Chatroom: Issues in MOOWR, incoterms and advance authorisation

Rajagopalan answers readers' SME queries related to GST, export and import-matters

We are a manufacturing unit in a bonded warehouse under Manufacture and Other Operations in Warehouse (No.2) Regulations2019 (MOOWR). We want to purchase our raw materials from an export oriented unit (EOU). The EOU says that they will reverse the basic customs duty (BCD) and social welfare surcharge (SWS) exemption availed on their inputs, in accordance with Para 6.07(a)(i) of the FTP. Is that correct?

 

The first proviso to Para 3 of Notification No. 52/2003-Cus dated 31 March 2003 does not require such payment of BCD and consequential SWS, where the EOU clears goods to a MOOWR unit operating under Section 65 of the Customs Act, 1962. Accordingly, the EOU may clear the goods to your MOOWR unit without payment of the BCD and consequential SWS foregone on the inputs used in manufacture of such goods. FTP Para 6.07 is a broader policy framework but the notification deals with the precise tax impact and obligation. I suggest that, as a matter of prudence, the EOU should follow the procedure prescribed in Para 3(iv) of CBIC Circular No. 29/2017-Customs dated 17 July 2017 relating to inter-unit transfer, since it preserves traceability of the customs duty foregone and facilitates downstream identification and discharge of the deferred BCD and SWS at the time of any ex-bond DTA clearance by the MOOWR unit. At present, however, there are no specific instructions governing this aspect, and so, you may ask the CBIC to consider issuing suitable clarifications.

 

Our foreign buyer is asking us to use carriage insurance paid (CIP) Incoterms 2020 for sea shipment instead of cost, insurance and freight (CIF) that we normally use and believe should only be used for sea shipment. Is he correct and if so, what is the difference?

 

Please note that FAS, FOB, CFR and CIF can be used only for sea shipment, whereas the other Incoterms can be used for any mode of transport. So, there is nothing incorrect in your buyer asking you to use CIP. The difference between CIF and CIP is that CIF requires you to take minimal cover under Institute Cargo Clauses (C), whereas CIP requires you to take all-risk cover under Institute Cargo Clauses (A).  The distinction is important because using CIP for high-value manufactured goods materially increases insurance obligations and premium cost.

 

We want to get our advance authorisation invalidated for one of the inputs in favour of a domestic supplier, who intends to get advance intermediate authorisation for importing his inputs duty free.  Is there any requirement that we must fulfil export obligation only through export of goods manufactured from the intermediates procured from the domestic supplier?

 

Para 4.30(d) of the HBP says that ‘facility of advance authorisation shall be available even in cases where intermediate supplier has supplied or intend to supply material subsequent to fulfilment of EO by exporter holding Advance Authorisation /DFIA from where invalidation letter was issued.’ So, EO need not necessarily be fulfilled only from intermediates procured from that domestic supplier.

 

Business Standard invites readers’ SME queries related to GST, export and import-matters. You can write to us at smechat@bsmail.in