Exporters seek service tax waiver

NEW DELHI: Exporters, hit hard by the global economic slowdown, have sought exemption from payment of service tax in the forthcoming Union Budget.In a meeting with the revenue department, exporters pointed out that while the government allows refund of taxes on a number of services, very little refund has actually taken place because of the cumbersome process involved. According to Delhi Exporters' Association (DEA) president SP Agarwal, who led a delegation to meet revenue secretary PV Bhide earlier this week, the problem with refund of service tax is a long-pending issue for exporters."We are hardly getting any refunds. If the government wants us not to pay service tax, then we should get an exemption," Mr Agarwal said.According to DEA, exporters are working on just 4-5% profit margins as demands have shrunk due to the global slowdown and it is very difficult for most to pay a 10.5% service tax.He added that the revenue secretary has assured exporters that the government would take steps to solve the problem. "We are hopeful that the Budget would sort out the issue," he said.The delegation also asked the government to exempt exporters from paying value-added tax (VAT) at the state level. DEA pointed out that while as per law the refund of VAT is to be made to exporters in one month, very little is being refunded within the given period. "There is also a provision for 8% interest on delayed refund, but not a single paisa has been paid so far," Mr Agarwal said.

Standard Input Output Norms for EOU units

Standard Input Output Norms for EOU units
In this article an attempt is being made to provide an insight on the law and procedures relating to Standard Input Output Norms (SION) prescribed for the EOU units. The article discusses the aspects such as the meaning, nature and scope of the SION, legal provisions relating to the same under Foreign Trade Policy, central excise and customs law, observance of SION by the job workers/sub-contractors, provisions where inputs are consumed in excess of the SION, documentation and accounting aspects, the methodology adopted for fixing the SION by the Government (Norms Committee/Board of Approvals) etc.
Introduction
Under Export Oriented Undertakings (EOU) Scheme, inputs are allowed to be procured or imported without payment of duty, subject to the condition that such inputs are used predominantly for the production of goods to be exported without payment of duty, with allowed clearance in domestic tariff area by payment of the applicable duties. This has necessitated the Government to closely monitor the consumption of inputs in the production process of the EOU units. With this intention, the Government through the Ministry of Commerce has prescribed a detailed guideline for determining the ratio of inputs to its outputs and also on other side the Ministry of Finance which is taking care of the revenue aspect of the Government, has also insisted for the compliance of said input-output norms.
Standard Input Output Norms (SION) is introduced with a view to facilitate the determination of the quantum of inputs which can be used or are required in the manufacture of different resultant products.
Provisions under Foreign Trade Policy
As per para 6.8 (e) of the Foreign Trade Policy, only in the following cases compliance with the SION provisions is required;
In case of sale of scrap/waste/remnants in DTA; and
Such scrap/waste/remnants shall be those which arises out of the production process or in connection with production process; and
Where the EOU intends to sale such scrap etc., by payment of concessional rate of duties; and
Where such sale of the scrap etc., is within the limits of 50% of FOB value of exports.
Such sales of scrap / waste / remnants within the SION norms shall not be subject to achievement of export obligation of the EOU unit (ie., positive NFE).
Even though the Foreign Trade Policy prescribes SION only for the aforesaid case, para 6.7 (e) of the Handbook of Procedures to the Foreign Trade Policy, prescribes that the consumption of inputs by the EOU / EHTP / STP / BTP unit shall be based on the Standard Input Output Norms (SION).
The following procedure is prescribed under the Handbook of Procedures in this regard,
Where no SION have been notified, generation of waste, scrap and remnants upto 2% of input quantity shall be allowed;
Where additional items other than those given in SION are required as inputs or where generation of waste, scrap and remnants is beyond 2% of input quantity, the following procedure shall be followed,
The EOU unit has to give a self-declaration about the actual consumption norms of the inputs.
The EOU shall also provide an undertaking to adjust self-declared / ad-hoc norms in accordance with norms as finally fixed by Norms Committee in DGFT;
Within three months from the date of receipt of the self-declared norms and the undertaking, the consumption of inputs shall be allowed by the jurisdictional Development Commissioner, by prescribing the ad-hoc norms.
The ad-hoc norms fixed shall be finalised by the Norms Committee within six months.
On finalization of the ad-hoc norms by the Norms Committee, the EOU unit shall comply with the same.
In case of utilization of a large number of inputs, wide variation in quantum of consumption of inputs or such other factors which render such fixation of SION difficult in the case of a particular unit, the Norms Committee may refer the case to the Board of Approval for a decision.
Thereafter the Board of Approval, in consultation with Norms Committee in DGFT, will decide on a case to case basis. Provisions under the customs and central excise law
Notification No. 22/2003-C.E and 52/2003-Cus, both dated 31-03-2003 governs the SION provisions for an EOU unit. The following are the law and procedure prescribed thereunder.
The goods other than capital goods shall be used in connection with the production or packaging of goods in accordance with SION for export out of India or cleared for home consumption.
Such consumption of inputs shall be within a period of three years from the date of import or procurement thereof or within such extended period as may be allowed by the proper officer.
Wherever the SION norms are not fixed or where additional items other than those given in SION are required as inputs or where generation of waste, scrap and remnants is beyond 2% of input quantity, the procedure specified in para 4 above shall be followed.
Having discussed about the legal provisions relating to SION for the EOU units, we shall now examine some of the practical aspects.
Cases where compliance with SION is not required
On a combined reading and interpretation of the provisions of Foreign Trade Policy on the one hand and the central excise/customs on the other hand, it can be stated that, in the following cases compliance with the SION is required,
In case of all capital goods and its spares
