We are sub-contractors in a mega power project where the main contract awarded to the EPC (Engineering, Procurement and Construction) contractor mentions our name and the main contract was awarded through the International Competitive Bidding (ICB) procedure. Can we clear the goods without excise duty payment, if we supply the goods to the main contractor? If not, can we claim refund of the Terminal Excise Duty (TED)?

Supplies to mega power projects are covered under Para 8.2(f) of the Foreign Trade Policy (FTP). As per Para 8.3 of the FTP deemed exports will be eligible for exemption from TED where supplies are made against ICB. In other cases, refund of TED will be given.

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Till recently, the excise department was also accepting the same view, as the object and purpose of the notification is to not charge excise duty on such supplies. However, recently the excise field formations have started raising objections on the grounds that the main contractor did not float ICB and that the sub-contractor has not procured the contract from the main contractor under ICB. This has created a difficult situation for many sub-contractors, because even some licensing offices administering the FTP are not granting TED refund on the grounds that exemption from TED is available.

In fact, the same problems are faced when the ICB procedure was followed while awarding the contract at the IPP (Independent Power Producer) stage but the EPC contract was not awarded through the ICB procedure. There is widespread uncertainty. So, the Finance Ministry should amend the notification or issue suitable clarification. Even if it is clarified that exemption will not be available, that will help, because then the TED refund becomes available.

The DGFT Policy Circular no. 9/2009 dated 1st October 2009 clarifies that against invalidation letter, the supplier can avail Advance Authorisation for Intermediate supplies and TED refund (wherever Excise exemption is not available against such supplies), whereas against Advance Release Order (ARO), the supplier is entitled for deemed export duty drawback, as applicable. Does it mean that TED refund will not be available for supplies made against ARO?

Para 8.4.1 (ii) of the FTP says that if supplies are made against ARO or Back to Back Letter of Credit issued against Advance Authorisation / DFIA in terms of paragraphs 4 /1/11 and 4 .1.12 of FTP, suppliers shall be entitled to benefits listed in paragraphs 8.3(b) and (c) of FTP, whichever is applicable. Therefore, TED refund will be available for supplies against ARO.

Business Standard invites readers’ SME queries related to excise, VAT and exim policy. You can write to us at smechat@business-standard.com

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