Procurement of inputs without payment of duty for export

Sunil Kumar G, Bangalore

1. Introduction

An Exporter can procure Inputs without payment of excise duty under Notification No. 34/2001. This Rule, Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 came into force with effect from 21/06/2001. The Government of India issued subsequent to this Notification for Conditions, safeguards and procedures for procurement of the excisable without payment of duty manufacture or processing of export goods vide Notification No. 43/2001 dated 26/06/2001. The procedure for procurement of the excisable goods without payment of duty for the purpose of use in the manufacture of export of goods and their exportation out of India to any country except Bhutan is explained in Notification No. 43/2001. Section 5A (1) of Central Excise Act, 1944 given power to Central Government to grant exemption from duty of excise  on excisable Goods as may be specified in the notification issued under this section. Accordingly Notification No. 34/2001-CE (N.T) dated 21/06/2001 issued.

2. Registration

The Manufacturer or processor intending to avail this benefit shall register himself with Central Excise authorities under Rule 9 of Central Excise Rules 2002 (Rule 9 of Central Excise Rule 2001).

 3. Application by the manufacturer to obtain the benefit (Rule: 3)

3.1 A manufacturer who intends to receive subject goods for specified use at concessional rate of duty (Nil rate of duty), shall make an application in quadruplicate in the Form at Annexure-I to the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be.

3.2    The manufacturer shall make separate application in respect of each supplier of subject goods.

3.3 The manufacturer shall execute a general bond  (B-1 Bond) with surety or security.

3.4 The bond shall be for such amount as considered appropriate by the said Assistant Commissioner or Deputy Commissioner, to cover the recovery of duty liability estimated to be involved at any given point of time.

3.5 The application shall be countersigned by the said Assistant Commissioner or Deputy Commissioner who shall certify therein that the said person has executed a bond to his satisfaction in respect of end use of the subject goods and indicate the particulars of such bond.

3.6 Of the four copies of the application referred to in sub-rule (5), one copy shall be forwarded to the jurisdictional range Superintendent of the manufacturer of the subject goods, two copies shall be handed over to the manufacturer and one copy shall be retained, by the said Assistant Commissioner or Deputy Commissioner.

3.7 One copy of the application referred to in sub-rule (6) received by the manufacturer, shall be forwarded by the said manufacturer to the manufacturer of subject goods.

4. Procedure:(Rule 4)

4.1 On the basis of the application referred to in sub-rule (7) of rule 3, the manufacturer of subject goods shall avail the benefit of the exemption notification.

4.2 The manufacturer of the subject goods shall record on the application the removal details, such as No. and date of invoice, description, quantity and value of subject goods and amount of excise duty paid at concessional rate.

5. Records: (Rule 5)

The manufacturer, receiving subject goods, shall maintain a simple account indicating the quantity and value of subject goods, the quantity of subject goods consumed for the intended purpose, and the quantity remaining in stock, invoice wise and shall submit a monthly return in Return at Annexure-II to the said Assistant Commissioner or Deputy Commissioner by the tenth day of the following month.

6. Recovery of duty: (Rule 6)

The said Assistant Commissioner Deputy Commissioner shall ensure that the goods received are used by the manufacturer for the intended purpose and where the subject goods are not used by the manufacturer for the intended purpose, the manufacturer shall be liable to pay the amount equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of removal from the factory of the manufacturer of the subject goods, along with interest and the provisions of section 11A and section 11AB of the Central Excise Act, 1944 shall apply mutatis mutandis for effecting such recoveries.

Provided that if the subject goods on receipt are found to be defective or damaged or unsuitable or surplus to the needs of the manufacturer, he may return the subject goods to the original manufacturer of the goods from whom he had obtained these and every such returned goods shall be added to the non duty paid stock of the manufacturer of the subject goods and dealt with accordingly.

