Manas Joshi

Receipt of foreign currency plays a very vital role in development of the economy of any of the country and therefore, many of the countries maintain foreign exchange reserves in order to meet international payment obligation including sovereign and commercial debts, financing imports etc. As we all are aware, foreign currency can be generated through exports and therefore, in order to encourage more and more exports, the Government of India has provided various schemes and tax incentives on export of goods. By using such tax incentives, the selling price of the export goods gets reduced and thereby such export goods becomes compatible in the foreign market. Accordingly, Indian goods get more demand in the foreign market and thereby foreign currency can be generated.

By keeping the above intention in the mind, the tax law makers have drafted various procedures, conditions and documentation in order to satisfy export requirements and thereby exporters can enjoy export benefits in India.

Now, coming back to the main subject of central excise, Government of India has given two options under Rule 18 and Rule 19 of Central Excise Rules, 2002. These options are as under:

  1. Export of goods with payment of duty and then asking rebate of excise duty paid (Rule 18); or
  2. Export of goods without payment of duty (Rule 19);

Accordingly, based on the above two Rules, the Government of India has issued Notification No. 41/2001-CE (NT) and 42/2001-CE (NT), both as amended from time to time, wherein detailed terms, procedures and documentations are provided for enjoying excise duty benefits. As per these Notification, any goods exported to all the countries, except Nepal and Bhutan, were eligible for all the export incentives / benefits. Therefore, any export to Nepal was not eligible for export benefits.

However, Indian Government entered into Treaty with Nepal Government for the purpose of smooth trading. Based on this Treaty, excise notification no. 26/2011-CE(NT) is issued wherein it was amended that export benefits will also be available even when goods are exported to Nepal. (in the original notification, the wordings were “export to all the countries, except Nepal and Bhutan”. In the amended notification, the word “Nepal” has been omitted and now we can read as “export to all the countries except Bhutan”). Thus, from 1st March 2012 onwards, all the export benefits are available to exports made to Nepal.

Now the question remains that if export is made to Nepal in Indian Rupee (INR) then whether excise duty benefits continues to be available to the manufacturer-exporter taking into consideration the intention of the Government as discussed in the first paragraph. This is because, as a normal practice, when a manufacturer export his goods, he needs to submit proof of export such as EP copy of Shipping Bill, Bill of Lading, ARE-1 Form etc. I have observed that along with these documents, excise officers also demand Bank Realization Certificate (BRC) as a proof of receipt of foreign currency. I have seen some cases, where duty was demanded for non-submission of BRC. In this connection, it is important to note that none of the Rules 18 or Rule 19 of Central Excise Rules, 2002 or the above said Notifications provides a condition to receive foreign currency in order to enjoy excise duty benefits. More importantly, the CBE&C has issued a Circular bearing number 961/04/2012-CX dated 26th March 2012, wherein in the 3rd para, it has been clarified that export to Nepal will continue to be permissible even when the export proceeds are paid in Indian Rupees as long as payment proceeds are in accordance with applicable RBI guidelines. Text of para 3 of the Circular is reproduced below for your ready reference:

  1. Further, Board has also been requested to clarify whether exports under claim of rebate under amended Notifications No. 19/2004-CE(NT)dated 6.9.2004 or under bond in terms of amended Notification No. 42/2001-CE(NT) dated 26.6.2001 are to be permitted even when the export proceeds are paid in Indian Rupees. It is clarified that neither Rule 18 or Rule 19 of Central Excise Rules, 2002, nor the above mentioned notifications make any distinction on the basis of mode of payment of currency for exports. It is therefore clarified that exports to Nepal will continue to be permissible irrespective of whether the payments are made in Indian currency or foreign convertible currency as long as they are in accordance with applicable RBI guidelines.  
Online GST Certification Course by TaxGuru & MSME- Click here to Join

Thus, considering the above referred Circular, excise duty benefit will be available to the manufacturer-exporter even if goods are exported against INR.

Now, let’s discuss the second issue i.e. whether excise benefits are available when goods are exported without having any commercial value i.e. Free of Cost (FOC).

