In the pre-GST era, an EOU was required to pay the
excise duty on the higher side in respect of the goods cleared in DTA for the
reason that the EOU has availed the benefit
of exemption from custom duty on the inputs
imported by it. Normally, there was no difficulty in calculating the
excise duty payable on the goods removed in DTA in terms of Notification No.
23/2003-CE dated 31.03.2003 because the excise duty was payable on the transaction
value of the goods cleared in DTA at the rate applicable on the date of clearance. There
was no question of interest
as well for such
clearances of goods in DTA in the pre-GST era.
2.
However, after the implementation
of GST law with affect from 1.07.2017, the custom Notification No.52/2003-CUS
dated 31.03.2003 was amended by Notification No. 59/2017-Cus dated 30.6.2017.
By this amendment, it was provided as under:
“3.
Notwithstanding anything contained in this notification, the exemption from the
whole of duty of Customs leviable thereon under First Schedule to the Customs
Tariff Act, 1975 (51 of 1975), shall not apply to inputs which on
importation into India or procurement, are used for the purpose of manufacture
of finished goods or services and such finished goods and services, are
supplied in Domestic Tariff Area …”
3.
In
this regard, the amending notification also added the following explanation in the original notification (relevant portion reproduced):
“Explanation.- For the
purpose of this paragraph, on payment of whole of duty of Customs
leviable thereon under the First Schedule to the Customs
Tariff Act 1975 availed as
exemption, under this notification, on the inputs utilised for the purpose
of manufacture of finished goods, before clearance of such finished goods
or services on payment of applicable, Goods and Service Tax leviable
thereon, in Domestic Tariff Area or as are in stock at the time of exit, it shall be
treated as if no exemption was availed under
this notification.”
4.
Thus, now an EOU is required to pay
the custom duty in respect of the inputs used in the manufacture of the goods
or services cleared in DTA. We apprehend that this sort of bald provision
(without suitable clarification) would create unnecessary litigation in the times
to come. The following issues
are likely to be faced
by the EOU’s while calculating the custom duty in respect of the inputs
used in the manufacture of goods and services cleared in DTA.
I.
Value
An EOU imports
the inputs on regular basis
for its authorised operations. Inputs
are imported from different countries at different times and at different
values. The value may also be different in the basis of quality of inputs. If
any goods are sold in DTA, say in the month of December, 2019, then it may not
be possible to work out the value of the inputs used in the manufacture of the goods
sold/cleared in DTA. It is quite possible that the inputs might have been
imported in the month of say October or November or December and at different
values. No clarification has been provided as to whether an EOU has to follow
the FIFO method,
LIFO method, average
method or any other method for calculating the value which has to be taken into
account for payment of customs duty cleared in
DTA.
II.
Rate of duty
Likewise, it may happen that an EOU has imported
the inputs from time to ti me where
the custom duty rates are different (Due to change
in rate of custom duty or import from FTA countries etc). It
is not clear how the rate of duty will be applied in respect of the inputs in
such situations.
III.
Domestic Procurement Vs. Imported
procurement
Many a time it happens that an EOU procures the inputs domestically and also
import the same. There is no clarity as to how the apportionment of the inputs would be made between the domestic
inputs and imported inputs.
IV.
Quantity of Inputs
It is also not clear as to how the quantity of the inputs required
for the manufacture of the goods sold in DTA would be worked out. Logically, it should
be based on SION specified by the DGFT for such product but the
problem would arise where no SION have been fixed for the products sold/cleared
in DTA. Further, there is no
question of application of SION in respect
of services sold/cleared in India.
V.
Interest:
In the amended notification, it has not been clarified whether such
duty has to be paid with interest or without interest. One view would be that
no interest is payable because customs duty itself has become payable at the
time of clearance of goods in DTA. Another possible interpretation would be
that such duty is payable with interest because it has been deemed in the
notification as if no exemption has been availed at the time of import. It means if the inputs were imported
three months ago and the duty is paid now then it has to be paid with
applicable interest. Thus,
the applicability of interest on such duty is also a
contentious issue.
VI.
Supply of goods in DTA (which amount to export of service under GST Law)
It has been observed that some of the EOU’s (Particularly printing
books/ magazines etc.) get the content of such Books/ Magazines from the
overseas customer. The EOU makes the books/ Magazines by use of such content
supplied by the overseas customer.
Such books/ magazines are supplied in DTA as per the instruction of the
overseas customer. In such scenario, EOU gets
the amount in foreign exchange
from the overseas
customer but the goods
are supplied/cleared in DTA. Under the GST Law, this amount of export of
services as the recipient of it is located outside
India and the amount is received
in foreign exchange but this creates an anomaly as much as there remains no
level field between a DTA unit and an EOU performing similar activity. In the
case of an EOU, the inputs like paper, binding material, glues, ink etc are
imported without payment of custom duty where a normal DTA unit imports all
such goods on payment of applicable custom duty. In the absence of suitable
clarification, this type of practice would lead to prolong litigation. There
may be a similar situation
with regard to other job work activities
done by an EOU on
the behest of overseas customer but the goods after job work are
supplied in DTA as per the instruction of the Overseas customer.
VII.
Supply of excisable goods like HSD/natural gas etc in EOU
An EOU is entitled to procure the HSD/natural gas etc without
payment of excise duty in terms of Notification No.22/2003-CE dated 31.03.2003.
The benefit of the excise duty is available in case goods manufactured by an
EOU are exported outside India but no such exemption is available to EOU from
payment of excise duty on HSD/natural gas in respect of the manufactured goods
sold in DTA. Hence, on such portion of HSD, excise duty has to be reversed by
the EOU. However, in this situation a similar problem would arise as in the
case of payment of custom duty on the inputs used in the goods sold in DTA as
detailed above.
5.
In nut shell, the EOUs are likely
to face the above issues which would lead to prolonged litigation in the times to come. It would be in the interest of the revenue
and also in the interest of
the EOUs if the suitable clarifications are issued on the above aspects with
regard to calculation of duty and interest in respect of the goods and services
sold/ cleared in DTA.
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