Destruction of finished goods by EOU within premises

[Dashrath Walkoli]

Sir we are 100% EOU. At the time of import of raw materials, we availed the exemption from BCD +SWS+IGST+ADD as per Notif 52/2003-Cus. Further, due to quality issues, certain finished goods manufactured from these duty-free inputs were found unfit for export and and now we intend the finished goods to be destroyed within the EOU premises after prior intimation to the jurisdictional Customs authorities.

In light of the above, we seek your expert opinion on the following:

1. Does the destruction of processed finished goods due to quality issue within the unit, after proper intimation, requires reversing the BCD +SWS+IGST+ADD initially exempted on the input raw materials as per Para 6.14(b) of FTP 2023 and Condition 8 of Notification 52/2003-Customs?
2. IGST Reversal: Since IGST was initially exempted (upfront) at the time of import under Section 3(7) of the Customs Tariff Act, rather than paid and claimed as Input Tax Credit (ITC), does Section 17(5)(h) of the CGST Act 2017 (blocked credit on destroyed goods) mandate a reversal or payment of this 'saved' IGST?
3. Conflict of Law:Para 6.07(f) of the FTP states that the expression 'no duties/taxes' for destroyed scrap/waste does not include taxes under GST laws. Does this same restriction apply to the destruction of the finished goods themselves, effectively requiring payment of the IGST component originally exempted on the inputs?

[Sadanand Bulbule]

Where finished goods manufactured by a 100% EOU are rendered unfit for export due to quality deficiencies and are destroyed within the bonded premises after due intimation and under the supervision of the jurisdictional Customs authorities, such destruction does not amount to diversion or clearance into the Domestic Tariff Area.

Consequently, no liability arises for reversal or payment of the Basic Customs Duty, Social Welfare Surcharge, Additional Duty or IGST that stood lawfully exempted on the imported inputs under the governing exemption notification and the Foreign Trade Policy.

 

[YAGAY andSUN]

The unit is a 100% EOU which imported raw materials duty-free availing exemption from BCD, SWS, IGST and ADD under Notification No. 52/2003-Customs. Certain finished goods manufactured therefrom were found unfit for export due to quality issues and are proposed to be destroyed within the bonded premises after due intimation and under Customs supervision.

Duty reversal on inputs: In terms of Condition 8 of Notification No. 52/2003-Customs read with Para 6.14(b) of FTP 2023, destruction of goods manufactured out of duty-free inputs within the EOU, under Customs control and without diversion, does not attract any duty liability. Such destruction does not amount to DTA clearance. Accordingly, no reversal or payment of BCD, SWS, ADD or IGST exempted on the imported inputs is required.

IGST and Section 17(5)(h) of CGST Act: Section 17(5)(h) applies only to reversal of ITC availed on goods destroyed. In the present case, IGST was exempted upfront at import and no ITC was ever availed. Hence, no payment or reversal of “saved IGST” arises, as the provision does not create a charging mechanism.

Para 6.07(f) of FTP 2023: The exclusion of GST in the expression “no duties/taxes” under Para 6.07(f) is specific to scrap/waste and their clearance. It does not apply to destruction of finished goods within the bonded premises under Customs supervision.

Conclusion: Destruction of unfit finished goods within the EOU, after due intimation and supervision, does not require reversal or payment of BCD, SWS, ADD or IGST lawfully exempted under Notification No. 52/2003-Customs and FTP 2023.

AI Summary

Destruction of unfit finished goods within EOU bonded premises does not require duty or IGST reversal. Destruction within bonded premises of finished goods by a 100% EOU, after intimation and under Customs supervision, does not amount to DTA clearance and does not require reversal or payment of Basic Customs Duty, Social Welfare Surcharge, Additional Duty or IGST exempted on imported inputs; Section 17(5)(h) CGST is inapplicable where IGST was exempted at import and no ITC was availed, and the FTP GST exclusion for 'no duties/taxes' refers to scrap/waste clearances not supervised in bond destruction.