The EOU Scheme is an Export Promotion Scheme enshrined under Chapter 6 of the Foreign Trade Policy. The Scheme enables an EOU to import the inputs, capital goods, packing materials and consumables etc. without payment of Customs duties. Notification No.52/2003-Cus dated 31.3.2003 (hereinafter referred as “said Notification”), as amended from time to time, has been issued by the Central Government which permits the imports of the said goods without payment of customs duty subject to the various terms and conditions specified therein.
2. The objective is that all goods manufactured by an EOU (for short Unit) are to be exported outside India. In order to provide flexibility in the operations and other practical situations, provisions have been made in the Foreign Trade Policy and also in the above referred the custom notification to clear the goods in domestic tariff area (DTA).
3. On perusal of the said terms and conditions, it has been observed that there are several inbuilt anomalies in the said Notification which leads to unnecessary correspondence and litigation with the Department. In case these anomalies are removed, then unnecessary litigation and correspondence can be avoided. The anomalies in the Notification are detailed in the succeeding paragraphs.
Conflict between Paragraph 3(d)(ii) and Paragraph 3(d)(iii)
4. There is an apparent conflict between Para 3(d)(ii) and Para 3(d)(iii) of Notification No.52/2003-Cus dated 31.03.2003. For ease of reference, the said paragraphs are extracted below: –
“(3) The unit executes a bond in such form and for such sums and with such authority, as may be specified by such Officer, binding himself, –
…….
…….
“(d) to pay on demand –
“(i) an amount equal to duty leviable on the goods and interest at a rate as specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue) issued under section 28AB of the said Customs Act on the said duty from the date of duty-free import of the said goods till the date of payment of such duty, if-
…..
…….
“(ii) In the case of goods other than the capital goods, such goods as are not proved to the satisfaction of the said officer to have been used in connection with the production or packaging of goods for export out of India or cleared for home consumption within the period of validity period of the Letter of Permission (LOP);
……
“(iii) in case of,-
(a) goods produced or packaged, such goods have not been exported out of India, and
(b) unused goods (including empty cones, bobbins or containers, if any, suitable for repeated use) as have not been exported or cleared for home consumption,
within a period of one year from the date of import or procurement of such goods or within such extended period as the said officer, as the case may be, on being satisfied that there is sufficient cause for not using them as above within the said period, allow;”
5. From a perusal of the aforesaid provisions, it can be seen that the Paragraph 3(d)(ii) provides that all goods other than the capital goods have to be used within the validity period of the LOP. This means that if the LOP is valid for a period of five years, and the inputs are imported in the first year of the LOP, then there would be no contravention even if the said inputs have been used in another four years or more till the validity of the LOP. On the other hand, Para 3(d)(iii) provides that if the goods are not used or cleared for home consumption within a period of one year from the date of import, then he will be liable to pay Customs duty on such goods. Thus, there is an apparent conflict between the two provisions. This is creating unnecessary problems for the units causing unnecessary correspondence and litigation.
6. It is pertinent to note here that initially in the said Notification, provision was to use the inputs within a period of one year from the date of import but later on looking into the difficulties faced by the trade and industry and to provide flexibility in this regard, the provision was amended by Notification No.34/2015-Cus dated 25.05.2015 whereby it was provided that the inputs can be used within the validity period of the LOP. In the process, the later portion of the provision i.e. 3(d)(iii) was not amended, which created this anomaly. Obviously, the Department in the majority of cases takes the pro-revenue approach where the inputs are not used within the period of one year from the date of import and issues the demand notices. This litigation and correspondence can be avoided if a suitable clarification or amendment is done on this aspect.
De-bonding in Advance Authorization/ EPCG Scheme
7. Para 4 of the Notification provides that an EOU can de-bond its inputs under the Advance Authorization Scheme and the capital goods under the prevailing EPCG Scheme. However, there is absolutely no mechanism to effectuate the same. Needless to say that in the era of EDI System where the licenses are issued online by the DGFT and transmitted online to the Online portal of Customs, it becomes impossible to get the inputs under the Advance Authorization and the capital goods under the EPCG Scheme. It is pertinent to note here that a person obtains the Advance Authorizations and the EPCG from the licensing authority which will be transmitted electronically to the EDI portal of the Customs. The application for making the duty payment in respect of the goods lying in stock or for getting them de-bonded under Advance Authorization/ EPCG Scheme, is to be made before the jurisdictional Officer/s of the Customs Preventive. It is to be noted that after 2017, all EOUs have been brought under the supervision and administrative control of the Customs Preventive. These officers of Customs Preventive find no way to make the debit in the Advance Authorizations or EPCG Authorizations obtained by the unit as they have no means to do that. Therefore, though this provision is finding place in the Foreign Trade Policy and in the Customs Notification, it is not being effectuated in the absence of the procedure in this regard. Hence a suitable mechanism has to be devised at the end of the Customs in this regard so that this substantive provision of law can be followed/observed.
Payment of customs duty on inputs used in goods cleared in DTA
8. Para 3 of the Notification provides that if any manufactured goods are sold in DTA, then the Unit will pay the Customs duty foregone on the inputs used in the manufacture of such goods. Firstly, it is not clear as to how the Customs duty foregone on the inputs used in the manufacture of the finished goods will be calculated. Practically, the units follow FIFO method in this regard to work out the duty element which has been forgone on the said inputs. But it needs clarification by way of Circular or Instruction clarifying the method that is to be adopted in working out the duty on the inputs in such a situation. Secondly, it is not clear as to when the said Customs duty has to be paid. In other words, where the Customs duty foregone has to be paid in advance before the clearance of the goods in DTA or is it possible to pay even after the clearance of the goods. It is also not clear whether the duty has to be paid for each consignment separately or a unit can make a bundle of the clearances and can make the payment of duty in one instance to avoid the repeated payment of customs duty. Furthermore, there is no mechanism to pay the duty online through the EDI portal in this type of situation. Rather it has to be paid manually through TR-6 Challans in the bank.
9. It has been clarified in the Explanation in the said notification that on payment of customs duty it would be deemed as if no exemption was availed at the time of import. A doubt arises as to whether the said duty has to be paid without interest or it has to be paid along with interest. If the inputs were imported eight months back without payment of duty in the manufacture of goods sold now in DTA, then the question is whether the duty is also liable to be paid with interest for the eight months or it may be inferred that no interest is to be paid in such a situation because the duty itself has become liable at the time of clearance of the goods in DTA. In any case, clarification is needed to dispel the doubt and stop the divergent practice in the field formations in this regard.
In Nutshell: These are some of the glaring anomalies in the Customs Notification No.52/2003-Cus dated 31.03.2003 which needs to be clarified by the CBEC for the benefit of trade /industry and in order to avoid the unnecessary correspondence and litigation.