The Budget 2010-11 has not done away with most excise or customs exemption notifications but, contrary to the need of the hour, added more exemptions, each with its own set of conditions that entail more paperwork and transaction costs. However, a couple of procedural improvements will bring some relief to select importers and exporters.

Section 3(5) of the Customs Tariff Act, 1975 levies Additional Duty of Customs at 4 per cent (known as SAD) on imported goods to countervail the incidence of local levies like VAT/CST. In September 2007, the government decided to grant refund of SAD, if the imported goods are re-sold on payment of VAT/CST. Now, the government has thrown open an alternative window of not paying SAD at all on certain goods.

Notification no. 29/2010-Cus. dated 27.02.2010 exempts all packaged goods intended for retail sale in relation to which it is required under the provisions of the Standards of Weights & Measures Act, 1976 or any other law for the time being in force, to declare on the package thereof the retail price of such goods. Full exemption from SAD is also granted to mobile phones, garments and watches.

This useful exemption notification is a result of representations from importers that after re-sale they are finding it very difficult to get refunds. The difficulties continue for traders of goods other than those exempted from SAD, who have no option but to claim refund. The government should find a way to gather data on pending claims and make life easier for them.

Under the Cenvat Credit Rule 5, manufacturers and service providers exporting their goods or services without payment of duty or tax can claim refund of unutilized credit. Notification no. 5/2006-CE(NT) dated 14.03.2006 specified the procedures, replacing the earlier notification no. 11/2002-CE(NT) dated 01.03.2002. Past experience had shown that refunds are very difficult to get. So, as per the recommendations of Economic Advisory Council to the Prime Minister, the Central Board of Excise & Customs (CBEC) prescribed a simpler procedure for quick disbursal of refund amounts through its Circular no. 828/5/2006-CX dated 20.04.2006.

Despite the earnestness shown on paper by the government to see that exporters get their refunds quickly, the refund claims were being rejected or delayed on one pretext or the other. So, the CBEC issued Circular no. 120/1/2010-ST dated 19.01.2010 explaining that the purpose is to refund the credit that has already been taken and there cannot be different yardsticks for establishing the nexus for taking of credit and for refund of credit. It also clarified that in case the absence of any input/input service adversely impacts the quality and efficiency of the provision of service exported, it should be considered as eligible input or input service.

The Circular also prescribed a scheme of self-certification for claims up to Rs 5 lakh and Statutory Auditor certification for claims above Rs 5 lakh. It also allowed refund of Cenvat Credit carried over from periods earlier than the claim period and directed a liberal approach even where Cenvat Credit is taken on the basis of incomplete invoices.

The notification no. 7/2010-CE(NT) dated 27.02.2010 amends the notification dated 14.03.2006 to give legal sanction to the simplifications prescribed through the said Circular. The notification has been given retrospective effect.

CBEC’s initiatives for giving quick refunds should help cash flow of exporters and importers.

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June 2021