Advance authorisation holders need to examine options

The Foreign Trade Policy allows advance authorisation holder (AAH) to source any of his inputs from any domestic supplier by getting the authorisation invalidated for direct imports and obtaining an invalidation letter issued in favour of the supplier. The domestic supplier can, in turn, obtain advance intermediate authorisation on the basis of the invalidation letter to source his inputs duty free and discharge his obligation by supplying his final products to AAH.

Most AAHs prefer to pay excise duty on inputs sourced domestically and take Cenvat Credit. However, many AAHs, not taking Cenvat Credit or running huge unutilised Cenvat Credit balances, prefer not to pay duty. Till recently, the option of claiming refund of the duty (terminal excise duty refund) paid by the supplier was made available by the Directorate General of Foreign Trade for such deemed exports but that window has been closed now, leaving only the option of procuring the inputs without duty payment.

To enable the AAH procure such inputs from domestic sources without excise duty payment, the finance ministry had issued notification no. 44/2001-CE(NT) on June 26, 2001 under Rule 19(2) of Central Excise Rules, 2002. AAH should take careful note of the provisions of this notification and also Customs notification 96/2009-Cus dated September 11, 2009 related to duty free imports under his advance authorisation.

The said notification 44/2001 requires the AAH to have Central Excise registration and follow the procedures prescribed under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 (notification no. 34/2001-CE(NT) dated June 21, 2001).

The said rules require the AAH to furnish a bond to the central excise authorities, obtain annexure-1 to that notification, send it to the domestic supplier, intimate central excise authorities when goods removed without duty payment against annexure-1 are received, send re-warehousing certificate to the supplier, use the inputs for export production, maintain proper records, submit returns and so on.

The said rules impose other conditions that AAH can comply without too much difficulty once he gets familiar with the procedures. However, his troubles start if he also imports some other inputs duty free under advance authorisation under notification 96/2009-Cus dated September 9, 2009, and uses these with the goods procured under the said notification no. 44/2001 in the production of the goods he exports.

He runs the risk that his exports will not be counted towards discharge of his export obligation on the grounds that it is violation of the condition no. (VIII) of the said Customs notification 96/2009, which requires him to fulfill export obligation by exporting goods in respect of which facility under Rule 19(2) of Central Excise Rules, 2002 has not been availed. This trap is very cleverly laid out and AAH should find ways to avoid walking into it.

So, an AAH should use the said notification 44/2001 only in specific situations. When one uses only domestic inputs, one can stay away from the said notification 96/2009 and in that case, the said condition no. (VIII) will not apply in case of his exports. The other situation is when he fulfils his export obligation by first using inputs that are not procured under the said notification 44/2001 but uses that notification only for sourcing domestic inputs by way of replenishment. In that case he remains compliant with the conditions of the said notifications 96/2009-Cus as well as 44/2001.

Email: tncr@sify.com