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CUSTOMS CIRCULAR NO.27/2005-Cus. Dated 13th June, 2005
Factoring of duty incidence on HSD and furnace oil in Brand Rates and Special Brand Rates of Duty Drawback determined under Rule 6 and Rule 7 of the Customs & Central Excise Duties Drawback Rules, 1995 – reg.

The undersigned is directed to invite your attention to the above mentioned subject and to state that representations have been received from trade and industry requesting that the duty paid on High Speed Diesel (HSD) and Furnace Oil should be rebated under the Drawback Scheme.

2. The matter has been examined by the Ministry. It has been provided in Annexure II of the Agreement on Subsidies and Countervailing Measures (ASCM) that drawback schemes can allow for the remission or drawback of import charges levied on inputs that are consumed in the production of the exported product (making normal allowance for waste). It has also been stated that indirect tax rebate schemes can allow for exemption, remission or deferral of prior stage cumulative indirect taxes levied on inputs that are consumed in the production of the exported product (making normal allowance for waste). The Footnote clarifies that inputs consumed in the production are inputs physically incorporated, energy, fuels, and oil used in the production process and catalysts which are consumed in the course of their use to obtain the exported product. From the above, it appears that the practice world over is to allow drawback of import charges levied on inputs (which include, energy, fuels and oil) that are consumed in the production of the exported product. It may also be noted that under the Advance Licence Scheme, all imports including fuels, oil, energy etc. which are consumed/utilised in the course of their use to obtain the export product, are allowed to be imported duty free.

3. Hitherto, the duty paid on fuels and oils was not being rebated as drawback on the understanding that these inputs are not physically incorporated in the export product. This aspect has been examined by the Committee constituted for formulation of All Industry Rates of Duty Drawback 2005-06 and the Committee has observed that this is an outmoded approach towards understanding the scope of manufacturing process. The Committee has further observed that if HSD/Furnace Oil is used in the process of manufacture either for generating power or directly as fuel, it should legitimately be considered as used in the manufacture of the final product. On the recommendation of the Committee, the incidence of duty on HSD/Furnace Oil has been factored in the calculation of the All Industry Rates of Duty Drawback, 2005-06. The Ministry has also issued a Circular [No.22/2005-Cus. dated 2.5.2005] clarifying the said position.

4. In view of this, it has been decided that the incidence of duty on HSD/Furnace Oil needs to be factored also in the Brand Rates and Special Brand Rates of Duty Drawback determined under Rule 6 and Rule 7 of the Customs and Central Excise Duties Drawback Rules, 1995 in respect of exports made from 5.5.2005 onwards i.e. the date from which the All Industry Rates of Duty Drawback came into force.

5. A suitable Public Notice and Standing Order may be issued for the guidance of the trade and staff. Difficulties faced, if any, in implementation of the Circular may be brought to the notice of the Board at an early date.

Receipt of this Circular may kindly be acknowledged

Sd/-
(H.K. Prasad)
Under Secretary (DBK)

F.NO.605/44/1994-DBK