DECEMBER 26, 2017

By D Kalirajan, Adv.

THE Foreign Trade Policy 2015 – 20 (for brevity 'the FTP') has been amended as part of mid-term review,mainly, to align the provisions of various schemes in the FTP with the provisions of Goods and Service Tax (GST). Provisions relating to DTA sale of goods by an EOU has undergone substantial changes. One of the major changes in DTA sale provision is giving back all input stage benefits availed not only by EOU but also by the input supplier along with payment of applicable GST.

In terms of para 6.08(a) of the FTP, as amended, when an EOU sells goods (Finished goods, by-products, rejects, waste and scrap) to a DTA unit, they have to make following payments.

a. GST applicable on supply of goods to DTA

b. Repayment of customs duty (BCD) exemption availed on the inputs used for manufacturing of such goods.

c. Repayment of Deemed export benefits provided under Chapter 7 of the FTP which is availed by the supplier or the EOU, on the goods (inputs) used for manufacture of goods cleared into DTA. (This condition is inserted as part of mid-term review)

Repayment of 'Deemed Export' benefit availed by Domestic supplier

Supplies to an EOU are eligible for following deemed export benefits.

a. Advance Authorisation for Deemed exports; or

b. Deemed export duty drawback for BCD.

c. Exemption from payment of Central Excise Duty leviable, if any.

As the DTA supplier would be in a better position to avail above benefits, generally, they claim the aforesaid deemed export benefits. Para 6.08(a)(vi) of FTP necessitates surrendering deemed export benefits availed by the EOU or by the supplier, on the goods used for manufacture of goods (viz., final product, by-product, etc.,) cleared into DTA. The said para 6.08(a)(vi) reads as follows.

"(vi)Such DTA sale shall also be subject to refund of any benefits under Chapter 7 of FTP availed by the EOU/supplier as per FTP, on the goods used for manufacture of goods cleared into the DTA"

It is the view of the author that an EOU would procure goods from many local suppliers availing any of the aforesaid deemed export benefits. It would be very cumbersome process to identify each input on which the DTA supplier has claimed deemed export benefits and quantifying the amount of deemed export to be surrendered on DTA sale.

Position under pre-GST regime

Refunding the Deemed export benefit is not new. The CBEC vide Circular No. 74/2001-Cus., dated 04.12.2001 had insisted on repayment of deemed export benefit availed by an EOU or by DTA supplier, on the locally procured goods which is cleared 'as such' by the EOU to another DTA. EOUs had faced lot of procedural difficulties, such as, identifying the benefits availed by the DTA supplier, tracing documents, etc. Later on, the said requirement was slightly altered and it was decided to treat the locally procured items as 'imported goods' and thus, applicable customs duty on goods cleared to DTA was insisted. Recently, vide Circular No. 13/2017-Cus., dated 10.04.2017 it has been clarified that the EOUs are required to repay deemed export benefits availed on inputs, when they clear the locally procured goods into DTA, on the basis that such goods are treated as imported goods and EOUs would pay customs duty. It is also suggested that an EOU can, alternatively, pay actual deemed export benefits claimed on inputs.

It is to be noted that under pre-GST regime, refunding the deemed export benefits was insisted only when the goods procured from DTA were cleared 'as such' to DTA. However, now, such requirement has been made applicable to goods manufactured and cleared to DTA also.

Before parting...

Suitable clarifications on methodology to quantify the amount of deemed export benefits to be surrendered on DTA sale of goods by an EOU should be issued to ensure smooth compliance. EOUs should request the DGFT to issue appropriate clarification in this regard to avoid any non-compliance. The Central government may also provide an alternate option of paying 'notional' deemed export benefit would have been availed on the inputs, as provided under Circular No. 13/2017-Cus., dated 10.04.2017 issued by the CBEC.

(Author is associated with Lakshmikumaran and Sridharan and views expressed in the article are strictly personal.)