Duty Exemption/ Remission Scheme

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 of Duty Credit Entitlement

Adv. Autho./DFIA for 1) Phy. Exports 2) Deemed Exports

Annual Adv. Autho. 1) Phy. Exports 2) Deemed Exports

DEPB Scheme

Duty Drawback

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]

Duty Exemption Scheme

The facility of Advance Authorisation entitles exporter to import required inputs for export production without payment of duty subject to export obligation to be completed within prescribed time. This scheme reduces burden of customs duties on the inputs and thereby facilitates cost-competitiveness. The facility of newly introduced Duty Free Import Authorisation entitles exporter to avail the benefit of duty free import of inputs plus transferability after the exports have been completed. The Scheme has been operationalized by issue of Customs Ntfn No. 40-Cus. Dtd. 01.05.2006.

Advance Authorisation

Advance Authorisation
SION/Adhoc Norm: Ratio of input and output which permit allowable wastages mainly related to production process. Wastage: Recoverable/Non-recoverable effect of wastage in fixing of norms. Value addition: Positive Value Addition Value addition is a concept where it is expected that the exports against Advance Authorisation should result in additional earning of foreign exchange.

Advance Authorisation
Exemption from payment of Basic Customs Duty Additional Customs Duty Education Cess Anti-dumping Duty if any Safeguard Duty if any

Advance Authorisation
Advance Authorisation can be issued either to a manufacturer exporter or merchant exporter tied to supporting 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 going vessel/aircraft subject to the condition that there is specific SION in respect of the item(s) supplied. Subject to actual user condition

Advance Authorisation
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.

Advance Authorisation
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 applicable duty 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.

Advance Authorisation
Port of Registration:
To facilitate accounting of duty exempted. Authorisation need to be registered at the specified port The authorisation holder is permitted to import only 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 the HBP.

Advance Authorisation
Enhancement or Reduction in the Authorisation Value:
The reason of
Enhancement sudden increase in export order Reduction - Export order may get cancelled

Provision is made for enhancement or reduction on pro-rata basis

Extension of Export Obligation Period [EOP]:

The period of fulfillment of export obligation under an Advance Authorisation will commence from the authorisation issue date.
Contd

Advance Authorisation
Extension of Export 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.

Advance Authorisation
Revalidation:
Only one revalidation of 6 months is allowed

Fulfillment of Export Obligation:

Export obligation is to be fulfilled by the Advance Authorisation Holder. Once the export obligation is fulfilled in terms of value and quantity both, the licence holder needs to submit documents in support of having fulfilled the EO.
Contd..

Advance Authorisation
Penalty for Shortfall:
Situation Penalty EO is fulfilled in terms A. Customs duty on unutilized imported of Value but shortfall in material along with interest as notified. quantity 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.
Contd..

Advance Authorisation
Penalty for Shortfall:
Situation Penalty EO is fulfilled in terms of A. No penalty is imposed if the licence Quantity but shortfall in holder has achieved positive value 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 EFT mode. Contd.

Advance Authorisation
Penalty for Shortfall:
Situation EO is fulfilled in terms of Quantity but shortfall in value Penalty Value wise shortfall shall be calculated with reference to actual quantity of exports and FOB value of realisation with reference to prorata quantity 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.

Contd..

Advance Authorisation
Penalty for Shortfall:
Situation Penalty In case where EO is not As per the above provisions. fulfilled in terms of value and quantity both Where no export and import Authorisation holder can cancel the is done against Authorisation Authorisation and apply for Drawback after obtaining permission from Customs Authority for conversion of DEEC Shipping bills into Drawback Shipping Bills.

Indigenous Procurement
Reasons for opting out in favour of indigenous procurement:
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 under deemed exports. Possibility of inspecting the cargo (since the supplier is within the country, there is comparative ease to inspect the cargo) Indigenous procurement is free of currency risk since payment can be made in Indian Rupees.

Other Provisions
Fixation of Norms:
Where SION for export product is not fixed, advance authorisation can be obtained on self-declaration basis. The norms are fixed by Norms Committee [based on Chartered Engineer s certificate] with or without modification. In case where Norms Committee has already ratified norms for same export and import products in respect of an Authorisation obtained under paragraph 4.7, the RA will issue Authorisation under Ad hoc Norms fixed category.

Other Provisions
Standardisation of Norms:
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 applications are 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 actual consumption.

Other Provisions
Modification of Norms:
Authorisation Holder can modify the existing SION. 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 alternate inputs.

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 been issued under similar Customs notification even pertaining to different financial years. However in case of authorisations issued in 2004-09 period, Advance Authorisations of different customs notification can be clubbed.

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.

