Duty Exemption

8/3/2019 Duty Exemption

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Duty Exemption/ Remission

Scheme


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Duty Exemption/Remission Scheme

Exemption from payment

of duty on inputs-prior or

after to Exports/

Deemed Exports

Remission of duty on inputs -

Post-Exports by way ofDuty Credit Entitlement

DEPB Scheme

Adv. Autho./DFIA for

1) Phy. Exports

2) Deemed Exports

Annual Adv. Autho.

1) Phy. Exports

2) Deemed Exports

Duty Drawback


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Duty Exemption Scheme

The Duty Exemption Scheme enables duty free

import of inputs required for export production.

Duty Exemption Scheme consists of:

Advance Authorisation Scheme

Duty Free Import Authorisation Scheme [DFIA]


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Duty Exemption Scheme

The facility ofAdvance Authorisation entitlesexporter to import required inputs for exportproduction without payment of duty subject to exportobligation to be completed within prescribed time.

This scheme reduces burden of customs duties on theinputs and thereby facilitates cost-competitiveness.

The facility of newly introduced Duty Free ImportAuthorisation entitles exporter to avail the benefit of

duty free import of inputs plus transferability after theexports have been completed.

The Scheme has been operationalized by issue ofCustoms Ntfn No. 40-Cus. Dtd. 01.05.2006.


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Advance Authorisation


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SION/Adhoc Norm: Ratio of input and outputwhich permit allowable wastages mainly relatedto production process.

Wastage: Recoverable/Non-recoverable effectof wastage in fixing of norms.

Value addition: Positive Value Addition Valueaddition is a concept where it is expected that theexports against Advance Authorisation shouldresult in additional earning of foreign exchange.


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Advance Authorisation can be issued either to amanufacturer exporter or merchant exporter tied tosupporting manufacturer(s):

i) for Physical exports (including exports to SEZ); and/or

ii) for Intermediate supplies; and /or

iii) for deemed exports

iv) supply of ship stores on board of the foreign goingvessel/aircraft subject to the condition that there is

specific SION in respect of the item(s) supplied.

Subject to actual user condition


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Transferability: Advance Authorisation and/or materials imported there under

will be with actual user condition.

It will not be transferable even after completion of export

obligation.


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Export Obligation [EO]: EO is imposed to Safeguard Revenue foregone by way of giving

exemption.

Two limiting factors Quantity and Value.

To be fulfilled in 24 months

Any shortfall is required to be regularized by paying applicableduty plus interest on unutilised inputs and penalty if any.

Import Entitlement:

Limited by Quantity and Value. Import is to be completed in 24 months.

Actual User Condition applied.


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Port of Registration:

To facilitate accounting of duty exempted.

Authorisation need to be registered at the

specified port

The authorisation holder is permitted to importonly through registered port unless permission[TRA] is taken from the Customs Authority.

Exports can take place from any port.

Port of registration is specified in Para 4.19 of theHBP.


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Enhancement or Reduction in theAuthorisation Value: The reason of

Enhancement sudden increase in export order

Reduction - Export order may get cancelled

Provision is made for enhancement or reduction onpro-rata basis

Extension ofExport Obligation Period [EOP]: The period of fulfillment of export obligation under

an Advance Authorisation will commence from theauthorisation issue date.

Contd


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Extension ofExport Obligation Period [EOP]:

1st Extension for 6 months subject to payment of

composition fees of 2% of the duty saved on all the

unutilized imported items as per authorisation.

2nd Extension for 6 months subject to payment of

composition fees of 5% of the duty based on all

unutilized imported items as per Authorisation.


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Revalidation:

Only one revalidation of 6 months is allowed

Fulfillment ofExport Obligation: Export obligation is to be fulfilled by the Advance

Authorisation Holder.

Once the export obligation is fulfilled in terms ofvalue and quantity both, the licence holder needsto submit documents in support of having fulfilledthe EO.

Contd..


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Penalty for Shortfall:

Contd..

