Transferable DEPB can be issued on the basis of shipping bill only

In the recent Interim Foreign Trade Policy, the government has decided to give Duty Entitlement Passbook (DEPB) on the basis of Free On Board (FOB) value declared on the shipping bill. We declare FOB value after taking into account, the estimated (and not the actual) amount of freight and insurance premium. What happens if the actual export proceeds are less or more than the amount declared on the shipping bill?

At the time of applying for DEPB to the Regional Authority (RA), you have the option not to submit the Bank Certificate of Exports and Realisation (BRC) in the form given in Appendix-22A. Transferable DEPB can be issued to you on the basis of shipping bill only.

However, you have an obligation to realise the export proceeds within the time allowed by the Reserve Bank of India and submit the BRC to the RA. If you do not do so, you will be required to pay an amount equivalent to the DEPB issued. To make sure that the provision can be enforced the RA can ask for Legal Undertaking backed by Bank Guarantee. The detailed instructions about the procedures to execute Legal Undertaking and Bank Guarantee are awaited.

In most cases, the actual realisation of export proceeds will be more or less than the FOB value declared on the shipping bill on the basis of estimates. If the FOB value of actual realisation is more than the FOB value declared on the shipping bill, the concerned exporter can file supplementary claim for DEPB for the differential entitlement.

However, if the FOB value of actual realisation is less than the FOB value declared on the shipping bill, proportionate duty credit amount can be deducted from your future DEPB entitlement. As an alternative, you can pay the Customs, an amount equal to the DEPB entitlement proportionate to the shortfall.

In my opinion, you can even surrender DEPB entitlement proportionate to the shortfall, although the instructions do not specifically say so. You may refer to DGFT Public Notice no. 151/2008-09 dated February 26, 2009 for more details.

The Customs notification no. 40/2006 dated May 1, 2006, was recently amended prescribing several restrictions regarding transferability and utilisation of Duty Free Import Authorisation (DFIA). Our excise authorities say that the restrictions will be applied even for DFIA issued earlier. Can we dispute that point.

The notification no. 17/2009-Cus. dated February 19, 2009, has been issued amending the DFIA notification that you have referred to. The notification operates prospectively from February 19, 2009 i.e. it is effective from the date of its issue.

So, any imports that you make under any DFIA on or after February 19, 2009, will be governed by the amended provisions. The notification cannot operate retrospectively.

However, the Central Board of Excise (CBEC) wants to give it retrospective effect through its Circular no. 11/2009-Cus. dated February 25, 2009, on the pretext that it wants to ensure uniformity. You can certainly dispute that but expect fair hearing only from Courts/Tribunals. Departmental officers will not bother to even hear you.