BCD Hike in Iron & Steel-Tough Amendment!

[Pradeep Jain]

Introduction:- This article is an attempt to analyse the amendment made in the rates of basic customs duty applicable for various Iron & Steel Products vide Notification no. 45/2015-Customs dated 12.08.2015. This notification seeks to amend the exemption notification no. 12/2012-Cus dated 17.03.2012 which prescribes exemption from the levy of Basic Customs Duty (BCD) and the Countervailing Duty (CVD) levied under section 3(1) of the Customs Tariff Act. The government has resorted to make very complicated amendments in the said notification which has the ultimate effect of either reducing or enhancing the rates of BCD or CVD. An endeavour is made to analyse the amendment made as regards change in the BCD rate for various iron and steel items and the complexity with which such change is introduced by the government.

Backdrop of the recent amendments made:- This is not the first time the government has made such complex amendment of this kind. The rate of basic customs duty was recently amended for iron and steel items vide notification no. 39/2015-Customs dated 16.06.2015 in similar fashion. The history of the amendments made in the entries pertaining to chapter 72 is discussed as follows:-

SERIALS OF CHAPTER 72 AS APPEARING IN NOTIFICATION NO. 12/2012-CUS DATED 17.03.2012 AS ON 01.03.2015:-

SERIAL NO.	CHAPTER SUB-HEADING	DESCRIPTION OF GOODS	STANDARD RATE	ADDITIONAL DUTY RATE	CONDITION NO.
“329A.	72	All goods	10%	-	-“
330.	72(except 72026000)	All goods other than the following:- Goods mentioned against S. Nos. [331, 332, 333 and 334] Seconds and defectives of goods falling under Chapter 72	5%
331	7202 60 00	Ferro-nickel	2.5%
332	7204	Melting scrap of iron or steel (other than stainless steel)	2.5%
333	7204 21	Scrap of stainless steel, for the purpose of melting	2.5%
334	[7208, 7209, 7210, 7211, 7212, 7219, 7220, 72253090, 72254019, 7225 50 or 7225 99 00	[ All goods other than seconds and defectives]	7.5%

Thereafter, the government again made changes in the above cited serial number 330 and 334 of chapter 72 vide Notification no. 39/2015-Cus dated 16.06.2015 which are re-produced for the sake of convenient reference as follows:-

“In the said notification, in the Table,-

(i) against S. No. 330, for the entry in column (2), the entry “72 (except 7202 60 00, 7208, 7209, 7210, 7211, 7212, 7225 3090, 7225 4019, 7225 50 or 7225 9900)” shall be substituted;

(ii) against S. No. 334, for the entry in column (2), the entry “7206, 7207, 7213, 7214, 7215, 7216, 7217, 7219, 7220, 7221, 7222, 7223, 7225 (except 7225 11 00, 7225 3090, 7225 4019, 7225 50 or 7225 9900), 7226 (except 7226 11 00), 7227 or 7228” shall be substituted.”

If the above cited notification is pursued, it is difficult to understand the amendment made by the substitutions made in the entries no. 330 and 334 by a layman without placing the substituted entries in the table to the notification and comparing it with the entries already in force. Therefore, the substituted entries after placing them in the said notification including the unchanged entries are tabulated as follows (the substituted portion being highlighted for the sake of easy identification):-

SERIAL NO.	CHAPTER SUB-HEADING	DESCRIPTION OF GOODS	STANDARD RATE	ADDITIONAL DUTY RATE	CONDITION NO.
329A.	72	All goods	10%	-	-
330.	72(except 72026000, 7208, 7209, 7210, 7211, 7212, 72253090, 72254019, 722550, or 72259900)	All goods other than the following:- Goods mentioned against S. Nos. [331, 332, 333, and 334] Seconds and defectives of goods falling under Chapter 72	5%
331	7202 60 00	Ferro-nickel	2.5%
332	7204	Melting scrap of iron or steel (other than stainless steel)	2.5%
333	7204 21	Scrap of stainless steel, for the purpose of melting	2.5%
334	7206, 7207, 7213, 7214, 7215, 7216, 7217, 7219, 7220, 7221, 7222, 7223, 7225 (except 72251100, 72253090, 72254019, 722550 or 72259900), 7226 (except 72261100), 7227 or 7228	[ All goods other than seconds and defectives]	7.5%

Subsequently, the government has once again made changes in the exemption pertaining to chapter 72 and the changes are being made in entries 329A, 330 and 334 of chapter 72 vide Notification no. 45/2015-Cus dated 12.08.2015. Apart from making amendment in the existing entries, two new serial numbers 333A and 333B have also been inserted. The mechanism by which the said amendment has been made is again very confusing and tricky which cannot be understood by barely reading the notification as such. Therefore, in order to understand the change made vide this notification, the amended entries (representing the highlighted portion) along with un-amended entries is tabulated for the sake of convenient reference as follows:-

