Circular No.ES/146/2019-20 September 20, 2019
To: Members of the Council
CBIC had issued Circular No. 33/2019 – Customs dated 19th September, 2019 clarifying regarding duty drawback allowed in cases of short realisation of export proceeds due to bank charges deducted by foreign banks.
Following representations have been received by CBIC from members of Trade, Trade Bodies and Export Promotion Councils –
Show Cause Notices issued by some Customs field formations for recovery of duty drawback on account of short realisation of export sale proceeds due to bank charges deducted from export invoice by the banks. These short realisations are actually service charges deducted by intermediary banks while remitting payments from abroad and that said charges are documented by the banks.
Request that such short realised export sale proceeds be considered as full realisation and duty drawback not be recovered for such short realisation.
The matter has been examined and RBI has clarified that –
Such deductions are enabled under notification No. FEMA 23(R)2015-RB dealing with Foreign Exchange Management (Export of Goods and Services) Regulations 2015.
In respect of various export promotion schemes, para 2.52 of FTP 2015-20 also states that free foreign exchange remitted by buyer after deduction of bank service charges are taken as export realisation under export promotion schemes of FTP.
In respect of agency commission paid to agents abroad for securing export contracts, Board vide Circular No. 64/2003- Customs dated 21.07.2003 has allowed such commission up to the limit of 12.5% of FoB value to be considered for payment of duty drawback without deducting it from FoB value in line with the RBI’s Circular No.AD (MA Service) 17, dated 19.5.1999 and DGFT’s Policy Circular No. 55 (RE- 98) dated 10.02.1998.
CBIC has now clarified that –
Duty drawback may be permitted on FoB value without deducting foreign bank charges.
Since agency commission up to the limit of 12.5% of the FoB value has been allowed, such deduction on account of foreign bank charges is allowed within this overall limit of 12.5% of the FoB value.
From the average rates of agency commission and foreign bank charges in respect of export shipments, it is seen that these deductions fall within the aforesaid overall limit of 12.5% of FoB value allowed by the Board.
Agency commission and foreign bank charges, separately or jointly, exceeding this limit should be deducted from the FoB value for granting duty drawback.
CBIC has requested field formations to consider on merits exporter’s requests for regularizing such short realisation on account of foreign bank charges based on documentary evidence such as export invoice, bank’s confirmation regarding foreign bank charges, etc. to justify such deductions. Also, they are requested to deal with the Show Cause Notices already issued by them accordingly.
Members may kindly make a note of the above.