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CA Final · Indirect Tax Laws · Refund

Arjun Exports Pvt Ltd claimed a refund of Rs 40 lakh of duty or tax on goods entered for exportation, having utilised input tax credit on invoices obtained by fraud. Under section 114AC of the Customs Act, 1962, what is the maximum penalty?

The maximum penalty is Rs 2 crore. Section 114AC caps the penalty at five times the refund claimed where input tax credit was utilised on fraudulently obtained invoices for goods entered for export, and five times Rs 40 lakh equals Rs 2 crore.

  1. ARs 40 lakh, equal to the refund claimed
  2. BRs 1 crore, being two and a half times the refund
  3. CRs 2 crore, being five times the refund claimedCorrect
  4. DRs 4 crore, being ten times the refund claimed

Explanation

Section 114AC makes a person who obtained an invoice by fraud, collusion, wilful misstatement or suppression of facts to utilise input tax credit for duty or tax on goods entered for export under refund claim liable to a penalty not exceeding five times the refund claimed. Five times Rs 40 lakh is Rs 2 crore. Equating it to the refund amount understates the cap.

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