Permanant transfer of duty free goods by Advanc Authorisation

[Dashrath Walkoli]

We are a manufacturing company having multiple units under the same GSTIN within one State. One of our units is an Export Oriented Unit (EOU) and the other units operate as Domestic Tariff Area (DTA) units. We import raw materials duty-free under Advance Authorisation in terms of Notif No. 21/2023-Customs and Notif No. 23/2023-Customs.

Due to operational requirements, we permanently transfer certain duty-free inputs imported by our DTA unit (AA holder) to our EOU unit. The EOU is not endorsed as a supporting manufacturer in the Advance Authorisation.

We seek expert opinion on the following:

1. Actual User / Factory of Importer & Condition (xii)

Notif 23/2023-Cus prescribes an “actual user” condition, while Notif 21/2023-Cus requires that the imported materials be used in the “factory of the importer”. Further, Condition (xii) of both notifications prohibits transfer, sale or disposal of the exempted materials.

As the EOU is a separately licensed premises under Customs law and FTP, 2023, but part of the same legal entity (same GSTIN), would transfer of AA-imported inputs from a DTA unit to the EOU unit amount to violation of the “actual user” condition, the “factory of the importer” requirement, or the non-transferability restriction under Condition (xii)?

2. Applicability of Para 4.10 of HBP, 2023

Para 4.10 of the HBP, 2023 permits inter-unit transfer of inputs imported under Advance Authorisation, subject to prior intimation.

Can Para 4.10 be relied upon to permit transfer of AA-imported materials from a DTA unit to an EOU unit of the same GSTIN?

Does Para 4.10 override or relax the restrictions contained in Condition (xii) and the actual user / factory of importer conditions under Notifications 21/2023-Cus and 23/2023-Cus?

3. Duty Reversal

If such permanent transfer is undertaken, is reversal of Basic Customs Duty and IGST through TR-6 required at the time of transfer to the EOU?

[Shilpi Jain]

Notification 21/2023 mentions that the said materials cannot be transferred or sold.

Both the notifications have the below para

Provided further that notwithstanding anything contained hereinabove for the said authorisations where the exemption from integrated tax and the goods and service tax compensation cess leviable thereon under sub-section (7) and sub-section (9) of section 3 of the said Customs Tariff Act, has been availed, the export obligation shall be fulfilled by physical exports or by making domestic supplies mentioned at serial numbers 1,2 and 3 of the Table contained in notification No. 48/2017-Central Tax, dated the 18th October, 2017 published, vide number G.S.R 1305(E), dated the 18th October, 2017;

The said notification also includes supply to EOU. However, in your case the transfer is of the input and not the product.

4.10 HBP talks about transfer for manufacturing. So if you are transferring to EOU for mfr and export under the AA then there should not be an issue as these notifications also allow sending materials for job work.

AI Summary

Inter unit transfer of duty free inputs to an EOU may be permitted for manufacturing under Advance Authorisation. Notifications 21/2023 Cus and 23/2023 Cus impose actual user, 'factory of the importer' and non transferability conditions on AA imports, but their proviso contemplates specified domestic supplies including to EOUs. HBP para 4.10 permits inter unit transfer of AA inputs for manufacturing subject to prior intimation and allows sending materials for job work. Transfers to an EOU for manufacture and export under the AA are therefore administratively treated as permissible, though the notifications address supplies rather than inputs and the duty reversal procedure is not resolved in the reply.