FTP silent on refund of terminal excise duty

The Directorate General of Foreign Trade (DGFT) has issued a very useful circular clarifying deemed export benefits for supplies against authorisations issued under the duty exemption scheme, but it needs to appreciate that it is a poor practice to try and make up for deficiencies in Foreign Trade Policy (FTP) provisions through Policy circulars.

Paragraph 4.1.11 of FTP says that holder of advance authorisation, advance authorisation for annual requirement and duty-free import authorisation (DFIA) intending to source inputs from indigenous sources or State Trading Enterprises, in lieu of direct import, has option to source them either against advance release order (ARO) or Invalidation letter denominated in free foreign exchange or Indian rupees. Para 4.13 and Para 4.14 of the Handbook of Procedures, Vol. 1 (HB-1) deal with the procedures for issue of authorisations for intermediate supplies and ARO.

Para 8.4.1 (i) of the FTP says that in respect of supplies made against advance authorisation or DFIA, the supplier shall be entitled to advance authorisation for intermediate supplies or DFIA for intermediate supplies. The FTP is silent regarding refund of the terminal excise duty (TED) against such supplies. So, it was inferred widely that the FTP intends to deny TED refund on such supplies and claims filed were also being rejected for want of specific provision in the FTP.

The policy circular (number 09/2009 dated October 1, 2009) now informs that the purpose of invalidation letter is to facilitate duty neutralisation on inputs procured from the domestic market, in lieu of duty-free imports allowed under the authorisation. It 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).

The advance intermediate licence/authorisation scheme is almost three-decades old but this is the first time a categorical clarification has been issued that TED refund can be granted against such supplies to advance authorisation/licence holder.

This clarification brings great relief to advance intermediate authorisation holders as many buyers are unwilling to pay excise duty and add to their unutilised Cenvat Credit balances. The moot point, however, is whether such an important matter should be resolved through policy circular, especially when the DGFT has no powers to amend the FTP. It would be much better to amend Para 8.4.1 (i) of the FTP allowing TED refund on supplies by advance intermediate authorisation holders to advance authorisation holders.

This useful policy circular from DGFT, however, creates unnecessary confusion by conveying that supplies against ARO will be entitled only for duty drawback. The point is that Para 8.4.1 (ii) clearly says that if supplies are made against ARO, suppliers shall be entitled to deemed exports duty drawback as well as TED refund. This clear cut provision n the FTP cannot be taken away though policy circular.

The policy circular number 09/2009 dated October 1, 2009, has useful clarification regarding value addition criteria when clubbing advance authorisations in accordance with Para 4.20 of HB-1 also.

Besides, another policy circular number 7/2009 dated September 16, 2009, informs about constitution of Inter Ministerial Committee to resolve the problems of exporters and the DGFT public notice number 13/2009 dated September 22, 2009, revalidates DFIAs (even if endorsed with transferability) issued during May 1, 2006, till March 31, 2008, for a period of six months from the date of endorsement subject to certain conditions.

E-mail: tncr@sify.com