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Finmin asks customs dept to scrutinise SEZs' tax claims
January, 28th 2008

The finance ministry has urged customs officials to check duplication of drawback claims on supplies made to special economic zones (SEZs).

In the case of items sourced from the domestic market, SEZ developers and SEZ units can claim duty drawback or issue a disclaimer to enable the supplier to do so.

The finance ministry wants to ensure that both parties do not end up claiming drawback on such supplies. Therefore, detailed instructions have been issued to customs officials to streamline processing of drawback claims and prevent misuse.

The move is significant since the drawback scheme, run by the revenue department, is expected to emerge as the main window for export promotion. SEZ developers and units enjoy exemption from both customs as well as excise levies. While they do not pay any customs duty on their imports, they can claim refunds if their supplies have already been subject to excise.

The flexibility available in the system enables the supplier to also claim drawback on the strength of a disclaimer from the SEZ developer or unit concerned. The finance ministry now wants such disclaimers to be accompanied by a certificate from the specified customs officer posted in the SEZ concerned to verify that drawback has not been claimed by the SEZ developer or unit that had acquired the goods concerned.

The caution on drawback is significant since claims are expected to increase as more and more SEZ units go into production. Many developers who have obtained clearances from the board of approval for SEZs have also started construction of their projects.

This will result in increased sourcing of goods from the domestic market. Necessary safeguards may be taken to ensure that drawback is not availed of twice on the same goods, says a communication sent to customs officials posted at SEZs.

It may be ensured that the disclaimer certificate issued by the SEZ unit or the Developer to the DTA supplier is supported by a certificate from the Specified Officer in the SEZ to the effect that drawback has not been claimed/availed of on the goods by the SEZ unit or the developer, as the case may be.

To prevent duplication of drawback claims, the finance ministry has also emphasised that claims should be granted only by specified customs officers posted in the SEZ concerned. In the case of export oriented units, development commissioners clear these claims.

Since supplies to SEZs are physical exports rather than deemed exports, the ministry wants only specified officers to process these claims. The finance ministry also wants processing of drawback claims related to supplies to SEZ developers or units to be in line with the SEZ Act and SEZ Rules.

Earlier such claims were processed under Section 10 A of the Income Tax Act that has since been scrapped to grant drawback to supplies made to erstwhile export processing zones (EPZs) which have since been converted to SEZs.

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