The Delhi High Court recently reiterated the responsibilities of a Proper Officer to apprise the auditee of ‘objections’ that may arise during audit conducted in respect of Assessment of imported or exported goods under Section 99A of the Customs Act, 1962.
The Delhi High Court directed refund while settling multiple Writ Petitions filed by prominent Indian Export companies assailing the actions of the Respondent Governmental machineries in a bid to derive benefits under the Merchandise Exports from India Scheme (MEIS). The dispute emanated from the export of supposedly handcrafted articles of stone, which were claimed by the Petitioners to be entitled to the benefits of MEIS.
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A letter issued by the Central Board of Indirect Taxes and Customs (CBIC) vitiated the Petitioner’s claims of the concerned handcrafted articles to be classified under Harmonised System of Nomenclature (HSN) Code 681599. The letter purported the concerned products to be classified under Custom Tariff Heading 6802, subject to compliance with the other conditions in the connected Explanatory Notes attached to the relevant Custom Tariff Heading.
Senior Advocate, Tarun Gulati appearing for two of the three Petitioners submitted that in the absence of the Directorate General of Foreign Trade (DGFT) not having raised any doubt or having questioned the eligibility of the writ petitioners to claim benefits under the MEIS, it would be impermissible for the customs authorities to pursue such inquiry.
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The Division Bench of the Delhi High Court constituted by Justice Yashwant Varma and Justice Ravinder Dudeja perused the powers vested on the proper officer on the Section 99A, pertaining to Audit under the Customs Act, 1962 and under Regulation 5 of the Regulations on Audit And Accounts. It was held that if the Auditee is in agreement with the findings made by the Proper Officer, they may voluntarily make additional payments of levied duty, interest or other sums that may be payable as found.
However, the Division Bench held that before the concerned report is finalized, the proper officer is obliged to apprise the auditee of their intent to conduct such audit as per the provisions of Audit Regulation 5(3) ofthe Rules.
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The Bench further clarified that the objections would be formalized by the proper officer in terms of Audit Regulation 5(5) only after apprising the Auditee of the same. In the event the Auditee disagrees with the report of the Proper Officer, they may raise a demand in the regard.
The Delhi High Court, while allowing the Writ Petiitons referred to the glaring fact that the audit objection letter issued by the Department does not apprise the Auditee of any tentative conclusion but is wholly conclusive on the stand taken by the Department. Concurring with the arguments raised by the Petitioners, the Delhi High Court held that the tone and tenor of the audit objection letter and use of language hints towards a predetermined decision.
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Referring to the decision of the Supreme Court in Oryx Fisheries Private Limited v. Union of India and Others (2010), the Court echoed the “need for notices issued by any statutory authority to consist of reasoning as opposed to a simpliciter recordal of definitive conclusions and which would thus lead the noticee to arrive at the inevitable conclusion that a right of representation would be an empty formality.”
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