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INTRODUCTION:-

 

“Expectations always hurt” – The exporters will definitely agree to it when it comes to clarifications issued for conversion of free shipping bills to export promotional schemes or conversion of shipping bills from one scheme to another. In order to give hike to the exports, various export promotional schemes are announced and amended from time to time. An exporter who has opted for any such scheme, has to mention the details of same in the shipping bill filed with custom authorities. But in case the exporter fails to mention the details of scheme in the shipping bill due to any reason or where he intends to convert the shipping bill issued under one scheme to other, it is bit difficult. Previously when there were no instructions regarding the same, each and every such request was being referred to the Ministry for taking a final decision. Then, the exporters came up with a request to issue instructions to permit such conversion. Looking to the increasing need of such conversion, the Government issued various Circulars clarifying issues related to conversion. But as the old circular is withdrawn and new one is issued, instead of betterment, the situation goes the bad to worse, and worse to worst for the exporters. This is proved by the story of conversion of shipping bills as enumerated in this piece of articulation.

 

PROVISIONS IN THE FOREIGN TRADE POLICY:-

 

The hand book of procedure issued by Government of India allows the conversion of shipping bill from one export promotional scheme to another. Para 2.56 of the Hand Book of procedures reads as follows:-

 

“If Customs Authorities, after recording reasons in writing, permit conversion of an E.P. copy of any scheme-shipping bill on which benefit of that scheme has not been availed, exporter would be entitled to benefit under scheme in which shipment is subsequently converted.”

 

Thus, in terms of the para 2.56, the custom authorities are empowered to convert the E.P. copy of the shipping bill from one scheme to another.

 

PROVISIONS IN CUSTOMS ACT, 1962:-

Section 149 of Customs Act, 1962 provides for amendment of documents. This section reads as follows-

“Save as otherwise provided in sections 30 and 41, the proper officer may, in his discretion, authorize any document, after it has been presented in the custom house, to be amended:

Provided that no amendment of a bill of entry or a shipping bill or bill of export shall be so authorized to be amended after the imported goods have been cleared for home consumption or deposited in a warehouse, or the export goods have been exported, except on the basis of documentary evidence which was in existence at the time the goods were cleared, deposited or exported, as the case may be.

 

Thus, the proper officer may authorize the amendment in the document related to export or import subject to the conditions mentioned in this section.

 

RELATED CIRCULARS:-

 

CIRCULAR NO.06/2003-CUS, DATED 28.1.2003:-

 

This circular was issued to clarify the following two cases:-

 

  1. Where the exporter intended to avail benefit of a particular scheme but he was forced to file free shipping bill; or
  2. Where the exporter filed the shipping bill under a particular scheme but he was denied the benefit of that scheme by customs or DGFT; or

 

In these cases, it was clarified that the Commissioner may allow the conversion subject to certain conditions. These conditions were that-

 

  1. The use of inputs is proved to the satisfaction that the inputs have been used in the resultant export product  (in case of Advance licence, DFRC,DEPB/Drawback schemes);
  2. The examination report and other factors in the shipping bill prove the fact of export and the export product is covered under relevant SION and DEPB schedule; and
  3. Shipping bill/export document states that the exporter is fulfilling all the conditions of the said scheme.  

 

Thus, this circular also covered the case where the exporter was forced to file the free shipping bills by the customs at the time of export. Though this circular allowed the conversion of such shipping bills into any export promotional scheme later on, but it became difficult for them to prove the fact of denial by customs as generally no written denial was issued by the customs. So, representations were made as a consequence of which Circular No. 40/2003-Cus. dated 12.5.2003 was issued.

 

CIRCULAR NO. 40/2003-CUS. DATED 12.5.2003:-

 

This circular was issued to amend the Circular No.06/2003-Cus. Dated 28.1.2003. In this circular, it was clarified that the conversion may be allowed on the basis of merits of the case subject to the three conditions specified in circular no. 6/2003 alongwith following additional condition that the exporter has not availed benefit of any export promotion scheme and no fraud/or suspected manipulation and no investigations have been initiated against the party in respect of such exports under these shipping bills”.

 

Thus, this circular added one more condition to those specified in circular no. 6/2003. However, both of these circulars alongwith other circulars issued on this matter were superseded by Circular no. 4/2004-Cus. dated 16.1.2004.

 

CIRCULAR NO. 04 /2004-CUS. DATED 16.1.2004:-

 

This circular clarified that there is no need of allowing conversion of free shipping bills into drawback shipping bills as this case is already governed by Chapter X of the Customs Act and Customs & Central Excise Duties Drawback Rules, 1995. These rules empower the Commissioner to grant exemption from observance of any provision under these rules. These rules say that the exporter is required to give details of statement/declaration at the time of export of goods if he intends to avail drawback. However, if no such declaration is given in the shipping bill, i.e. free shipping bill is filed, the Commissioner is already given power to condone the same under proviso to rule 12(1)(a) of these rules. However, this relaxation is to apply in respect of drawback claims pertaining to All Industry Rates of drawback and it would not apply to brand rate of duty drawback.