Explanation. – For the removal of doubts, it is hereby clarified that subject goods shall be deemed not to have been used for the intended purpose even if any of the quantity of the subject goods is lost or destroyed by natural causes or by unavoidable accidents during transport from the place of procurement to the manufacturer’s premises or from the manufacturer’s premises to the place of procurement or during handling or storage in the manufacturer’s premises.

Conditions, safeguards and procedures for procurement of the excisable without payment of duty manufacture or processing of export goods: Notification No. 43/2001- CE (NT) Dated 26/06/2001

7. Introduction:

7.1 The Board has, by Notification No. 43/2001-Central Excise (N.T.) dated 26.6.2001 [hereinafter referred to as the ‘said notification’] notified the conditions, safeguards and procedures for procurement of the excisable without payment of duty for the purpose of use in the manufacture or processing of export goods and their exportation out of India, to any country, Provided that for exports to Bhutan, the provisions of this notification shall be applicable only where payment is in freely convertible currency.

7.2 It may be noted that in rule 19 of the Central Excise Rules, 2002 and in said notification, expression ‘export goods’ has been used. This refers to excisable goods (dutiable or exempted) as well as non-excisable goods. Thus, the benefit of input stage rebate can be claimed on export of all finished goods whether excisable or not.

7.3 It may be also noted that materials, as defined in the said rule 19 may be used for manufacture or processing. In other words, any processing not amounting to manufacture (such as packing, blending etc.) will also be eligible for the benefit under said notification.

7.4 Removal without payment of duty of equipment and machinery in the nature of capital goods used in relation to manufacture or process of finished goods shall not be allowed.

8. Conditions and procedures

8. 1 The conditions and procedure for manufacture of export goods in bond shall be, as follows:

The manufacturer or the processor intending to avail benefit of this notification shall register himself under rule 9 of the said Rules; and The procedure specified in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 shall be followed, mutatis mutandis. It is clarified that there is no need for any separate exemption notification for applying this rule. The manufacturer or processor shall file a declaration with the Deputy/Assistant Commissioner of Central Excise having jurisdiction over the factory of manufacture under the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, and also declare ratio of input and output and rate of duty payable on excisable goods to be procured without payment of duty. Where there are more than one export product, separate statement of the input-output ratios may be furnished for each export product. The consumption should be net of recycled materials. Where recoverable wastage are generated but not recycled but sold on account of its unsuitability, the same should be clearly reflected in the declaration. The declarant should also enclose, in case of a new product or in case where the manufacturer is not regularly manufacturing the export goods and clearing for home consumption or export, a write up of manufacturing process.

9.Verification of Input–output ratio and grant of permission

9.1 The Deputy/Assistant Commissioner of Central Excise shall verify the correctness of the ratio of input and output mentioned in the declaration filed before commencement of export of such goods, if necessary, by calling for samples of finished goods or by inspecting such goods in the factory of manufacture or process. If, after such verification, the Deputy/Assistant Commissioner of Central Excise is also satisfied that there is no likelihood of evasion of duty, he may grant permission to the applicant for manufacture or processing and export of finished goods and countersign the application in the manner specified in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001;

9.2 It is clarified that for the sake of convenience and transparency, input output norms notified under the Export Import Policy may be accepted by the Department unless there are specific reasons for variation. However, in case, the input output norms notified under the Export Import Policy does not include all the materials used in export goods, the claim under this scheme should not be denied merely on that ground.

9.3 If for any reason the Deputy/Assistant Commissioner of Central Excise is not satisfied with reference to the correctness of the consumption norms claimed by the applicant, especially where the product is being manufactured for the first time in his jurisdiction, he may permit the manufacturing operations and the verification of the consumption norms should be completed while the process of manufacture is on. The verification should be completed before allowing the export of the goods as the manufacturer working under this Scheme is expected to declare the raw materials costumed in ARE-2.

9.4 The permission granted by the Deputy/Assistant Commissioner of Central Excise can be withdrawn at any time if any glaring misuse resulting into loss of revenue comes to his notice.

