‘DGFT should clarify duty payment for destruction of imported goods’

Q. Para 4.49(g) of the HBP deals with regularisation of bona fide default in cases where Authorisation was issued for import of drugs from unregistered sources with pre-import condition. Para 4.49(g)(i) deals with destruction or re-export of unutilised imported goods. It does not mention duty payment on imported goods. Para 4.49(g)(ii) deals with exports made under free shipping bills under the same authorisation after expiry of the EO period in lieu of destruction of imported duty-free goods. Here, the requirement is payment of customs duty with applicable interest to the Customs Authority on the unutilised quantity imported under Advance Authorisation. Does this mean that where such unutilised goods are destroyed under Para 4.49(g)(i), no duty has to be paid?

A plain reading of Para 4.49 of the HBP conveys the same message. Even logically, where imported goods are destroyed or re-exported, there ought to be no need to pay duties. In fact, in a different context, Section 26A of the Customs Act, 1962 allows refund of customs duty where the imported goods are re-exported or destroyed, or where the title to the imported goods is relinquished. However, as you mention, Para 4.9(g)(ii) does mandate payment of duties on imported goods where the goods manufactured using them are exported outside the EO period.

Also, I find that in the standard conditions attached to advance authorisations, condition no. 10 states that import of approved and unapproved drugs made by the authorisation holder under advance authorisation shall be subject to the procedures and conditions specified in several Policy Circulars. One of these, Policy Circular no.18 dated October 30, 2007, says that “the authorisation holder shall also have the option to destroy such inputs or the finished product made out of it, in the presence of Jurisdictional Excise Authority subject to payment of applicable customs duty with interest”.

So, practically, it is difficult to escape payment of customs duty and interest even when the goods are destroyed or re-exported. In my opinion, the Director General of Foreign Trade should review the way Para 4.49 of HBP is worded and also the standard conditions attached to advance authorisations, so that exporters are left in no doubt regarding duty payment.

Q. The initial period for realisation of export proceeds is nine months from the date of shipment. Do we have to pay any penalty where no extension in time limit is sought and payment comes through later?

No. Para C.20 of the RBI FED Master Direction no.16/2015-16 dated January 1, 2016 (as amended), on Export of Goods and Services dealing with extension of time limit for realisation of export proceeds makes no mention of penalty. Usually, when payment is realised after the initial nine-month period, banks simply mark off the EDPMS entry and close the matter, even where no extension is sought. In effect, that amounts to grant of extension and regularisation of any default.

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