Move on duty credit scrip to up costs

EXIM MATTERS

Last week, the commerce ministry issued a notification allowing utilisation of duty credit scrips earned under the Served from India scheme for payment of excise duty on "inputs" procured from domestic sources.

The finance ministry also issued an exemption notification giving effect to the decision. The notifications, however, could have been better thought out.

The commerce ministry says the duty free scrip can be utilised for payment of excise duty on such "inputs" that are permitted for imports under para 3.6.4.5 of the foreign trade policy.

The said para, however, makes no reference to any "inputs." It says the duty credit scrip may be used for import of any capital goods, including spares, office and professional equipment, office furniture, and consumables that are otherwise freely importable under ITC (HS) classification of export and import items.

The para further says that utilisation of duty credit earned under the scheme shall not be permitted for payment of duty in case of import of vehicles, even if such vehicles are freely importable under ITC (HS) and that in the case of hotels, golf resorts and stand-alone restaurants having catering facilities, the duty credit entitlement may also be used for import of consumables, including food items and alcoholic beverages.

The word "input" does not appear anywhere in para 3.6.4.5. The exemption notification also makes no reference to procurement of "inputs". The procedure laid down in this notification mandates debit of the duty credit scrips by the jurisdictional assistant/deputy commissioner of the central excise for the purpose of availing exemption from payment of excise duty.

This means that the scrip has to be produced before the central excise authorities having jurisdiction over the factory from where the relevant goods are procured. This procedure can lead to practical difficulties. The holder of the duty free scrip has to send it to one supplier, get the scrip debited, get it back and then send it to another supplier and so on.

This can lead to co-ordination efforts that can mean more transaction costs. Moreover, the supplier may be able to retain only a photocopy of the duty free scrip as authority to remove the goods without payment of duty.

There is another problem that the supplier may face. Removal of final products without duty payment under the exemption notification will mean that the supplier cannot take Cenvat credit on inputs. In situations where the supplier cannot maintain separate records for inputs that go towards manufacture of the exempted goods, he may have to pay 10 per cent of the price under Rule 6 of the Cenvat Credit Rules, 2004.

In short, the benefit of the exemption notification may not amount to much. Apparently, the government has responded to representations from services exporters that they do not have enough imports or Customs duty payments for which they can utilise the duty credits and so, has allowed utilisation of the duty credit scrips for payment of excise duty.

The good intention would be better served if the finance ministry allowed issue of CT2 certificate against debit of the duty credit scrip by the central excise authorities having jurisdiction over the service provider and also takes a re-look at the procedures and the Cenvat credit issue of the supplier.

tncr@sify.com