Export Duty – Valuation – Cum Duty till the year end – What thereafter? - CBEC Clarifies

By Vijay Kumar

There has been a doubt whether export duty should be charged simply as a percentage of FOB price or whether the FOB price should be taken as the ‘cum-duty price' for determination of assessable value and duty due thereon.

In TIOL-DDT 913 - 22.07.2008, we raised this question:-

Export of taxes – the SEZ confusion continues

Now that SEZ units and developers are reconciled to payment of export duty in steel products cleared to SEZs , some new issues crop up. What is the valuation for calculating the export duty? Does the value include excise duty and VAT? Excise duty is either not payable or rebated and so should it be excluded?

While the Revenue Department, especially the Super Intelligent DRI , is sure that export duty is payable, nobody seems to be sure, on what value the duty is to be calculated.

It is high time the Revenue Department clarifies such hot issues – but who is bothered?

Now the Board has clarified the position:-

The practice was that the export duty and cesses were calculated by taking the FOB price declared by the exporter as the cum-duty price and working backwards from the FOB price. This methodology is based on instructions issued by the Board (contained in Appraising Manual) in 1966. This view was reconfirmed by the Board in 2000 while developing the software for Indian Customs EDI System (ICES-Exports) for the purpose of levy of cess under various enactments of different Ministries.

The Board asked ORACLE – the Law Ministry and the wise Ministry opined

1. Section 14 of the Customs Act or the rules framed thereunder, do not specify any procedure for calculation of assessable value for the purpose of charging export duty in a situation where the exporter has not collected any amount in excess of what has been declared in the shipping bill/invoice.

2. As per practice in vogue for the last more than four decades, transaction value of export goods has invariably been taken as ‘cum-duty price'.

3. This practice is not in conflict with any of the statutory provisions.

4. Amendments made in Section 14 of the Customs Act by the Finance Act, 2007 have also not brought any change in the procedure for calculation of assessable value for the purpose of charging export duty .

5. However, any decision on this issue is essentially a matter of policy on which decision is to be taken by the administrative department.

So, it is POLICY not LAW and the issue is back with the Board.

So, Board has taken a Policy Decision – and you guessed it; it is against the trade!

Board has decided that till 31.12.2008, the existing practice of computation of export duty and cesses by taking the FOB price as the cum-duty price may be continued. All pending cases may be finalized accordingly.

But Board has a new year gift – Come January 2009 and this is going to change:

With effect from 1 st January, 2009, the practice of computation of export duty shall be changed. It is proposed that for the purposes of calculation of export duty, the transaction value, that is to say the price actually paid or payable for the goods for delivery at the time and place of exportation under section 14 of Customs Act 1962, shall be the FOB price of such goods at the time and place of exportation. For example if the transaction is at Rs 100 FOB, and the duty is 15%, the export duty will be 15% of FOB price, that is Rs 15. In case the transaction is on CIF basis, the FOB price may be deduced from the CIF value, and then the export duty be calculated as 15% of such FOB price.

Any difficulties which are anticipated in the implementation of the change in computation of export duty from 1 st January, 2009 should be brought to the notice of the Board by 20 th November, 2008 positively.

But doesn't the law need to be amended or can the Board just say that the value changes on the midnight of 31 st December 2008 with nothing else changing?

All exporters should re bargain their prices – you have about 50 days time!

CBEC Circular NO. 18/2008 in F. No. 467/45/2008- CusV - Dated: November 10, 2008