Circular No. 16/2009-Customs
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
New Delhi, the 25th May, 2009
Sub: – Grant of All Industry rate of duty drawback to merchant exporters- reg.
1. I am directed to refer to Para (vi) of Ministry’s Circular No. 64/98-Cus dated 01.09.1998, where it was clarified that in the case of merchant exporter who procures the export goods from the open market, the benefit of All Industry Rates of Duty Drawback shall be restricted to the Customs allocation only, if any. Export goods purchased from the market shall be treated as having availed the Modvat facility and would not be entitled to the Central Excise allocation of the All Industry Rate of Drawback.
2. In this regard references have been received in the Board from the Directorate General of Foreign Trade (DGFT), Federation of Indian Export Organizations (FIEO) and exporters stating that some Custom Houses were insisting on non-availment of Cenvat declarations from merchant exporters of garments who were not purchasing their goods from manufacturers but were sourcing their export goods from traders. The Custom Houses were denying full All Industry rate of duty drawback (including the excise rate) in case exporters were not able to furnish such declarations. The FIEO/DGFT and the exporters have represented that the merchant exporters without supporting manufacturers cannot give non-Cenvat availment declarations as they are not aware of the manufacturers and can at best declare the names of traders from whom the goods have been purchased. Further, most of the garments are being manufactured by petty manufacturers/small scale cottage industries/largely unorganized sector outside the Cenvat chain and, therefore, the higher rate of drawback may be given on garments without insisting on any Cenvat non-availment declaration.
3. The matter was discussed with some field formations. A view was expressed that the proviso to Rule 3 of the Drawback Rules does not permit full drawback (both customs and central excise portions) if Cenvat has been taken on inputs used in the manufacture of export goods and therefore full drawback (including the excise portion) cannot be granted to such goods.
4. The matter was referred to the Committee constituted by the Government to formulate All Industry Rate of Duty Drawback for the year 2008-09. The Committee in its report for the year 2008-09 has recommended that the merchant exporters who source their export goods from the market should be given higher rate of drawback without any declarations as “they have to purchase the products from the manufacturer after excise clearance i.e. after payment of excise duty. Therefore as far as merchant exporters are concerned, the full drawback rate has to be made available to him for neutralization of excise duty paid when clearing the goods from the manufacturer’s premises“. The Committee has further remarked that “in case of manufacturer exporters there could be a possibility of double benefit if he were to claim both Cenvat benefit as well as full duty drawback. Therefore, the only cases for checking whether Cenvat has been availed or not, can conceivably pertain to manufacturer-exporters and not to merchant exporters”.
5. The report of the Drawback Committee has been examined in the Board. The goods available in the market are deemed to be duty paid goods. Hence they bear an element of central excise duty, which needs to be reimbursed, if such goods are exported. Ideally, the terminal central excise duty paid at the time of clearance from factory should be refunded. However, that is not possible in case of export of goods purchased from the market as the trader exporter doesn’t have duty paying documents. The next best option is to grant All Industry Rate (AIR) of duty drawback as AIR drawback represents average incidence of taxes suffered by inputs used in the export product. Granting this rate on the condition that the exporter would furnish Cenvat non availment declaration may not be proper as such goods may have changed several hands before exports and the final exporter may not be aware of the actual manufacturer and whether Cenvat credit was availed on such goods.
6. As regards the proviso to Rule 3 of the Drawback Rules, it is viewed that the interpretation that this proviso permits only customs portion of drawback to goods exported by merchant exporters, unless they have a supporting manufacturer, is not correct. As mentioned earlier, the goods available in the market are deemed to be duty paid. Even if it is assumed that such goods had availed Cenvat, then such Cenvat would have been used to pay the duty on final products cleared for home market. The Cenvat availed has therefore been ‘given back’ to the Government when such goods were cleared for local market. The only possibility of double benefit would arise only when the exporter is able to take the drawback of the central excise portion and also the rebate of terminal excise duty paid on goods at the time of their clearance to the local market. Such rebate is presently not possible in terms of No.19/04- CE (NT) and 20/04-CE (NT) as the rebate is granted only if goods are exported directly from the factory/ warehouse and not from the market. However, as an abundant precaution, the merchant exporters sourcing their goods from the market and claiming central excise portion of duty drawback may be asked to specifically declare, at the time of export, that no rebate (both input rebate and final product rebate) shall be taken against the exports made against these shipping bills.
7. In view of the above, the Board has decided to accept the recommendation of the Drawback Committee in this regard. Thus merchant exporters who purchase goods from the local market for export shall henceforth be entitled to full rate of duty drawback (including the excise portion). However, such merchant exporters shall have to declare at the time of export, the name and address of the trader from whom they have purchased the goods. They shall also have to declare that no rebate (input rebate and also the final product rebate) shall be taken against the Shipping bills under which they are exporting the goods. The merchant exporters who purchase goods from traders may therefore furnish the declaration, at the time of export, in the format annexed with this circular. This is issued in supersession of para (vi) of Circular No. 64/98-Cus dated 01.09.1998.
8. The Custom Houses shall get the veracity of such declarations verified at random and recover excess drawback in case the verification reveals that the declaration filed by the exporter was false or double benefit has been availed of.
9. Suitable public notice for information of the trade and standing order for the guidance of staff may be issued accordingly. Difficulties if any, noticed in implementation of this circular may be brought to the notice of the Board.
10. Receipt of this Circular may kindly be acknowledged.
(Sanjay Kumar Roy)
Technical Officer (Drawback)
Declaration to be submitted by merchant exporters who purchase goods from traders for export
1. Shipping bill no. and date
2. Description of goods
3. Export Invoice no. and date
4. Name and complete address of the trader from whom export goods have been purchased.
Merchant exporter’s signature and seal