Export to Merchant Exporter

[Rudrayani Shedjale]

Hi

Regularly we export under UT-1 i.e.Letter of undertaking

in some transactions, we sell the goods to Merchant Exporter without charging excise & vat.They provide us CT-1,A.R.E.1 & (H form later)

so for us it direct export only or what?

Now when we are claiming for cenvat credit refund under Rule 5, we showed it as our export only.

But excise authorities are disallowing that by saying you dont have the proof of export

for such transaction.

I have received the H form & Airway bill from the Merchant Exporter.

isn't it enough to claim as our export?

please guide ASAP.

[CSSANJAY MALHOTRA]

Clearances of Goods meant for Export through “MERCHANT EXPORTER” is treated as “THIRD PARTY EXPORT” and not is the case of Direct Export.

CENVAT Refund under Rule 5 of CENVAT Credit Rules 2004 is for “Accumulated CENVAT Credit” as a result of Exports of Goods out of India.

Documents evidencing Exports such as : Photocopy of EP Copy of Shipping Bill with your Name endorsed on it as Supporting Manufacturer, Copy of B/L or Airway Bill, Copy of ARE-1 with export shipment endorsement from Customs should be submitted alongwith the Refund Claim to your Jurisdictional Assistant Commissioner, CENTRAL EXCISE DIVISION office and based upon above and other compliances as stated in Rule 5 of CCR 2004, Refund will be processed.

[Rudrayani Shedjale]

Sir thank you very much for the information.But I have received the proof of export from merchant exporter.copy of airway bill is also there.But copy of shipping bill is not there.Will you please advise what to do?

[CSSANJAY MALHOTRA]

Shipping Bill EP copy is an important document and evidence for Export of Goods. You have to make sure that your company name should also get reflected in Supporting manufacturer to claim benefit of Refund under rule 5 of CCR 2004.

Without Shipping Bill jurisdictional Assistant Commissioner may not allow refund but CESTAT may allow if litigation happens..

[Rudrayani Shedjale]

Dear Sir

I have received a circular no.30/2005-Cus dtd 12.07.2005

in which there is mentioned as

"Third Party Exports In terms of para 2.34 read with para 9.62 of the Foreign Trade Policy, 2004-09,
“Third Party Exports” have been defined to mean exports made by an exporter or manufacturer on behalf of another exporter(s). In such cases,export documents such as shipping bills etc. shall indicate the name of both the manufacturing exporter/manufacturer and third party exporter(s). The BRC, GR declaration, export order and the invoice should be in the name of the third party exporter. The definition of “Third Party Exports” in Circular No.120/95Cus. dated 23.11.1995
accordingly stands amended to fall in line with the definition of third party exports given under the Foreign Trade Policy. The other conditions of the Circular will remain unchanged."

does it mean that shipping bill should be in the name of both manufacturer & third part exporter?

[CSSANJAY MALHOTRA]

Shipping bill should have mentioning names of your company as supporting manufacturer and third party as Exporter. Have mentioned the same in my initial reply that your company's name should be endorsed on copy of Shipping bill.

[Rudrayani Shedjale]

ok.

thank you very much for the information.

[suresh kumar]

Hi Sir,Thanks for the information. In this case, I hope if merchant exporter has given ARE1 mentioning supplier, exporter and importer details may be accepted. Because ARE1 must be duly endorsed by customs (EO) mentioning shipping bill details. Hence, submitting the same EP copy may be accepted.Please let me know if I'm wrong.Regards,Suresh9952840638

[Rudrayani Shedjale]

Hello Sir

As per our Excise division authorities, if the Merchant exporter has availed the drawback on FOB amount, we(manufacturer exporter) are not entitled to avail its benefit under Rule 5 even if our name would be there on shipping bill.

is it correct?

so they are disallowing those transactions which we have sold against CT-1/ARE1.

[CSSANJAY MALHOTRA]

Hi Mr Suresh,

Your views are also in line with submissions made by me. Photocopy of EP Copy of Shipping Bill and ARE-1 with mention of name of both Manufacturer and Exporter is an evidence of export of goods and eligible for Rebate & Refunds under central excise rules.

