DGFT Clamps Down on Deemed Export Incentives

[Ref: Minutes of the PIC meeting No.10/AM11 dated 15-3-2011]

Sub: Deemed Export Issues

The DGFT is clamping down on cases of deemed exports where the imports are by the project authority and not by the contractor for supply to the project. It is also clarified that non mega power projects will not get refund of Terminal Excise Duty or deemed export drawback. Fuel supplies drawback is available only in limited cases. Last, cement and steel will not get deemed export benefits except for World Bank/ICB projects.

We understand that Rs. 2,000 crores was received for disbursement of pending drawback claims but only Rs. 1,200 crores was disbursed and balance Rs. 800 crores was returned to Ministry of Finance. It is likely that past cases of disbursements will also be opened in the light of the clarification which has retrospective effect.

The text of the clarifications is given below.

1. A meeting of the Policy Interpretation Committee No.10/AM11 was held on 15th March 2011. All Zonal Jt.DGFTs and some of the Regional Authorities (RAs) were also invited to this meeting to get the benefit of their experience in the processing of Deemed Export Cases. List of participants is enclosed.

2. Zonal Jt.DGFTs and the RAs brought to the notice of the Committee their inability to settle the Deemed Export claims due to inadequate Budget Provision. They informed that in all offices there have been large number of pending cases. DG informed the Committee that Rs.2,000 crores has been allotted in the Supplementary Appropriation which would be received shortly. This amount needs to be utilized in the current financial year itself, that is before 31st March 2011. Dr. L.B. Singhal, Jt.DGFT, referred to the Public Notice No.35 issued on 1st March 2011 which amended para 8.3.1 of Handbook of Procedure, Vol. I and Appendix of ANF-8 and explained the background. Provisions of PN 35 and Notification 28 have to be mandatorily followed for any payment of duty drawback claims/refund of Terminal Excise Duty henceforth.

3. Issue of claiming Deemed Export benefits in cases of import made by the project authority was discussed. After detailed deliberation, it was decided that if the Bill of Entry is in the name of project authority deemed export benefits would not be available (such cases will be ineligible for grant of Deemed Export benefits).

4. Regarding refund of Terminal Excise Duty (TED) for supplies to non-mega power projects, it was clarified that Para 8.4.4(iv) of Foreign Trade Policy, 2009-14 clearly stipulates that the benefit of refund of TED under para 8.3(c) of the Policy is not available for such supplies. In such cases excise duty paid at the terminal stage of supply (last instance of excise duty paid in the chain of manufacture process in the supply) is not to be refunded in any manner including as drawback [para 8.3(b) of Policy].

5. It was clarified that any supply made directly to the Project Authority by an entity other than the main contractor or the sub-contractor (details of such sub-contractor must have been endorsed in the contract and such endorsement must have been done prior to supply by the said sub-contractor) shall not be eligible for the deemed export benefits [Direct import by project authority has already been dealt with at para 3 above].

6. The Committee also discussed the cases for deemed export benefits for supplies of fuel, cement, steel etc. The Policy permits duty free fuel only under EOU / SEZ /Advance Authorisation Scheme. In no other case supply of fuel will be eligible for deemed export benefits, Similarly, except as provided under para 8.2 (d) of Foreign Trade Policy, the supply of cement and steel would not be eligible for Deemed Export benefits.

7. The Zonal Jt. DGFTs and the RAs present in the meeting were impressed about the need to deal with all cases in light of above decisions. The committee also suggested that DG and senior officers of DGFT may hold an interactive session with members of Trade and Industry to clear their doubts, if any.

Meeting of the Policy Interpretation Committee under the Chairmanship of Dr. A.K. Pujari, Director General of Foreign Trade, in Conference Hall (Room No. 4), Udyog Bhawan, New Delhi at 11.00 AM Date 15.03.2011

PIC Meeting was held under the Chairmanship of DGFT. Following officers were present in the meeting:

1. Shri Amitabh Jain Additional Director General

2. Shri V.K. Srivastava Additional Director General

3. Shri V.K. Gupta Additional Director General

4. Shri N.P.S Monga Additional Director General & Zonal Jt. DGFT, CLA, New Delhi

5. Ms. Lata Shukla Zonal Jt. DGFT (Mumbai)

6. Shri Sai Kumar Zonal Jt. DGFT (Chennai)

7. Shri P. Halder Zonal Jt. DGFT (Kolkata)

8. Shri Raj Kamal Jt. DGFT (Kanpur)

9. Shri Virender Singh Jt. DGFT (Jaipur)

10. Shri Vijay Kumar Jt. DGFT (CLA, Delhi)

11. Shri Sanjay Lunia Jt. DGFT (Mumbai)

12. Shri K. Kuppurajan Jt. DGFT (Vishakhapatnam)

13. Shri A. Mishra Statistical Advisor

14. Shri D.C. Sharma Statistical Advisor

15. Dr. L.B. Singhal Jt. DGFT

16. Shri Hardeep Singh Jt. DGFT

17. Shri A.K. Singh Jt. DGFT

18. Shri R.S. Ratna Jt. DGFT

19. Ms. Shubra Jt. DGFT

20. Ms. Vibha Bhalla Jt. DGFT

21. Shri Krishan Kumar Dy. DGFT

22. Shri A.K. Cashyap Dy. DGFT

23 Ms. Lalita Maini FTDO

24 Ms. Sonika Khattar FTDO