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CA Final · Indirect Tax Laws · Levy of and Exemptions from Customs Duty

Sunrise Traders Pvt Ltd of Surat imported machinery. The proper officer determined short-levied customs duty of Rs 8,00,000 under section 28(8) of the Customs Act, 1962, by reason of wilful mis-statement of facts. Interest payable under section 28AA is Rs 1,00,000. The order was communicated on 1 March. The company pays the duty of Rs 8,00,000, the interest of Rs 1,00,000 and the reduced penalty, all on 15 March. What penalty is payable under section 114A?

The penalty is Rs 2,00,000. Section 114A fixes the penalty at the duty determined, but where duty, interest and the reduced penalty are paid within thirty days of the order's communication, it falls to 25% of the duty. Twenty-five per cent of Rs 8,00,000 is Rs 2,00,000.

  1. ARs 8,00,000, being 100% of the duty
  2. BRs 2,00,000, being 25% of the dutyCorrect
  3. CRs 2,25,000, being 25% of duty plus interest
  4. DRs 4,00,000, being 50% of the duty

Explanation

Section 114A imposes a penalty equal to the duty determined. If the duty, interest and the reduced penalty are all paid within thirty days of the communication of the order, the penalty is 25% of the duty. Here 25% of Rs 8,00,000 is Rs 2,00,000. The option of Rs 8,00,000 is wrong because it ignores the reduction available for payment within thirty days. The option of Rs 2,25,000 is wrong because it adds interest to the base, whereas the base is the duty or interest so determined and only the duty is determined here as short-levied.

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