Customs laws in India provide for a refund of duty on imports

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SummaryWe are a firm of consultants advising numerous Indian and international companies on infrastructure projects. We are currently paying service tax under the taxable service category of ‘management or business consultant’s service’.

We are a firm of consultants advising numerous Indian and international companies on infrastructure projects. We are currently paying service tax under the taxable service category of ‘management or business consultant’s service’. Recently, we have imported computers for use in provision of such services, on payment of applicable customs duty. Kindly advise on the availability of cenvat credit in respect of such duty.

Customs duty applicable on import of goods into India consists of four components, basic customs duty (BCD), additional customs duty (ACD) in lieu of excise duty levied on similar products manufactured in India, education cess of customs, and special additional duty (SAD) in lieu of value added tax (VAT) levied on similar products sold in India. Cenvat credit of BCD and education cess of customs is not available under any circumstances. In case of manufacturers of excisable products, cenvat credit of ACD and SAD paid on imports can be availed and adjusted against the output excise duty liability. However, in the case of service providers, credit of SAD paid at the time of import of goods cannot be availed. In your case, cenvat credit of only the ACD (inclusive of education cess) paid on imports would be available, subject to fulfillment of the conditions prescribed under the cenvat credit rules. Such cenvat credit could be utilised to pay the output service tax liability.

We are a company engaged in the manufacture of plastic products. Seven months ago, we had imported certain equipment from China in order to manufacture a specific product, and had paid customs duty. However, the equipment is not required now and we are exploring the possibility of re-exporting it. We have been informed that it is possible to claim a refund of the customs duty paid on imported goods, in case they are re-exported within a specified period. Kindly explain.

The customs laws in India provide for a refund of customs duty paid on imported goods under the duty drawback scheme. Under this scheme, a specified percentage of the customs duty paid can be claimed as drawback at the time of re-export of the goods. The percentage of drawback that can be claimed ranges between 95% and 60%, and is determined on the basis of whether the goods have been used in India and the duration of use. In your case, since the equipment has been used in India for about seven months, you would be eligible to claim a drawback to the extent of 75% of the customs duty paid on import. The drawback claim can be filed along with prescribed documents with the customs authorities, once the goods are placed under their control for re-export.

We are a company engaged in the manufacture of footwear at our factory in Ghaziabad from where the goods are usually sold to customers. We have recently opened a warehouse in Delhi, and certain quantity of goods is now transferred from the factory to the warehouse, from where they are finally sold. In this regard, we have been paying excise duty at the factory gate on the value at which the goods are dispatched to the warehouse, but have been informed that such method of valuation is incorrect. Please advise.

Under the central excise laws, excise duty is payable on the price at which goods are sold at the time of clearance from the place of removal. In this regard, in case goods are not sold from the factory premises but are transferred to a warehouse from where they are finally sold, the warehouse would qualify as the place of removal. In such a scenario, excise duty is payable at the time of clearance of goods from the factory itself. However, excise duty would be calculated on the prevailing price at which the highest aggregate quantity of similar goods is sold from the warehouse, nearest to the time such goods are cleared from the factory. In your case, excise duty in respect of the goods transferred to and sold from the warehouse should be paid on the final sale price of such goods, which is prevailing at or about the same time as when the goods are cleared from the factory.

We are a firm of architects. In the course of our activities, we procure certain input services on which service tax has been charged by the vendors. However, we have not made payment towards a few invoices. Can we still avail cenvat credit of service tax chargeable from us in respect of such invoices where the payment has not been made?

The cenvat credit rules, 2004, prescribe that cenvat credit of service tax paid on input services can be availed only if the payment towards such input services (including service tax) has been made by the service recipient. Accordingly, you would not be eligible to avail cenvat credit of the service tax amounts pertaining to any unpaid invoices.

Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers’ queries to the professionals. Neither Ernst & Young nor this publication is liable for any action taken on the basis of this information

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