By TIOL News Service

AHMEDABAD, JULY 19, 2016: IN the issue before the High Court is whether when an importer utilises DEPB scrip for the purpose of customs duty on inputs and raw materials, benefit of duty drawback would be available upon export of the final product.

It is the case of the department that the relevant notifications and the policy, do not permit drawback on imports made under DEPB and other similar export incentive schemes. In case of imports made under DEPB scheme, the customs duty is exempted. Goods therefore, not having suffered the customs duty, upon export of the final product, drawback would not be available.

It is the contention of the exporters that there is no limitation on drawback being available when the customs duty is suffered through surrendering credit in the scheme, be it DPEB or MLFPS. In either case, it cannot be stated that the customs duty is not paid.

After hearing both sides, the High Court held:

+ the DEPB scheme aims at neutralising the incidence of customs duty on import component of export product, where upon export, credit would be given at specified rate on the FOB value of the exports. Such credit could be utilised for payment of duty in future or may even be traded. It was in this background that Supreme Court in case of Liberty India v. Commissioner of Income-tax reported - 2009-TIOL-100-SC-IT, had held that DEPB being an incentive which flows from the scheme framed by the Central Government, hence, incentives profits are not profit derived from the eligible business (in the said case falling under section 80IB of the Income Tax Act) and belong to the category of ancillary profits of the undertaking. Such incentive in the nature of DEPB benefit from the angle of the income tax has been seen as income of the undertaking. Thus when an importer whether imports goods under DEPB scheme or pays customs duty on the imports on purchased DEPB credits, he essentially pays customs duty by adjustment of the credit in the passbook. It would therefore, be incorrect to state that the imports made in such fashion have not suffered the customs duty.

+ neither section 75 nor the Rules of 1995, prohibits entitlement of drawback when the basic customs duty has been paid through DEPB scrip. To read such limitation through the clarification issued by the Government of India in various circulars which principally touch the question of eligibility of drawback, when additional duties have been paid through DEPB would not be the correct interpretative process.

+ under these schemes, the Government of India having realised that exports in question require added incentive, provides for the same in form of credit at specified rate of FOB value of the export which credit can be utilised for payment of customs duty. To disqualify such payment for the purpose of duty drawback would indirectly amount to denying the benefit of the export incentive scheme itself.

Accordingly, the High Court allowed the Petitions and reversed the impugned orders.

(See 2016-TIOL-1425-HC-AHM-CUS)