Customs Clearance on Self-Assessment Basis in India

Customs Provisions for Self-Assessment in India

Dated: 04/11/2017

Self-Assessment of Customs duty by importers or exporters was introduced vide Finance Act, 2011. The procedure is same for imports and exports .Importer importing goods is required to submit Bill of Entry electronically under section 46 of Customs Act. Exporter is required to submit shipping bill electronically at the time of export under section 50 of Customs Act. The importer or exporter shall then self-assess the duty leviable on such goods [section 17(1) of Customs Act].

The self-assessment may be verified by ‘Proper Officer’ by examining or testing the goods [section 17(2) of Customs Act]. If the goods are not taken for verification of self-assessment, the goods will be allowed to be cleared from customs. However, later, proper officer may audit the assessment of duty. Such audit can be done either in the officer of proper officer or at the premises of importer, as may be expedient [section 17(6) of Customs Act].Subsequent to such audit, demand for differential duty and interest can be made under section 28 of Customs Act.

This is paradigm shift away from assessment by Departmental officers to a trust based system of self- assessment. The objective is to expedite release of imported / export goods. The interest of revenue in terms of ensuring correct declarations and duty payment is ensured by an electronic Risk Management System (RMS) that identifies risky consignments for assessment or examination or both. This is supported by a comprehensive audit at the premises of an importer or exporter.

Thus, ordinarily majority of imported goods will be allowed clearance without Customs intervention. Self-Assessment is a major trade facilitation measures that would result in significant reduction in the time taken for clearance of imported / export goods through Customs and associated transaction costs.

In accordance with the legal provisions introduced vide the Finance Act, 2011 a scheme of ‘On Site Post Clearance Audit’ (OSPCA) has been implemented w.e.f. 1.10.2011 in case of the importers registered under the Customs Accredited Client Programme (ACP).

This scheme is aimed at facilitating Customs clearance of goods and reducing dwell time. At the same time interest of revenue shall be safeguarded by a comprehensive verification of records and documents at the premises of the importer / exporter on annual basis. Other categories of importers / exporters shall be considered for inclusion later. OSPCA is a globally approved mechanism to provide greater customs facilitation in terms of faster clearances to trading community. Initially, it will apply to importers who avail Accredited Clients Programme (ACP). OSPCA is a single point audit combining Customs, Central Excise and Service Tax. 15 days notice should be given for such audit. The proper officer shall obtain prior information relating to imported or export goods before conducting audit and then visit the premises of importer/exporter. He will inform his objections to the importer/exporter before preparing draft audit report to provide them opportunity to offer clarifications with supporting documents. If importer/exporter fails to comply with provisions of the regulations, penalty upto Rs 50,000 can be imposed. The relevant customs circular is MF(DR) circular No. 47/2011-Cus dated 21-10-2011,the key features of it are mentioned below:

OSPCA is a trade facilitation measure aimed at expediting clearances while safeguarding the interest of revenue. ‘Self-assessment’ reposes trust on an importer / exporter to make correct import / export declarations in terms of description of goods, value, exemption notification etc. for clearance of import / export goods. Further, Section 17 of the Customs Act, 1962 provides that the proper officer may verify the self-assessment. On the import side, the verification is done with help of a ‘Risk Management System’ (RMS) that validates all Bills of Entry on basis of specified risk rules and, if warranted, identifies those that require review of assessment or examination or both. Other Bills of Entry are ‘facilitated’ and goods covered thereby are cleared without assessment and examination. Further, RMS identifies some Bills of Entry for detailed scrutiny after clearance of goods. This scrutiny is called ‘Post-Clearance Compliance Verification’ (PCCV) or is loosely referred to as Post Clearance Audit or PCA. PCCV or PCA is, however, a transaction based check and it does not provide an opportunity to verify or scrutinize the correctness of declarations, books of account and other documents over a period of time. Moreover, some importers feel harassed when asked to submit documents to confirm assessment long after the goods have been cleared. There are also cases of delay in conducting PCCV or PCA. On account of these reasons the Department felt constrained in enhancing the facilitation level for importers to further reduce the dwell time. Therefore, a necessity was felt to introduce OSPCA.

-OSPCA allows verification of self-assessment on periodic basis by scrutiny of relevant business records at the importers / exporters premise. Thus, an importer or exporter can benefit from reduced clearance time and can deal with the goods promptly, saving on insurance, warehouse and storage charges. On the other hand, the Customs can do a comprehensive company oriented check to ensure that imports or exports conform to the declarations.

OSPCA is provided for vide Section 17(6) of the Customs Act, 1962, which empowers the proper officer for verification of correctness of assessment of duty on imported or export goods at the premise of importer or exporter. Further, Section 157 of the said Act empowers the Board to frame regulations on the manner of conducting audit at the premise of the importer or exporter. Accordingly the ‘On Site Post Clearance Audit at the Premises of Importer or Exporter Regulations, 2011’ has been notified w.e.f. 4.10.2011. Other recent supporting legislative changes include enhancing time limit to one year for refund of Customs duty and for demanding Customs duty under Sections 27 and 28 of the Customs Act, 1962 respectively.

