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Deemed Exports – Refunds, Exemptions & Jargon Simplified
By CA Ankit Gulgulia (Jain)
B.COM (H), CA, CIFRS, CBV, LLB*
firstname.lastname@example.org | +91-9811653975Deemed Export is one of very unique concepts that operate pursuant to the foreign trade policy of India. The essence to give certain benefits and relaxations to those transactions which are not necessarily export in nature but are seen as crucial and thus ‘deemed’ as ‘Export’.
Deemed Export is fundamentally governed by Chapter 8 of Foreign Trade Policy (RE - 2012) / 2009-14 (From 5-6-2012) which defines deemed export as:-
A) Deemed Exports
“Deemed Exports” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. Supply of goods as mentioned in Paragraph 8.2 below shall be regarded as “Deemed Exports” provided goods are manufactured in India.
From above, one may identify four eligibility criterions:-
a) The Goods must be manufactured in India
b) Goods supplied must not leave India.
c) The consideration of supply is either in INR or free foreign exchange.
d) The supply must be a eligible supply under Para 8.2 of FTP.
B) Eligible Supplies
Following categories of supply of goods by main / sub-contractors shall be regarded as “Deemed Exports”:
(a) Supply of goods against Advance Authorisation / Advance Authorisation for annual requirement / DFIA;
(b) Supply of goods to EOU / STP / EHTP / BTP;
(c) Supply of capital goods to EPCG Authorisation holders;
(d) (i) Supply of goods to projects financed by multilateral or bilateral Agencies / Funds as notified by Department of Economic Affairs (DEA), MoF under International Competitive Bidding (ICB) in accordance with procedures of those Agencies / Funds, where legal agreements provide for tender evaluation without including customs duty;
(ii) Supply and installation of goods and equipment (single responsibility of turnkey contracts) to projects financed by multilateral or bilateral Agencies / Funds as notified by DEA, MoF under ICB, in accordance with procedures of those Agencies / Funds, which bids may have been invited and evaluated on the basis of Delivered Duty Paid (DDP) prices for goods manufactured abroad.
(iii) A list of such Agencies/Funds, as notified by DEA, MoF, is given in Appendix 13 of HBP, Vol. I ;
(f) (i) Supply of goods to any project or purpose in respect of which the MoF, by notification No. 12/2012 –Customs dated 17.3.2011 (earlier Notification No.21/2002-Custom dated 1.3.2002), as amended from time to time, permits import of such goods at zero customs duty subject to conditions specified in this Notification.
(ii) Benefits of deemed exports shall be available only if the supply is made under procedure of ICB. However, in regard to mega power projects, the requirement of ICB would not be mandatory, if the requisite quantum of power has been tied up through tariff based competitive bidding or if the project has been awarded through tariff based competitive bidding. Supply of goods required for setting up of any mega power project as specified in S.No. 507 of DoR Notification No. 12/2012- Customs dated 17.03.2012, as amended, shall be eligible for deemed export benefits as mentioned in paragraph 8.3(a), (b) and (c) of FTP, whichever is applicable, if such mega power project complies with the threshold generation capacity specified in Customs Notification.
(h) Supply of marine freight containers by 100% EOU (Domestic freight containers-manufacturers) provided said containers are exported out of India within 6 months or such further period as permitted by customs;
(i) Supply to projects funded by UN Agencies; and
(j) Supply of goods to nuclear power projects through competitive bidding as opposed to ICB. Supply of only those goods required for setting up any Nuclear Power Project as specified in list 33, S. No. 511 of Notification No. 12/2012-Customs dated 17.3.2012, as amended from time to time, having a capacity of 440MW or more, as certified by an officer not below rank of Joint Secretary to Government of India, in Department of Atomic Energy, shall be entitled for deemed export benefits, in cases where procedure of competitive bidding (and not ICB ) has been followed.
C) Benefits under Deemed Export
Once all the conditions are identified and applicable on supply of goods, next it is crucial to understand the benefits under FTP (Foreign Trade Policy) to such supplies.
Deemed exports shall be eligible for any / all of following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as in HBP v1:-
(a) Advance Authorisation / Advance Authorisation for annual requirement / DFIA.
(b) Deemed Export Drawback.
