NOVEMBER 11, 2019

By S C Jain, Partner, RSA Legal Solutions

1. THE Central Government has issued a DGFT Notification No. 28/2015-2020 dated 31.10.2019 amending chapter 7 of the Foreign Trade Policy, 2015-20 whereby it has been provided that the deemed export supplies would be eligible for All Industry Rate of duty drawback prescribed by the Department of Revenue. Simultaneously, DGFT has issued a Public Notice No. 40/2015-2020 dated 31.10.2019 prescribing the procedure to claim the All industry rate of duty drawback against the deemed export supplies.

2.   The 'deemed export supplies' are governed by chapter 7 of the Foreign Trade Policy, 2015-20 (hereinafter referred to as the " Policy ") and the corresponding chapter 7 of the Handbook of Procedures, 2015-20. As per paragraph 7.2 of the Policy, goods manufactured in India and supplied against an advance authorisation/DFIA, supplied to an EOU/ STP/ EHTP, supply of capital goods against an EPCG authorization, supply of goods to projects funded by World Bank, Asian Development Bank, etc have been considered as deemed exports . Such deemed export supplies are eligible to the benefits specified under paragraph 7.03 of the Policy.

3.   These supplies have been given the status of deemed exports on the premise that the recipient of the goods (EOU, EPCG/Advance authorization holder, etc) otherwise are entitled to import the goods without payment of applicable customs duty. Therefore, in order to encourage the supply of domestically manufactured goods and to provide the flexibility in the operation by such category of persons it was stipulated in the Policy that such supplies would be considered as deemed exports and would be eligible for the benefits specified under paragraph 7.03 of the policy.

4. As per paragraph 7.03(a) of the Policy, the person supplying the goods as 'deemed export' is eligible to get the advance authorisation/DFIA and can import the inputs required for the manufacture of such supplies without payment of custom duties. The supplies made by him to any of the above categories would be considered towards discharge of his export obligation against the advance authorisation obtained by him. Suppose a person supplies the goods to an EOU, then such supplier can take an advance authorization from the office of the licensing authority working under the DGFT and can import the inputs without payment of customs duty required for the manufacture of goods supplied to the EOU. The value and quantity of the goods supplied to EOU would be considered towards discharge of his export obligation against the Advance Authorization.

5. The other benefit is given under paragraph 7.03(b)prior to the amendment dated 31.10.2019 supra was the deemed export drawback of Basic custom duty (BCD) by way of brand rate. In order to claim the deemed export drawback of BCD, the supplier was required to prove on the basis of the documentary evidence like bills of entries etc that he has in fact suffered certain amount of basic custom duty on the inputs imported by him. Such supplies were not eligible for the duty drawback at the All industry rate specified by the Department of Revenue. This sort of stipulation or condition was not in accordance with the spirit behind the deemed export supplies. In this regard, it may be noted that in case the goods are physically exported outside India, then, the exporter is eligible to the duty drawback at the all Industry rate of duty drawback or the brand rate of duty drawback in case he is not satisfied with the all industry rate or there is no all industry rate for his export product. There was absolutely no need to make a discrimination in this regard for the deemed export supplies. As a matter of fact, a vast majority of the persons who supply goods to EOU's, advance authorisation holder, EPCG authorisation holder never claimed the brand rate of duty drawback as it was totally impractical and time-consuming to claim the same.

6.   However, with the issuance of the DGFT Notification No. 28/2015-20 dated 31.10.2019, the supplies made as deemed exports would become more lucrative. Needless to say, for claiming the All Industry rate of deemed export drawback, there is no need to prove the actual duty suffered on the inputs used in the manufacture of deemed export supplies. The rate specified in the all industry rate of duty drawback by the Department of Revenue would be sufficient. This step is certainly a welcome step. This would help a number of manufacturers reeling under the recession in the economy and would enable them to provide competitive rates against the deemed export supplies because they would be getting an extra amount by way of all industry rate of duty drawback from the office of the licensing authority in the DGFT office. It is further clarified that the said duty drawback can be claimed either by the supplier of the goods or by the recipient of the goods as per the procedure specified in Handbook of Procedures.

7.   This step would also be beneficial to the EOU's, advance authorisation holders, EPCG authorisation holders etc. as they would be in a position to get the goods which are manufactured domestically at cheaper rates and would avoid importing the same. This would also be beneficial to the economy in the sense that it would result in curtailing the import of inputs and encouraging the supply of the domestically manufactured goods.

8.   The other benefit as per paragraph 7.03 (c) of the Policy against the deemed export supplies is the exemption/ refund from the central excise duty which is no more relevant in the GST era. Of course, the benefit of excise duty on HSD, Natural gas etc. can still be availed by EOU's, advance authorisation holders etc. It is pertinent to note that no exemption/refund mechanism of GST has been provided against the deemed export supplies in the Policy. Therefore, the GST aspect in respect of the deemed export supplies has to be dealt independently within the four corners of GST Law.

[The views expressed are strictly personal.]