The Government introduced One time Amnesty Scheme (‘Scheme’) vide Public Notice No. 2/2023 dated April 1, 2023 for exporters grappling with pending default in Export Obligation (‘EO’) under EPCG and Advance Authorization Schemes. The Scheme was applicable for Authorizations obtained under Foreign Trade Policy (‘FTP’) 2004-09 (for EO valid beyond August 12, 2013) and FTP 2009-14. This Scheme was detailed in our update NITYA Insight I Finance Act, 2023 & Foreign Trade Policy, 2023.

In this Outlook, we wish to apprise you of issue being faced by exporters who availed EPCG and Advance Authorization Schemes who could not fulfill their EO and intend to opt for the Scheme for their domestic procurements.

Regularization of EO default under the Scheme

Para II of the Scheme states that all pending cases of EO default can be regularized by paying customs duties originally exempted in proportion to the unfulfilled EO. The Scheme also provides a cap of 100% interest on Basic Customs Duty (‘BCD’) and waives interest on Countervailing Duty (‘CVD’) and Special Additional Duty (‘SAD’) portion. Further, it bars applicant from claiming CENVAT Credit or refund of duties paid under this Scheme.

Issue in case of domestic procurement

Notably, Advance Authorization and EPCG Scheme permitted domestic procurement of inputs and capital goods. In such cases, no custom duties were originally exempted. For making such supplies, FTP allowed domestic supplier to claim Terminal Excise Duty (‘TED’) refund and Deemed Export benefits. However, the Scheme is silent on what an Authorization holder needs to pay to regularize EO default when no custom duties were initially exempted in situations of domestic procurement.

NITYA Comments: The Amnesty Scheme covers all types of procurements under Advance Authorization and EPCG Schemes without excluding domestic procurement cases. Therefore, it equally applies to domestic procurement cases as well. It is important to note that in case of domestic procurements for EPCG Scheme, EO is calculated basis notional customs duty. However, in absence of specific provision or mechanism, doubts may arise on computation of notional customs duty and whether the same should be computed on a notional basis or in any other manner. 

In our view, Advance Authorization and EPCG Authorization holders only need to pay amount equivalent to TED refund claimed along with Deemed Export benefits (if taken). This is clearly supported by principle of restitution by which exporters need to be taken back to situation if they would not have opted for Advance Authorization and EPCG benefits. If DGFT authorities raise demand based on notional duties, there is no legal basis for such claims. 

Exporters can consider filing representation before the DGFT to seek prompt resolution on this issue. Alternatively, Exporters can file an application under the Scheme and await determination of amount by the authorities. If there is a discrepancy or disagreement on determined amount, exporters can challenge the same before jurisdictional High Courts as there is no appellate mechanism under the Scheme. 

In addition, it is unclear whether interest is leviable on surrender of Deemed Export benefits or it is fully waived like for CVD and SAD. In the absence of specific statutory provision obligating payment of interest, no interest is payable.

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