[CSSANJAY MALHOTRA]

Hello Rudrayani,

Am travelling but have informed my office to send u tribunal's citation shortly as the Rule 5 of CCR 2004 provides for non availment of Rebate / Drawback at manufacturers end and not by Merchant Exporter.

Rule 5 is not applicable for merchant exporter for export of goods.

 

[CSSANJAY MALHOTRA]

Hello Rudrayani,

Please go through my opinion and citation mentioned at ISSUE ID 108647 (Similar case)

[Rudrayani Shedjale]

many many thanks for your support.

but what if we have availed the drawback as there is mentioned this condition as

Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.

our Excise division officer is asking for the exact declaration as mentioned above.

But sir, i don't understand one thing-they are saying us you cannot ask for the double benefits.but under drawback we receive only 1.3 to 2% of FOB. so the amount which gets credited in our account is very small & now what we are claiming is the amount which we have used for exporting the goods.how can these two things be compared??

[GANTI SARMA]

Draw back and refund claim from Excise are two separate procedures. Draw back is export incentive is given by Government as the exporter procuring foreign currency to india. Refund claim is meant for whatever excise duty paid on inputs used in finished goods for export is return back. Many people as well as departmental officers are confusing about these two benefits claimed by exporter. But every exporter will get these two benefits. But, one thing you should understand here, that at the time of claiming draw back there are two rates. One rate is for availing CENVAT credit and other is non-availing CENVAT credit and depends on product. You may check draw back tariff rate available in customs sight for product then only your doubts will go out.

[Rudrayani Shedjale]

Yes. & if the drawback rate is same under both column-"Cenvat facility availed" & Cenvat facility not availed" that means we are availing the drawback only in respect of customs portion & not in respect of excise portion.

so we can claim for Cenvat Credit under Rule 5.

this is what the concept i have understood now.

Many thanks to Sanjay Malhotra Sir & GANTI SARMA

[Subhash Modi]

Drawback at the All Industry published rate ad valorem on FOB export value (subject to value caps in certain cases) is a refund of duties of customs and or excise suffered on imported and domestic inputs used in the manufacture of the export goods determined by the Government based on weighted averages of costs of inputs and these taxes on them across a broad spectrum of industry. It is splitted into full rate (composite rate) i.e under column 'A' to cover customs and excise duties assumed to have been suffered on the relevant inputs used in the manufacture of the export goods when cenvat credit of CVD and or excise duty paid on inputs has not been availed or at reduced rate i.e customs portion under column 'B' when cenvat credit is being availed meaning refund of the basic duty of customs suffered on the imported inputs. When the rate is the same under Col. A or B then it is taken as customs portion only and is available irrespective of whether cenvat credit is availed or not. Drawback relates to unrefunded input duties allowed in terms of Section 75/CA, 1962 + Sec. 37/CEXA, 1944 + Sec. 94/FA, 1994 read with Customs, Excise Duties & Service Tax Drawback Rules, 1995

Rebate (refund) of excise duty paid on the finished goods that are exported is available separately under Sec. 37/CEXA, 1944 read with Rule 18 of the Central Excise Rules 2002 and Notification 19/2004-CE(NT) through the ARE1 procedure and relates to duty chargeable on the finished goods being exported; independent of drawback simultaneously being availed relating to inputs duties.

Rebate can also be availed of duties of excise paid on inputs used in the manufacture of the export goods if no drawback (excise portion) or cenvat credit has been availed of such duty, in terms of Rule 18/CEX Rules, 2002 read with Not. 21/2004-CE(NT).through ARE2 procedure.

Instead of availing output (ARE1) or input duty (ARE2) rebate as an alternative finished goods can be removed for export without payment of duty under bond subject to export proof (Rule 19(1) Not. 42/20111-CE (NT) or inputs can be procured duty free for manufacture and export of the finished goods therefrom [Rule 19(2) Not. 43/2011-CE(NT)] which precludes availing cenvat credit or drawback (excise portion). Even when the relief by way of non-payment of input duty is availed in this manner, drawback of customs portion can still be claimed.