In case of all inputs which are procured/imported with payment of duty
In case of all inputs which are procured from the vendors who are not registered under central excise.
In case of all inputs which are procured from the dealers, since inputs cannot be procured from the dealers by issuing them the CT-3 Certificates.
In case of all non-excisable inputs
In case of all consumables which are consumed in negligible minor quantities.
Compliance of the SION provisions by the job workers/sub-contractors
Compliance with the SION provisions is basically the obligation of the EOU unit. However if the EOU unit sub-contracts the production, then even the job worker/sub-contractor shall comply with the SION norms. For this purpose EOU unit may specify in the job work/sub-contract agreement about the allowed SION norms for each job worker, depending upon the nature of process undertaken by them.
This is because of the concept that, in case the job workers consumes the inputs in excess of the prescribed SION, the EOU unit may find it difficult to consume such inputs within the SION norms, after getting back such inputs from the job workers.
Consequences if the inputs are consumed in excess of the SION
In cases where the inputs are consumed in excess of the SION norms, then in terms of Notification No. 22/2003-C.E and 52/2003-Cus, both dated 31-03-2003, the duties as applicable at the time of procurement/import of the inputs shall be paid.
That means, the applicable duties shall be paid on the procurement or import cost of the inputs which are consumed in excess of the SION.
This follows that even if such excess consumed inputs are removed as scrap, then the applicable duties shall be paid on the procurement or import cost of the inputs contained in such scrap and not on the transaction value of the scrap.
The applicable duties shall be paid on the procurement or import cost of the inputs which are consumed in excess of the SION, even if such inputs are scrapped during the production and subsequently destroyed with the permission of the proper officer.
It may be noted that scrap can be destroyed without payment of duty under the permission of the proper officer, only if such scrap is within the SION. Therefore the applicable duties will have to be paid on the procurement or import cost of the inputs contained in the scrap generated in excess of the SION, in any case.
Notes on procedure for computation of the SION
In many cases, the resultant products and the inputs required have been described in generic terms. The EOU unit shall, therefore, ensure that the goods sought for import and actually imported are those, which are used/required in the export product.
The items allowed for import shall be co-related with the description of the export product in the Shipping Bill by the EOU unit to be authenticated by Customs. For example, if the input allowed in the norms is 'relevant fabrics', only the specific types of fabric i.e. polyester or nylon etc. used in the export product shall be allowed. Similarly, if the norms provide for import of BOPP film against export of self adhesive tape, only BOPP film required for manufacture of Self Adhesive Tape will be allowed and not those, which are required as packing material.
Wherever a specific norm has been provided, the same will prevail over the generic norm laid down, if any. If the application is based on the generic norm, specific reason for applying under the generic norm should be clearly stated.
In some norms, two or more alternative inputs have been permitted for import for the manufacture of a specific resultant product. In such cases, the EOU unit shall be required to opt for only one alternative and the SION norms shall be prescribed accordingly.
In case, more than one alternative input is required, the same could be allowed based on the specific declaration from the EOU unit about their requirement in the resultant product, at the time of filing application and the SION will be prescribed indicating the specific quantity of each input.
All the inputs allowed for procurement or imports without payment of duty are required to be indicated in terms of quantity. Where an input has been permitted in the norms or specifically allowed for import in terms of value as a limiting factor only, such items shall be indicated in the licence in terms of value only. However, if quantity and value of inputs is a limiting factor, the same shall be applicable.
In case of norms wherein the inputs have been allowed based on a percentage content of inputs in the export product with some wastage or on net to net basis or on net plus wastage basis, the EOU unit shall account for the quantity(s) allowed for import minus the wastage permitted, if any, in the product exported. In such cases, the net quantity shall be reflected in the export product description and also in the Shipping Bill by the EOU unit duly endorsed by the Customs Authorities.
Unless specified, otherwise, the import of components wherever allowed shall be permitted on net to net basis i.e., without any wastage, with accountability clause and the type, technical specifications (including part No., if any), etc., of the components sought for import should conform to those utilized in the manufacture of the resultant product, which should be reflected in export documents (Shipping Bills) also.
An EOU unit need not apply for all the inputs indicated in the norms, provided all other conditions of the Foreign Trade Policy and the Handbook of Procedure are fulfilled.
In respect of certain norms, the validity of the same is for a limited period. For regularization/refixation of the same, the EOU unit shall file application in the prescribed format with all the requisite details, including production and consumption data atleast sixty days in advance of expiry of such validity. Unless the validity period is extended, no imports will be allowed based on these norms. However, the EOU unit shall be entitled for imports on self-declaration basis.
In case where the input(s) required for the manufacture of the resultant product prescribes alternative items, permission can be given for export of the said input(s) allowing the alternative items as inputs i.e. import items in the same ratio as prescribed in the said input(s).
Documentation and accounting
No taxation law can be better complied without maintaining the proper documents and accounting records. This statement has to be stressed in case of an EOU unit, especially while dealing with matters relating to SION.
Since SION norms envisages the requirement of correlating inputs to outputs, a comprehensive set of inventory records shall be maintained, which can explain with sufficient evidence, that the inputs are consumed within the SION and the resulting products are exported without payment of duty or cleared within India (in DTA) by payment of the applicable duties.
Hope that the article is useful for appreciating the law and procedure relating to SION prescribed for an EOU unit.

