STRATEGIC RESPONSE FRAMEWORK: Ensuring Agility in Addressing Customs Consultative Letters/SCN

Having immersed myself in the world of EXIM trade for the past three decades, I’ve often drawn parallels between trade and warfare. Much like in warfare, where strategies, tactics, and weaponry evolve rapidly, the landscape of international trade is constantly shifting, with rules and regulations changing in tandem.

Consider the customs clearance process – it resembles a military operation led by a captain navigating through enemy territory. Before advancing, thorough inspections are conducted by the commanding officers and scouts, scrutinizing every aspect of the convoy’s weaponry, supplies, and personnel. In the realm of customs, this meticulous examination mirrors the oversight exercised by officials, ensuring compliance with regulations for every item entering the trade arena.

Enter the post-clearance audit (PCA), akin to the post-battle reconnaissance and analysis conducted by military intelligence. Once the dust settles and the transactions are complete, customs officials engage in a thorough review of the documentation, transactions, and declarations. This retrospective scrutiny aims to verify the integrity of the clearance process, much like evaluating the success and shortcomings of a military campaign.

Now, envision yourself as a commander amidst the chaos of battle, your strategies attracting scrutiny from allies or headquarters. A showcause notice acts as a formal demand for justification, echoing the concerns raised by allies questioning the chosen tactics on the battlefield. It’s a diplomatic yet stern inquiry, seeking explanations for unconventional manoeuvres. However, failure to justify actions can lead to consequences akin to courtmartial, where customs authorities may impose penalties such as duty payments, interest, and even personal liabilities.

In both trade and warfare, adherence to protocols and justifications for actions are crucial, as deviations may lead to disciplinary actions and penalties, underscoring the intricate parallels between commerce and conflict.

Background, Legal Basis for Consultative Letters/SCN

  1. Request for submission of information/ documents/Deficiency Memo:

Customs may ask for clarification, information, or documents about the import or export transactions. A Deficiency Memo may be issued in case of refund applications, project imports, fulfillment of an export obligation, conditions in notifications, etc. These need to be addressed immediately and effectively.

If not addressed timely then customs may call for a Personal Hearing and issue a Show Cause Notice.

2. Consultative Letters:

Central Board of Indirect Taxes and Customs (CBIC) has come up with the PreNotice Consultation Regulations 2018 vide Notification No. 29/2018- Cus (NT) dated April 2, 2018, (Notification) to communicate the grounds before issuance of notice u/s 28 of Customs Act. This explains the procedure to be followed for concluding the consultation process within 60 days from the date of communication of grounds.

3. Show Cause Notices (SCN):

Under Sections 28 and 124 of the Customs Act 1962, the proper officer of customs can issue a Show Cause Notice (SCN) which allows the department to lead evidence in support of its allegations and equally allows the person/company charged with, to make representation and adduce evidence against the allegations or charges made out against them. The SCN is a primary stage of adjudication and is not an order of any authority. Therefore, it cannot be challenged before the first appellate authority.

Common Mistakes

Receiving a consultative letter/SCN from customs can be a serious matter, typically indicating that there may be some discrepancy or violation of customs regulations. Common mistakes made after receiving such a notice can exacerbate the situation. Below given are some common mistakes to avoid:

  1. Inadequate internal mechanism to receive Consultative letters/SCN: When organizations are big, multilocational, as well as working in many silos of departments, we face many challenges. Consultative letter/SCN is received in factories, sales offices, or any other office that does not have a trade compliance department or EXIM department. This results in notices lying on tables or kept in drawers, and/or neglected by people receiving the same. Failure to send Consultation letters/SCN to the trade compliance department is the first mistake. It is important to create awareness and define internal processes to avoid this mistake.
  2. Ignoring the Notice: Ignoring the show cause notice or failing to respond within the specified timeframe is a critical mistake. It’s essential to acknowledge receipt and respond promptly.
  3. Not asking extension or extra time: Many times, considering the complexity of issues time allocated 30/60 days may not be sufficient. It is important to ask for additional time to give a reply. A formal request to this effect should be sent to customs authorities giving proper reasons. In case of no response from authorities, please follow up. In case failed to get an extension, then stick to the original timelines.

This is an abridged version of the article published in the March edition of the Logistics Insider Magazine. To read the complete article, click here.

This article is authored by Mr. Pramod Sant, Former VP-head of Import, Export and Customs, Siemens Ltd. All views are personal and do not necessarily reflect those of Logistics Insider.

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