ELIGIBILITY FOR REBATE OF DUTY FOR EXPORTING FREE SAMPLES

[Mr. M. GOVINDARAJAN]

Vide Notification No. 19/2004-CE (NT), dated 6.9.2004 inexercise of the powers conferred by rule 18 of the Central Excise Rules, 2002 and in supersession of the Ministry of Finance, Department of Revenue, notification No. 40/2001-Central Excise (NT), dated the 26^th June 2001,[G.S.R.469(E), dated the 26^thJune, 2001] in so far as it relates to export to the countries other than Nepal and Bhutan, the Central Government directed that there shall be granted rebate of the whole of the duty paid on all excisable goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), exported to any country other than Nepal and Bhutan, subject to the conditions, limitations and procedures specified in the Notification. One of the conditions in granting rebate is that the market price of the excisable goods at the time of exportation is not less than the amount of rebate of duty claimed. If the market value of the export is NIL then no rebate will be granted.   Exporting free samples are also not having value. Therefore rebate is not eligible for exporting free samples.   This has been substantiated by Government of India in the revision petition filed by Ranbaxy Laboratories Limited – 2010 (3) TMI 970 - GOVERNMENT OF INDIA

The fact of the case runs as follows:

The assessees have filed rebate claims amounting to Rs.4,20,126/- and Rs.4,23,508/- on 9.9.2005 and 20.07.2005 respectively against goods cleared for export.   As per rebate applications the goods were exported under Shipping Bills Nos. 5754395 dated 10.8.2005 and 5694904 dated 30.06.2005 respectively.   Both the applications were processed and have been sanctioned by the jurisdictional Assistant Commissioner. The Department reviewed the said order and found that the export invoices have remarks FREE SAMPLES and the respective shipping bills have also remarks NO FOREIGN EXCHANGE IS INVOLVED. It was made clear by the department that the exports had been made without any realization of foreign exchange.

The Commissioner filed appeals with the Commissioner (Appeals). The following arguments were put forth:

• The export invoices & shipping bills have remarks ‘Free Samples’ and ‘No foreign exchange is involved’. From this it is clear that the export has been made without consideration of foreign exchange;
• The rebate claim is subject to the conditions prescribed in the Notification NO.19/2004-CE (NT) dated 6.9.2004.   The condition No. 2(e) of the Notification provides that the market price of the excisable goods at the time of exportation is not less than the amount of rebate of duty claimed;
• The exported goods are having no commercial value as per declaration given by them.   Therefore the market price of the goods exported is NIL.   In view of the same the grant of rebate by the Asst. Commissioner is erroneous.

The Commissioner (Appeals) allowed the appeal of the Department. Aggrieved against this order the assessee filed the present Revision application before the Government of India.   The assessee contended the following:

• The free samples have been exported as per the provisions of Rule 18 of the Central Excise Rules, 2002.   Nowhere under these rules or the Notifications issued there under, there is any condition that in respect of goods exported, the consideration should necessarily be received from the customer.   The order-in-appeal has been passed merely on assumptions and deserves to be set aside for this reason;
• There is no condition under that notification that the exporter must receive foreign exchange as a consideration for export of goods to be eligible for rebate claim under Rule 18;
• Therefore the rebate claim cannot be denied on the above ground;
• The impugned order in appeal erroneously assumes that goods in question do not have any ‘market value’ merely for the reason that they were supplied on free samples by the exporters to the foreign buyer;
• The ‘market value’ of the goods and the ‘commercial value’ (transaction value) of the goods are two completely distinct expression, while the commercial value of the goods refers to the amount of consideration to be received from customers for the supply of goods, the ‘market value’ is completely different and refers to the value at which the goods are capable of being sold to the market. The condition 2(e) in the notification refers to the ‘market value’ of the goods and not the ‘commercial value’ of the goods;
• While exporting goods it is necessary for the applicant to mention the ‘commercial value’ of the goods in the export documents. Since the applicant have supplied free as sample to their foreign customers they have right mentioned their ‘commercial value’ as NIL;
• The applicant have paid excise duty on the goods based on the comparable market value of the goods even though the goods were supplied free to the customers;
• Therefore the applicant is eligible for rebate of duty paid on the goods exported equivalent to the excise duty paid and such claim cannot be denied to them.

The Revisionary authority did not accept the arguments of the applicant. If the transaction value of the free samples in question was NIL, such goods would not be liable to any duty at the time of exportation of such goods.   This effectively means that the applicants were not required to pay any duty while exporting such free samples but have erroneously paid such duty. Even in such a situation the applicant is eligible for refund of equivalent excise duty wrongly paid on free samples exported that has been assessed as NIL.   The impugned order in appeal ought to have allowed refund of excise duty wrongly paid in case the applicant was not eligible for rebate claim as per provision of condition 2(e) of the Notification NO.19/2004-CE (NT), dated 6.9.2004.

The Government observed that these samples were not meant for sale, so they did not have any commercial value and no foreign remittances were to be received by the applicant. It was further observed that rebate/drawback etc., are export-oriented schemes to neutralize the effect of the domestic duties on the exported goods to make them competitive in international market to earn more foreign exchange for the country.

In this case, no foreign remittances was to be received by the applicant, they were not eligible for rebate of duty on free trade samples. As per foreign trade policy, the exporter is allowed to send the free trade samples but the admissibility of the rebate claim is to decided as per relevant provisions of the Central Excise Act.   No commercial value is mentioned on the export documents and the market value is NIL, the rebate claims becomes inadmissible in terms of condition No. 2(e) of Notification No. 19/2004-CE (NT), dated 6.9.2004. The Government rejected the revision application.

Discussions to this article

[Naveed S]

I enjoyed reading and the article..

Your style of giving the Background of the case matter in the first para and thereafter providing details on the said topic makes reading of the article more interesting and helps in understanding it in a better way...

[jayaprakash gopinathan]

Rebate is refund of duty paid on goods exported. The goods( samples) were exported for augmenting foreign exchange through further transactions. The samples were cleared on payment of duty instead of resorting to clearance under bond. The issue is only  decided by Revenue authorities. One has to wait for a judicial decision to treat it as a binding precedent. Trade should not be carried away by this findings. 

Please see the procedure for clearance of samples: It is governed by rule 11 of CE rules as in the  case of other clearance for home consumption. When such sample can be cleared only as per provisions of rule 11, it is the prerogative of  assessee to choose the mode of clearance, i.e. clearance under bond or under claim for rebate. 

Trade should not be carried away by such half baked decisions and informations.

G.Jayaprakash