Export Incentives – CENVAT Credit availed by deemed exporters – Inputs utilised in manufacture of export products – Amendments

In recent past DGFT has given its clarification on under mentioned topics i.e.

• CENVAT Credit availed by deemed exporters vide Circular No. 9 (Re-2013)/2009-14, dated 30th Oct, 2013.
• Actual inputs utilised in the manufacture of export products vide Notification No. 48 (RE-2013)/ 2009-14, dated 30th Oct, 2013.

We  ‘ll discuss each topic in more detail in coming paras-

A. Deemed Exporter & Duty Drawback-Background:

“Deemed Exporters” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. Supply of goods shall be regarded as “Deemed Exports” provided goods are manufactured in India.

Eligibility for Drawback:

Supplies will be eligible for deemed export drawback in terms of the provision of Foreign Trade Policy of Central Excise duty paid on inputs/components, provided CENVAT credit/rebate has not been availed of such duty paid by supplier of goods. A declaration to this effect, from supplier of goods, shall be submitted by applicant. Such supplies shall however be eligible for deemed export drawback on customs duty paid on inputs/components.

Recent Amendment:-

1. Declaration regarding availing CENVAT Credit by deemed exporters claiming duty drawback:

On March 1, 2011, the DGFT amended the format of declarations calling for declaration that the manufactures have not availed of and will not avail of the CENVAT facility in respect of input/components used in the deemed export supplies. As pointed out in this column on April 4, 2011, this was a faulty declaration because there could always be situation where a manufacturer uses imported goods and has taken CENVAT Credit of the additional duties of the customs, but not the basic duties of Customs. Now the DGFT has clarified vide Policy Circular No. 9 (Re-2013)/2009-14 dated 30th Oct, 2013 that such basic Custom duty paid can be claimed as brand rate of duty drawback, based on actual duty paid documents.

This clarification helps but not fully. Prescribing the brand rate route created unnecessary paperwork. There is no reason to deny Customs allocation of notified All Industry Rates of Duty Drawback, even when CENVAT Credit has been availed. Also, the declaration, calling for certificate from claimants of drawback that they have not been issued any advance authorisation/ duty free import authorisation (DFIA) in respect of the goods supplied as deemed exports ignores the fact that the duty exemption scheme does allow duty free import of some inputs under the advance authorisation and drawback of duty paid on other inputs.

 Duty Free Import Authorisation -Background:-

Duty Free Import Authorisation (DFIA) was issued to allow duty free import of inputs, fuel, oil, energy sources, catalyst which required for production of export product. DGFT, be means of Public Notice, may exclude any product(s) from purview of DFIA. This scheme is in force from 1^st May, 2006.

Provisions shall be applicable in case of DFIA. However, these Authorisations shall be issued only for products for which Standard Input and Output Norms (SION) have been notified. In case of post export DFIA, a merchant exporter shall be required to mention only name(s) and address(s) of manufacturer(s) of the export product(s). Applicant is required to file application to concerned RA before effecting exports under DFIA. Pre-export Authorisation shall be issued with actual user condition and shall be exempted from payment of basic customs duty, additional custom duty/excise duty, education cess, anti-dumping duty and safeguard duty, if any. In case of actual user DFIA and where CENVAT credit facility on inputs have been availed for the exported goods, even after completion of export obligation, the goods imported against such DFIA shall be utilised in the manufacture of dutiable goods whether within the same factory or outside (by a supporting manufacturer).

Recent Amendment:-

Nexus between the item of import under advance authorisation & inputs actually utilised in the manufacture of export products:-

On August 1, 2013, the commerce ministry introduced a new paragraph vide Notification No. 31 (RE-2013)/2009-2014, 4.1.15, in the Foreign Trade policy, effectively making it mandatory that the inputs actually used in manufacturing the export product should only be imported under advance authorisation or duty free import authorisation (DFIA). Similarly, inputs actually imported must be used in the export product and this must be established for every advance authorisation or duty free import authorisation (DFIA), said the notification. The difficulties this notification caused were detailed in the column on October 14 this year.

The public notice dated October 30,2013 vide Notification No. 48 (RE-2013)/ 2009-14, says that cases where both export and import have been completed before August 1 or where duty free import authorisation (DFIA) has been endorsed as ‘transferable’ before August 1, the said notification will not apply. If only export has been completed, partly or fully, before August 1, then the corresponding import would be allowed against an undertaking from the authorisation holder that the inputs of same specification as actually used in the product already exported shall only be imported. For each and every export made on or after August 1, provisions of paragraph 4.1.15 of the FTP shall apply and it is immaterial whether for such export, corresponding import has already been made (fully or partly) or not.

Conclusion:

One clarification on which DGFT will be  require to give emphasis with respect to amendment that served from India benefits will be available on net foreign exchange earning basis will operate prospectively for exports made during the current year onwards and not for exports made during the previous year.

Author can be reached @ sunraj.18@rediffmail.com