SERIAL NO.	CHAPTER SUB-HEADING	DESCRIPTION OF GOODS	STANDARD RATE	ADDITIONAL DUTY RATE	CONDITION NO.
329A.	72	All goods other than goods mentioned against serial no. 333B	10%	-	-
330.	72(except 72026000, 7208, 7209, 7210, 7211, 7212, 72253090, 72254019, 722550, or 72259900)	All goods other than the following:- Goods mentioned against S. Nos. [331, 332, 333, 333A, 333B and 334] Seconds and defectives of goods falling under Chapter 72	5%
331	7202 60 00	Ferro-nickel	2.5%
332	7204	Melting scrap of iron or steel (other than stainless steel)	2.5%
333	7204 21	Scrap of stainless steel, for the purpose of melting	2.5%
333A	7206, 7207, 7213, 7214, 7215, 7216, 7217, 7221, 7222, 7223, 7225 (except 72251100, 72253090, 72254019, 722550, or 72259900), 7226 (except 72261100), 7227 or 7228	All goods	10%	-	-
333B	7208, 7209, 7210, 7211, 7212, 72253090, 72254019, 722550, or 72259900	All goods	12.5%	-	-
334	7206, 7207, 7213, 7214, 7215, 7216, 7217, 7219, 7220, 7221, 7222, 7223, 7225 (except 72251100, 72253090, 72254019, 722550 or 72259900), 7226 (except 72261100), 7227 or 7228	[ All goods other than seconds and defectives]	7.5%	-	-

Effect of the Amendment:- From the above cited series of amendments, it is clearly reflected that the manner in which the amendment has been made in the rate of duty for various items covered by chapter 72 is very tricky and can be analysed only by placing the substituted entries in the notification and comparing the same with the earlier notification. The government could have simply mentioned the rate of BCD for various products but instead it chose the mechanism of complicating it. The comparative analysis of the change in rate of customs duty is as follows:-

SERIAL NO.	CHAPTER SUB-HEADING	DESCRIPTION OF GOODS	EARLIER RATE OF CUSTOMS DUTY	NEW RATE OF CUSTOMS DUTY
329A	72	All goods except goods of serial no. 333B	10%	10%
330	72 (except 72026000 and goods of serial no. 333B)	All goods other than the following:- Goods mentioned against serial nos. 331, 332, 333, 333A, 333B and 334.   Seconds and defectives of goods falling under chapter 72.	5%	5%
333A	7206, 7207, 7213, 7214, 7215, 7216, 7217, 7221, 7222, 7223, 7225 (except 72251100, 72253090, 72254019, 722550, 72259900), 7226 (except 72261100), 7227, 7228	All goods	7.5%	10%
333B	7208, 7209, 7210, 7211, 7212, 72253090, 72254019, 722550, 72259900	All goods	10%	12.5%
334	7219, 7220	All goods other than seconds and defectives	7.5%	7.5%

Analysis of the amendment:- On analysing the above amendment, it is found that the rate of basic customs duty has been increased from 7.5% to 10% for certain iron and steel goods and from 10% to 12.5% for other iron and steel goods. Apart from the superficial enhancement in the rate of basic customs duty, following are the conclusions that can be derived from the amendment:-

