Clarification regarding reversal of AIDC along with BCD on DTA sale by EOUs

[Dashrath Walkoli]

I seek clarification regarding the applicability of reversal of Agriculture Infrastructure and Development Cess (AIDC) in cases where an Export Oriented Unit (EOU) clears finished goods to the Domestic Tariff Area (DTA).

The relevant statutory provisions and the CBIC's interpretation are as follows:

1. Statutory Background:

• Imports/Procurements by EOU are exempt from BCD under Notification No. 52/2003-Customs, dated 31.03.2003 (as amended).
• The AIDC exemption is granted under Notification No. 11/2021-Customs, dated 01.02.2021 (Sr. No. 19), which is conditional on the BCD exemption being 'claimed and allowed' under Notification No. 52/2003.

2. CBIC Clarification (Circular No. 07/2021-Customs, dated 22.02.2021):

• The Circular’s Deeming Provision (Para 1.2) clarifies that when an EOU clears finished goods into the DTA by paying the foregone BCD, 'it is treated as if no exemption of BCD was allowed to the EOU under notification no. 52/2003-Cus dated 31.03.2003.'

3. Accordingly, since the BCD exemption stands deemed to be withdrawn at the time of DTA clearance, the consequential exemption from AIDC on the inputs also stands withdrawn, implying that the EOU is required to reverse/pay AIDC..

My query is

Whether for DTA clearances of finished goods, the EOU is mandatorily required to reverse/pay both the Basic Customs Duty (BCD) and the Agriculture Infrastructure and Development Cess (AIDC) that were foregone on the inputs utilized in the manufacture of such goods ?.

Yours faithfully

[YAGAY andSUN]

The Short Answer is ‘Yes’, as per the statutory scheme and Circular 07/2021 for DTA clearances of finished goods, an EOU is required to pay/reverse both the foregone BCD and the foregone AIDC on inputs used in the manufacture of such goods.

Legal Position Explained (in brief)

1. Structure of Exemption

EOUs receive exemption from BCD under Notification 52/2003-Cus.

EOUs receive exemption from AIDC under Notification 11/2021-Cus only when BCD exemption under 52/2003 is claimed and allowed (Sr. No. 19 condition).

Thus, AIDC exemption is conditional upon the BCD exemption being in force.

2. Deeming fiction created by CBIC (Circular 07/2021 – Para 1.2)

The Circular says that when an EOU clears finished goods into DTA and pays “foregone BCD,” then it shall be deemed that no exemption of BCD was ever allowed on the relevant inputs.

This deeming fiction has two consequences:

• BCD exemption is treated as withdrawn at the time of DTA clearance.
• Because AIDC exemption existed only as long as BCD exemption existed, AIDC exemption also automatically stands withdrawn.

3. Resulting Tax Consequence

Once exemption is deemed to have not been allowed:

• EOU must pay BCD foregone on inputs used in finished goods cleared to DTA (this was always required).
• Because AIDC exemption was dependent on BCD exemption, and BCD exemption is deemed not allowed, the corresponding AIDC must also be paid. Thus, both become recoverable at the time of DTA clearance.

Conclusion (settled interpretation)

• BCD foregone = payable on DTA clearance
• AIDC foregone = also payable, because AIDC exemption is conditional on BCD exemption, and the deeming provision makes it as if the BCD exemption was never allowed in respect of the relevant inputs.

Therefore, reversal/payment of both BCD and AIDC is mandatory for inputs used in DTA-cleared finished goods by EOUs.

[KASTURI SETHI]

Thanks a lot to M/s. Yagay AND Sun for such a comprehensive reply which has enriched my knowledge on the issue.

It is relevant to mention here that as per FAQ, "EOU is like any other supplier under GST regime and all the provisions of the GST Law will apply".

 

AI Summary

EOU DTA clearances require reversal of foregone BCD and AIDC on inputs used in manufactured goods. When an EOU clears finished goods into the DTA by paying foregone Basic Customs Duty, the BCD exemption is treated as never allowed and, because the Agriculture Infrastructure and Development Cess exemption is conditional on the BCD exemption, the AIDC exemption also stands withdrawn; consequently the EOU must pay/reverse both the foregone BCD and the foregone AIDC on inputs used in the manufacture of such goods.