SEZ – Procurement of goods from the DTA – difficulties resolved
For some strange reason, the Customs and Excise Authorities are not prepared to accept the fact that there is an SEZ Act and Rules, the provisions of which prevail over their sanctimonious Customs and Excise Laws. The SEZ Act and the Rules had come into force from 10.02.2006, but the field officers refuse to accept the fact.
After more than six months of the SEZ Act and Rules coming into force and realizing that excise and customs officers have scant respect for the other Laws, the Commerce Ministry issued INSTRUCTION NO. , Dated: August 3, 2006 emphasizing the fact that “By virtue of Section 51 of the SEZ Act, the provisions of the SEZ Act and the Rules will have overriding effect over the provisions contained in any other Act.” Please see 22 08 2006
That also did not have much effect.
Some time back we had carried an article by one of our distinguished contributors, Joseph Prabhakar - Procurement of goods by SEZ units from DTA : Confusion prevails despite an Act!
Joseph had mentioned in his article,
Though the above mentioned legal position is clear, the implementation of the new procedure for clearance of goods to SEZ has run into certain problems. The Central Excise officers in charge of the DTA units are refusing to allow the materials to be cleared against ARE 1 and they continue to demand Domestic Procurement Certificate from the SEZ units. At the same time, the officers at the SEZ are refusing to issue Domestic Procurement Certificate to the SEZ units for the obvious reason that it is not required any more since the SEZ Act and SEZ Rules have already come into force.
In this context, the Ministry of Commerce vide Instruction No 6/2006 dated August 3, 2006, addressed to all the Chief Commissioners of Central Excise and all the Chief Commissioners of Customs, had clarified that Section 55 of the SEZ Act would prevail over all other legislations and that the excise officers should not insist on Domestic Procurement Certificate, but allow the goods to be cleared to the SEZ as per Rule 30 of the SEZ Rules.
However, this communication has not solved the problem. The Central Excise officers in charge of the DTA unit contend that the relevant provisions in the Central Excise Act / Notification have not been amended to give effect to the said procedure. In the meanwhile the SEZ units and the DTA units supplying to the SEZ units, are made to suffer because of the lack of clarity in the procedures. Ministry of Commerce is under the wrong impression that by merely issuing Instruction No 6/2006 dated August 3, 2006, the issue has been settled. The right course of action for the Ministry of Commerce would be to interact with the Ministry of Finance and to request the Finance Ministry to take the following action.
1. Rescind Central Excise Notification No. 58/2003 dated July 22, 2003.
2. Issue a fresh Central Excise Notification for clearance of goods by DTA unit to SEZ, incorporating the procedures laid down in Rule 30 of the SEZ Rules, 2006.
3. CBEC to issue a Circular to clarify the effect of Section 55 of the SEZ Act and the fact that DTA units would now have to follow the SEZ Act and SEZ Rules.
We are extremely happy to report that the CBEC has reacted – though action in response to point 1 and 2 are yet to come, they have issued a circular clarifying the above position. The Board Circular confirms the view expressed in the article mentioned above and clarifies that:-
1. Supplies from DTA to SEZ shall be exempt from payment of any Central Excise duty under Rule 19 of Central Excise Rules, 2002.
2. Similarly, such supplies shall be eligible for claim of rebate under Rule 18 of Central Excise Rules, 2002 subject to the fulfillment of conditions laid there under.
3. The provisions relating to exports under Central Excise Act, 1944 and rules made there under may be applied, mutatis-mutandis, in case of procurement by SEZ units & SEZ developer from DTA for their authorized operations.
4. Now the procedure for procurements of goods from Domestic Tariff Area to a SEZ Developer or a unit would be governed by the provisions of Rule 30 of the SEZ Rules, 2006, and the movement of goods from the place of manufacture to the SEZ shall be
(i) on the basis of ARE1 (in cases where export entitlements are not availed);
(ii) on the basis of ARE 1 and Bill of Export (in cases where export entitlements are availed) and against a general Bond or Letter of Undertaking, specified in Annexure-I and Annexure-II, under notification no. 42/2001-C.E.(N.T.) dated 26.06.2001.
So there is no need of procurement certificate after all!
Now this is a customs circular; will the Central Excise wing accept it?
CIRCULAR NO. , Dated : December 27, 2006