs and the cost of insurance and freight charges, both ways. It was claimed that the phrase ‘duty of customs’ not covers IGST payable on imports.

The Tribunal rejected the plea of the Customs department that since as per Section 12(1) of the Customs Act, 1962  duties of customs are levied not only under the provisions of the said Act and the Customs Tariff Act, 1975 but also under ‘any other law for the time being in force’, IGST leviable on imported goods by the Integrated Goods and Services Tax Act, 2017 would also be a ‘duty of customs’. The Tribunal was of the view that Section 12(1) does not expand the meaning of ‘duties of customs’ and only means that the rates for duties of customs can be specified either under the Tariff Act or any other law for the time being in force.

Further, relying upon Supreme Court’s decisions in the cases of Prestige Engineering (India) Limited and Indian Organic Chemicals Limited, the Tribunal in its Order dated 4 November 2020 also observed that even the levy of additional duty under Section 3 of the Customs Tariff Act, which is in addition to the duty of customs under Section 2, would not be duty of customs for the purpose of notifications issued under the Customs Act.

The Tribunal also held that as integrated tax is not levied under Section 12 of the Customs Act, it cannot be called ‘duty of customs’. It observed that the integrated tax was levied under Section 5(1) of the Integrated Goods and Services Tax Act, 2017 and only the procedure for collection was provided under Section 3 of the Customs Tariff Act.

Customs department’s contention that omission to mention the phrase ‘specified in the said First Schedule’ in the conditions set out in column (3) of the Table for serial no. 2, after ‘duty of customs’, would mean that the government intended to include integrated tax and compensation cess in the expression ‘duty of customs’, was also rejected.

CESTAT in its Order in the case Interglobe Aviation Limited v. Commissioner held that mere such omission cannot lead to an inference that ‘duty of customs’ would include integrated tax and compensation cess. The Tribunal was of the view that that it is only as a matter of abundant caution and only to make the intention clear beyond any doubt that the main body of the exemption notification includes ‘duty of customs specified in the First Schedule’. Supreme Court’s decision in the case of Modi Rubber Limited was relied upon.

The Tribunal also referred to the main para of the notification and held that it showed that duty of customs, integrated tax and compensation cess were three different entities.

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