CMA Final · Indirect Tax Laws and Practice

Refund under the Customs Act for CMA Final Paper 19

Refund in this chapter covers three customs rules: refund of export duty when exported goods come back (Section 26), interest when a pre-deposit is refunded late (Section 129EE), and penalty for fraudulent input tax credit used to claim refund (Section 114AC). You solve questions by testing each stated condition against the facts.

What this chapter covers

This chapter deals with money flowing back to the taxpayer, and with what happens when the refund process is delayed or abused. The three topics you study are narrow, but each rests on exact conditions in the Customs Act, 1962.

Section 26 allows refund of export duty already paid. It applies where goods are returned to the person who paid, not by way of re-sale, and are re-imported within one year from the date of exportation. The refund application must be made before six months expire from the date on which the proper officer makes an order for the clearance of the goods. All three conditions must hold.

Section 129EE gives interest where an amount deposited under Section 129E is refunded after the appellate authority's order. Section 114AC penalises a person who obtains an invoice by fraud, collusion, wilful misstatement or suppression of facts, and uses the input tax credit to pay duty or tax on exported goods under a refund claim. The penalty can go up to five times the refund claimed.

This chapter links to the rest of Paper 19 in three ways. Section 129E ties it to appeals, because the pre-deposit is what gets refunded. Section 114AC ties it to the penalty provisions and to GST input tax credit, since it borrows the meaning of input tax credit from the CGST Act, 2017. Export duty links it to the export and re-import provisions of the Act.

Refund questions are short and rule-based, so they are good marks for a student who knows the conditions cold. Examiners like to build a case with a date, an amount and one missing condition, and then ask whether refund or interest is allowed. You can score full marks by applying the conditions step by step, and a mistake in one number or period costs the whole answer.

Refund: topics in the order to study them

1Refund of Export Duty under Section 26Start here because it is the core refund rule, with three conditions you can test directly against facts.
2Interest on Delayed Refund under Section 129EEStudy it next because it builds on the pre-deposit idea from appeals and adds the rate band and the period for which interest runs.
3Penalty for Fraudulent Refund under Section 114ACTake it last because it deals with misuse of the refund route and needs the meaning of input tax credit from GST.

How to prepare Refund

Treat this chapter as a set of conditions and limits. Learn each rule in words first, then practise applying it to short facts.

Read Section 26 and write its three conditions in your own words: goods returned other than by re-sale, re-imported within one year from exportation, and application within six months of the clearance order.
Make a small timeline for Section 26 with the dates of export, re-import, clearance order and application. Practise marking which date starts which period.
Read Section 129E briefly so you know what the pre-deposit is: 7.5% or 10% of the duty, or of the penalty where only penalty is in dispute, with a ceiling of ₹10 crore. Then learn Section 129EE on top of it.
For Section 129EE, note that interest runs from the date of payment of the deposit till the date of refund, at a rate fixed by the Central Government between 5% and 36% per annum.
Learn Section 114AC with its trigger (invoice obtained by fraud, collusion, wilful misstatement or suppression of facts), its use (input tax credit used to pay duty or tax on exported goods under a refund claim) and its cap (five times the refund claimed).
Solve 5 to 8 short case questions, and for each one write the condition, the fact that satisfies or fails it, and the conclusion.
Revise the numbers (one year, six months, 7.5%, 10%, ₹10 crore, 5%, 36%, five times) on one page the day before the exam.

Common mistakes in Refund

Applying the Section 26 conditions selectively and granting refund when only one or two are met.
Fix: List all three conditions and tick each one against the facts. If any fails, refund under Section 26 is not available.
Counting the six-month period from the date of re-import or export instead of the clearance order.
Fix: The one year runs from the date of exportation. The six months run from the date on which the proper officer makes an order for the clearance of the goods.
Starting interest under Section 129EE from the date of the appellate order or the date of the refund application.
Fix: Under Section 129EE, interest runs from the date of payment of the deposit till the date of refund. Keep it separate from Section 27A.
Stating a fixed interest rate or a fixed penalty percentage.
Fix: Say the rate is notified by the Central Government within the 5% to 36% band, and that the Section 114AC penalty is not exceeding five times the refund claimed.
Mixing up the pre-deposit percentages of Section 129E.
Fix: Remember 7.5% for appeals to the Commissioner (Appeals) and for Tribunal appeals under section 129A(1)(a), 10% for Tribunal appeals under section 129A(1)(b), and ₹10 crore as the maximum.
Applying Section 114AC to any fraud in a refund claim.
Fix: Check the specific facts: an invoice obtained by fraud or similar means, input tax credit used to pay duty or tax on exported goods, and a refund claim on that export.

Last-day revision: Refund

Section 26 refunds export duty paid on goods that come back.
Condition 1: the goods are returned to the person by whom or on whose behalf the duty was paid, otherwise than by way of re-sale.
Condition 2: the goods are re-imported within one year from the date of exportation.
Condition 3: the refund application is made before six months expire from the date of the proper officer's clearance order.
All three Section 26 conditions must be met together.
Section 129E pre-deposit is 7.5% of duty (or penalty, where only penalty is disputed) for appeals to the Commissioner (Appeals), and 10% for the Tribunal appeals under section 129A(1)(b), with a ceiling of ₹10 crore.
Section 129EE gives interest where a Section 129E deposit is refunded on the appellate authority's order.
Interest under Section 129EE runs from the date of payment of the deposit till the date of refund.
The Section 129EE rate is fixed by the Central Government by notification, not below 5% and not above 36% per annum.
Section 114AC applies where an invoice is obtained by fraud, collusion, wilful misstatement or suppression of facts to use input tax credit for exports under a refund claim.
The Section 114AC penalty can be up to five times the refund claimed; it is a ceiling, not a fixed amount.
Input tax credit in Section 114AC has the meaning given in section 2(63) of the CGST Act, 2017.

Refund practice questions

Refund in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA FinalRefund

Refund: frequently asked questions

Is the Refund chapter important for CMA Final Paper 19?

Yes, for case-based and short questions. The rules are precise, so they suit both Section A MCQs and written application answers. Learn the conditions and numbers exactly.

What are the conditions for refund of export duty under Section 26?

The goods must be returned to the person who paid the duty, otherwise than by way of re-sale. They must be re-imported within one year from the date of exportation. The refund application must be made before six months expire from the date of the proper officer's clearance order.

How is interest under Section 129EE calculated?

Interest is paid on the deposited amount from the date of payment of the deposit till the date of refund. The rate is fixed by the Central Government by notification, between 5% and 36% per annum. In an exam, use the rate given in the question.

What is the maximum penalty under Section 114AC?

The penalty is not to exceed five times the refund claimed. It applies where an invoice was obtained by fraud, collusion, wilful misstatement or suppression of facts, and the input tax credit was used for duty or tax on exported goods under a refund claim.