Merchant exporters have good news. They will be entitled to full rate of duty drawback (including the excise portion) against export of goods they purchase from the market. This is a complete reversal of the stand consistently taken by the Central Board of Excise and Customs (CBEC) till now, that in the case of merchant exporters who procure the export goods from the open market, the benefit of All Industry Rates (AIR) of duty drawback shall be restricted to the Customs duty portion only, if any, and that the export goods purchased from the market shall be treated as having availed the Modvat/Cenvat facility and so, would not be entitled to the central excise portion of the AIR of drawback.
The AIR of drawback is based on representative data from a cross-section of exporters regarding the duty incidence on the inputs used in the manufacture of export products. Once the AIR is notified, the exporters are entitled to claim the drawback at the notified rates, whether the inputs they have used have suffered duty or not. For the same item, the drawback rates could be lower (only the Customs allocation) when the exporter has availed Cenvat Credit, and higher (Customs as well as excise allocation) when he has not availed Cenvat Credit.
The CBEC had earlier taken a view that the goods purchased from the market are deemed to be goods manufactured from inputs in respect of which Modvat/Cenvat credit had been availed. Based on that view, it denied excise allocation of duty drawback. But now the CBEC has taken a different view. The CBEC Circular No. 16/2009-Cus. dated May 25, 2009, explains that the goods available in the market are deemed to be duty paid goods and so, bear an element of central excise duty, which needs to be reimbursed, if such goods are exported.
Ideally, the terminal central excise duty paid at the time of clearance from factory should be refunded but that is not possible in case of export of goods purchased from the market as the trader exporters don’t have duty paying documents. The next best option is to grant All Industry Rate (AIR) of duty drawback as AIR drawback represents average incidence of taxes suffered by inputs used in the export product. Granting this rate on the condition that the exporter would furnish Cenvat non-availment declaration may not be proper as such goods may have changed several hands before exports and the final exporter may not be aware of the actual manufacturer and whether Cenvat credit was availed on such goods, says the circular.
The CBEC ordains that such merchant exporters must declare at the time of export, the name and address of the trader from whom they have purchased the goods and also declare that no rebate (input rebate and also the final product rebate) shall be taken against the shipping bills under which they are exporting the goods.
The CBEC’s change of heart will gladden merchant exporters, but the legal basis for the change is doubtful. The CBEC has now added a new dimension to the drawback scheme. It is no more a scheme to only rebate the duty incidence on inputs. It is now a compensation for not rebating the excise duty on the export goods also.
Email: tncr@sify.com
