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Duty computation for DTA sale by EoU with effect from March 1, 2008

MARCH 2, 2008

By Joseph Prabakar, Advocate

EoUs are allowed to clear / sell goods in the Domestic Tariff Area ( DTA ) up to a limit of 50% of the value of exports made during the previous year. Excise Duty to be paid by EOU for DTA sale would be equivalent to applicable customs duty payable on similar goods if the said goods were to be imported. Central Excise Notification No 23/2003 dated March 31, 2003, provided for exemption for EOU's on DTA sale whereby the rate of duty prescribed was equivalent to 25% of the applicable Basic Customs Duty (BCD) plus the applicable CVD. Notification 23/2003 also provides for exemption of Special CVD of 4%.

An amendment has been carried out in Central Excise Notification No 23/2003 whereby the rate of Excise Duty prescribed for DTA clearance by EOU has been changed as equivalent to 50% of the applicable Basic Customs Duty (BCD) plus the applicable CVD.

If a machinery is cleared by an EOU, the Excise Duty rate would be equivalent to 50% of the applicable Basic Customs Duty (BCD) for the machinery plus the applicable rate of CVD for the machinery. With effect from March 1, 2008 , Excise duty calculation by an EOU for DTA clearance, after taking into account the reduced rate of excise duty of 14% and the amendment made to Notification 23/2003 dated March 31, 2003, is as shown below.

Illustration for DTA sale of machinery by an EOU (Rate of Basic Customs Duty for Machinery is 7.5%)

Assessable value     = Rs.100
Basic Customs Duty = 50 % of 7.5 = Rs 3.75
Value for levy of CVD  = Rs 14.96 (available as Cenvat)
Total duty payable = 3.75 +14.96  = Rs 18.71
Primary Education Cess @ 2% on 18.71  = Rs 0.374
S & H E Cess @ 1% on 18.71  = Rs 0.187
Total Excise Duty payable  

Rs 19.27 or 19. 27%

So, the effective rate of duty from March 1, 2008, for DTA sale by an EOU, would be 19.27% as against 19.22% earlier (till today).

It may be noted that the Special CVD of 4% is not to be included in the computation as the same continues to be exempt.

Sub: useful calculation


Author has explained the duty calculation on DTA clearances considering changes effected in the budhet with example.Very good and useful example indeed.Example given under Notification 22/2006 that amended 23/2003 did not consider 2percent education cess while calculating 20percent CVD.However author has calculated taking CVD as 14.42 percent which includes 14 percent equivalent to CE duty and 0.42 equivalent to Ed cesses.I agree with his method of calculation.

Posted by rrkothapally rrkothapally
Sub: Customs Education Cess component missing

Duties levied on imported goods are -

i) basic customs duty
ii) CVD
iii) Primary ed. cess on CVD (2% of ii)
iv) Higher Ed. Cess on CVD (1% of ii)
v) Primary Ed. Cess on customs duties (2% on (i+ii+iii+iv)
vi) Higher Ed. Cess on customs duties (1% on (i+ii+iii+iv)

Duty payable on DTA clearances of EOU, which is leviable under Section 3 of the C.E. Act, 1944, the cess calculation given at v and vi above, have not been considered.

The exemption under Notification 23/2003 is only in respect of (partial exemption) basic customs duty and 4 pc CVD, but it does not exempt the customs education cess

For example given in the article

Value = Rs.100
i) BCD = Rs.3.75
ii) CVD = Rs.14.53
iii) PEC on CVD (2% of ii) = Rs.0.29
iv) HEC on CVD (1% of ii) = Rs.0.15
v) PEC on Customs duty = Rs.0.37
(2% of (i + ii + iii + iv)
vi) HEC on Customs duty = Rs.0.19
(1% of (i + ii + iii + iv)
vii) Excise duty Rs.19.27 on DTA clearances
(sum of i to vi)

viii) PEC on Excise duty(vii) Rs.0.39
ix) HEC on excise duty (vii) Rs.0.19

x) Excise duty + Cess payable
on DTA clearances
(vii + viii + ix) =Rs.19.85

Posted by PradeepDShah PradeepDShah