We are a trading entity selling electronic items. We purchase such goods from an export-oriented unit (EOU) and export the same. No further processing is done on such goods. The EOU charges us duty on purchase of goods. Would duty drawback of the duty paid be available to us since the goods are ultimately exported outside India? Please clarify.

The Customs Act, 1962 provides for duty drawback when duty paid on goods imported into India are subsequently re-exported. Hence, the benefit of duty drawback is available only for duty paid on imported goods.

The term ‘duty’ has been defined in the Act as ‘a duty of customs levied under this Act’ i.e. customs duty levied under the Act.

Accordingly, drawback (under section 74) is allowed only of duty paid under the Customs Act. Further, ‘import’ has been defined as ‘import, with its grammatical variations and cognate expressions, means bringing into India from a place outside India’.

In cases of clearance of goods from an EOU to a unit in the domestic tariff area (DTA), duty is levied under the Central Excise Rules, 2002. In such cases, the excise duty levied is equivalent to the customs duty which would have been paid for the same. Hence, even though a duty equivalent to the applicable customs duty is levied, such duty is actually an excise duty, and not a customs duty. So the benefit of duty drawback would not be available to you.

Duty-free imports under EPCG scheme

We are manufacturers-cum-exporters. We would like to import capital goods under the EPCG scheme to save on customs duty. However, I understand that the DGFT has recently introduced amendments to the EPCG scheme under the Foreign Trade Policy, 2009-14. I would like to understand the impact of the same. Is there any relaxation provided under the new scheme with regard to export obligation and period to fulfill such export obligation? Also, whether I would be granted an EPCG licence to import second-hand capital goods duty-free under the new EPCG scheme?

Your understanding is correct. The DGFT has substituted the earlier chapter for the EPCG scheme under the Foreign Trade Policy 2009-14 with a new chapter for the scheme with effect from 18 April 2013. Post-the amendment, every manufacturer-cum-exporter can avail of the benefit of zero duty EPCG scheme irrespective of differentiation on the basis of Industry sector. Being a manufacturer-cum-exporter you should be eligible to import capital goods duty-free under the zero duty EPCG licence.

The conditions pertaining to export obligation and its period are the same as were present prior to amendment. However, the DGFT has increased the validity of the EPCG licence period. Accordingly, one can import capital goods duty-free within a period of 18 months from the date of licence, subject to fulfillment of export obligation, equivalent to six times the duty saved, in six years from the date of licence. Since, the DGFT has specifically deleted the provision under which import of second-hand capital goods were permitted, one may not now be eligible for the EPCG scheme on import of second-hand capital goods.

Cenvat credit on newly exempt goods

We are a manufacturing unit. We had purchased machinery last financial year (2012-13), and availed of 50% Cenvat credit in the same year. From this Budget, our goods have become exempt. Kindly advice as to whether we would be eligible to avail of the remaining 50% Cenvat credit in the current financial year, given the fact that our goods have now been exempted from payment of excise duty.

The relevant date for

availing Cenvat credit is the date on which the goods are

received in the factory of production. In your case, as the date on which the capital goods were received, the manufactured goods were liable to excise duty, you should be eligible to avail of Cenvat credit on the entire excise duty paid on purchase of capital goods.

Credit of such amount (50% credit) may be availed in the year in which the goods were purchased and the remaining credit may be availed of in any subsequent year, irrespective of the fact that the final manufactured goods are no longer excisable.

The replies do not constitute professional advice. Neither E&Y nor FE is liable for any action taken on the basis of these replies. Readersmay mail their queries to

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