Supplies to SEZ are physical exports

CHATROOM

Advance authorisation can be issued either to manufacturer exporter or merchant exporter tied to supporting manufacturers for physical exports.

We have received an order from an Special Economic Zone (SEZ) developer. They want to pay in Indian Rupees. Can we get advance licence or DEPB benefit for such supplies? If so, can you give the specific provisions?

Supplies to SEZ are treated as physical exports. As per Para 4.1.3 of the Foreign Trade Policy (FTP), advance authorisation can be issued either to manufacturer exporter or merchant exporter tied to supporting manufacturer(s) for physical exports (including exports to SEZ). As per Para 4.1.6 of FTP, advance authorisations necessitate exports with a positive value addition; exports to SEZ units/ supplies to developers/ co-developers, irrespective of currency of realisation, would also cover. As per Para 4.25 of the Handbook of Procedures, Vol. 1 (HB-1), for redemption of the authorisation, documents prescribed in form ANF 4F have to be submitted. The said document mandates submission of Bank Certificate in the form given in Appendix-22A.

Rule 23 of SEZ Rules, 2006 says that supplies from the Domestic Tariff Area (DTA) to a Unit or Developer for their authorised operations shall be eligible for export benefits as admissible under the Foreign Trade Policy. Sub-rule (8) of Rule 30 of the SEZ Rules, 2006 says that drawback or Duty Entitlement Pass Book (DEBP) credit against supply of goods by Domestic Tariff Area supplier shall be admissible provided payments for the supply are made from the Foreign Currency Account of the Unit. For claiming DEPB benefit also, you are required to submit Appendix-22A.

We have embarked on expansion and installed some new machinery. In connection with the Puja before starting the machine (for which we had invited several guests) and consequent arrangements, we had entrusted the responsibility to event managers, who have charged service tax to us. Can we take the credit of the service tax charged by the event manager, as the expense relates to our factory and we believe that we cannot really start the machinery without incurring the expenses?

You may refer to the case of Hindustan Zinc Ltd [2008 (9) STR 213 (Tri. Del.)], where the application of waiver of pre-deposit was considered and the Tribunal came to a conclusion that the appellant had failed to make out a prima facie case for waiver of pre-deposit. The Commissioner (appeals) had treated the activities to celebrate inauguration or expansion of plant as entertainment expense and denied the credit.

We have paid cess and exported automobiles. Are the excise authorities correct in rejecting our claim for rebate of cess?

The Central Board of Excise and Customs letter F. No. 262/01/2007-CX-8, dated 20-3-2007 and the case law of Mahindra & Mahindra Ltd [1991 (53) ELT 408 (T)] categorically deny rebate of cess paid under the Automobile Cess Rules, 1984, at the time of clearance for export. Even when you clear the goods for export under bond or undertaking (UT1), the cess must be paid, unless it is exempted by any notification. This position applies to all types of cesses.

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