As mentioned in my above discussion, none of the Rules 18 or Rule 19 of Central Excise Rules, 2002 or the above said Notifications provides a condition to receive foreign currency in order to enjoy excise duty benefits. The only condition to fulfil is that the manufactured goods to be exported within a period of six months from the date of removal from the factory of manufacturer. Now it is important to understand as to which point of time goods can be treated as “exported”. The term “export” is not defined under Excise Rules and therefore, we need to refer the definition of the term “export” under Section 2(18) of the Customs Act, 1962. The definition is reproduced below for your ready reference:

(18)   “export”, with its grammatical variations and cognate expressions, means taking out of India to a place outside India;

It is important to note that the term “India” is also defined under Section 2(27) of the Customs Act, 1962 which is reproduced below for your ready reference:

(27)   “India” includes the territorial waters of India;  

Territorial waters means water measuring upto 12 nautical miles (approx. 22.2 km) from the Indian land. Thus, after the combine reading of the above two definitions, one can say that goods can be treated as “exported” only when such goods cross the 12 nautical miles from the Indian land.

Considering the above definitions and scope related to the term “export”, the Hon’ble Supreme Court, in the case of UOI v/s Rajindra Dyeing and Printing Mills Ltd. reported in 2005 (180) ELT 433 (SC) held that a ship destroyed in an accident which took place within territorial waters of India and therefore, goods cannot be treated as “exported” out of India. In another case, the Hon’ble Supreme Court, in the case of CC, Culcutta v/s Sun Industries – reported in 1988 (35) ELT 241 (SC) held that the words and phrases “taking out to a place outside India” means any place beyond territorial waters of India including High Seas.

As mentioned in my earlier discussion, none of the Rules and Notifications puts any condition to receive foreign currency in order to enjoy excise duty benefit on export of goods. The only condition is that goods to be exported within six months. It is important to note here that receipt of foreign currency is a “must” condition in order to apply for duty drawback under Customs which is expressly provided in the Customs law and Foreign Trade Policy.

Thus, after considering the clear “absence” of condition of receipt of foreign currency under central excise laws, CBE&C Circular No. 961/04/2012-CX dated 26th March 2012 and clear understanding of the point of time when goods can be treated as “exported”, one can conclude that realization / receipt of foreign currency is not a condition to enjoy excise duty benefit in case of export of goods. Therefore, export of manufactured goods made on FOC basis will also eligible for excise duty benefits.

Read Other Articles of Manas Joshi

More Under Excise Duty

Posted Under

Category : Excise Duty (4049)
Type : Articles (14601)
Tags : Manas Joshi (9)

44 responses to “Export to Nepal in INR and FOC export – whether excise duty benefit is available”

  1. Shiva Raj Upreti says:

    hi

  2. Shiva Raj Upreti says:

    Dear Sir
    We having the company in Nepal doing business with indian supplier. Last year 26th Sept 2016 we had made the advance payment (TT) to one of the supplier in india who deals with electrical and home appliance. All the time party says materials will dispatch within this month. We heard from party same thing from last 8 months but till date materials were not dispatched from the party. Could you please suggest what would be the process of recovery our payments?
    We be thankful if you could provide us the details of recovery our money from that supplier.

  3. Pankaj Sharma says:

    we are manufacturers of tissue paper products.we want to export our products to U.A.E. and African countries.could you please tell us about the rebates and benefits we will get from government in this field.

  4. Sanjeev Kumar says:

    Hi,
    I am in service sector in market research. We do data collection means primary research for those companies who do secondary research. I suppose to get a project for Nepal. Then do I need to get Export-Import license and as well as do I have to charge GST for the same.

  5. PANKAJ KUMAR BHATT says:

    Dear Sir
    We are importing some machine under EPCG benefit and exporting goods to Nepal , we will have to export in USD & nor in INR.can we take EPCG benifit
    Do you have any notification to this effect please send me

  6. Rahul Page says:

    For having EPCG benifit for Export to Nepal , we will have to export in USD & nor in INR.
    Do you have any notification to this effect.
    Rahul
    9823056603.

  7. pravin kosambi says:

    sir, I want to know which rules I have to follow for Nepal export.Which licence I have to get?
    pl inform.
    thanks.

  8. Pravi Kosambi says:

    I want export sarees & derss material to Nepal.what is the procedure for individual? Under which regulation this trade will come?Can I get any benefit of exports? Payment Can I received payment In INR from India& Nepal?Pl guide.
    Thanks Sir.

