Taxing issue II - ADC 4% refund

The central govt has announced that the now importers can avail a refund of 4% ADC paid at the time of imports. (vide notif 102/2007) .

Currently, import of most goods into India are liable for payment of ADC at the rate of 4%. Earlier only, the resellers of such imported goods could pass on the ADC to manufacturers who inturn are eligible to claim the same as a credit under the provisions of CENVAT Credit Rules, 2004. However, now, non manufacturers (typically, service providers or resellers/traders) are also eligible to avail the credit by way of refund provided they meet the conditions set-out in the notification by the Central Government.

In my view, the refund procedure as set out in the notif is fairy simple (practically tedious & manpower intrinsic); Pre-conditions for refund

1. All duties on import of goods into India, including ADC should have been paid;
2. Applicable VAT / CST is paid on the subsequent resale;
3. Sales invoice (including those issued by branches) shall clearly indicate as “in respect of the goods covered in this invoice, no credit of the additional duty of customs levied under Sub-Section (5) of Section 3 of the Customs Tariff Act, 1975 shall be admissible”.

Procedure for claiming refund:

1. Importer will have to make an application for refund to jurisdictional customs officer.

2. Application should be within 6 months from date of payment of duty.

3. Along with the refund application, copies of the following documents should be provided: -

a. Document evidencing payment of the said additional duty;
b. Documents evidencing payment of appropriate sales tax or value added tax, as the case may be, on sale of such imported goods;
c. Invoices of sale of the imported goods in respect of which refund of the said additional duty is claimed.

Additional Comments:

No refund should be claimed in case of goods exempt from payment of VAT / CST, including sales to SEZs or units in SEZs, or transactions executed as sale in the course of imports (commercially referred to as high sea sales).

In case of supplies to SEZ, the ADC would be charged to the SEZ unit (SEZ inturn could claim a credit/refund under the CENVAT Credit Rules, 2004).

In circumstances where the goods are returned by the customers, by which date we have obtained the refund of ADC, it would be inappropriate to retain the refund. However, the Central Government is yet to clarify the procedure for adjusting the same in such cases.

Vide Circular No 26/07 it has been further provided that the first stage and second stage dealers also should indicate on their invoice that no credit shall be admissible on the additional duty of customs.

Though the procedure for refund appears simple, however, in my view the importers should underake another additional step of informing the Customs authorities of their intention of claiming the refund on all the imports that qualify under this scheme of refund. A letter should b written to the authorities. May be, the TR6 can also have a line stating that "we reserve our right to claim refund of ADC". This may help in taking a stand, if needed, that the duty at the first instance was paid "under protest".

These are my views, so take care before following out my procedure :)