EOUs can re-import goods rejected by buyer for repairs, re-export: Expert

We are a 100 per cent EOU in Bhiwadi, exporting engine parts to foreign countries without any duty. We used to import under duty exemption through procurement certificates from our excise department. But now, one issue has come up regarding re-import of rejected goods for repairing and re-export. Our jurisdictional officer says that this cannot be imported duty-free because it does not appear as raw material in our Letter of Permission (LOP). What is the correct position?

Under notification 52/2003-Cus dated March 31, 2003, all goods mentioned at Annexure-1 to that notification can be imported by an EOU without duty payment. S.No. 14 of that notification covers “goods imported within three years from the date of exportation for repair or reconditioning”. There is no requirement under this notification that only the goods mentioned in the LOP or only the raw materials can be imported. I suggest you explain it to your officer and if he does not agree, take up the matter with senior officials.

We have an export contract on FOB basis. However, we have agreed to pay the freight and insurance on behalf of the buyer and recover it from the buyer by adding it to the export invoice. How is it different from a CIF contract? Secondly, our understanding is that in such a contract, FOB value of export is zero-rated supply whereas freight and insurance are non-GST sale. Is our understanding right? 

In an FOB contract, when you agree to pay actual freight and insurance premium and collect it separately from the buyer, what you do is transfer the risk of variation in freight and insurance premium to the buyer, whereas in a CIF contract, the said risk remains with you. In your FOB contract, I suggest you raise an invoice for the FOB value and treat it as zero-rated supply. For the freight and insurance, the service providers concerned supply the relevant services to you. You are only claiming reimbursement from the buyer. So, you may raise a commercial invoice or a debit note on the buyer and take the reimbursement.

The machinery we imported is found to be defective. What is the procedure for re-export (return) of the same and what is the relevant customs notification?  Does it require GR waiver from bank?

As per Para 2.46.II (a) of FTP, “Goods imported against payment in freely convertible currency would be permitted for export only against payment in freely convertible currency, unless otherwise notified by DGFT”. So, if you are re-exporting the goods under this provision, you may follow the normal export procedures. If you have paid customs duty at the time of import, you can claim drawback of the same under Section 74 of the Customs Act, 1962 read with Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995. If you have paid duty through any duty credit scrips, the provisions of Para 3.12 of HBP read with CBEC Circular no. Circular No. 45/2011-Cus, dated October 13, 2011 will apply.

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