Excise duty refund conundrum for export-oriented units

The Government issues several notifications, which are followed by clarifications. The clarifications are circulated with the objective of stating the background and objective for issuing the notification. Sometimes there are clarificatory circulars, which are then followed by legislative amendments. Whether issued before or after, these circulars achieve the objective of uniform application of the law, and relief from ambiguity or oppressive interpretation.

One such notification, and associated provisions, that requires clarity is with respect to central excise duty waiver benefit to 100 per cent export-oriented units. Currently, there is a debate with regard to the nature of this notification — whether it is a full and unconditional exemption notification or if it is optional. Several field formations have adopted the view that this notification is full and unconditional, not leaving any scope for exporters to pay central excise duty. In terms of the Foreign Trade Policy’s provisions, an export-oriented unit is also permitted to effect sales in the domestic tariff area. Typically, the exporters utilise the input credit for discharging the domestic liability. A 100 per cent export-oriented unit may not have an output excise duty liability owing to lack of domestic clearances, as a consequence of which input credit gets accumulated. Certain exporters opt to pay excise duty on exported goods, and utilise the input credit towards this payment. The framework of the Foreign Trade Policy as well as the governing central excise notification, read with clarifications issued by the Central Board of Excise and Customs, envisages domestic clearances besides exports. Thus, the debate over whether the provisions are to be interpreted as granting an unconditional exemption — and not as an option to exporters — has become a subject of litigation.

The Madras High Court’s judgment is a recent one on this subject. Orchid Health Care, the petitioner, obtained a relief by way of approval to claim rebate of output excise duty, discharged by utilising the input credit, only after the writ jurisdiction of the High Court was invoked. This is also a statement on how ineffective the adjudication machinery is when it comes to implementing the benefits notified by the Central Government. While it is noteworthy that the High Courts across the country are disposing of such matters at a fast pace, it is unfortunate that assessees are required to invoke the writ jurisdiction of the Courts.

Despite such, and similar, judgments — including at the Tribunal level — divergent views continue to prevail. While measures are proposed time and again for promoting exports, exporters continue to be saddled with such issues. Despite several clarifications on the subject, ambiguity prevails. It is saddening to note that export-oriented units, which have not been granted benefits similar to special economic zones in respect of exemption on procurement of input services, continue to face the brunt of ambiguous legislative machinery.

Recently, the Ministry of Finance has announced the constitution of a forum chaired by Parthasarathi Shome, adviser to the Finance Minister, where there will be an exchange of views between industry groups and the Government on tax-related issues or disputes. Whether or not such issues faced by exporters would qualify as deserving of the attention of this forum is a moot question. Till such time, the export-oriented unit benefits or procedural aspects continue to be ambiguous. At the least, by way of appropriate clarifications, the ambiguity surrounding the refund mechanism should be resolved and appropriate legislative amendments could follow.

The author is Director, Deloitte Touche Tohmatsu India Private Limited

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