Situation Penalty

EO is fulfilled in terms

of Value but shortfall in

quantity

A. Customs duty on unutilized imported

material along with interest as notified.

B. If the unutilized material is restricted for

imports as per ITC(HS) on the date of

imports then the Authorisation holder has to

pay an amount equivalent to 3% of CIF value

of unutilised imported material.Authorisation holder shall also be required

to obtain a separate authorisation for

regularisation of excess imported input.

No such penalty in case of imported item is

freely permissible.


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Penalty for Shortfall:Situation Penalty

EO is fulfilled in terms of

Quantity but shortfall in

value

A. No penalty is imposed if the licence

holder has achieved positive value

addition.

B. In case if positive value addition falls

below the minimum VA - amount equal to

1% of shortfall in FOB value in Indian

Rupee in authorised branch of Central

Bank of India as above or through EFTmode.

Contd.


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Penalty for Shortfall:

Contd..

Situation Penalty

EO is fulfilled in

terms of Quantity

but shortfall invalue

Value wise shortfall shall be calculated with

reference to actual quantity of exports and FOB

value of realisation with reference to prorataquantity of imports and CIF value.

This would accordingly imply that where

Authorisation holder is unable to export, no

penalty on value wise shortfall shall be

imposed.


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Penalty for Shortfall:Situation Penalty

In case where EO is not

fulfilled in terms of valueand quantity both

As per the above provisions.

Where no export and import

is done against Authorisation

Authorisation holder can cancel the

Authorisation and apply for Drawback

after obtaining permission from

Customs Authority for conversion ofDEEC Shipping bills into Drawback

Shipping Bills.


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Indigenous Procurement

Reasons for opting out in favour of indigenousprocurement: Shorter delivery time

Logistical advantages

Financial ease (local supplier may not insist on letter of credit) The same material may be available at cheaper cost if the

supplier is in a position to claim benefits available underdeemed exports.

Possibility of inspecting the cargo (since the supplier is withinthe country, there is comparative ease to inspect the cargo)

Indigenous procurement is free of currency risk since paymentcan be made in Indian Rupees.


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Other Provisions

Fixation ofNorms:

Where SION for export product is not fixed, advanceauthorisation can be obtained on self-declaration basis.

The norms are fixed by Norms Committee [based onChartered Engineers certificate] with or withoutmodification.

In case where Norms Committee has already ratifiednorms for same export and import products in respectof an Authorisation obtained under paragraph 4.7, theRA will issue Authorisation under Ad hoc Norms fixedcategory.


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Other Provisions

Standardisation ofNorms: Norms are fixed by Norms Committee and circulated to industry

by way of public notice.

Standard norms are applicable to entire industry.

Such norms are fixed normally when atleast three applicationsare received from different entities for the same export product.

Such norms are fixed on an average wastage basis.

However, the authorisation holder has to account for actualconsumption.


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Other Provisions

Modification ofNorms:

Authorisation Holder can modify the existingSION.

The reasons for modifications are

Due to inclusion of inputs not available under SION.

Difference in Consumption ratio more/less wastages.

Due to greater efficiency in the manufacturing process.

Where manufacturing is possible by using alternateinputs.


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Other Provisions

Facility of Clubbing: The facility of clubbing shall be available only for

redemption/regularisation of the cases.

No further import or export is allowed.

For this facility, authorisations are required to have beenissued under similar Customs notification even pertainingto different financial years.

However in case of authorisations issued in 2004-09period, Advance Authorisations of different customsnotification can be clubbed.


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Advance Authorisation for Annual Requirement

Advance Authorisation can also be issued on

the basis of annual requirement for physical

exports, intermediate supplies and / or

deemed exports.


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Advance Authorisation for Annual Requirement

The entitlement in terms of CIF value of imports underthis scheme is upto 300% of the FOB value of physicalexport and / or FOR value of deemed export in thepreceding licensing year or Rs 1 crore, whichever ishigher.

Advance Authorisation can be issued with a positivevalue addition.

Validity : 24 months. One revalidation for six months is

granted.