9.5 Any change in the consumption ratio [input-output ratio] should be promptly intimated by the manufacturer to the deputy/Assistant Commissioner of Central Excise and the jurisdictional Range Superintendent giving reference of the permission granted. If necessary, the Deputy/Assistant Commissioner of Central Excise may order fresh verification.

10. Procurement of material
 The procedure of procurement of material required for the manufacture shall be governed by the provisions of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.

11. Removal of materials or partially processed material for processing 

11.1 The Deputy/Assistant Commissioner of Central Excise may permit a manufacturer to remove the materials as such or after the said materials have been partially processed during the course of manufacture or processing of finished goods to a place outside the factory –

1. for the purposes of test, repairs, refining, reconditioning or carrying out any other operation necessary for the manufacture of the finished goods and return the same to his factory without payment of duty for further use in the manufacture of finished goods or remove the same without payment of duty in bond for export, provided that the waste, if any, arising in the course of such operation is also returned to the said factory of the manufacture or process; or
2. for the purpose of manufacture of intermediate products necessary for the manufacture or processing of finished goods and return the said intermediate products to his factory for further use in the manufacture or process of finished goods without payment of duty or remove the same, without payment of duty for export, provided that the waste, if any, arising in the course of such operation is also returned to the factory of manufacturer or processor;

1. Any waste arising from the processing of materials may be removed on payment of duty as if such waste is manufactured or processed in the factory of the manufacturer or processor;

12. Procedure for export

12.1 The goods shall be exported on the application in Form A.R.E. 2 specified in the Annexure-23 and the procedures specified in the Notification No. 42/2001-Central Excise dated 26th June, 2001 shall be followed. It is mentioned that in such cases, fresh A.R.E.1 is not required because export will be effected on A.R.E.2 itself. But the procedure specified in the aforementioned notifications relating to removals, distribution of documents at the place of despatch and place of export, acceptance of proof of export etc. shall be followed mutatis mutandis.

12.2 The Deputy/Assistant Commissioner of Central Excise should point out deficiency, if any within 15 days of filing of A.R.E.1 duly certified by Customs indicating actual export. Queries/ deficiencies shall be pointed out at one go and piecemeal queries should be avoided.

12.3 Only a manufacture or processor of finished goods who exports the goods can claim benefit of input stage rebate. This facility shall not be extended where export are through merchant exporters.

12.4 The benefit of input stage rebate cannot be claimed in any of the following situations:

• where the finished goods are exported under Claim for   Duty Drawback,

•  where the finished goods are exported in discharge of export obligations under a Value Advance Licence or a Quantity Based Advance Licence issued before 31.03.95.

• where facility of input stage credit is availed under CENVAT Credit Rules, 2004

13. Accounts & Returns

13.1 The manufacturer shall maintain register of duty free materials brought to the factory for manufacture of finished goods for export and the account for finished goods manufactured and exported. Any officer duly empowered by the Deputy/Assistant Commissioner of Central Excise in this behalf shall have access at all reasonable times to any premises indicated in the application. The applicant shall also permit the officer of Central Excise access to any records relating to the production, storage and export of goods.

14. The colour coding of A.R.E.2 will be as follows:-

Original Duplicate Triplicate Quadruplicate Quintuplicate

White Buff Pink Green Blue

15. Checks by Customs Officers
15.1 Samples will be invariably drawn by the Customs Officers for testing at the place of export in case the export goods are of sensitive nature considering that they are made from materials bearing high Central Excise Duty.

15.2 Customs officer responsible for making endorsement in A.R.E.2 shall carefully check that exports are not covered under any of the following:

–         The Duty Drawback Scheme

–         A Value Based Advance Licence issued prior to 31.03.95

–         A Quantity Based Advance Licence issued prior to 31.03.95

15.3 The Deputy/Assistant Commissioner sanctioning rebate shall ensure that the relevant transport copies (duplicate copies) of Duty paying document have been suitably defaced before payment is made.