The Finance Bill, 2024, has introduced significant changes to the indirect taxation landscape, enabling tax authorities to impose penalties of up to 100 percent of the demand raised along with interest in cases of evasion of various duties and cesses. This includes integrated goods and services tax (IGST), countervailing duty, anti-dumping duty, national calamity contingent duty, special additional excise duty, social welfare surcharge, road and infrastructure cess, health cess, and agriculture and infrastructure development cess.
Previously, judicial limitations and ambiguities in the law had hindered the imposition of such penalties. Bombay High Court rulings on multiple occasions in 2022 and 2008 had pointed out that the provisions of the Customs Act, 1962, regarding interest and penalties were not applicable to the Customs Tariff Act, 1975, leading to significant challenges for the tax department in enforcing penalties and interest on tax and cess evasion.
In 2022, the Bombay High Court quashed the levy of interest on additional customs duty paid under the Customs Tariff Act, 1975, stating that the legislation did not contain provisions for the levy of interest. This decision was upheld by the Supreme Court in 2023, resulting in substantial refunds by the customs department. These rulings exposed gaps in the legal framework, preventing effective enforcement against tax evasion.
“The tax authorities were unable to recover interest or impose penalties on the short levy of additional duties or cess. Now they can recover it as the amendment in the Finance Bill provides for treating additional duties and cess on a par with basic customs and excise duties, aiming to streamline tax recovery and reduce litigation. The amendment addresses significant ambiguities that have historically led to numerous legal challenges. This amendment is a critical step towards reducing litigation and ensuring that tax authorities have clear, enforceable powers regarding interest, penalties and offences,” Kunal Savani, partner at law firm Cyril Amarchand Mangaldas, told Moneycontrol.
The amended Finance Bill states: "The provisions of the Customs Act, 1962, and all rules and regulations made thereunder, including but not limited to those relating to the date for determination of rate of duty, assessment, non-levy, short-levy, refunds, exemptions, interest, recovery, appeals, offences and penalties shall, as far as may be, apply to the duty chargeable under this section as they apply in relation to the duties leviable under the Act or all rules or regulations made thereunder, as the case may be."
These comprehensive changes are aimed at combating tax evasion, thereby strengthening the overall indirect tax system and enhancing revenue collection. The impact of this amendment is multifaceted, Savani pointed out. To begin with, it empowers tax authorities with a broader and more defined scope of enforcement, which is expected to enhance compliance and revenue collection efficiency. Secondly, by minimising interpretational disputes and potential litigation, the amendment contributes to a more stable and predictable tax environment, Savani said.
“The government is trying to make good on all demands for penalty, interest, refunds, etc. made under the customs and excise acts by the respective departments,” Smita Singh, partner at S&A Law Offices, told Moneycontrol.
Since the amendments will be applicable prospectively, the indirect tax department will henceforth be empowered to levy penalties along with interest for any short levy or evasion of duties and cesses.
“The amendment should reduce the risk of misinterpretation or inconsistencies in the application of the law. This not only improves clarity but also helps in aligning the interpretation and application of the law across different sections or contexts,” Ankur Gupta, practice leader at taxation and auditing firm SW India, told Moneycontrol.
The amendments introduced by the Finance Bill, 2024, are poised to enhance the enforcement capabilities of the tax authorities, ensuring stricter compliance and reducing revenue losses from duty and cess evasion, said Arman Sharma, partner at law firm Anand Sharma and Associates.
“Several similar duties, cesses, surcharges, etc., are levied under different legislations where such lacunas used to exist. Now, the provisions of the Customs Act, 1962, have been extended to all such duties in a comprehensive manner. Similar amendments have been made with reference to the Central Excise Act, 1944, for the duties, cesses, surcharges, etc., levied under different legislation on goods manufactured or produced in India,” Kamal Aggarwal, senior advisor at law firm Singhania & Co, told Moneycontrol.
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