• In author’s view, the exceptions mentioned at serial number 330 in column no. 2 specifying the chapter sub-headings were not at all required because the description specifically excludes goods mentioned at serial no. 333A. If the exceptions for chapter sub-headings mentioned at the column no. 2 are pursued, it is found that these are nothing but the goods covered by serial no. 333B. The only exception that should have been mentioned was “72 (except 72026000) but the inclusion of the sub-headings pertaining to serial no. 333B have lead to redundancy and unwarranted specification that is only increasing the length of the serial entry. This could have been avoided and the amendment could have been made compressed and in easy format.
• It is worth noting that the erstwhile entry no. 334 (as amended by notification no. 39/2015-Customs dated 16.06.2015 has been split up to form a new entry 333A except two chapter sub-headings, i.e. 7219 and 7220 that are continue to be covered in the old entry 334. This has the effect of increasing the rate of BCD for the products shifted in the new entry 333A from 7.5% to 10%. Similarly, the goods covered by the exception to the entry no. 330 have been shifted to form a new entry 333B which enhances their BCD rate from earlier 10% to 12.5%. Earlier, the products covered by chapter sub-headings 7208, 7209, 7210, 7211, 7212, 72253090, 72254019, 722550, or 72259900 were covered by entry no. 329A covering all goods of chapter 72 to have rate of BCD as 10%. With this amendment, these products have been shifted to form a new entry with enhanced rate of 12.5%.
• If we analyse the trend of imposing BCD on products covered by chapter sub-heading no. 7208, 7209, 7210, 7211, 7212, 72253090, 72254019, 7225 50 or 7225 99 00, we find that they were firstly covered under serial no. 334 which prescribed 7.5% BCD. Thereafter, these products were shuffled and covered by the exception to serial no. 330 thereby falling under serial no. 329A prescribing 10% BCD. Finally, these have been shifted to form a new entry 333B wherein BCD of 12.5% is being specified. It appears that these products are being time to time shuffled by the government so as to make a consistent increase of 2.5% in their BCD rate.
• It is worth observing that serial no. 329A and serial 330 prescribes rate of basic customs duty for all goods of chapter 72 except goods mentioned at certain serial numbers. If we observe the entry no. 329A, it prescribes basic customs duty rate of 10% for all goods of chapter 72 except goods falling under serial no. 333B. Similarly, the entry no. 330 prescribes basic customs duty rate of 5% for all the goods under chapter 72 except goods covered by serial no. 331, 332, 333, 333A, 333B and 334. However, what about the goods which are covered by exceptions to the serial number 333A?The exceptions mentioned in the entry no. 333A indicate that chapter sub-headings 72251100, 72253090, 72254019, 722550, 72259900 and 72261100 are not covered by serial no. 333A. Furthermore, out of the above mentioned exceptions, the chapter sub-headings 72253090, 72254019, 722550, 72259900 are covered by entry 333B prescribing basic customs duty rate of 12.5%. However, the exceptions 72251100 and 72261100 are not covered by any other serial entry. Therefore, it is necessary to examine under which entry the said chapter sub-headings will fall? The exceptions 72251100 and 72261100 may be either covered by entry no. 329A prescribing basic customs duty rate of 10% or by entry no. 330 prescribing basic customs duty rate of 5%. Accordingly, every prudent assessee will classify the goods of chapter sub-headings 72251100 and 72261100 under entry 329A prescribing lower basic customs duty because when two benefits are available to an assessee, it is at the option of the assessee to opt for either one of the benefit of his own choice. This position of law has been time and again reiterated by the Hon’ble Supreme Court in the following judgments:-

• Collector of Central Excise, Baroda versus Indian Petro Chemicals reported in [1996 (12) TMI 66 - SUPREME COURT OF INDIA].
• H.C.L Ltd., versus Collector of customs New Delhi [2001 (3) TMI 971 - SUPREME COURT OF INDIA].
• Share Medical Care versus UOI [2007 (2) TMI 2 - SUPREME COURT OF INDIA].

However, this overlapping of chapter sub-headings 72251100 and 72261100 will lead to unwanted litigation because the revenue department will seek to classify the same under entry no. 330 as against 329A.

• This amendment also seeks to nullify the amendment made by Budget 2015-16 wherein the customs duty was increased from the erstwhile rate of 10% to 15%. It is pertinent to note here that the entry no. 329A inserted vide notification no. 10/2015-Cus dated 01.03.2015 prior to present amendment covered all the goods of chapter 72 without any exception thereby meaning that the exceptions to the specific entries to the notification and the goods not mentioned in the notification were ultimately leviable to 10% BCD inspite of the fact that the tariff rate mentioned in the Customs Tariff was 15%. The rate of customs duty mentioned in the Customs Tariff Act, 1975 was enhanced to 15% for all goods of chapter 72 in the Budget, 2015. However, the present and recent amendment made in the notification no. 12/2012-Cus dated 17.03.2012 seeks to undo the increase in customs duty rate and brings it back to 10% by way of such a complex mechanism which is difficult to comprehend and understand.

Before Parting:- It is rightly said that Indian Taxation Laws are extremely complicated and this is for the reason that the consultants are flourishing. The government tries to complicate things even when the same thing can be done in a much simpler manner. The change in rate of customs duty is of significant importance for the importers importing goods falling under any chapter sub-heading. But, if the mechanism of increasing or reducing the rate of customs duty is made so complicated, it will only lead to frustration and unnecessary litigation for the assessees. The law should be made as simple as possible so that its efficient compliance is ensured. But, the methodology followed by the Indian Government to first enhance the tariff rate and then to provide exemption through a back door mechanism and that too in a complex manner is not understandable and practically not feasible also. Although this amendment of increase in basic customs duty is being made to protect the domestic steel industry from the injury caused to them on account of increased imports but at the same time its complexity undermines its ultimate intention. We can only hope that the future amendment made for the iron and steel industry is not so ‘TOUGH’ as the industry itself!!