The Central Board of Excise and Customs (CBEC) has issued a controversial circular (no.11/2009-Cus. dated 25.02.2009) regarding the Duty Free Import Authorisation (DFIA) scheme that will lead to unnecessary litigations with exporters and also increase their financial burden.
The circular explains the reasons for amendment of the notification no. 40/2006-Cus. dated May 1, 2006, and explains the various options available to exporters. There can be no quarrel with either the amendments or their consequences for exporters or the way the circular explains the changes. 'Exim Matters' column of 23rd February 2009 hailed the amendment (notification no. 17/2009-Cus. dated 17th February 2009) as a step towards reducing transaction costs.
The circular, however, is notorious because it seeks to give retrospective effect to the amendment. It seeks to set right a wrong the CBEC committed willfully and seeks to make the trade pay for its blunder.
The CBEC says that unintended benefits may have occurred under the DFIA scheme in cases where the duty free inputs, imported/procured subsequent to completion of export obligation using indigenously procured inputs and on which Cenvat credit has been availed of by the exporter, are transferred or used in the manufacture of non excisable/exempted /nil duty goods.
The transferee in such cases obtains the duty free raw materials and escapes the levy of excise duty on finished products in domestic market sale. The position holds good even under actual user imports if the replenished materials are utilised in the manufac-ture of non-excisable/exempted/nil-duty products, says the CBEC.
In fact, double benefits have accrued as the CBEC alleges but were they unintended? On the 8th May 2006, 'Exim Matters' column in Business Standard titled 'New Duty Free Scheme offers double benefits' raised the issue. The column dated 15th May 2006 'DFIA more beneficial with Cenvat' explained in more detail how double benefits occur. Various unsavory aspects of the DFIA scheme came up repeatedly in columns dated 28h August 2006, 28th May 2007, 8th June 2007, 14th June 2007, 13th August 2007, 10th December 2007, 1st September 2007 and 23rd June 2008. But the CBEC did nothing.
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When the notifications that permit double benefits are not amended for years despite pointing out several times, the inference of any businessman would be that the intention is to give the double benefits to boost exports. In any case, the businesses would go by what the notifications say and not the intentions.
The CBEC claims that it was always of the view that the Cenvat credit cannot be availed of in respect of inputs used in the manufacture of goods exported under the DFIA Scheme in terms of condition (v) of the notification 40/06-Cus. If that was so, what made it wait for almost three years to amend the notification?
The CBEC now wants to chase down all exporters who have taken DFIA, examine whether double benefits have accrued and recover undue benefits wherever double benefits have accrued. It is nobody's case that double benefits should be given.
But, where they have been given intentionally, a later plea after undue delay that they should be taken away ab initio would be unsustainable. In any case, a circular cannot give retrospective effect to an amending notification.
CBEC should take responsibility for its misdeeds and not harass the exporters who have not violated the law.