CBEC needs to make up its mind on modvat, cenvat

Readers have sent in responses to last week’s column on Finance Ministry’s imperious attitude towards exporters under the Duty Free Import Authorisation (DFIA) scheme. I deal with some of their doubts here.

The quantity based advance licence/authorisation scheme has always allowed a manufacturer to take Modvat/Cenvat credit of the inputs used in the manufacture of goods exported in discharge of export obligation against advance authorisation/license and use the duty free goods imported as replenishment in the manufacture of non-dutiable goods. This double benefit is available even now.

A similar benefit was available under DFIA scheme also, with the restriction that although Cenvat Credit can be taken in respect of inputs imported or procured outside the DFIA scheme, no Cenvat Credit should be taken of inputs imported or procured under the DFIA scheme. Later, the Foreign Trade Policy (FTP) denied this double benefit but only through the annual supplement for the year 2008-09 but the Customs Notification no. 40/2006-Cus. dated 1.5.2006 was not amended till 17.2.2009.

 

So, denial of double benefit under Duty Free Import Authorisation (DFIA) scheme but retaining the double benefit under the advance license/authorisation scheme will only mean that some of the exporters who now use DFIA will simply switch over to the advance authorisation scheme and continue to take the double benefit.

So, the Central Board of Excise and Customs (CBEC) needs to make up its mind – whether it wants to continue giving the double benefit under advance authorisation/license scheme that has been available since the introduction of Modvat Scheme in 1986 or whether it wants to discontinue the same. If it decides to discontinue the double benefits, it can only do so with suitable amendments in the notification no. 93/2004-Cus. dated 10.09.2004 with prospective effect.

The CBEC circular no. 11 dated 25.2.2009 (which is binding on its field formations, but not the trade), says that the instructions are issued under Section 151A of the Customs Act, 1962 to ensure uniformity. The powers under that Section are granted to ensure uniformity in the implementation or interpretation of the legal provisions by the field formations and not to effect uniformity in any notification or legal dispensation, disregarding the notification as it reads or the amendments that have been carried out or by giving such amendments retrospective effect.

M.F. (D.R.) Circular no. 10/94 dated 9-5-1994 (issued from F.N. 605/95-94-DBK) insisted that instructions of other agencies should not be followed by Customs/Excise if the same are not in conformity with the provisions of notifications/instructions issued by the Board.

But, now the CBEC Circular no. 11/2009 dated 25.2.2009 wants to hide behind FTP provisions, which were not in conformity with its notifications/ instructions and act against exporters.

There are many reasons for legal infirmities and inconsistencies in various export promotion schemes. The FTP is drafted by officers in the Directorate General of Foreign Trade, who are unfamiliar with excise laws or any legal nuances. The CBEC is power drunk and repeatedly issues notifications/instructions that are very different from the FTP provisions.

Once a faulty scheme like DFIA is introduced, there is a mulish reluctance to accept the mistake and retract. Such problems do not have ready or easy solutions.

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