The finance ministry has issued notifications (dated July 9, 2012) regarding utilisation of duty credit scrips for payment of excise duty on goods procured from domestic sources. The exemption notifications prescribe some unnecessary conditions and round about procedures and leave some essential questions unanswered.
Chapter 3 of the Foreign Trade Policy (FTP) envisages issue of duty credit scrips to exporters under the Focus Market Scheme (FMS), Focus Product Scheme (FPS), Vishesh Krishi Gram Udyog Yojana (VKGUY) scheme, Served from India scheme (SFIS) and Status Holders Incentives Scheme (SHIS). The scrips are transferable, although persons to whom the scrips can be transferred are stipulated under SFIS, SHIS and VKGUY (Agri Infrastructure) schemes.
The duty credits can be utilised for payment of customs duties on imported goods but scheme-wise restrictions exist on what can and cannot be imported. In 2006, SFIS scrips were allowed to be utilised for excise duty payment on goods sourced domestically. On June 5, 2012, FTP allowed other duty credit scrips also to be utilised towards excise duty payment on goods procured from domestic suppliers.
The latest notifications exempting excise duty on goods cleared against specified duty credit scrips repeat many conditions for issue of the scrips specified in FTP, which is unnecessary, considering the fact that the excise authorities are in no position to verify whether these conditions are fulfilled and in any case, ought to have no jurisdiction to question whether the scrips have been issued properly by the Regional Licensing Authorities of the Director General of Foreign Trade (DGFT). The notification relating to SFIS prescribes no such conditions.
The procedures require a holder of scrip to first approach the Customs with proforma invoice or letter of the domestic supplier and get the scrip debited by the Customs. Thereafter, he has to approach the excise authorities of the supplier for allowing the exemption on the goods to be cleared after making suitable endorsements on the reverse of the scrip. In case of SFIS, there is no requirement to approach the Customs authorities, except for registration of the scrips.
The latest notifications are explicit that the holder of the scrip to whom the goods are cleared, shall be entitled to avail duty drawback or Cenvat Credit of the excise duties debited to the scrip and validated at the time of clearance but questions remain on whether the goods cleared without duty payment but upon debit to duty credit scrips should be treated as duty paid or exempted. If the goods are treated as duty paid, then education cess and secondary higher education cess become payable. If the goods are treated as exempted, the cesses need not be paid but the sellers taking Cenvat Credit may be required pay 6% of the value of the goods in lieu of reversal of the Cenvat Credit, as per Rule 6 (3) of the Cenvat Credit Rules, 2004 (CCR).
In the cases of Universal Power Transformer Pvt Ltd [2010 (256) ELT 244 (Tri Bang)] and Voltamp Transformers Ltd [2012 (276) ELT 0238 (Tri Ahmd)], the tribunals have held that on goods cleared without duty payment against debit to SFIS scrips, 6 per cent amount need not be paid. The Central Board of Excise and Customs (CBEC) should, however, clarify the correct position and if necessary amend the notifications/CCR so as to avoid unnecessary litigation.
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