  9. pravin kosambi says:

    I want to export sarees,dress materials to Nepal. What export benefit I will get? Which Licences I have to get? can I get my payment in INR at India & Nepal?What is the procedure of shipment of goods to nepal?This trade will come under which regulation.?Kindly guide me. Thanks Sir.

  10. Raj vardhan says:

    Is MEIS benefit available on export from India to Nepal?
    If yes please let me know the name of products

    Also from where I can get import license in nepal

  11. Akshaya Kumar Patra says:

    Our company exported goods to Nepal and payment received through LC IN INR and we applied for rebate in excise duty after paying the duty. As perCircular No. 961/04/2012-CX point no 3 It is therefore clarified that exports to Nepal will continue to be permissible irrespective of whether the payments are made in Indian currency or foreign convertible currency as long as they are in accordance with applicable RBI guidelines.
    What is RBI guidelines in this regard as the department is asking us the RBI guidelines

  12. yogesh says:

    HI,

    Please can you help me?

    I export some electronic material in Nepal.
    what kind of tax etc.
    I don’t think CST and VAT might apply here.

    • CA. Nisarg Shah says:

      Hi. Share some more details whether it is manufactured by you? Excise and VAT apply on electrical material and hence we have to consider above procedure as described by Mr Manas Joshi.

  13. MANISHA says:

    I FILL THE FORM 9 BUT NEPAL CODE IS NOT PLEASE TELL ME THE SATE CODE OF NEAPL WHICH CODE IS ENTERED

  14. Anonymous says:

    Please share the details of the notification which says that “receipt of foreign currency is a “must” condition in order to apply for duty drawback under Customs which is expressly provided in the Customs law and Foreign Trade Policy”.

  15. Harshita says:

    Hi

    Can you please help us with the the relevant notification which says that “we can claim export benefits on Exports made to Nepal” ???

  16. Arvind Gupta says:

    We are exporting gram flour to Nepal either payment is received in TT or in bank draft in INR. Our item is neither excisable nor comes under VAT. The transporter is picking the material from our factory site and giving LR. Our Bank wants export documents for payment verification. Please note that we are not claiming any duty or export incentive. Please advise what sort of documents to be given to satisfy our Banker. Will be greatful if email can be send to my inbox.

  17. Anand srivastava says:

    we doing the goods export India to Nepal under rule -18 through merchant exporter with both signature’s manufacturer & Merchant exporter on ARE-1, manufacturer claimed & received rebate refund. department required BRC from Merchant Exporter. this is wright Or, wrong…? Merchant exporter says BRC’s require only Foreign Currency not in INR. we say For out of remittance but they not agreed to issue us to BRC submission to department by us because Merchant Exporter given disclaimer certificate only.

  18. Deepak Bansal says:

    We are exporting drugs(API’s) to Nepal, and receiving payments in INR through LC. Can we get benefit under advance licensing scheme? If yes then tell us the procedure?

  19. Amit Jain says:

    We are exporting chemicals to Nepal, against ARE-1, and receiving payments in INR through LC , bank drafts and transfers. Can we claim duty drawback ? If yes then tell us the procedure?

  20. Amit Jain says:

    We are exporting chemicals to Nepal against ARE-1, and we received payments in INR through LC and transfers. Can we claim duty drawback.? If yes then what is the procedure?

  21. manjunath kundapur says:

    Dear Mr. Manas,

    Nepal Export in INR. what are the export documetnation ?
    Our Invoice, Packing Note, ARE-1, Self Declaration Form SDF
    Value Declration Form, Any thing else ?

    Whether ARE-1 is required when export made to Nepal in INR ?

    Pl clarify.

  22. Girish Jaggi says:

    Thanks, above information is useful. My question is on the excise component on inputs to make final goods for Nepal, how can I claim exemption for these? Can I buy these under bond as i buy for my normal exports.
    Thanks in advance for reply

  23. rajkishor says:

    @Sanjay Sharma

    answer of 1. an agreement of exporter and importer for the specified goods. along with an authorization latter for clearance of goods at LCS to Indian citizen. letter of IEC code issued for export/ import to you by DGFT. invoice,packing list, bilty of transporter.
    2. generally no customs duty if made in india.
    3. through RTGS/ Net banking
    another option is to call rajkishor on 09386836406 for more details and guidance for export to nepal
    rajkishor

  24. Sanjay Sharma says:

    We are manufacturing engine coolent in small scale unit and does not come under excise duty in India We now wish to extend our product to Nepal. A representative from Nepal is agreed to recieve the goods from us.
    1. Please let us know what Nepal representative has to give us for supply of the goods i.e. P O, Road Permits or any authorization letter etc.
    2. What are the coustom duties while crossing the border.
    3. How can we bill and recieve payments.

