The Central Government has recently introduced the new Foreign Trade Policy 2015-20 (FTP) on with an aim to increase exports of merchandise and services from India from the current (F.Y. 2013-14) USD 465.9 billion to USD 900 billion by F.Y. 2019-20, and to raise India’s share in world exports from 2% to 3.5%.
The intention of the Central Government has been to provide stable and sustainable policies in order to incentivize exports by promoting diversification of India’s export basket and by helping various sectors of the Indian economy to gain global competitiveness. Trade imbalance is also sought to be reduced in this regard. Therefore, to simplify, streamline and bring uniformity, the new FTP has introduced a specific provision in Para 3.15 clarifying that apart from the Cenvat credit or duty drawback of additional duties of customs debited in the scrip, the exporter shall be entitled for duty drawback of the basic customs duty debited in the scrip. Consequently, these changes have also been reflected in the customs Notification Nos. 24/2015-Cus., and 25/2015-Cus., giving effect to the aforesaid provisions.
Position under recent FTP
In view of specific provisions referred above, it stands clarified that the goods imported utilizing the duty credit scrip are not exempted goods as the duty credit scrip is cash equivalent and is freely transferable. Further, these scrips do not carry any export obligation attached to it.
Hence, to rest the dispute between the exporter and the revenue authorities as to whether the goods imported against scrip shall be considered to be duty paid or exempted, specific provisions have been introduced in the new FTP as well as in the customs notifications referred above. However, it may be noted that, the FTP provisions as well as the notifications issued under Section 25 of Customs Act, 1962 will be in force and would cover the exports made on or after 1st April 2015.
Past dispute under erstwhile FTP, 2009-14
As discussed above, recently issued FTP will govern only the scrips issued in respect of exports made on or after 1-4-2015. However, in respect of similar scrips issued in the past, such as Focus Market Scheme, Focus Product Scheme, etc., which were also freely transferable and were without any export obligation attached to it, no clarity has been provided by either Ministry of Commerce or Ministry of Finance to this effect.
Here, it may be noted that various clarifications have been issued by CBEC in the past stating that the goods imported against freely transferable scrips such as DEPB, FMS, FPS, etc., shall not be considered as exempted clearances for the purpose of Cenvat credit under Rule 6 of Cenvat Credit Rules, 2004. Further, a similar view has also been taken by the High Court in the case of Tanfac Industries Ltd.
However, Para 3.17 of the erstwhile FTP as well as prevailing customs notifications issued under Customs Section 25 in respect of earlier export promotion schemes did not state in such clear terms that drawback of basic customs duty debited through the duty credit scrip would be available. Therefore, the dispute arose as to whether the customs duty debited in the scrip shall be considered as payment of duty or that the goods shall be considered as exempted and the Cenvat credit or drawback of additional customs duties debited in the scrip shall be considered as additional incentive granted by the prevailing FTP.
In this regard, attention is also invited to the decision Gujarat High Court in case of Gujarat Ambuja Exports Ltd. wherein the High Court had held that these goods imported against such duty credit scrip are exempted goods. Further, recently Commissioner (Appeals) in Pune has also passed an order rejecting the appeal of assessee seeking drawback of the basic customs duty debited in the scrip. It has been held that the goods imported against scrip are exempted only and no drawback of basic customs duty shall be available to the exporter.
However, inspite of the aforesaid decision of Gujarat High Court and that of the Commissioner (A), in view of the various clarifications issued from time to time, a view is still possible that the goods imported under the scrips are duty paid goods and hence drawback of basic custom duty debited in the scrips, is available.
Though specific provisions have been made under the recent FTP and the corresponding Customs notifications, there is no clarity with respect to identical transactions effected in the past. Therefore, the exporters will have to either suffer cumbersome litigation process to seek the relief before the appellate authorities or represent before Ministry of Finance to issue suitable clarification in this regard in respect of the disputes under the erstwhile FTP. In view of the specific inclusion of Para 3.15 in the current FTP, it is expected that a suitable clarification should also be issued by either Ministry of Commerce or Ministry of Finance to settle dispute for the past period and to save cost and time of exporters.
[The author is a Senior Associate, Lakshmikumaran & Sridharan, Pune]