As per the Foreign Trade Policy 2015-20 (FTP), the 100% Export Oriented Units (EOU) are exempted from payment of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and additional duty leviable under section 3 of the Customs Tariff Act, 1975. The exemption from custom duty and additional custom duties were given vide Notification No. 52/2003-Customs, dated 31.03.2003. Further, FTP also allows the EOU to supply to Domestic Tariff Area (DTA) subject to certain conditions and on payment of applicable duties and taxes.
Accordingly, the para 3 of the said Notification read with para 6.08 of FTP provided the exemption to goods which, on importation are used for the purpose of manufacture of the finished goods which are not exported but sold to DTA on payment of appropriate excise duty and customs duties subject to certain other condition specified.
Upon introduction of GST, the para 3 of the Notification has been substituted with effect from 01.07.2017 with a new provision (vide Notification No. 59/2017-Cus, dated 30-6-2017) providing that the exemption from the whole of duty of Customs leviable thereon under First Schedule to the Customs Tariff Act, 1975 shall not apply to inputs which are used in the manufacture of finished goods and such finished goods are supplied in DTA on payment of applicable GST.
The relevant part of the amendment is reproduced herein below;
“3. Notwithstanding anything contained in this notification, the exemption from the whole of duty of Customs leviable thereon under First Schedule to the Customs Tariff Act, 1975 (51 of 1975), shall not apply to inputs which on importation into India or procurement, are used for the purpose of manufacture of finished goods [ other than falling under Fourth Schedule of Central Excise Act, 1944 (1 of 1944) ] or services and such finished goods and services, (including by-products, rejects, waste and scrap arising in the course of production, manufacture, processing or packaging of such goods ) are supplied in Domestic Tariff Area in accordance with the Foreign Trade Policy, on payment of applicable Goods and Service Tax leviable thereon, or are in stock at the time of exit from the scheme in accordance with the Foreign Trade Policy and in case of waste and scrap within SION or within norms fixed by the Norms Committee or norms as approved by the Board of Approval the exemption in respect of goods imported or procured under this notification would continue to be admissible :…” (emphasis supplied)
Further, the Notification No. 59/2017-Cus, dated 30-6-2017 inserted a para 11B to the said notification as under;
“11B. In the notification, the word “duty” wherever appear shall mean duties of customs as specified in First Schedule to the Customs Tariff Act, 1975 and the additional duty, if any, leviable thereon under sub-sections (1), (3) and (5) of section 3 of the said Act or applicable excise duty, as the case may be, for the purpose of this notification”.
From the above amendment, it was clear that with effective from 01.07.2017, where the imported inputs were used by EOUs etc in the manufacture of finished goods which are supplied for DTA upon payment of GST, the customs duty payable under First Schedule to Customs Tariff Act alone was required to be paid. In other words, the exemptions continued to apply for additional duty (CVD and SAD), if any, payable under section 3 of the said Customs Tariff Act.
In order to further clarify the nature of duties and taxes exempted under Notification No. 52/2003-Customs, the Notification No. 78/2017-Cus., dated 13-10-2017 amended the para 1, clearly specifying the nature of taxes and duties exempted as under;
“(A)the whole of the duty of customs leviable thereon under the First-Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under sub-sections (1), (3) and (5) of section 3 of the said Customs Tariff Act; and
(B) the integrated tax and compensation cess leviable thereon under sub-sections (7) and (9), respectively of section 3 of the said Customs Tariff Act”
Even after making the above amendment in para 1, the content of para 11B which provided the meaning of ‘duty’ which included only the basic customs duty (customs duty payable under the First Schedule to the Customs Tariff Act), CVD and SAD was not amended to include GST. Therefore, vide Notification No. 79/2018-Cus., dated 5-12-2018, integrated tax and compensation cess, if any, leviable thereon under sub-sections (7) and (9) of Section 3 of the said Act or applicable excise duty were added to the meaning of ‘duty’.
The para 11B is applicable where the term ‘duty’ alone is used like in conditions to the bond provided in para 1(3)(d)(I) and it cannot be applied where the phrase like duty of customs leviable under First Schedule to Customs Tariff Act. In other words, where it is specifically provided for basic customs duty namely duty of customs payable under First Schedule to Customs Tariff Act the meaning cannot be extended to include CVD, SAD or GST by virtue of para 11B.
Further, para 3 is a non obstante clause which means, it overrides what is stated in para 11B. The content of para 11B is not applicable to para 3.
Para 6.08 of FTP has also been substituted with effective from 01.07.2017 which now provides that EOUs may supply to DTA on payment of excise duty, if applicable, and/or payment of GST and compensation cess along with reversal of duties of Custom leviable under First Schedule to the Customs Tariff Act, 1975 availed as exemption.
In view of the above, it is clear that, wef 01.07.2017, the duty of Customs leviable under First Schedule to the Customs Tariff Act i.e. basic customs duty is to be paid as per amended para 3 of the Notification No. 52/2003-Cus. in case the EOUs import the inputs availing exemption under the said notification but finished goods are cleared for DTA on payment of applicable GST. There is no need to pay IGST on imported inputs attributable to finished goods cleared to DTA by EOU.