  25. anita p joshi says:

    we Mfg. mould for export,but client gives a order for production on that mould.inthat condition mould is not physicaly exported,what about excise on that mould as mould is in india for say 10 years .how bill will be raised if money received against mould

  26. Narayanan K R says:

    We would like to export of traded goods to Nepal – supplier giving us cenvat document & we are not availing the cenvat benefit as we are just exporting the material as it is from supplier’s premises at Delhi to Nepal with our export invoice in INR BY ROAD – PLS CLARIFY WHETHER WE CAN APPLY FOR DUTY REBATE UNDER RULE 18 WITH EXCISE DEPT FOR TRANSPORATION BY ROAD AND ALSO IN THAT CASE WHO WOULD BE MARITIME COMMISSIONER” Thanks.

  27. Manish Sachdeva says:

    Wait, does that mean? department is making a fool of us, they demand foreign currency BRC from us. Does that mean we should take stand. Kindly provide any specific description regarding non requirement of forex (if available) so that we could argue our case. Thanks

  28. ANIL MORE says:

    Dear Sir,
    Thanks for Highlighting such an important issue.

    Thanks & Regard,

    ANIL MORE

  29. Sanjay says:

    Dear Manas,
    Thanks for the insight given on INR based exports to Nepal, there is similar situation for export to Iran where we get payment s in INR through Union bank of India. In your article you have mentioned that since payment is in INR Duty draw back can not be claimed. It that true in case of Iran as well, pls advise. Rgds

  30. R B Jain says:

    Dear Mr. Manas

    Thanks for such detailed information about exports to Nepal. I understand we can export material without charging excise duty on sales as explained by you. Now we would like to know, can we avail benefits of advance authorisation (Availing custom duty free inputs) against exports made to Nepal.

    Thanks again for this wonderful article.

  31. CMA Pranav Taralekar says:

    Very nice Article Sir.

  32. M P Joshi says:

    Hi Manas

    This is very usefull information.

    Please share all the Important info in this website

    Thanks

    m p joshi

  33. Daivashala says:

    Thank You Sir !! Very Useful Information…

  34. Daivashala says:

    Thank You Sir !! Very useful Information..

  35. Manas Joshi says:

    Dear Mr. Chandra,

    As per Rule 6A of Service Tax Rules, 1994, receipt of foreign is must in order to satisfy conditions for export of services.

    Best Regards

    Manas Joshi
    Director
    Proficient Partners Consultancy Pvt. Ltd.
    9890016800

  36. Manas Joshi says:

    Dear All,

    Many thanx for your responses.

    Dear Mr. Mehra,

    My article covers only excise duty benefit in case of export to Nepal in INR. However, as I have mentioned in the second last para, for the purpose of duty drawback, receipt of foreign currency is a “must” condition as per FTP and therefore, in my opinion, export to Nepal in INR will not be eligible for duty drawback benefit. Similarly, benefit of other export incentives such as advance license, EPCG etc. will not be available in case of INR export.

    Best Regards

    Manas Joshi
    Director
    Proficient Partners Consultancy Pvt. Ltd.
    9890016800

  37. raseena says:

    who is the bond accepting authority for issuing CT-1 certificate, whether there is no AC/DC (export) nominated in a central excise commissionerate

  38. Suneel Sonawane says:

    Sir,

    Very useful information on export of FOC material with simply explanation.

    Best Wishes
    Suneel.

  39. chandra says:

    whether this would hold good for export of services?

  40. Somnath Bhattacharya says:

    Dear Mans,
    Many thanks for your valued input. In fact our company is also exporting the Finished Goods to Nepal, this articles will certainly helpful to us.
    Thanks & Regards.
    S.N.Bhattacharya
    Corporate Associates,
    Ual-Industries Ltd,
    Kolakta

  41. Balwant Mehra says:

    Kindly also give your expert opinion whether Export Incentives will also available against Export to Nepal in INR ????

  42. jay says:

    thanks, useful article

Leave a Reply

Your email address will not be published. Required fields are marked *