No reason to bar duty rebate on final products

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Last week, I had pointed out some inconsistencies between the Foreign Trade Policy (FTP) provisions relating to the Export Promotion Capital Goods (EPCG) scheme and the related Customs notifications that give effect to the FTP provisions. This week, I bring in focus some confusion that the trade will have to contend with due to defective Customs notifications relating to the duty exemption scheme.

Condition number 9 of the notification number 99/2009-cus dated September 11, 2009, relating to Annual Advance Authorisation (AAA), says that “the export obligation as specified in the said authorisation (both in value and quantity terms) is discharged within the period specified in the said authorisation or within such extended period as may be granted by the regional authority by exporting resultant products, manufactured in India which are specified in the said authorisation and in respect of which facility under rule 18 or sub-rule (2) of rule 19 of the Central Excise Rules, 2002 has not been availed”.

Rule 18 of Central Excise Rule, 2002, deals with rebate of excise duty paid on the export product as well as rebate of the duty paid on the inputs used in the manufacture of the export product. Notification number 19/2004-CE (NT) dated September 6, 2004, deals with rebate of duty on final product and notification number 21/2004-CE (NT) dated September 6, 2004, deals with rebate of duty on inputs. As duty exemption scheme deals only with exemption of import duty on inputs, there is no reason to bar taking rebate of duty on final products. In fact, the notification number 96/2009-cus dated September 11, 2009, relating to Advance Authorisation (AA) says that the bar will operate for facility under Rule 19(2) or Rule 18 (rebate of duty paid on materials used in the manufacture of resultant product). That should be the position for AAA also.

Similar mistakes were made in case of notification 43/2002-cus dated April 19, 2002, and 93/004-cus dated September 10, 2004, also but were corrected later through corrigendum by way drawback public notices. The notification number 99/2009-cus dated September 11, 2009, also needs to be corrected through a corrigendum but the corrigendum must be through a notification, as any notification must be amended through notification and not drawback public notice.

Second, Rule 19(2) relates to removal of inputs without duty payment for use in the manufacture of export product. There can be no export product in respect of which Rule 19(2) can be availed. The finance ministry should be precise in its use of words.

Third, procuring inputs without duty payment or under rebate claim can always be allowed so long as the replenished inputs are used in manufacture of dutiable goods.

Fourth, it is always possible that some inputs are imported duty free and some are procured locally without excise duty payment or under a rebate claim. The bar for rebate of duty on local inputs or removal of local inputs duty free may, if need be, operate only in respect of inputs covered under AA or AAA.

Finally, condition number (6) of the notification number 99/2009-cus dated September 11, 2009, is poorly drafted, as it refers to availing under rule 18 or sub-rule (2) of rule 19 of the Central Excise Rules, 2002, which are anyway not available to exporters for fulfilling export obligation against the AAA, as per condition (9). Similar is the position in the AA notification number 96/2009-cus dated September 11, 2009.

tncr@sify.com