Normal duty on capital goods

CHATROOM

With an EPCG licence, on imports of Rs 1 crore, you can save Rs 31.64 lakh in duties.

"EPCG scheme allows import of capital goods for pre-production, production and post-production (including CKD/SKD thereof as well as computer software) at 5 per cent customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme to be fulfiled over a period of 8 years reckoned from date of issuance of Authorisation. (Para 1 of chapter 5.1 of EXIM)." Kindly clarify the correct method of calculation for purposes of determining the value of export obligation for which bond is to be executed by the importer.

Normally, capital goods suffer basic customs duty of 12.5 per cent, CVD of 16.32, education cess of 2 per cent and additional CVD of 4 per cent. The aggregate of customs duties work out to 36.74 per cent. The EPCG license enables you to import capital goods at 5.10 per cent duty. Therefore, the duty saved amounts to 31.64 per cent. So, if you import for Rs 1 crore, the duty saved would be Rs 31.64 lakh and eight times the duty saved would work out to Rs 253.12 lakh, which would be the export obligation to be fulfiled over a period of eight years.

You have an option to pay the CVD at 16.32 per cent in cash and take up lower export obligation because in that case the duty saved amount would be less. However, you must not take Cenvat credit of the CVD paid in cash but you will be allowed to claim depreciation.

This has reference to Customs Circular No 18/2006 dated 05.06.2006, regarding the levy of special additional duty of customs at 4 per cent on imports under EPCG scheme. We are advised by customs that 4 per cent is exempted because we are not required to pay cash and it is being debited in the EPCG license. Our view is that if 4 per cent is being debited in the EPCG license as duty saved, then we are taking the export obligation on that portion of 4 per cent. Since we are taking the EO as our liability, how we are getting the exemption of 4 per cent?

The answer to the previous question should clear your doubts. You may take note that there is no separate exemption notification for 4 per cent CVD under EPCG scheme. The only notification you need to refer is notification no 97/2004-cus, dated 17.09.2004. Under the notification, you have to pay basic customs duty of 5per cent and education cess at 2 per cent on the 5 per cent; the total works out to 5.10 per cent. The rest is exempted under the said notification and so is treated as duty saved and export obligation worked out accordingly.

We are a merchant exporter company and are importing certain products like crude palm oil which we want to get processed at some factory on job work basis. The said item entails concessional duty in terms of entry no 34 of custom notification no 21/2002 subject to fulfilment of condition no 5. Is it possible for us to get the said exemption subject to our getting registered in the excise department and getting the factory address of job worker registered with excise department?

Condition no 5 of the notification you have referred to requires the importer to follow the procedure set out in the Customs (Import of goods at Concessional Rate of Duty) Rules, 1996, notified through 36/96-Cus.(NT) dated 23.07.1996. The CBEC circular no 46/96-cus, dated 30.08.1996 details the procedures.

Rule 2 of the above rules refers to "a manufacturer intending to avail of the benefit of an exemption ...shall obtain registration". The rest of the rules also refer only to the manufacturer. The CBEC circular also refers to manufacturer only. So, there is no relevant provision on the basis of which I can confirm to you that a merchant can use the said rules.

A service provider has made payment of fees for the period March 2006 to Feb 2007 on 25/03/2006. So he has debited the fees a/c with the amount of March 2006 and the remaining amount transferred to prepaid expenses. Thus for the FY 2005-2006 can he claim full payment i.e., the full amount of invoice on the basis that the entire payment has been made or should he claim on for the month of March which pertains to the FY 2006? Can a service provider claim credit on prepaid expenses?

As far as service tax is concerned, tax is payable on the amount received whether before during or after providing services. The tax paid can be taken as Cenvat credit immediately. In your account books, you may allocate the proportionate fees and tax for March to the expenses account and allocate the balance fees and tax to pre-paid expenses account. During the next year, the balance in the pre-paid expense account may be liquidated by debiting the expense account and crediting the pre-paid expense account.