Recovery of Drawback for Export Values not realized by Exporter
DUTY drawback payments are governed by provisions of section 75 of the Customs Act, 1962 and the rules made there under.
Second proviso to Section 75 of the Customs Act provides that where any drawback has been allowed on any goods and the sale proceeds in respect of such goods are not realized within the time allowed under the Foreign Exchange Management Act, 1999 such drawback shall be deemed never to have been allowed and the Central Government may, by Rules made under section 75(2), specify the procedure for recovery of the amount of such drawback.
A procedure has also been laid down under the Customs, Central Excise and Service Tax Drawback Rules, 1995 for recovery of drawback in case of non-realization of export proceeds. Therefore, the amount of drawback paid in all such cases where export proceeds have not been realized has to be recovered.
However, Board has noticed that some exporters are resisting recovery of drawback in cases where export proceeds have not been realized, citing provisions of Handbook of Procedure (HBP) (Vol.1) of the Foreign Trade Policy (FTP).
In terms of Para 2.25.1 of the Handbook of Procedure (HBP) (Vol.1) of the Foreign Trade Policy (FTP) 2009–2014 payments through ECGC cover would count for benefits under FTP. The FTP 2004-09 (Para 2.25.1 of the HBP v.1) and the FTP 2002–2007 ( Para 2.25.3 of the HBP v.1) also had similar provisions. The DGFT vide Policy Circular No.12/2002-2007 dated 1.11.2002 had clarified that this provision would also be applicable to exports made or licenses issued prior to 01.4.2002.
Further, a new provision has been made in the current FTP (Para 2.25.4 of the HBP v.1, 2009-14) which provides that realization of export proceeds shall not be insisted under any of the Export Promotion Schemes under the Foreign Trade Policy, if the Reserve Bank of India (RBI) writes off the requirement of realization of export proceeds on merits and the exporter produces a certificate from the concerned Foreign Mission of India about the fact of non-recovery of export proceeds from the buyer. However, this would not be applicable in self-write off cases.
Since the Drawback scheme is governed by the provisions of the Customs Act, 1962 and the Rules made there under which clearly provide that drawback should be recovered if sale proceeds have not been realized, the Board has now clarified that provisions contained in para 2.25.1 and 2.25.4 of the HBP v.1 (2009-14) would not be applicable to the Drawback scheme.
Hence, ‘Drawback' would not be payable in cases where export proceeds have not been realised in accordance with the provisions of the Foreign Exchange Management Act, 1999 even if the claim has been settled by ECGC or realisation waived by RBI. Action should be taken for recovery of drawback amount in such cases.
The crux of the matter is that this latest Circular issued by the Board directing field formations to recover drawback on write off of export sale proceeds is inconsistent with the very concept of duty drawback as envisaged by section 75 of the Customs Act read with the Rules. It may be noted that the amount of drawback claimed by an exporter is actually an incidence of duty/tax on inputs or input services consumed by the exporters. It is another matter that this drawback amount is computed and allowed as a percentage of FOB value of exports.
Para 2.25.4. of the HBP reads:
Realization of export proceeds shall not be insisted under any of the Export Promotion Schemes under this Foreign Trade Policy, if the Reserve Bank of India (RBI) writes off the requirement of realization of export proceeds on merits and the exporter produces a certificate from the concerned Foreign Mission of India about the fact of non-recovery of export proceeds from the buyer. However, this would not be applicable in self-write off cases.
Now, the Board says no drawback in such cases, which means as per the CBEC drawback is not an Export Promotion Scheme whereas as per Ministry of Commerce it is!
Compare this with an example under CENVAT Credit scheme. A manufacturer procures duty/tax paid inputs/input services under the cover of an invoice. This input/input service is consumed by the manufacturer for manufacture and export of goods under the claim for rebate of duty paid on inputs. Rule 18 of the Central Excise Rules, 2002 read with Rule 5 of CENVAT Credit Rules, 2004 allows the rebate of duty/tax paid on inputs/input services even if the manufacturer/exporter does not fully realize the sale proceeds for any reason. (Rule 5 is mentioned here because Rule 18 allows only rebate of duty paid on inputs and any excess unutilized credit available in the books on account of input services consumed for export goods will be availed under Rule 5 of CENVAT Credit Rules, 2004).
Therefore, the proposition to recover duty drawback in this Circular does not make any sense if the concept of duty drawback is properly understood. So any write off of unrealized export sale proceeds or covered by ECGC should not make any difference to the claim of duty drawback by exporters under section 75 of the Customs Act.
Let us hope better sense prevails and the Board withdraws this Circular with immediate effect before any damage is done in the field.
Circular No. , Dated: March 23, 2010