-When OSPCA is conducted it should cover all import / export transactions including those under the export promotion schemes. To facilitate this, the On Site Post Clearance Audit at the premises of Importer or Exporter Regulation 2011 makes it mandatory for an importer / exporter to make available in a timely manner all documents and record including electronic records relating to import and export of goods to the proper officer conducting OSPCA. An importer or exporter is also required to maintain relevant records and documents including electronic details pertaining to import or export of goods for a period of five years from the date of import or export. Further, the Regulations envisage that the auditor shall verify the correctness of declaration and may take sample of imported or export goods, if required. There is also a provision of imposing penalty on an importer / exporter in case of contravention of any provisions of the said Regulations.

-To begin with, Board has operationalized OSPCA w.e.f. 1.10.2011 only for importers registered under the Accredited Client Programme (ACP). It has also been decided that ACP importers shall be subjected to OSPCA on annual basis i.e. once during each financial year. However, during the transitional phase of the current financial year, the records for previous months beginning from 1.4.2011 may be taken up for audit. Coverage of OSPCA shall be increased in subsequent phases and the periodicity of audit in respect of other entities prescribed at that stage.

– For a coordinated and effective OSPCA, the ACP importers have been segregated as under:

Those that are registered with LTU Commissionerates – to be audited by the audit wing of LTU concerned;
Multi Location Units – to be audited by the Central Excise Commissionerates with the nodal Commissionerate being the one having jurisdiction over the registered / head office of the ACP importer; and

Others ACP importers – to be audited by the Central Excise Commissionerate having jurisdiction over the head office / registered office of the ACP importer.

– As aforestated, OSPCA is viewed as a trade facilitation measure and one way to do away with avoidable interface with the Department. ACP importers with manufacturing facilities and / or those registered as service providers / recipients with the department would already be undergoing Central Excise and / or Service Tax audit. Therefore, in order to avoid duplication of exercise and reduce interface, OSPCA shall be done simultaneously with Central Excise and Service Tax.

– Further, in respect of ACP importers to be audited under the scheme within a period of one year, Board has decided that carrying out PCCV or PCA at the respective Customs House shall be a duplication of effort for both Department and ACP importers. Therefore, Board desires that in respect of ACP importers PCCV or PCA at the Customs Houses shall be dispensed with henceforth.

On-site Post Clearance Audit at the Premises of Importers and Exporters Regulations, 2011

[Notification No.72/2011-Customs (N.T.),dated 4th October, 2011]

Definitions- In these regulations, unless the context otherwise requires-

(a) ‘audit’ means examination of bills of entry, shipping bills, invoices, packing lists, import licences, books of account, and other records of transaction relating to imported and export goods, and may include inspection of goods at the premises, if available and where necessary, drawl of samples;

(b) ‘books of account’ includes ledgers, day-books, cash books, account-books and other accounts whether kept in the written or printed form and data stored on a floppy, disc, tape or any other form in electro-magnetic data storage device;

(c) ‘premises’ includes the place at which imported or export goods and connected books of account, records of transaction and other documents are ordinarily kept by an importer or exporter, as the case may be, and his registered office or the premises indicated in his Importer Exporter Code (IEC) issued by the Ministry of Commerce and Industry and the places wherever the imported or export goods, as the case may be, are ordinarily kept;

(d) words and expressions used and not defined herein but defined in the Customs Act, 1962 shall have the same meaning respectively, assigned to them in the said Act.

Importers and exporters to make available relevant documents.-

(1) The importer or exporter, as the case may be, shall make available in a timely manner the books of account, records of transaction and other relevant documents maintained by him for a period of five years from the date of import or export, as the case may be, relating to imported or export goods, as the case may be, as required by the proper officer.

(2) The importer or exporter, as the case may be, shall provide true and correct information to the proper officer.

(3) The importer or exporter, as the case may be, shall render assistance to the proper officer in the discharge of his official duty and shall in no case refuse or obstruct the proper officer in discharge of official duty.

Manner of conducting audit.-

(1) The proper officer shall give not less than fifteen days advance notice to the importer or exporter, as the case may be, to conduct audit.

(2) The proper officer shall, where considered necessary,

(i) obtain from the importer or exporter, as the case may be, prior information relating to imported or export goods, as the case may be, before conducting audit;

(ii) visit the premises to gather relevant information relating to imported or export goods, as the case may be.

(3) The proper officer shall conduct the audit in the premises of the importer or exporter, as the case may be.

(4) The proper officer shall inform the importer or exporter, as the case may be, of the objections, if any, before preparing the draft audit report to provide him an opportunity to offer clarifications with supporting documents.

(5) Where the importer or exporter as the case may be, is in agreement with the audit findings, in part or in full, he may make voluntary payments of duty due, if any, and the proper officer shall record the same in the audit report.

(6) The proper officer may, where necessary, inspect the imported or export goods, where such goods are available during the course of audit.

(7) The proper officer may take samples of imported or export goods in the presence of the importer or exporter as the case may be and copy of relevant documents to verify the correctness of assessment of duty.

Penalty.- Any importer or exporter, who contravenes any provision of these regulations or abets such contravention or fails to comply with any provision of these regulations with which it was his duty to comply, shall be liable to a penalty which may extend to fifty thousand rupees.

Ref Doc: Self Assessment Manual Customs-2011

Source: CBIC, Dept. of Revenue, Ministry of Finance, GOVT. OF INDIA

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