Circular No. 115 dated 8^th November 1995

Notification No. 104/95-Customs dated the 30th May, 1995 relating to Pass Book Scheme has been amended by Notification No. 115/95-Customs dated the 27th October, 1995 (copy enclosed for ready reference)¹. The amendment has been carried out to prescribe the modalities for allowing credit in the Pass Book, to specify that the Pass Book or the credits allowed therein shall not be transferable and to specify the Ports at which the Pass Book Scheme shall be in operation.

2.           Specification of Ports: The scheme shall be in operation at the ports, Airports or Inland Container Deports at Bombay, Nhava Shava, Calcutta, Madras and New Delhi. Accordingly, no credit shall be admissible in the Pass Book in respect of exports made from any other Ports/ Airport or ICDs and similarly imports against the Pass Book shall also not be permissible from places other than those specified.

2.1.   Credit on basis of inputs specified in standard input output norms: The amendment has made a specific provision that credit shall be admissible only in respect of inputs which are specified in the standard input output norms with quantity restrictions. In other words, for any input in respect of which the quantity restriction has not been specified in the input output norms for the particular export product, credit shall not be admissible.

2.2.   Quality of inputs and their use in the product exported: For the purpose of claiming credit, the export will also be required to declare that the input in respect of which credit is claimed have been actually used in the product exported. The exporter will also be required to declare and, if necessary, prove to the satisfaction of the Assistant Commissioner of Customs that the export product was manufactured out of inputs of prime quality except where the norms itself allow import of scrap or waste. Thus in all cases where there is genuine doubt about the export product having been manufactured out of inputs of inferior quality but the credit is claimed on the basis of prime quality inputs, the exporter may be asked to furnish proof of the quality of inputs actually used in the export product. Where the evidence produced by the exporter is not satisfactory, a reference should also be made to Central Excise authorities for verification of the declaration/ evidence given by the exporter.

2.3.   Rate of duty for permitting credit: The credit shall be allowed at the rate of basic Customs duties i.e. the duties leviable on the inputs under the First Schedule to the customs Tariff Act, 1975 read with notification if any issued under section 25 of the Customs Act. End -use notifications or other conditional Notifications shall also be taken into consideration where conditions of such notification have been fulfilled. For example, notification No. 45/94-Customs dated the 1st March, 1994 extends concessional rate of duties for a number of items when imported for use in the leather Industry. Thus where credit is claimed in respect of any input attracting concessional rate of duty in terms of said notification against the export of leather products, credit should be permitted only at the rate of duties specified in terms of said notification. The relevant date for deciding the rate of duty applicable on the inputs shall be the date on which the order permitting the clearance and loading of export product was made by proper officer of the Customs under Section 51 of the Customs Act. Thus the inputs shall be deemed to have been imported on the dated on which the let export order in respect of export products was given.

2.4.   Valuation of inputs: Where duties of Customs are chargeable on any inputs by reference to its value, the value of such inputs shall be deemed to be the price at which such or like inputs are ordinarily sold or offered for sale, for delivery at the time and place of importation, in the course of normal trade, where the seller and the buyer have no interest in the business of each other and the price is sole consideration for the sale or offer for sale. Thus valuation of inputs shall be determined by the principles enshrined in section 14 of the Customs Act. For this purpose, the time and place of importation shall be deemed to be the time and place of order permitting exportation of the export product, in terms of section 51 of the Customs Act. Thus the inputs shall be deemed to have been imported, for the purpose of valuation, at the time and place where the "let export" order in respect of export product was given. Such value, if necessary, shall be calculated with reference to the rate of exchange as applicable on the date on which the Sipping Bill or the Bill of export was presented under section 50 of the Customs Act.

2.5.   Value addition: The amending notification has also specified that credit shall not be admissible in case the total value of inputs in respect of which credit is claimed exceeds 75% of the F.O.B. value of the product exported. Accordingly, a minimum of 33% value addition applicable in respect of Quantity Based Advance Licences shall also be applicable in respect of export under Pass Book Scheme. However, Director General, Foreign Trade or any other officer authorised by him may permit credit to be allowed in cases of lower value addition by a general or special order.

2.6.   Non-transferability of Pass Book or credits: The amending notification has also made a special provision to bar the transferability of Pass Book or the credit allowed therein to any other person.

3.      The aforesaid changes made in the scheme may be brought to the notice of exporting community by suitable Public Notice and to the staff by Standing order issued may be forwarded to Commissioner (Drawback) and Director General of Inspection & Audit (Customs & Central Excise).

4.      Since the scheme does not allow availment of drawback ab-initio, it is reiterated that no drawback shipping bill should be allowed to be filed under the scheme.