Extension of Export Obligation : Same as AdvanceAuthorisation.


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Duty Free Import

Authorisation


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Duty Free Import Authorisation

New instrument to replace DFRC scheme introduced inthe Foreign Trade Policy 2006-2007 [Annual Updation].

Import of duty free inputs subject to export obligation.

Minimum Value Addition required 20%

Material imported under the Authorisation andAuthorisation itself is transferable once exportobligation has been fulfilled and the case is redeemedby Customs Authority.


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Duty Free Import Authorisation

Once transferability is endorsed, importsagainst authorisation or transfer of importedinputs shall be subject to payment of

applicable additional customs duty / exciseduty.

Such additional customs duty / excise dutywould be reimbursed to exporter as drawback.

Corresponding Customs Notification -40/2006-CUSTOMS dated 1st May, 2006.


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Comparison between Advance Authorisation and DFIA

Advance Authorisation DFIA

Non-transferable instrument. Transferable instrument after

fulfillment of 100% EO and

redemption is obtained.

Positive Value Addition. 20% Value Addition.

Cenvat can be claimed. Controversies related to Cenvat-

particularly for DFIAs issued upto

31.03.2007.

Application can be made forexisted SION or for Adhoc norms.

Application can be made on thebasis of existed SION only.

Subject to Actual User Condition. Subject to Actual User Condition

till EO is discharged 100% and

redemption obtained.


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Duty Remission Scheme


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The Duty Remission Scheme enables post exportreplenishment/ remission of duty on inputs usedin the export product.

Duty Remission scheme consist of:

(a) Duty Entitlement Passbook Scheme [DEPB].

(b ) Duty Drawback Scheme

Earlier DFRC Scheme is now discontinued w.e.f.01.05.2006.


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DEPB is towards neutralization of basic customsduty on the inputs. DEPB, per se, is duty credit

instrument and therefore allows import of anypermissible input irrespective of the fact whetherthe same input has been utilized in the exportproduct or not. DEPB is, therefore, more flexible

in nature.Both DEPB are transferable instruments andhence they are equally easy to operate.


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Duty Entitlement Passbook

Scheme


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Duty Entitlement Passbook Scheme [DEPB]

Objective of DEPB is to neutralize incidence of

customs duty on import content of export

product.

Credit may be utilized for payment of Customs

Duty on freely importable items.

The DEPB is valid for a period of 24 months.


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DEPB

Additional customs duty / Excise Duty and Special Additional Duty paid in

cash or through debit under DEPB may also be adjusted as CENVAT Credit

or Duty Drawback as per DoR rules

The DTA supplier can claim DEPB, in case where supplies are made to SEZDeveloper/SEZ units and payment received from Foreign currency account

of SEZ Developer/SEZ unit.

DEPB and/or items imported against it are freely transferable.

Transfer of DEPB shall however be for import at specified port, which shall

be the port from where exports have been made.


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DEPB

Transferable DEPB will be issued only where the

payment is received or shipment is made against confirmed irrevocable letter of credit or

bill of exchange is unconditionally Avalised/ Co-Accepted/ Guaranteedby a bank and the same is confirmed by the exporters bank and

certified by the bank in the relevant Bank certificate of export and

Realisation.

In other cases, Non-transferable DEPB will beissued. Once the export proceeds received, the

same DEPB shall be made transferable.


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DEPB

Time period: The application for obtaining DEPB shall be filed

within a period of twelve months from the date of

exports or

within six months from the date of realization or

within three months from the date of printing/

release of shipping bill,whichever is later, in respect of shipments for which the claim have been

filed.


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DEPB

Customs Verification:

Shipping bills issued before 01.10.2005 and non-EDIShipping bills will be verified by Customs before allowingimport.

In case ofEDI shipping bills issued on or after 1-10-2005from EDI ports which are being transmitted electronicallyby Customs to DGFT, the DEPBs issued shall be sent toCustoms at the port of registration through an electronicmessage exchange system and the DEPB shall be registeredat the port of registration electronically.

