The Central Board of Excise and Customs (CBEC) has issued a detailed circular (no. 12/2008 dated July 24, 2008) that will make life more difficult for Export Oriented Units (EOU).
The EOU will now have to account for inputs/raw materials based on the Standard Input Output Norms (SION). Items not covered under SION can be used subject to generation of up to 2 per cent waste, scrap or remnants of the input quantity. In case the wastage exceeds 2 per cent, norms have to be got fixed by the Norms Committee or the Board for Approval.
This means that audit parties will check consumption and even stocks and raise demands for duty where the EOU do not establish consumption as per norms.
As such, while allowing monthly payment of excise duty on Domestic Tariff Area sale, the ER2 return was modified and the Central Board of Excise and Customs now says that besides the details of clearance into Domestic Tariff Area/export, a detailed account of duty free imported/indigenous inputs is also to be furnished.
This return is required to be filed for clearances done in the month of June, 2008 and onwards and must be scrutinised carefully by the field formations, says the Central Board of Excise and Customs.
EOU can sell up to 50 per cent of previous year FOB value of exports in the Domestic Tariff Area at concessional duty rates. Last year, the Foreign Trade Policy (FTP) only said that within the DTA sale entitlement, the Export Oriented Units may sell any product similar to the goods exported or to be exported.
This year, the Foreign Trade Policy limited the Domestic Tariff Area sale of any one product to 75 per cent of the entitlement.
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The CBEC reiterates this position but says that the earlier dispensation allowed Domestic Tariff Area sale of any product to only 50 per cent of the export of that specific product. This was not the position earlier and the new circular can result in re-opening earlier cases and unwarranted litigation.
The Circular says that the criteria for determining the Net Foreign Exchange (NFE) allowed Export Oriented Units to achieve positive Net Foreign Exchange only by exporting 50 per cent of the value of imported capital goods and that henceforth, the Net Foreign Exchange will be calculated on the value of capital goods and payment of foreign technical know-how payment fee based on the depreciation rate allowable on the goods.
This will impact issue of ‘no dues’ certificate at the time of exit from the Export Oriented Units scheme, de-bonding of goods before exit, pre-mature de-bonding of the Export Oriented Units, exit from the Export Oriented Units scheme to Export Promotion Capital Goods (EPCG) scheme and advance authorisation scheme.
The circular also clarifies several other amendments relating to Export Oriented Units regarding payment of foregone anti-dumping duty on inputs upon sale of finished goods in Domestic Tariff Area, easing the restrictions on Domestic Tariff Area sale for Export Oriented Units in granite and textile sector, Domestic Tariff Area sale of goods from inputs procured from Domestic Tariff Area under deemed export benefits, reckoning high seas purchases in rupees in the Net Foreign Exchange calculations and so on.
What is quite apparent is that the attempt of Finance Ministry to include all conditions and dispensations given in Foreign Trade Policy in the exemption notifications is causing more confusion.
The best course would be to allow exemptions subject to the terms and conditions stated in the Foreign Trade Policy. That way, the trade and the field formations will be required to refer to only one document.
That will reduce complaints of harassment and corruption at the ground level.