 

Further, it was clarified that the conversion of free shipping bills into Advance Licence /DEPB/DFRC shipping bills should not be allowed. It was said that due to liberalization in the Customs administration, most of the goods were cleared on the basis of self-declaration made by the exporters on the shipping bills. Such self-assessment scheme indicates that the exporter should cautiously choose the export promotion scheme at the time of filing shipping bills. Also, with the introduction of the on-line assessment system, such request for conversion at a later date creates difficulties. So, it was clarified that conversion of free shipping bills into Advance Licence/DEPB/DFRC shipping bills should not be allowed.

 

Regarding conversion of shipping bills from one export promotion scheme to another, it was again clarified that the conversion of shipping bills from one export promotion scheme to another should only be allowed where the benefit of an export promotion scheme claimed by the exporter has been denied by DGFT/MOC or customs due to any dispute. Such conversion was to be permitted on merits by the Commissioner on the basis of following conditions: 

 

  • The request for conversion is made by the exporter within one month of the denial. 
  • On the basis of available export documents etc., the fact of use of inputs is satisfactorily proved in the resultant export product.
  • The examination report and other factors in the shipping bill prove the fact of export and the export product is covered under relevant SION and DEPB schedule; and
  • Shipping bill/export document states that the exporter is fulfilling all the conditions of the said scheme into which he is seeking conversion.
  • The exporter has not availed benefit of the export promotion Scheme under which the goods were exported and no fraud/ mis-declaration /manipulation/investigation is initiated against him in respect of such exports.

 

In the nutshell, this circular clarified that the conversion of free shipping bills into drawback shipping bills is allowed under the provisions of drawback rules but this was not to apply on the brand rate of drawback. Further, it specifically denied the conversion of free shipping bills into any other export promotion scheme like Advance Licence /DEPB/DFRC shipping bills. It allowed the conversion of shipping bills from one scheme to another by the commissioner on merits subject to certain conditions which were same as laid down by the circular no. 6/2003 and 40/2003 alongwith one additional condition prescribing the time limit of one month from the date of denial for requesting the conversion.

 

TRIBUNAL DECISIONS:-

 

In spite of this legal provision courts has consistently held the cases in favor of assessee. In the case of Smruti Pottery works vs. CC. Kandla[2004 (163) E.L.T. 184 (Tri. - Del.)] it was decided by Delhi Tribunal that Conversion of free shipping bill into drawback / DEPB / DFRC / Advance Licence shipping bill cannot be denied on grounds that the exporter not established that they were forced to file under free shipping category or not proved the use of ingredients. Consequently many cases like JINDAL STAINLESS LIMITED Vs COMMISSIONER OF CUSTOMS (EXPORTS), CHENNAI, SANGHI INDUSTRIES LTD Vs COMMISSIONER OF CUSTOMS, JAMNAGAR, HERO CYCLES LTD Vs CC, SHILLONG, etc. have also been decided in the same line.

 In which various tribunals held that when exporter has been denied the benefit of drawback scheme, he is entitled to seek conversion of shipping bill into another scheme. Afterwards the series of judgments in favor of assessee are there. The matter of M/s Sree Rayalaseema Hi-Strength Hypo Ltd., M/s Sree Rayalaseema Alkalies & Allies Chemicals Ltd., M/s Sree Rayalaseema Dutch Kassenbouw Ltd. Vs. Commissioner of Customs, Chennai[2010-TIOL-1287-CESTAT-MAD], which was decided on 22.06.2010, remanded for fresh decision in the light of the provisions of section 149 of customs act, 1962 and appeal was allowed. Same ground was taken in the case of Hivelm Industries Vs. Commissioner of Customs (Export) Chennai[2010-TIOL-1303-CESTAT-MAD] decided on 07.07.2010 while remanding the case.  Recently in august, 2010 it is held in the case of Essar Oil Ltd. that conversion of free shipping bills into drawback shipping bills is very well allowed in light of provision of section 149 of customs Act, 1962.

 

Thus, the Tribunals in a series of judgments have held that amendment to shipping bill after export of goods is governed by the proviso to section 149 of the Customs Act, 1962. Thus, if the requirements of the said proviso are satisfied, conversion of shipping bill should be allowed.  It is held that the conversion of the shipping bill from one scheme to another cannot be linked with denial of benefit of one scheme by DGFT/MoC&I or Customs due to some dispute as no such condition for amendment of shipping bill has been provided in section 149 of Customs Act, 1962. As such, Board once again come up with the new circular in this regard.