(c) 1[Refund of terminal excise duty will be given if exemption is not available. Exemption from TED is available to the following categories of supplies:
(i) Supplies against ICB;
(ii) Supplies of intermediate goods, against invalidation letter, made by an Advance Authorisation holder to another Advance Authorisation holder; and
(iii) Supplies of goods by DTA unit to EOU / EHTP / STP / BTP unit
Thus such categories of supply which are exempt ab initio will not be eligible to receive refund of TED]
Key Note (Author):- Since the above stipulation is rigid in law, in my view if the exemption is available and not availed by assessee, refund in those cases cannot be received. Further, whether a supply is exempted from terminal excise duty or not is not governed by ftp but by the central excise notifications. In few cases, it is possible that a supply is indicated as exempt in ftp but is not exempted under central excise notifications, in such cases the refund shall be entitled. The same may be inferred from DGFT policy circulars also.
Following table shows the benefits available to different categories of supplies as mentioned in Para 8.2 above. In respect of such supplies supplier shall be entitled to the benefits listed in paragraphs 8.3 (a), (b) & (c) of the Policy, whichever is applicable.”
|Relevant sub-para of 8.2||Benefit available as given in Para 8.3, whichever is applicable|
(for intermediate supplies against an invalidation letter)
(against ARO or Back to Back letter of credit)
|(i) Exemption in case of invalidation|
(ii) Refund in case of ARO or back to back letter of credit
(ii) Exemption, if ICB.
Refund, if without ICB.
D) Eligibility for refund of terminal excise duty / drawback
Supply of goods will be eligible for refund of terminal excise duty in terms of Para 8.3(c) of FTP, provided recipient of goods does not avail CENVAT credit/rebate on such goods. A declaration to this effect, in Annexure II of ANF 8, from recipient of goods, shall be submitted by applicant. Similarly, supplies will be eligible for deemed export drawback in terms of para 8.3 (b) of FTP of Central Excise duty paid on inputs/components, provided CENVAT credit /rebate has not been availed of such duty paid by supplier of goods. A declaration to this effect, in Annexure III of ANF 8, from supplier of goods, shall be submitted by applicant. Such supplies shall however be eligible for deemed export drawback on customs duty paid on inputs/components
Simple interest @ 6% per annum will be payable on delay in refund of duty drawback and terminal excise duty under deemed export scheme if the case is not settled within 30 days of receipt of complete application (as in paragraph 9.10.1 of HBP v1).
E) Supplies to be made by the main / sub-contractor
ü In all cases of deemed exports, supplies shall be made directly to designated Projects / Agencies / Units / Advance Authorisation / EPCG Authorisation holders. Sub-contractor may, however, make supplies to main contractor instead of supplying directly to designated projects / Agencies. Such Supplies shall be eligible for deemed export benefits as per procedure laid down in paragraph 8.4 of HBP v1.
ü Supplies made by an Indian sub-contractor of an Indian or foreign main contractor directly to the designated projects / Agencies, shall also be eligible for deemed export benefits provided name of sub-contractor is indicated either originally or subsequently in the main contract (but before the date of supply of such goods) and payment certificate is issued by project authority in the name of sub-contractor as in Appendix 22C of HBP v1.
a) On ‘Cement’, deemed export benefits shall be available for supplies under Para 8.2(d) only.
b) On ‘Steel’, deemed export benefit shall be available only for supply
a. under Para 8.2 (d); or
b. as an input under an Advance Authorisation/Annual Advance Authorisation/DFIA; or
c. as an input to an EOU for making goods.
c) On ‘Fuel’, deemed export benefit is available only for supplies to
a. petroleum operations under Sr. No. 356, 358 to 360 of Customs Notification No.12/2012 – Cus dated 17.03.2012, Para 8.2 (f) of FTP; or
b. to EOUs; or
c. to Advance Authorisation holder/Annual Advance Authorisation holder.
G) Criteria for claiming Deemed Export Benefits
a. In respect of supplies under paragraph 8.2(a) of FTP, procedure for issue of ARO and Back-to-Back Inland Letter of Credit is given in paragraphs 4.14 and 4.15 of HBP v1.
b. In respect of supplies under paragraph 8.2(b) of FTP, deemed export benefits may be claimed by an EOU from jurisdictional DC. A DTA unit shall claim benefit from RA concerned.
c. In respect of supply of capital goods under paragraph 8.2 (c) of FTP, supplier shall produce a certificate from EPCG Authorisation holder evidencing supplies / receipt of manufactured capital goods.
d. In respect of supplies under categories mentioned in paragraphs 8.2(d), (f), (i) and (j) of FTP, application for Advance Authorisation shall be accompanied with a Project Authority Certificate in Appendix 27. Payment against such supplies shall be certified by Project Authority concerned as in Appendix 22 C.
