Chatroom: EO versus AA can be disposed of via physical/perceived export

Section 4.30 of HBP prescribes the procedure for obtaining prior authorization (AA) for intermediate deliveries. This is somewhat difficult for us because we have a number of customers to whom we need to supply our goods that they will use as inputs in the manufacture of the export products. We have to enter into a connection agreement with each of them and each time we have to wait for the invalidation letters to be issued against their AA, and then apply to our AA for interim deliveries. We are considering purchasing AA for physical import, import our raw materials under notification 21/2023-Cus dated April 1, 2023, manufacture the intermediates and then supply against invalidation letters as soon as they are issued. Are we likely to encounter problems with these types of arrangements?

The DGFT Policy Circular No.1/2024 dated April 12, 2024 states that AA holder is a holder of an AA issued on or after 01.04.2015, under Customs Notification No. 18/2015 – Customs, dated 01.04.2015 has the option to to meet the export obligation either by physical export or by making domestic supplies under Paragraph 7.02(A) (a) of FTP 2015-2020 i.e. supply of goods at AA/AA for Annual Requirement/DFIA. In my opinion, this circular establishes a principle that is also applicable to AA issued during the current Foreign Trade Policy 2023 under Notification No. 21/2023-Cus, also dated April 1, 2023. However, it is better if you refer to this point will be clarified by the DGFT.

We are an EOU. We had made certain purchases under sales agreements on the high seas, making payment in INR. Our advisor says that as per the DC, Kandla SEZ, we should also reflect such payments in INR in our NFE calculation. Is this correct?

Yes. Section 6.10 of HBP makes it very clear that payments in INR for sales on the high seas will also be included in the NFE calculations.

We import our inputs under prior approval without payment of customs duty or IGST. We export under LUT without payment of IGST and demand refund of unused ITC. In this process, our ITC continues to accumulate. We want to liquidate the accrued ITC by exporting on payment of IGST under refund claim. Our consultant says this is not possible due to the bar under Rule 96(10) of the CGST Rules, 2017. Is this correct?

Rule 96(10) of the CGST Rules, 2017 prohibits you from exporting on payment of IGST if you have imported any of your inputs without payment of IGST under notification 79/2017-Cus dated October 13, 2017, which effectively amends the basic notification 18 /2015-Cus dated April 1, 2015. So, if you have imported your inputs under the said notification 18/2015-Cus, you cannot export on payment of IGST. However, if you have imported your inputs under the Notification 21/2023-Cus dated April 1, 2023, the barrier against exporting on payment of IGST under a refund claim will not apply. So after exhausting the inputs imported under the said notification 18/2015-Cus., you can start exporting on payment of IGST under refund claim.

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First print: June 25, 2024 | 12:35 pm IST