Reversal of custom duty for selling goods from EOU to merchant exporter

[Dashrath Walkoli]

Sir, we are a EOU unit and selling goods to merchant. Whether reversal of custom duty is required, since as per chapter 7 of FTP, merchant exporter is not covered as deemed export?

[Shilpi Jain]

The goods are being cleared to DTA unit then reversal of customs duties will be required.

[YAGAY and SUN]

As an Export Oriented Unit (EOU), when goods are cleared to a merchant exporter, it is important to evaluate the applicable Foreign Trade Policy (FTP) and customs provisions. As per Chapter 7 of the FTP, supplies to merchant exporters are not considered as "deemed exports." Therefore, such clearances do not enjoy the benefits available under deemed exports, such as exemption from duty reversal. In essence, since merchant exporters are not covered under the scope of deemed exports, the supply from the EOU to them does not qualify for exemption from the reversal of customs duties.

Furthermore, if the goods are being cleared into the Domestic Tariff Area (DTA), such clearance is treated as a sale in the domestic market. In accordance with the EOU scheme and customs provisions, DTA clearances attract the applicable customs duties, which would have been leviable had the goods been imported into India. Therefore, in this case, the reversal of customs duties is mandatory. This includes Basic Customs Duty (BCD), Countervailing Duty (CVD), and any other applicable duties that were exempted at the time of procurement or import by the EOU.

In conclusion, supplies by an EOU to a merchant exporter do not qualify as deemed exports, and if the goods are being cleared to a DTA unit, the applicable customs duties must be reversed in accordance with the law.

AI Summary

Deemed export exclusion: supplies from EOU to merchant exporters require reversal of customs duties when cleared to DTA.
Supplies by an Export Oriented Unit to a merchant exporter are not treated as deemed exports under the Foreign Trade Policy scope; when goods are cleared into the Domestic Tariff Area such clearances are treated as DTA sales and require reversal of customs duties. The reversal obligation covers duties exempted at procurement or import by the EOU, including Basic Customs Duty, Countervailing Duty, and other applicable customs levies.