The Central Board of Excise and Customs (CBEC) has issued a very useful Circular (number 6/2010-Cus dated March 19, 2010) re-iterating its earlier instructions that rebate of excise duty paid on goods supplied from domestic tariff area (DTA) to a special economic zone (SEZ) should be granted under Rule 18 of the Central Excise Rules, 2002.

The Circular should not have been necessary at all. Supplying goods, or providing services, from the DTA to a unit or developer in SEZ is defined as export under Section 2(m) of the SEZ Act, 2005. Section 26(c) of the said Act exempts excise duty on goods supplied from DTA to an SEZ unit or developer. Section 51 gives overriding effect to the provisions of the SEZ Act over any other law. Rule 30 of the SEZ Rules, 2006, details the procedure for excise duty-free clearance of goods from DTA to SEZ. CBEC Circular (no. 29/2006-Cus. dated December 2, 2006) had clarified that supplies from DTA to SEZ shall be eligible for claim of rebate under Rule 18 of Central Excise Rules, 2002.

In spite of such clear provisions and instructions, some field formations had been denying excise rebate on the grounds that rebate under Rule 18 of the Central Excise Rules, 2002 read with Notification 19/2004- CE (NT) dated September 6, 2004, is admissible only when the goods are exported out of India and not when supplies are made to an SEZ. CBEC”s latest circular categorically states that the settled position that rebate is admissible for supplies made from a DTA to SEZ does not warrant any change even if Rule 18 does not mention such supplies in clear terms and that the field formations are required to follow the said Circular number 29/2006.

In another Circular (number 7/2010-Cus dated March 23, 2010), CBEC has clarified that duty drawback would not be payable in cases where export proceeds have not been realised in accordance with the provisions of the Foreign Exchange Management Act, 1999, even if the claim has been settled by the Export Credit and Guarantee Corporation (ECGC) or realisation waived by the Reserve Bank of India (RBI) and that action should be taken for recovery of drawback amount in such cases.

The Foreign Trade Policy (FTP) provides that claims settlement by ECGC would count for benefits under FTP, even if payment for exports is not realised from buyers abroad. Similarly, FTP says that realisation of export proceeds shall not be insisted under any of the export promotion schemes under FTP, if RBI writes off the requirement of realisation of export proceeds on merits and the exporter produces a certificate from the concerned foreign mission of India about the fact of non-recovery of export proceeds from the buyer.

CBEC says that FTP provisions would not be applicable to the drawback scheme, since the drawback scheme is governed by the provisions of the Customs Act, 1962, and the Rules made there under clearly provide that drawback should be recovered if sale proceeds have not been realised.

The merit of the CBEC circular is that it clarifies the legal position beyond doubt. However, CBEC must consider whether the Customs law needs suitable amendment to give treatment similar to FTP allowing drawback against ECGC claim settlement or RBI-specific waiver, even in situations when the exporter fails to realise payments from the buyer.

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June 2021