Supply of cement, fuel and steel will not get duty incentives if used for projects or manufacturing of goods that enjoy the deemed export status.
“These items (cement, steel, fuel) are not import substitution for which duty benefits are available. These enjoy duty benefits at various other stages of use as well. Imports eligible for deemed exports have to justify that there are no substitutes in the country either as a standalone product or in terms of cost. For a project, imports cannot be done just to claim benefits and save costs,” the official added.
The decision was conveyed at a DGFT meeting held last week. “This will push up the cost of infrastructure projects and other manufactured goods since the additional cost that has not been refunded will be passed on to the consumer,” said an importer and manufacturer of engineering goods.
Deemed exports refer to transactions where goods supplied for manufacturing of finished products do not leave the country. Deemed duty drawback is the incentive given to importers of goods where they can claim refund of the costs involved in import.
These benefits are usually accorded to capital goods to bring down the cost of infrastructure building and manufacturing of goods. The idea was to promote manufacturing and infrastructure building.
The amended guidelines also said deemed export drawback can be claimed by a company or entity using imported goods for its project in India only if the supplier of goods has not received cenvat duty credit or rebate on these goods. This has to be ensured by an undertaking from the supplier of goods and this will be furnished by the applicant at the time of claiming refund of deemed export drawback.
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“Since refund is available in several other schemes like cenvat and excise, at various stages of project development or manufacturing, ‘undertaking of no tax refund availed’ is required to avoid duplication of refunds,” said official sources.
Excise duty benefits refer to refund of excise duty paid while clearing goods from the port of landing. Cenvat is a tax paid by a manufacturer of goods during the entire process. At the time of selling the item, the manufacturer can pay the excise duty after deducting tax that have been paid on the item at various stages of manufacturing.
“It is observed that many companies are just importing to claim duty benefits and the goods are ultimately being used for captive consumption like captive power plants and captive manufacturing. Therefore, it is clarified the goods must be imported through an external supplier (contractor or sub contractor chosen from international competitive bidding). This measure will help in ensuring the genuineness of the import and justify that goods have been imported as import substation in the finished good as a cost-effective option,” said an official.