 

LATEST CIRCULAR NO.  36/2010-CUS, DT. 23.09.2010

 

This circular superseded the circular no. 4/2004-Cus dt. 16.1.2004. This circular clarifies the following:-

 

  1. The Commissioner of Customs can allow the conversion of shipping bills from schemes involving more detailed examination (Advance Authorization/DFIA) to schemes involving less examination (Drawback/DEPB scheme).
  2. The Commissioner can also allow the conversion within the schemes which involves same level of examination like Drawback scheme to DEPB scheme or vice versa. However, the conversion shall not be subject to denial of benefit of an export promotion scheme by DGFT/DOC or Customs due to any dispute.
  3. The conversion will be permitted in accordance with the provisions of section 149 of the Customs Act, 1962. Permission will be given on a case to case basis on merits after satisfaction of commissioner that the goods were eligible for the said scheme on the basis of documentary evidence at the time of export.
  4. Conversion of shipping bills shall also be subject to conditions as may be specified by the DGFT/MOC. The conversion of shipping bills from one to another scheme will now be allowable subject to the conditions as specified viz.,
  • The request for conversion shall be made within three months from the date of the Let Export Order (LEO).
  • On the basis of available export documents etc., the fact of use of inputs is satisfactorily proved in the resultant export product.
  • The examination report and other endorsements on the shipping bill/export documents prove the fact of export and the export product is clearly covered under relevant SION and or DEPB/Drawback Schedule as the case may be.
  • On the basis of S/Bill/export documents, the exporter has fulfilled all conditions of the export promotion scheme to which he is seeking conversion.
  • The exporter has not availed benefit of the export promotion scheme under which the goods were exported and no fraud/ misdeclaration / manipulation has been noticed or investigation initiated against him in respect of such exports.

 

5.     It is also clarified that conversion of free shipping bills into various Export Promotion schemes viz., Advance Authorization, DFIA, DEPB, reward schemes etc. should not be allowed. However the Commissioner may allow all industry rate of duty drawback on goods exported under free shipping bill, without conversion of such free shipping bill to Drawback Scheme shipping bill, in terms of the proviso to rule 12(1) (a) of the Customs, Central Excise and Service Tax Drawback Rules, 1995.

 

Besides above, due care is to be taken that the exporter does not take benefit of both the schemes i.e. the scheme to which conversion is sought and the scheme from which conversion is sought. Whenever conversion of a shipping bill is allowed, the same should be informed to DGFT so that they may also ensure that the exporter does not take benefit of both the schemes. This circular is applicable only to the shipping bills filed on or after the date of issuance of this circular.

 

SITUATION BEFORE & AFTER ISSUE OF CIRCULAR NO. 36/2010:-

 

The circular no. 36/2010-cus dt. 23.09.2010 superseded the circular no. 4/2004-cus dt. 16.1.2004. Of course, this supersession was for the betterment. But the actual situation is opposite to it as enumerated follows:-

  •  The old circular no. 4/2004 clarified that the conversion of free shipping bills into drawback shipping bills is allowed under the provisions of drawback rules but this was not to apply on the brand rate of drawback. In the new circular, the Commissioner may allow all industry rate of duty drawback on goods exported under free shipping bill but the shipping bill will not be amended.
  • The conversion of shipping bill from one scheme to another was allowed without any restriction in the old circular. But the new circular restricted the conversion of shipping bills filed under one scheme to another scheme only where conversion is applied from schemes requiring in-depth examination (like DFIA/Advance authorization) to simpler schemes (like DEPB/drawback). Conversion to similar schemes is also allowed (like DEPB to drawback or vice versa). However, conversion from simpler schemes to complicated ones is not allowed. For eg. shipping bills filed under DEPB/drawback cannot be converted to DFIA/ Advance authorization.
  • The application for conversion of shipping bills from one scheme to another was required to be filed within one month of Let export order as per old circular. On the other hand, this limit is extended to three months in the new circular. All the other conditions prescribed for converting the shipping bills from one scheme to another are the same.
  • The old circular restricted the conversion of free shipping bills into any export promotion scheme like Advance Licence /DEPB/DFRC. This restriction still continues in the new circular.  

 

WHILE PARTING:-

 

Circular no. 36/2010-Cus dt. 23.09.2010 was issued for simplifying the procedure related to conversion of shipping bills. It was issued as a consequence of series of Tribunal judgments which held that the conversion of free shipping bills to export promotion scheme is allowed as there is no such bar in the section 149 of customs act, 1962. But this prime need is also not fulfilled by this circular. Indeed, the process of conversion of shipping bills from one scheme to another has also been made complicated. Prior to issuance of this circular, conversion from one scheme to another was freely allowed but now conversion can also be made to schemes that require equal level of examination of documents or that require lower level of examination of documents. Thus, the actual purpose of issuing this circular is mislead and has opened another door of litigation.

 

Prepared By:

CA Pradeep Jain and

CA Preeti Parihar

 


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