DFIA more beneficial with Cenvat

EXIM MATTERS

Readers have raised a number of queries in response to my last week's column on Duty Free Import Authorisation (DFAI) scheme. I answer some of these here.

Last week's column dealt with a situation where an exporter avails Cenvat credit of duty (excise duty or CVD) paid on inputs that he uses for export production, exports the goods so manufactured in discharge of export obligation against DFAI, gets a transferability endorsement on DFAI and then sells off DFAI in the market.

In that case, the consideration he can get for transfer or sale of DFIA will be based not only on the basic duty of Customs that will be exempted for imports under DFIA but also the additional duty of Customs (ie CVD equivalent to the excise duty payable on like products if manufactured in India) that will be exempted for imports under DFIA.

That way, under the DFIA route, the benefit to the exporter is not confined to only the Cenvat credit plus the basic duty of Customs but also the CVD, unlike the earlier Duty Free Replenishment Certificate (DFRC) scheme where CVD was payable on imports under DFRC. That was my point last week.

The additional CVD of 4 per cent is exempted if basic Customs duty and CVD are exempted. So, under DFIA, any import clearance without payment of basic Customs duty and additional CVD will automatically attract exemption from payment of 4 per cent additional CVD.

In case the inputs allowed under DFIA attract anti-dumping duty or safeguard duty, imports under DFIA will result in exemption from such duties also.

The advance licence gives similar exemptions but the imported goods have to be used within the factory and excise duty paid on the goods so manufactured, whereas DFIA, or the goods imported under it, can be sold.

Also, under DFIA, "nexus" stipulation is restricted to specified sensitive items whereas advance licence invites "nexus" in case of all the inputs allowed under the licence.

The trade-off for benefits under DFIA is that only items covered under Standard Input Output Norms (SION) can be shipped under it and the value addition of 20 per cent is necessary, whereas the advance licence scheme mandates positive value addition.

Exporters do use a combination of Cenvat plus Duty Entitlement Passbook Scheme but DEPB, in theory, reimburses only the basic Customs duty.

A combination of Cenvat plus DFIA is more beneficial, in theory, because DFIA gives exemption both from the basic duty and the CVD.

At a practical level, DEPB is more easily marketable because it is a duty credit that can be used for getting exemption of duty on import of any freely importable item whereas DFIA has a specific shopping list of items and therefore is saleable only to someone who wants to import a particular item.

Also, CVD debited to DEPB can be taken as Cenvat credit, whereas CVD that is exempted under DFIA cannot be taken as Cenvat credit.

Further, exports under DEPB can be made by exporting goods manufactured by using inputs procured without excise duty payment or by using inputs in respect of which excise rebate is taken, whereas those options are not available under the DFIA scheme.

email : tncr@sify.com