H) Procedure for claiming Deemed Export Drawback & Terminal Excise Duty Refund/ Exemption
a. Procedure for claiming benefits under paragraphs 8.3(b) and (c) of FTP shall be as under:-
i. An application in ANF 8, along with prescribed documents, shall be made by registered office or Head office or a branch office or manufacturing unit of supplier to RA concerned. Where applicant is branch office or manufacturing unit of a supplier, it shall furnish self-certified copy of valid RCMC. Recipient may also claim drawback benefits on production of a suitable declaration from supplier, in the format given in Annexure III of ANF 8. In case of TED refund, a declaration, in the format given in Annexure II of ANF 8, regarding non-availment of CENVAT credit, shall be given, by the recipient of goods, in addition to other prescribed documents. Recipient may also claim TED refund on production of a suitable disclaimer from supplier, in format given in Annexure-IV of ANF 8
ii. In case of supplies under paragraphs 8.2(a), (b) & (c) of FTP, claim shall be filed against receipt of payment through normal banking channel as in Appendix 22B. Claims should be filed within a period of twelve months from the date of payment. In cases where payment is received in advance, last date for submission of application may be correlated with date of supply instead of date of receipt of payment. Claim can be filed ‘Invalidation Letter / ARO wise’ against individual authorizations within the time limit as specified above. Deemed export benefits may be allowed after 100% supplies have been made. Grant of deemed export benefit will be limited to the extent of payment received.
iii. (a) In respect of supplies under paragraph 8.2(b) of FTP, where supplier wants to claim benefits from RA, RA shall allow deemed export benefits to DTA supplier, on receipt of certified copies of Central Excise attested invoice as proof of supplies made and / or Central Excise attested CT3 form and proof of validity of LoP.
iv. (b) For supply of High Speed Diesel / Furnace Oil from Depots of domestic oil Public Sector Undertakings under Para 8.2 (b) of FTP, terminal excise duty shall be refunded on the basis of duty paid certificate issued by concerned domestic oil Public Sector Undertaking in the format given in Annexure I to ANF 8. Duty refund will be allowed for quantity of HSD /Furnace oil procured by EOU / EHTP / STP / BTP unit for its production activities, as certified by concerned DC / Bond authorities.
v. (iv) In respect of supplies under categories mentioned in paragraphs 8.2(d), (f), (h), (i) & (j) of FTP, claim may be filed either on the basis of proof of supplies effected or payment received. Claims should be filed within a period of twelve months from date of receipt of supplies by project authority or from date of receipt of the payment as per the option of applicant, either against a particular project or all the projects. Claims may also be filed where part payments have been received Deemed export benefits may be allowed after 100% supplies have been made. Grant of deemed export benefit will be limited to the extent of payment received.
For claiming exemption from payment of terminal excise duty, procedure prescribed by Central Excise authority shall be followed.
ü Where All Industry Rate of Drawback is not available or same is less than 4/5th of duties actually paid on materials or components used in production or manufacture of the said goods, an application in ANF 8 along with prescribed documents may be made to RA or DC, for fixation of brand rate. Recipient may claim benefits on production of a suitable declaration from supplier in the format given in Annexure III of ANF 8.
ü Claim application shall be filed along with application for fixation of brand rate of duty drawback, in case brand rate is required to be fixed. Provision of late cut under paragraph 9.3 and supplementary claim under paragraph 9.4 shall also be applicable under this sub-paragraph.
ü RA may consider provisional payment up to 75% of drawback claim in case of private companies and 90% in case of PSUs, pending fixation of brand rate.
ü Subject to procedure laid down in HBP, Customs and Central Excise Duty Drawback Rules, 1995 shall apply mutatis mutandis to deemed exports.
I) Procedure for claiming deemed export benefits by Sub-contractor
In respect of supplies made by sub-contractor to main contractor under paragraphs 8.2(d),(f),(i) and (j), main contractor may make payment to sub-contractor and issue payment certificate as in Appendix 22-C as Form 1-C. Deemed export benefits to sub-contractor would be available to the extent of goods that are manufactured and supplied by him or outsourced from other manufacturers, for value as indicated in Appendix 22-C of HBP v1.
J) Payment of interest on delayed refund of Duty Drawback / TED
For payment of interest, in accordance with para 8.5.1 of FTP, separate application for claiming interest is not required and a single cheque for main claim and interest can be issued to the claimant. However, separate account will be maintained by RAs for the amount of interest disbursed by them.
About the Author:
CA Ankit Gulgulia
Author is Practicing Chartered Accountant in New Delhi/NCR and specialising in Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at email@example.com or at +91-9811653975
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