T N C Rajagopalan: DGFT's twin Diwali gifts

On the eve of Diwali, the director-general of foreign trade (DGFT) gave two gifts by way of clarifications. The first was a public notice related to the application of the notification regarding the nexus between the items of import under advance authorisation and inputs actually utilised in the manufacture of export product. The second, by way of a circular, related to declaration regarding availing Cenvat Credit by deemed exporters claiming duty drawback.

On August 1 this year, the commerce ministry introduced a new paragraph, 4.1.15, in the Foreign Trade Policy, effectively making it mandatory that the inputs actually used in manufacturing the export product should only be imported under advance authorisation or duty-free import authorisation (DFIA). Similarly, inputs actually imported must be used in the export product and this must be established for every advance authorisation or DFIA, said the notification. The difficulties this notification caused were detailed in this column on October 14 this year.

The public notice dated October 30, 2013, says that cases where both export and import have been completed before August 1 or where DFIA has been endorsed as 'transferable' before August 1, the said notification will not apply. If only export has been completed, partly or fully, before August 1, then the corresponding import would be allowed against an undertaking from the authorisation holder that the inputs of same specification as actually used in the product already exported shall only be imported. For every export made on or after August 1, provisions of paragraph 4.1.15 of the FTP shall apply and it is immaterial whether for such export, corresponding import has already been made (fully or partly) or not. The issue regarding Cenvat declaration for claim of drawback arose out of a wrong declaration prescribed in the form ANF 8 in the Handbook of Procedures, Vol 1 in 2009.

On March 1, 2011, the DGFT amended the format of declarations calling for declaration that the manufacturers have not availed of and will not avail of the Cenvat facility in respect of the input/components used in the deemed export supplies. As pointed out in this column on April 4, 2011, this was 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. Now the DGFT has clarified that such basic Custom duty paid can be claimed as brand rate of duty drawback, based on actual duty paid documents.

This clarification helps but not fully. Prescribing the brand rate route creates unnecessary paperwork. There is no reason to deny Customs allocation of notified All Industry Rates of Duty Drawback, even when Cenvat Credit has been availed. Also, the declaration calling for certificate from the claimants of drawback that they have not been issued any advance authorisation/DFIA in respect of the goods supplied as deemed exports ignores the fact that the duty exemption scheme does allow duty-free import of some inputs under the advance authorisation and drawback of duty paid on other inputs.

The DGFT can easily rectify these defects and give another gift by clarifying that the amendment that served from India benefits will be available on net foreign exchange earnings basis will operate prospectively for exports made during the current year onwards and not for exports made during the previous years.

Email: tncr@sify.com