EOUs cannot sell raw materials

CHATROOM

To sell unused imported raw material, export oriented units need permission from the Development Commissioner.

When a importer who is only a merchant company imports certain goods by debiting CVD under DFCE/Target Plus certificates. We would like to know whether he can send this material on job work basis to some party and the job worker can take modvat on CVD paid by the merchant company? Again after getting the finished goods, the merchant exporter wants to sell the goods in the open market. And he wishes to pass CVD benefit to the ultimate buyer of the finished goods. Can he do this? If so, what is the procedure to be followed in both the cases?

Condition no (7) of the exemption notification no. 32/2005-Cus. dated 08.04.2005 says that the importer shall be entitled to avail of the drawback or the Cenvat Credit of the additional duty leviable under section 3 of the said Customs Tariff Act (i.e. CTA 1975) against the amount debited in the said certificate (i.e. the Target Plus Certificate). This notification deals with Target Plus certificates issued on the basis of incremental export growth during 2004-05 over the export performance during the period 2003-04.

A similar provision appears in condition no (7) of the exemption notification no. 73/2006-Cus. Dated 10.07.2006. This notification deals with Target Plus certificates issued on the basis on incremental export growth during 2005-06 over the export performance during the period 2004-05.

A similar provision appears in condition no. (7) of the exemption notification no. 53/2003-Cus. dated 01.04.2003. This condition was inserted through notification no. 97/2005-Cus. dated 17.11.2005. The notification no. 53/2003-Cus. Dated 01.04.2003 deals with Duty Free Credit Entitlement Certificates (DFCEC) issued on the basis of incremental growth during 2003-04 over the export performance during the period 2002-03.

In all the above notifications, the eligibility to take the Credit is restricted to the importer and not to any other person. I am of the view that an extended meaning should not be given to the above provisions because there is no other authority under the Central Excise laws to take Cenvat Credit of the amounts so debited to the certificates referred above.

The scheme-specific notifications contain the above provisions because the Government has deliberately taken a decision not to make any provisions in the Cenvat Credit Rules, 2004 with a view to avoid wider interpretation. In this connection, you may refer to the CBEC Circular no. 27/2006-Cus. dated 13.10.2006.

As the provisions allowing Cenvat Credit are contained only in the scheme-specific notifications and they specifically restrict the Credit to the importer, I am of the view that only the importer can take the Cenvat Credit of the CVD debited to the Target Plus certificate or the DFCEC.

Regarding passing on the credit of duty paid on manufactured goods, the provisions relating to registered dealers may be referred to. Rule 9 of Central Excise Rules, 2001, notification no. 35/2001-CE(NT) dated 26.06.2001and Cenvat Credit Rules, 2004 (Rule 9, in particular) may be referred for the details.

We are a 100 per cent export oriented unit. We imported certain raw material which we did not require due to a change in process. So, we debited our Personal Ledger Account for the duty amount and cleared in the Domestic Tariff Area. The central excise authorities are objecting to this debit and say that we should have obtained the permission of Development Commissioner and paid duty through TR6 challan. Can you guide us on the correct position?

Trading is not permitted for 100 per cent eExport oriented units. So, if you want to sell any imported raw material in the Domestic Tariff Area you must take the permission of the Development Commissioner. Even if you want to sell any raw materials procured from Domestic Tariff Area you need the permission from the Development Commissioner.

The imported goods have been cleared duty free, I believe, under notification no. 52/2003-Cus. dated 31.03.2003. When you clear the same items, you have to pay customs duty and not excise duty. So, your central excise authorities are quite right in objecting to your debiting the Personal Ledger Account. It is when you clear goods chargeable to excise duty that you can debit the Personal Ledger Account.

Therefore, you have to pay customs duty through TR6 challan in the head appropriate to customs duty i.e. 00370003. You may take note that clause (b) to the Proviso to Para no. 4 of the exemption notification no. 52/2003-Cus. dated 31.03.2003 says that "such clearance of goods (including empty cones, bobbins, containers, suitable for repeated use) other than those specified in clause (a) may be allowed on payment of duty on the value at the time of import and at rates in force on the date of payment of such duty"

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