DGFT's sloppy and arbitrary decisions

Deemed exporters have a new problem. Their Terminal Excise Duty (TED) refund claims could be rejected, on the ground that the duty has been paid by utilising their Cenvat credit balance.

The Pune office of the Director General of Foreign Trade (DGFT) says this decision has been conveyed through a letter dated Auguist 22 from the headquarters, issued from file number 01/92/180/01/AM7/PC-VI, addressed to Regional Authorities (RA). Its Trade Notice 19/AM16 dated August 26 says this decision to reject TED refund claims on the basis of mode of payment of duty is based on DGFT's understanding of the orders of the Bombay High Court in the cases of Sandoz (India) and Lupin Laboratories. Since the said DGFT letter directs the RAs to make necessary checks before releasing the TED refund claim, the Pune office says on this matter, no separate deficiency letters will be issued and the claimants should produce the necessary certificate from central excise that the TED has not been paid by utilising the available Cenvat credit balances. Most deemed exporters will find it impossible to do so.

DGFT's stand, as conveyed by the Pune office, is based on a completely wrong reading of the case law in question. In the said case, the Bombay HC did not deal with payment of TED by utilising the Cenvat credit at all. The matter related to denial of the TED refund claim of Export Oriented Units (EOUs) on the basis of DGFT Policy Circular number 16, dated March 15, 2013. This had clarified that no refund of TED should be granted, as the supplies are from the outset exempted from duty payment. The petitioners contended DGFT had powers only to clarify an existing provision and none to introduce a new provision in the Foreign Trade Policy (FTP) through a circular. The HC held that the provisions relating to deemed export benefits for an EOU at Chapter 8 of the FTP must be read in harmony with the provisions for an EOU at Chapter 6 of the FTP (especially Para 6.11) and that the circular only clarified the existing position.

Obviously, the DGFT has neither read the case law properly nor shown any appreciation of the FTP provisions or the Cenvat Credit Rules, 2004. The FTP does not deny TED benefit based on how the duty was paid. Invariably, the manufacturers discharge their excise duty liability by utilising the Cenvat credit balance. Denial of TED refund on the basis of the mode of payment will hit deemed exporters hard, especially those making supplies to infrastructure projects, where the recipient usually does not pay the TED to supplier or take Cenvat credit. So, the DGFT should immediately withdraw this letter and clarify the correct position.

The DGFT should also stop the practice of sending letters to RAs on such critical matters and, instead, issue policy circulars and host these on the website. This May, too, DGFT had sent letters to RAs asking them to deny the benefits under the Merchandise Exports from India Scheme on certain pretexts, rather than issue a Circular and let everyone know his views.

Deemed exports enable domestic manufacturers to compete with duty-free imports. Unnecessary, arbitrary and illegal restrictions on their dues undermine those who 'Make in India'.

Email: tncrajagopalan@gmail.com