CONFUSION IN CALCULATING CVD AND SAD

 

LOGIC v LAW

 

by

 

VIJAY. K. KUMAR

 

 

 

This has reference to the very interesting article, "Calculation of CVD – There is no reason to get confused" by the respected and scholarly Joint Secretary, Mr. Rustagi.- 2001(131) ELT A113. The article was in response to a previous article by an appraiser about some confusion in calculating CVD and SAD. The learned appraiser had, quoting the law from the Customs Act and the Customs Tariff Act expressed an opinion that calculation of CVD and SAD as per the law was an arithmetical impossibility. Very magnanimously responding to the article by a low placed officer, the joint secretary opined that

1. " from this conceptual configuration, the following analysis is simply logical"
   
2. " if the fundamental concepts are kept in view, can there be any confusion that SAD is not to be added to value when CVD is to be calculated?"
   
3. Why long for getting confused when there is no reason to entertain confusion"
   

 

An appraiser is a basic officer who has to execute the law at the lowest and most effective level. It is jokingly said that the appraiser is the only officer in the department who takes a decision. He has to assess a Bill Of Entry and is forced to take a decision and pretty fast. While taking a decision, is he to go by law or conceptual configuration for a logical analysis to find out what the fundamental concept is? Or is he to read the law and implement it in letter – in letter only? Can he go to the spirit of the law? If he does what is the guarantee that he would understand the spirit correctly, especially in the days when both the letter and spirit are changing so rapidly?

 

For a better understanding of the problem a little detail though boring is called for. First of all let us see the provisions of law.

 

Section 12 of the Customs Act reads as follows,

 

12. Dutiable goods. - (1) Except as otherwise provided in this Act, or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, on goods imported into, or exported from, India.

 

Now have a look at Sections 2,3 and 3A of the Customs Tariff Act

 

 

2. Duties specified in the Schedules to be levied. - The rates at which duties of customs shall be levied under the Customs Act, 1962 (52 of 1962), are specified in the First and Second Schedules.

3. Levy of additional duty equal to excise duty. - (1) Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.

Explanation. — In this section, the expression "the excise duty for the time being leviable on a like article if produced or manufactured in India" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India, or, if a like article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, the highest duty.

(2) For the purpose of calculating under this section, the additional duty on any imported article, where such duty is leviable at any percentage of its value, the value of the imported article shall, notwithstanding anything contained in Section 14 of the Customs Act, 1962 (52 of 1962), be the aggregate of —

(i) the value of the imported article determined under sub-section (1) of the said Section 14 or the tariff value of such article fixed under sub-section (2) of that section, as the case may be; and

(ii) any duty of customs chargeable on that article under Section 12 of the Customs Act, 1962 (52 of 1962), and any sum chargeable on that article under any law for the time being in force as an addition to, and in the same manner as, a duty of customs, but not including the duty referred to in sub-section (1). (Emphasis supplied)

(3) xxxxxxxxxxxxx

(4) xxxxxxxxxxxx.

(5) The duty chargeable under this section shall be in addition to any other duty imposed under this Act or under any other law for the time being in force.

(6) xxxxxxxxx

3A. Special additional duty. - (1) Any article which is imported into India shall in addition be liable to a duty (hereinafter referred to in this section as the special additional duty), which shall be levied at a rate to be specified by the Central Government, by notification in the Official Gazette, having regard to the maximum sales tax, local tax or any other charges for the time being leviable on a like article on its sale or purchase in India :

Provided that until such rate is specified by the Central Government, the special additional duty shall be levied and collected at the rate of eight per cent of the value of the article imported into India.

Explanation. — In this sub-section, the expression "maximum sales tax, local tax or any other charges for the time being leviable on a like article on its sale or purchase in India" means the maximum sales-tax, local tax, other charges for the time being in force, which shall be leviable on a like article, if sold or purchased in India, or if a like article is not so sold or purchased which shall be leviable on the class or description of articles to which the imported article belongs.