by Mr. Girish D.,Consultant in indirect taxes

CBEC CHANGES STAND ON AIR DUTY DRAWBACK FOR MERCHANT EXPORTER

CBEC changes stand on duty drawback
New Delhi June 8, 2009
Merchant exporters have good news. They will be entitled to full rate of duty drawback (including the excise portion) against export of goods they purchase from the market. This is a complete reversal of the stand consistently taken by the Central Board of Excise and Customs (CBEC) till now, that in the case of merchant exporters who procure the export goods from the open market, the benefit of All Industry Rates (AIR) of duty drawback shall be restricted to the Customs duty portion only, if any, and that the export goods purchased from the market shall be treated as having availed the Modvat/Cenvat facility and so, would not be entitled to the central excise portion of the AIR of drawback.
The AIR of drawback is based on representative data from a cross-section of exporters regarding the duty incidence on the inputs used in the manufacture of export products. Once the AIR is notified, the exporters are entitled to claim the drawback at the notified rates, whether the inputs they have used have suffered duty or not. For the same item, the drawback rates could be lower (only the Customs allocation) when the exporter has availed Cenvat Credit, and higher (Customs as well as excise allocation) when he has not availed Cenvat Credit.
The CBEC had earlier taken a view that the goods purchased from the market are deemed to be goods manufactured from inputs in respect of which Modvat/Cenvat credit had been availed. Based on that view, it denied excise allocation of duty drawback. But now the CBEC has taken a different view. The CBEC Circular No. 16/2009-Cus. dated May 25, 2009, explains that the goods available in the market are deemed to be duty paid goods and so, bear an element of central excise duty, which needs to be reimbursed, if such goods are exported.
Ideally, the terminal central excise duty paid at the time of clearance from factory should be refunded but that is not possible in case of export of goods purchased from the market as the trader exporters don’t have duty paying documents. The next best option is to grant All Industry Rate (AIR) of duty drawback as AIR drawback represents average incidence of taxes suffered by inputs used in the export product. Granting this rate on the condition that the exporter would furnish Cenvat non-availment declaration may not be proper as such goods may have changed several hands before exports and the final exporter may not be aware of the actual manufacturer and whether Cenvat credit was availed on such goods, says the circular.
The CBEC ordains that such merchant exporters must declare at the time of export, the name and address of the trader from whom they have purchased the goods and also declare that no rebate (input rebate and also the final product rebate) shall be taken against the shipping bills under which they are exporting the goods.
The CBEC’s change of heart will gladden merchant exporters, but the legal basis for the change is doubtful. The CBEC has now added a new dimension to the drawback scheme. It is no more a scheme to only rebate the duty incidence on inputs. It is now a compensation for not rebating the excise duty on the export goods also.
[Source: The Business Standard]