No verification of shipping bills against which such DEPBshave been issued, will be required before allowing importsagainst these DEPBs.


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DEPB

Value Cap:

There is a system of value cap where irrespectiveof the value realized against per unit quantity ofexport product, the DEPB is given only upto aspecified value.

Let us say, the value cap is Rs. 30/kg and the rateof DEPB is 10%. Even if exporter achieves a rate ofRs. 40 FOB/kg, he would not be entitled to claimDEPB on Rs. 40/-as value cap restricts suchentitlement at Rs. 30/kg.


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DEPB

POSITIVEPOINTSOFDEPBSCHEME

The credit entitlement is expressed as a

percentage of FOB value and therefore it

represents the amount of duty credit available

for debit in Rupee terms.

Since DEPB is not a licence but an instrument ofduty credit, it is free of nexus with respect to

item exported and item imported.

Contd


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DEPB

POSITIVEPOINTSOFDEPBSCHEME

It is also possible that an exporter of readymade

garments gets his DEPB at a specified rate and sells it

to another person who might import chemicals byusing DEPB for debit of duty. Hence, acceptability of

DEPB is higher compared to any other instrument.

DEPB offers flexibility because it can be utilized fordebit of duty against any freely permissible item.


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DEPB

NEGATIVEPOINTSOFDEPBSCHEME

Since calculation of DEPB rate is not based on the actual

customs duty lost, it may not be compatible with WTO

rules.

With increasing exports the amount of DEPB also goes up.

To this extent, the customs have to forego actual duty

receipts in cash.


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Duty Drawback


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Duty Drawback

Meaning & ScopeDuty Drawback in relation to the export of indigenously manufactured

goods, means refund of duties paid on :-

Raw materials,

Component parts, and

Packing materials.consumed in the production and export thereof and now also on goods

processed or on which any operation has been carried out in India. These

duties may be duties of Customs paid on imported materials and / orduties of Central Excise paid on indigenous materials.


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Duty Drawback

No Drawback where value addition is NegativeIf the total foreign exchange spent on inputs used inthe goods exported is more than the F.O.B. value of theexports, them no drawback will be paid.

No Drawback ifSale proceeds not realised withinTime LimitNewly inserted rule 16A of the Customs & CentralExcise Duties (Drawback) Rules, 1995 has made aprovision for recovery of amount of drawback whereexport proceeds are not realised within the periodallowed under the Foreign Exchange Regulation Act,1973 including any extension of such period.


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Duty Drawback

Drawback not MandatoryUnder Section 75 of the Customs Act, 1962, it isdiscretionary with the Central Government to allowdrawback on goods manufactured in India andexported outside India. Therefore, it cannot be saidthat it is mandatory for the Government to grantdrawback on all goods manufactured in India for exportout of India.

Drawback not Admissible if Cenvat Availed of

In case where exporters has availed CENVAT creditunder Rule of Cenvat Credit Rules, 2002, they will notget benefit of duty drawback on Central ExciseAllocation.


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Duty Drawback

Types ofDrawback Rate Determination

All Industry Rate ofDrawback

The one which is based upon determination of averageincidence of duties suffered on inputs used in the manufacture

of the product exported as manufactured generally, such rates

of Drawback which are determined in terms of Rule 3 of

Drawback Rules, 1995 are known as All industry Rates of

Drawback.


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Duty Drawback


Brand Rate

The second provision seeks to give relief of actual amount ofduties suffered on the inputs (not rebated/ relieved otherwise)

used in the manufacture of export product of specified

description/ characteristics of a particular manufacturer. This

rate determination is known as Brand Rate fixation.


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Duty Drawback


Special Brand Rate

Where any manufacturer/exporter finds that the All Industry

Rate of Drawback fixed for any class of goods is less than 4/5th

of the duties paid on the materials or components used in the

production/manufacture of the goods he can make an

application for fixation of an appropriate rate of duty drawback

for his product of specified description/characteristic.

Duty Exemption

Documents

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