Deemed exports scheme has problems at the ground level

The Foreign Trade Policy (FTP) deals with a number of schemes that deal with exemption or refund of excise or customs duties. The Director General of Foreign Trade (DGFT) advises the commerce ministry on the formulation of the policy and is responsible for its implementation. The ministry notifies the policy and, whenever necessary, amends it through notifications and the DGFT through public notices prescribes the procedures for implementing the policy. The Handbook of Procedures (HBP) is a compilation of procedures that is amended, whenever necessary, through public notices.

The task of drafting the detailed provisions of the policy and procedures is usually dealt with by senior officers subordinate to the DGFT, who have sufficient experience in dealing with the issue of various licences/authorisations at the regional offices of the DGFT. However, they may not have enough grounding in laws relating to customs and excise. This creates situations when the drafting of the detailed provisions is done without a clear understanding of how the indirect laws work and consequently, sometimes faulty drafting of the provisions makes the compliance very difficult at the operating levels.

A good example of problems at the ground levels is the deemed exports scheme. The DGFT had prescribed formats of declaration regarding not availing of Cenvat Credit and disclaimer certificate as Annexure II and Annexure-III to the Form ANF-8 in the HBP, Volume 1. The declarations were patently incorrect. Therefore, the DGFT amended the formats through a public notice number 35/2010 dated March 1, 2010. Still, the problems persist.

After this latest amendment, the Annexure-II gives the declaration required for claiming refund of the Terminal Excise Duty, which requires the recipient of the goods to give a certificate that no Cenvat credit/rebate under the Central Excise Rules has been availed of, nor will be availed of in future, on supply of the items. Apparently, DGFT refers to taking Cenvat Credit of the duty paid on the goods supplied to the recipient. This declaration should have also included a disclaimer certificate.

The revised Annexure-III now relates to declaration for claiming deemed exports drawback. This Annexure calls for a declaration that the manufacturers have not availed of and will not avail of the Cenvat facility in respect of the input/components used in aforesaid supplies. Again, apparently, the DGFT refers to taking Credit of the duty paid on the inputs. This is a faulty declaration because there could always be situations where a manufacturer uses imported goods and has taken Cenvat Credit of the additional duties of customs but not the basic duties of customs. In fact, Para 8.5 of the FTP says supplies will be eligible for deemed export drawback on customs duty paid on inputs/components.

The next part of the declaration is even a bigger problem. It calls for a certificate from the claimants of drawback that they have not been issued any advance authorisation/duty-free Import authorisation in respect of the supplied goods and have not availed of any benefit thereon. The duty exemption scheme allows duty-free import of some inputs under the advance authorisation and drawback of duty paid on other inputs. The revised declaration ignores this aspect. Therefore, it needs to be amended.

The best way for the DGFT to avoid such mistakes is to ask his officials to confer with the officials in the revenue department before issuing public notices.

Email: tncr@sify.com