If the finished goods are usually exported under bond (LUT) and consequently the cenvat credit availed of inputs duties remains unutilised and starts accumulating then cash refund under Rule 5 of the CCR, 2004 can be claimed periodically subject to conditions and procedures + documentation prescribed, provided no input rebate or drawback (excise portion) has been claimed on the export.

So long as sufficient cenvat credit balance is available then duty better be paid on the finished goods meant for export by utilising the cenvat credit balances and rebate in cash be claimed rather than using the LUT facility and allowing credit to accumulate and then resorting to more cumbersome and more conditional CCR, 2004 Rule 5 cash refund mechanism

[Rudrayani Shedjale]

Sir

all you want to say

if we are having sufficient cenvat credit, there is no much need of executing UT1?

[Subhash Modi]

Definitely. Use LUT (UT1) sparingly only when balance in the cenvat credit account is insufficient to pay excise duty on the goods being exported under claim of rebate. You can always alternate between rebate and LUT depending on sufficient avilability of cenvat credit balance from time to time. Further whenever you remove excisable and dutiable goods for export whether on payment of duty under claim of rebate (Rule 18) or without payment of duty under bond subject to export proof [Rule 19(1)] the value under Column 7 in the ARE1 should be the CEX ActSection 4 value and not the FOB export value. At times the FOB value may be much lower than the value on the date, place and time of removal i.e.at the factory gate because of duty free inputs imports or FTP and Drawback relief. If the Section 4 value is higher than the FOB value then always adopt the Section 4 value in the ARE1, pay duty on such domestic value (by debit in the cenvat credit amount) and obtain rebate of the higher amount of duty so paid. Refer Circulars: Circular No. 510/06/2000-CX, dated 3-2-2000 and Circular No. 203/37/96-CX, dated 26-4-1996. The FOB value is value under Section 14 of the Customs Act relevant for shipping bill purpose and is a future value when the exporter succeeds in placing the goods on board the ship at the shipment port after customs and port clearance and is not the value on the date, time and place of removal. If the FOB value was adopted for ARE1 purposes and removal was under bond and the export does not take place and the goods are to be diverted to the domestic market without bringing back to the factory premises then the excise duty payable will be not on the FOB value shown in the ARE1 but the appropriate Section 4 value that was on the date, place and time of removal from the factory premises. Therefore in the ARE1 the correct value is the CEX Act Section 4 value and not the export value. Further insurance of the goods should, as far as the domestic leg of the transportation is concerned e.g. from Pune to JNPT/Mumbai, be the CEX Act Sec. 4 value plus the amount of rebate or duty not paid under bond for the reason that if the goods are lost/stolen/destroyed before being placed on board the ship as per Incoterms 2010 the loss is on the exporter and the value of the total loss is the domestic market value of the goods without export incentives or benefits plus the excise duty rebate or the amount not paid under bond as there will no proof of export and no rebate will be available or duty will have to be paid if removal was under bond.

[GANTI SARMA]

No need to apply for UT1 when you are having sufficient CENVAT credit. This UT1 is useful for export when you don't have the CENVAT credit. Other wise you should pay the duty amount through PLA and claim for rebate after completion of export procedure.

[Rudrayani Shedjale]

ok.

thanks for the information

AI Summary

CENVAT refund eligibility requires a shipping bill endorsed with the manufacturer as supporting manufacturer and ARE 1 evidence. Clearances to a merchant exporter are treated as Third Party Export; to claim CENVAT refund under Rule 5 the manufacturer must submit export evidence including the EP copy of the shipping bill endorsed with the manufacturer's name as supporting manufacturer, ARE-1 with customs endorsement, and bill of lading or airway bill. Refund claims may be disallowed if shipping bill endorsement is absent or if drawback/rebate has been claimed for the same duty elements; LUT is used when CENVAT balance is insufficient while payment from CENVAT and rebate may be preferable when credit is available.