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TIOL-DDT 234 · Thursday, 3 November 2005 · story 1 of 4

Drawback when inputs are imported availing DEPB – yet another faux pas from the Board?

By Vijay Kumar

A recap of yesterday’s DDT:-

Yesterday DDT had brought to you details of the Board’s Circular No. 41/2005- cus.

Board clarifies that “it has been decided that the additional customs duty paid through debit under DEPB shall also be allowed as brand rate of duty drawback.”

The Board clarification needs a little analysis. Here’s the text of the operative part of the circular.

  • an issue has been raised as to whether additional customs duty paid through debit under DEPB can be allowed as brand rate of duty drawback.

  • The matter has been examined by the Board. Hitherto, the additional customs duty paid in cash only was adjusted as CENVAT credit or duty drawback while the same paid through debit under DEPB was not allowed as duty drawback. In the Foreign Trade Policy 2004-2009, which came into force w.e.f. 1.9.2004, it has been provided under paragraph 4.3.5 that the additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as CENVAT credit or Duty Drawback as per the rules framed by the Department of Revenue. Taking note of this change, it has been decided that the additional customs duty paid through debit under DEPB shall also be allowed as brand rate of duty drawback.

So according to the Board,

  1. The Foreign Trade Policy has provided that CVD paid through DEPB credit can be adjusted as Cenvat Credit or Drawback as per the rules framed by the Department of Revenue

  2. Taking note of this change, Board has now decided (by a circular) that CVD paid through DEPB shall also be allowed as duty drawback.

Now this raises certain questions:-

  1. Board has issued this clarification by a circular on 28th October 2005. Since when is it effective? From October 28th 2005 or September 2004?

  2. Will drawback be given from the date of the policy?

  3. This circular is silent on cenvat credit. Does it mean Cenvat credit will be allowed of the CVD paid from DEPB credit?

  4. Why is this circular silent on cenvat credit and what was the need for clarification on drawback?

Board bases its circular on para 4.3.5 of the Foreign Trade Policy. This is what the para states,

Normally, the exports made under the DEPB Scheme shall not be entitled for drawback. However, the additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as CENVAT Credit or Duty Drawback as per rules framed by the Department of Revenue.

The Board was rather quick to notice this change in the FTP and in para No. 6.1 of CIRCULAR NO. 59/2004-Cus, Dated : October 21, 2004, observed,

6.1 One significant amendment made in DEPB Scheme is that additional customs duty paid through debit under DEPB shall be allowed to be availed as CENVAT credit or duty drawback. Hitherto, the additional customs duty paid through debit under DEPB was not being allowed as CENVAT credit or duty drawback. To give effect to this policy decision, a provision has been made in the notification governing the imports under DEPB Scheme, viz., notification No. 96/2004-Customs, dated 17.9.2004. However, it may be noted that this facility would be available only in respect of the licences issued under the new Foreign Trade Policy. Licences issued under the previous Policies would be governed by the provisions of earlier Policies.

So the circular clearly understands that

  1. Duty paid through DEPB was not allowed as cenvat credit or drawback prior to the FTP 2004-09

  2. It is now allowed albeit for licences issued under the new policy

  3. To give effect to the policy, the Notification No. 96/2004 provided for this.

The Notification No. 96/2004-Cus., dated 17-9-2004 and its present version NOTIFICATION NO. 89/2005-Cus., Dated: October 4, 2005 in para vi clearly stipulate that:-

(vi) that the importer shall be entitled to avail the drawback or CENVAT credit of additional duty leviable under section 3 of the said Customs Tariff Act against the amount debited in the said Duty Entitlement Pass Book;

So the position can be summarized as:-

  1. As per the new Foreign Trade Policy, CVD paid from DEPB credit can be allowed as Cenvat credit or drawback

  2. To give effect to this policy, the Finance Ministry, has provided for this in the notification No. 96/2004 and 89/2005 – cus

  3. This fact was mentioned in the circular issued by the Board vide Circular No. 59/2004

  4. The Board forgot about this circular and the notifications

  5. And so has now clarified that drawback will be allowed but is silent about cenvat credit.

The strangest fact is that while the Board does not remember either Circular No 59/2004 or Notification No. 96/2004, it has resurrected an old irrelevant circular No. 3/99 -Cus dated 3-2-1999 which stipulated that, “Therefore no drawback is admissible against debit of duties made in a DEPB Book” Now the latest Board Circular states that the instructions contained in Circular No.3/99-Cus dated 3.2.1999 stand modified. When Board is aware that Credit or drawback cannot be allowed under the Policy prior to 2004, what is the point in modifying a 1999 circular? Strange are the ways of the Board! And what is the policy of the Board in issuing draft circulars? Whenever Board rushes in to issue a circular without circulating the draft, it is sure to end in a fiasco. There seems to be an urgent need for outsourcing circulars and notifications.

CIRCULAR NO. dated the 28th October,2005

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