Advance Authorisation for Annual Requirement

The entitlement in terms of CIF value of imports under this scheme is upto 300% of the FOB value of physical export and / or FOR value of deemed export in the preceding licensing year or Rs 1 crore, whichever is higher. Advance Authorisation can be issued with a positive value addition. Validity : 24 months. One revalidation for six months is granted. Extension of Export Obligation : Same as Advance Authorisation.

Duty Free Import Authorisation

Duty Free Import Authorisation

New instrument to replace DFRC scheme introduced in the 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 and Authorisation itself is transferable once export obligation has been fulfilled and the case is redeemed by Customs Authority.

Duty Free Import Authorisation

Once transferability is endorsed, imports against authorisation or transfer of imported inputs shall be subject to payment of applicable additional customs duty / excise duty. Such additional customs duty / excise duty would be reimbursed to exporter as drawback. Corresponding Customs Notification 40/2006-CUSTOMS dated 1st May, 2006.

Comparison between Advance Authorisation and DFIA

Advance Authorisation
Non-transferable instrument.

DFIA
Transferable instrument after fulfillment of 100% EO and redemption is obtained. 20% Value Addition. Controversies related to Cenvatparticularly for DFIAs issued upto 31.03.2007.

Positive Value Addition. Cenvat can be claimed.

Application can be made for Application can be made on the existed SION or for Adhoc norms. basis of existed SION only. Subject to Actual User Condition. Subject to Actual User Condition till EO is discharged 100% and redemption obtained.

Duty Remission Scheme

Duty Remission Scheme

The Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in 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.

Duty Remission Scheme

DEPB is towards neutralization of basic customs duty on the inputs. DEPB, per se, is duty credit instrument and therefore allows import of any permissible input irrespective of the fact whether the same input has been utilized in the export product or not. DEPB is, therefore, more flexible in nature. Both DEPB are transferable instruments and hence they are equally easy to operate.

Duty Entitlement Passbook Scheme

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.

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 SEZ Developer/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.

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/ Guaranteed by 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 be issued. Once the export proceeds received, the same DEPB shall be made transferable.

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.

DEPB
Customs Verification:

Shipping bills issued before 01.10.2005 and non-EDI Shipping bills will be verified by Customs before allowing import. In case of EDI shipping bills issued on or after 1-10-2005 from EDI ports which are being transmitted electronically by Customs to DGFT, the DEPBs issued shall be sent to Customs at the port of registration through an electronic message exchange system and the DEPB shall be registered at the port of registration electronically. No verification of shipping bills against which such DEPBs have been issued, will be required before allowing imports against these DEPBs.

DEPB
Value Cap:

There is a system of value cap where irrespective of the value realized against per unit quantity of export product, the DEPB is given only upto a specified value. Let us say, the value cap is Rs. 30/kg and the rate of DEPB is 10%. Even if exporter achieves a rate of Rs. 40 FOB/kg, he would not be entitled to claim DEPB on Rs. 40/-as value cap restricts such entitlement at Rs. 30/kg.

DEPB
POSITIVE POINTS OF DEPB SCHEME
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 of duty credit, it is free of nexus with respect to item exported and item imported.
Contd

DEPB
POSITIVE POINTS OF DEPB SCHEME
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 by using DEPB for debit of duty. Hence, acceptability of DEPB is higher compared to any other instrument. DEPB offers flexibility because it can be utilized for debit of duty against any freely permissible item.

DEPB
NEGATIVE POINTS OF DEPB SCHEME
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.

Duty Drawback

Duty Drawback
Meaning & Scope
Duty 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 / or duties of Central Excise paid on indigenous materials.

Duty Drawback
No Drawback where value addition is Negative If the total foreign exchange spent on inputs used in the goods exported is more than the F.O.B. value of the exports, them no drawback will be paid. No Drawback if Sale proceeds not realised within Time Limit Newly inserted rule 16A of the Customs & Central Excise Duties (Drawback) Rules, 1995 has made a provision for recovery of amount of drawback where export proceeds are not realised within the period allowed under the Foreign Exchange Regulation Act, 1973 including any extension of such period.

Duty Drawback
Drawback not Mandatory Under Section 75 of the Customs Act, 1962, it is discretionary with the Central Government to allow drawback on goods manufactured in India and exported outside India. Therefore, it cannot be said that it is mandatory for the Government to grant drawback on all goods manufactured in India for export out of India. Drawback not Admissible if Cenvat Availed of In case where exporters has availed CENVAT credit under Rule of Cenvat Credit Rules, 2002, they will not get benefit of duty drawback on Central Excise Allocation.

Duty Drawback
Types of Drawback Rate Determination
All Industry Rate of Drawback The one which is based upon determination of average incidence 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.

Duty Drawback
Types of Drawback Rate Determination
Brand Rate The second provision seeks to give relief of actual amount of duties 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.

Duty Drawback
Types of Drawback Rate Determination
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.