New duty free scheme offers double benefit

EXIM MATTERS

The finance ministry has issued the exemption notification allowing duty-free imports under Duty Free Import Authorisation (DFIA) scheme. The scheme gives exporters "double benefit".

The surprise, however, is condition no (V). It says that the export obligation as specified in the said authorisation is discharged within the period specified in the said authorisation or within such extended period as may be granted by the regional authority by exporting resultant products manufactured in India which are specified in the said authorisation and in respect of which:

Facility under rule 18 (rebate on duty paid on materials used in the manufacture )or sub-rule 2 of rule 19 of the Central Excise Rules, 2002, or Cenvat credit under Cenvat credit rules, 2004, in respect of materials imported/procured against the said authorisation has not been availed.

The ministry has been consistent in its view that input stage excise duty rebate or exemption cannot co-exist with the advance licence, which allows exemption of not only the basic Customs duty but also the additional duty of Customs (known as CVD).

There is no change in this stand. The second condition barring Cenvat credit in respect of inputs imported under the DFIA makes no sense as imports under the DFIA do not attract any duty.

The exporters may not see the condition barring Cenvat credit in respect of inputs procured from domestic sources against the DFIA as a major constraint because they can always use the DFIA to replenish the stocks used in export production or sell off the DFIA after fulfillment of the export obligation.

The real gain for exporters is that they can now use duty-paid goods or even inputs cleared duty-free under Target-Plus certificates to fulfill the export obligation against the DFIA and then sell the DFIA in the market at a premium that will roughly equal the duty saved under the DFIA.

They can take Cenvat credit for the duty-paid goods used in export production and take a refund of the same under Central Excise Rules.

The notification says that in respect of resultant product specified in paragraph 4.55.3 of the Hand Book of Procedures (Vol.I) of the Foreign Trade Policy, the materials permitted in the DFIA shall be of the same quality, technical characteristics and specifications as the materials used in the resultant product.

The DFIA scheme gives benefits that can make it a more preferred scheme than advance licence. Exporters may prefer advance licence only when they cannot achieve even 20% value addition or when their export product is not covered under standard input-output norms.

email : tncr@sify.com