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The Director General of Foreign Trade (DGFT) has issued fresh instructions (Policy Circular no. 16 dt.04.01.02), reiterating the earlier instructions (Policy Circular no. 33 dt. 20.08.98) that, where an exporter has submitted export promotion copy of shipping bill and bank certificate of exports & realisation showing fulfillment of export obligation, he should not be declared a defaulter.
The DGFT has, however, directed that action must be taken, where a value-based advance license (VABAL) holder has not submitted the duty exemption entitlement certificate (DEEC) showing the export entries duly audited by the Customs.
The DGFT has claimed a presumption that such exporters are unable to get their DEEC logged by the Customs because they have availed Modvat credit on the inputs used in the manufacture of export goods - something that the law did not allow them to do.
The presumption of DGFT is not correct. There are many cases where the Customs are not willing to endorse the export entries in the DEEC book due to rigid adherence to the criteria of 'nexus' between the inputs imported and the inputs actually used in the manufacture of the export product.
There are many cases where the exporters have reversed the Modvat credit availed on the inputs but could not pay the interest within the time allowed under amnesty scheme announced in January 1997. There are cases where the excise authorities have not certified proper reversal of Modvat credit due to their own inability to assess the correct Modvat credit amount to be reversed.
There are even cases, where the exporters have availed the 'Samadhan' scheme but the Customs have taken a view that 'Samadhan' will only result in dropping the demand for full customs duties but will not result in DEEC audit.
Recently, the Supreme Court in the case of Bharti Telecom Ltd. [2001 (134) ELT 327 (S.C)] held that where the VABAL holder had reversed the Modvat Credit but delayed payment of interest beyond 31st January 1997 -- the last date under the amnesty scheme -- he would not get the amnesty.
Now, Bharti Telecom is saddled with the liability to pay import duty on all the goods imported under VABAL with interest, despite having fulfilled the export obligation. Such cases abound.
Nothing can obscure the fact that the exporters never got any double benefit by availing Modvat Credit for exports under the VABAL scheme, except in rare situations when the replenished inputs were used in the manufacture of 'nil excise duty' goods.
The revenue department was wrong in stipulating the condition in the exemption notification 203/92 dated 19.05.92 and the DGFT was wrong in not aligning the Exim Policy provisions with the Customs Notifications for over eighteen months.
Even when the amnesty scheme was announced, the instructions were never too clear till three days prior to closure of the scheme. Even now, most excise officials refuse to give necessary certificates of Modvat reversal and interest payment.