(2) For the purpose of calculating under this section the special additional duty on any imported article, the value of the imported article shall, notwithstanding anything contained in section 14 of the Customs Act, 1962 (52 of 1962) or section 3 of this Act, be the aggregate of-

(i) the value of the imported article determined under sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) or the tariff value of such article fixed under sub-section (2) of that section, as the case may be;

(ii) any duty of customs chargeable on that article under section 12 of the Customs Act, 1962 (52 of 1962), and any sum chargeable on that article under any law for the time being in force as an addition to, and in the same manner as, a duty of customs, but not including the special additional duty referred to in sub-section (1); and
(Emphasis supplied)

(iii) the additional duty of customs chargeable on that article under section 3 of this Act.

(3) The duty chargeable under this section shall be in addition to any other duty imposed under this Act or under any other law for the time being in force.

(4) xxxxxxxxxx

(5) xxxxxxxxxxxxxxx

 

On a plain reading (this is a common phrase with us, I really do not know how else one should read) of the provisions of the Acts as extracted above, it can be reasonably concluded that for calculating CVD (Additional Duty), the value shall be the aggregate of

 

1. value determined under Section 14 ( say the Transaction Value)
   
2. any other duty of Customs, but not including the CVD.
   

 

Now (ii) above would include SAD. From the words, "but not including the duty referred to in sub-section (1)" in Section 3(2)(ii) and "but not including the special additional duty referred to in sub-section (1)" in Section 3A(2)(ii) of the Tariff Act as highlighted above, it can be safely concluded that both CVD and SAD are duties of Customs.

 

 

The following table would help in understanding that CVD and SAD cannot be calculated as per law.

Assuming the value to be 100, Basic Customs Duty to be 35%, CVD to be 16% and SAD to be 4% as the appraiser did in his article, we get

 

CVD
1	Value under Section 14	100
2	Basic Customs Duty 35%	35
3	SAD = 4% of (1+2+4)	?
4	CVD = 16% of (1+2+3)	??

 

 

SAD
1	Value under Section 14	100
2	Basic Customs Duty 35%	35
3	CVD = 16% of ( 1+2+4)	?
4	SAD = 4% of (1+2+3)	??

 

We find that to calculate item No. 3, we need to know what is item No. 4, but item No. 4 is dependent on 3. Truly an impossible situation!

And the learned appraiser had suggested a simple amendment to Section 3(2)(ii) that SAD is excluded while calculating CVD, as the solution to the paradox.

 

To this the learned Joint Secretary reacts that we should go by conceptual configuration and logical analysis, keeping in view fundamental concepts. Now should logic take supremacy over law? If so whose logic? And what about logical fallacies, which are perfectly legal?

 

Of course the Courts have held that the legislature would not pass a law that cannot be enforced and the creases are to be ironed out without changing the basic fabric. But these are too big words to be translated into action by field level executives.

 

There are several instances where my logic is exactly opposite to the law and I was under the impression that my logic had nothing to do with the law. I can cite a few cases where logic is in conflict with law.

 

1. Logic tells me that assembling a plant with duty paid machinery does not amount to manufacture, but the law seems to say otherwise or does it? This is a point, which is yet to be settled.
   
2. Logic tells me that interest is chargeable only from the date the law to charge interest came into force. But that is not a widely accepted opinion.
   
3. Logic tells me that when capital goods on which only 50% credit has been taken are cleared as such, only that amount which has been taken as credit is to be reversed. But the law says duty at the applicable rates on the date of clearance has to be paid.
   
4. Logic tells me that when inputs are cleared as such, only the credit taken should be returned and this is confirmed by judicial pronouncements but the law says duty at applicable rates has to be paid.
   
5. My logic tells me that when somebody has paid more amount of duty than what he is required to, the excess amount has to be refunded. But the law says this refund is subject to passing the test of unjust enrichment.
   
6. Logic is and a Commissioner has issued a Trade Notice that pre deposits in appeal cases are to be returned if the party wins the appeal, but at least one High Court and a learned contributor in ELT think otherwise.
   

 

Now the honourable joint Secretary says that there will be no confusion if fundamental concepts are kept in view and with conceptual configuration, analysis is simply logical.

 

I am really confused. Should I follow the law or (my) logic?

 

( The confused author can be reached at vijaykumar14@indiatimes.com )