Verification Mechanism and monitoring of export obligation under duty exemption / reward Schemes
BOARD had received several references to put in place a verification mechanism in respect of the duty credit scrips issued under Chapter 3 schemes of the Foreign Trade Policy (FTP) and in respect of the Export Promotion Schemes viz., Advance Authorization / Duty Free Import Authorization (DFIA) / Export Promotion Capital Goods (EPCG) schemes.
After examining the matter and after considering the reports received from the field formations, which indicated discrepancies having revenue implications, Board has decided to put in place the following procedures:-
a) In case of EPCG scheme, the Jurisdictional Customs Authorities at the Port of Import shall ensure that the installation certificates are submitted within 6 months of completion of imports as stipulated in the corresponding customs notifications. The correctness of the installation certificates, which are issued by the Chartered Engineers, shall be verified on a random basis through Central Excise divisions. Further, the EPCG notifications stipulate fulfilment of at least 50% of export obligation within the first block. This shall be verified in detail. In case the same is found satisfactory, the Export Obligation Discharge Certificate issued by the Director General of Foreign Trade (DGFT) at the end of 2nd block may be accepted without further verification unless there is a specific intelligence suggesting need for detailed verification.
b) In case of Advance Authorization scheme, the Export Obligation Discharge Certificate should normally be accepted unless there is an intelligence suggesting misuse.
c) The Jurisdictional Commissioner of Customs may cause random verification for some of the authorizations issued under EPCG / DFIA / Advance Authorization schemes registered at their port to check the correctness of the address shown on the Authorization. This is important, as the EPCG notification requires installation of the capital goods and the Advance Authorisation scheme (and DFIA scheme in some cases) contemplates actual usage of the imported goods. Such verification may be carried out during the validity of the Authorisation and preferably through the Central Excise divisions.
d) Action to safeguard customs revenue should be initiated in case the authorization holder does not submit the Export Obligation Discharge Certificate within the time period stipulated in the relevant Customs notifications.
e) As regards the duty credit scrips issued under Chapter 3 of FTP, the verification of genuineness of scrips in terms of Para 3.11.3 of the HBP v.1 shall be done before allowing registration of such scrips. Further, the Commissioner may cause random verification of the shipping bills based on which the said duty credit scrip has been issued to ascertain the genuineness of such shipping bills. A quarterly report on the outcome of the said verification may be forwarded to the Board, which should include inter alia the details of the discrepancies noticed during the verification and the measures taken to redress such discrepancies. This procedure will be reviewed once online transmission of the duty credit scrips issued under Chapter 3 of FTP is operationalized.
f) Wherever the Export Obligation Discharge Certificates issued by DGFT bear the requirement that the Customs department should carry out verification, then such verification should be done. In all cases – EPCG, Advance Authorization, DFIA and Reward Schemes, the Department would retain the right to carry out a complete verification wherever there is specific intelligence available suggesting misuse.
The notifications issued under EPCG / Advance Authorization / DFIA schemes provide that the exporter should discharge the export obligation within the specified time period or within such extended period as may be permitted. Further, the notifications issued under EPCG scheme stipulates that in case of non-fulfilment of block-wise export obligation, the importer should pay the proportional duty of unfulfilled portion of export obligation along with specified interest from the date of clearance of the goods and such payment should be made within 3 months from the expiry of said block. Monitoring of export obligation is an integral part of verification mechanism. This would facilitate faster redemption of Bonds / Bank Guarantee executed under the above schemes. In view of above, the Jurisdictional Commissioners of Customs are directed to put suitable systems in place to initiate timely action in all cases of default.
The guidelines issued in the past on the subject shall be modified to the above extent.
The most important aspect that needs to be stressed is with regard to coordination between the DGFT and the Customs authorities on monitoring of export promotion schemes. Strangely this aspect does not find any mention in the above guidelines.
For e.g. when the notifications prescribe payment of proportionate duty for unfulfilled portion of export obligation along with interest, before the Customs authorities issue a show cause notice for recovery of such proportionate duty, they should get a confirmation from the office of the DGFT if any modification / extension of the time period for fulfilling the export obligation is allowed to an exporter.
For meeting this objective, it is the Customs authorities who have to be more pro-active. Instead of launching a typical bureaucratic correspondence, which will take its own time to conclude, a personal call or a visit to the DGFT office and vice versa, would otherwise speed up flow / sharing of information between the two authorities.
Unfortunately, this jugalbandi between Customs and DGFT rarely happens in the field and it appears as though they are working at cross purposes resulting in tonnes of paper work and unwarranted litigation.
There were many instances where CESTAT, while hearing cases related to demand of duty for non-fulfilment of export obligations, had to deal with representations from the assessees stating that the DGFT was obliged to provide an extension of time period to fulfil the export obligations, resulting in remand of cases for further verification or dismissal of appeals in favour of assessees.
Circular No. , Dated: March 16, 2010