Customs Duty Excess Paid/Short Paid what to do?

As we know that the determination of the applicable rate of custom duty on the particular product is a challenging task for the importer. Sometimes it can also results in overpayment or short payment of custom duty. In this article, we will discuss about the common scenarios leading to such challenges and will also try to outline remedial measures.

Situation 1: Where Custom Duty is short paid:
The short payment can be done due to following reasons:
(i) An exemption not was applicable on said particular product but due to lack of knowledge such exemption availed.
(ii) Adoption of incorrect HSN code of said product.
(iii) Valuation of goods are not done properly which leads to under valuation which results in short payment of duty.

In such cases, importers can make payment of the differential duty and IGST through TR-6 Challan. In this respect the important question that arises here is that whether ITC would be available of such amount of IGST which was paid through TR-6 Challan.  In this respect it is important to note that the provisions relating to input tax credit are contained in section 16 & 17 of CGST Act 2017. Section 16(2) contains the conditions for availing the input tax credit. As per section 16(2)(a) for availing the ITC, the registered recipient should have a tax invoice or debit note issued by a supplier or such other tax paying documents as may be prescribed.

Further Rule 36(1) of CGST Rules 2017 prescribes some documents on the basis of which the input tax credit can be availed by a registered person. The said documents are;

(a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31;

(b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31; subject to the payment of tax;

(c) a debit note issued by a supplier in accordance with the provisions of section 34;

(d) a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports;

(e) an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54.

From the above it clear that as per rule 36(1)(d) the bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports, would be a valid document for the purpose of availment of ITC.

When the importer who has paid the said short IGST through TR-6 Challan. Hence for the purpose of availment of ITC of such IGST paid the said TR-6 challan can be covered under the similar document prescribed under the Customs Act, 1962. Accordingly, such challan can be considered a valid document on the basis of which the input tax credit can be availed by the registered person.

Further, it is to be noted that as per Rule 36(4) of CGST Rules 2017, no input tax credit shall be availed by a registered person in respect of invoices or debit notes the details of which are required to be furnished u/s 37(1) unless,-
(a) the details of such invoices or debit notes have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1, GSTR-1A or using the invoice furnishing facility; and

(b) the details of input tax credit in respect of such invoices or debit notes have been communicated to the registered person in FORM GSTR-2B.

It is to be noted that the restriction given under Rule 36(4) is applicable only in respect of those invoices and debit notes which are required to be furnished by the supplier in their GSTR-1, GSTR-1A. The payment of IGST made through TR-6 challan, is not otherwise is required to be reported by the supplier in their GSTR-1. Hence the above restriction of rule 36(4) would not be applicable in this case. Thus ITC of IGST paid due to non fulfilment of export obligation can be claimed.

Restrictions of section 16(4) of CGST Act would not applicable:
As we know that as per section 16(4) of the CGST Act, the input tax credit in respect of any invoice or debit note for goods or services or both, procured in a financial year should be availed on or before 30th November of the following financial year.

Based on the provisions above, it is clear that the above restriction for availment of ITC within the aforesaid time limit would be applicable only in the case of tax invoices or debit notes but not for bills of entry or TR-6 challan. Therefore, GST credit on incremental IGST can be availed irrespective of the period in which such imports were made.

Situation 2: Where custom duty is excess paid:
The Excess payment can be done due to following reasons:
(i) An exemption was available on said product but due to lack of knowledge custom duty is paid on such goods.
(ii) Adoption of incorrect HSN code of said product.
(iii) Valuation of goods are not done properly leads to over valuation which results in excess payment of duty.

What to do if custom duty is paid excessively:
Section 149 of Customs Act, 1962 is related to the amendment of documents which states that the proper officer may, in his discretion, authorise any document, after it has been presented in the custom house to be amended in such form and manner, within such time, subject to such restrictions and conditions, as may be prescribed.  Provided that no amendment of a bill of entry or a shipping bill or bill of export shall be so authorised to be amended after the imported goods have been cleared for home consumption or deposited in a warehouse, or the export goods have been exported, except on the basis of documentary evidence which was in existence at the time the goods were cleared, deposited or exported, as the case may be.

Thus section 149 of the Act allows amendment of bills of entry based on documentary evidence that existed at the time of clearance of goods for home consumption. In the event the Customs authorities allow the request for amendment, an order for reassessing the Bill of Entry shall be passed. Based on such a reassessment order the importer can approach the jurisdictional customs authorities to seek a refund of excess Customs Duty.