Công văn 6400/TXNK-CST

To: Pouyuen Vietnam Company Limited
(Address: D10/89Q, Highway 1A, Tan Tao Ward, Tan Binh District, Ho Chi Minh City)

In response to Official Dispatch No. 20180827/XNK-PYV dated 27/8/2018 of Pouyuen Vietnam Company Limited (PV) regarding discarded products imported as materials for export production, below are opinions of Export and Import Duty Department:

Pursuant to Point b Clause 2 Article 12 of Decree No. 134/2016/NĐ-CP, raw materials, supplies and components imported for production of products that have been exported are eligible for duty exemption.

Pursuant to Clause 35 Article 1 of Circular No. 39/2018/TT-BTC dated 5/6/2018:

- Consumption rate for manufacturing means the amount of raw materials and supplies used in reality for processing or manufacturing a unit of product for export and is equal to the total quantity of raw materials and supplies used for export production divided by (:) the total quantity of products according to instructions in Form No. 16/DMTT/GSQL in Appendix II of Circular No. 39/2018/TT-BTC .

- discarded products are finished products or semi-finished products that fail to meet technical standards (in terms of specifications, sizes, qualities, etc.) and discarded during the processing or manufacturing of exports instead of being exported.

1. PV produces 100 pairs of shoes, among which 70 are qualified for export, 20 are put into storage for one year and 10 have to be destroyed. When PV produces 30 more pairs to replace the disqualified ones and exports them, the raw materials used for their manufacture will be aggregated with the amount of raw materials and supplies used for manufacture of the 100 pairs that have been exported.

PV shall fully pay the duty on the raw materials and supplies used for manufacture of the 10 pairs that have to be destroyed upon expiration of the retention period and the 20 pairs that have to be destroyed or domestically sold (totally 30 pairs destroyed or domestically sold).

Duty will not be charged on raw materials and supplies used for manufacture of products that are damaged and discarded during the manufacture process. However, when the scrap and discarded products are sold domestically, VAT, special excise duty (if any) and environment protection tax (if any) shall be declared and paid to the customs authorities according to Form No. 04 in Appendix IIa of Circular No. 39/2018/TT-BTC. A physical declaration shall be prepared according to Form No. 06/BKKTT/TXNK in Appendix VI of Circular No. 39/2018/TT-BTC as the case may be.

2. In case PV has not had a plan to dispose of the discarded products, the raw materials and supplies used for their manufacture will not be eligible for import duty exemption and PV has to declare the specific quantity of these raw materials and supplies.

Class B products that can be exported shall not be considered discarded products and shall be reported using Form No. 15a/BCQTSP-GSQL in Appendix V of Circular No. 39/2018/TT-BTC in accordance with Clause 39 Article 1 thereof.

3. The quantity of raw materials and supplies used for the manufacture of products that are sold domestically or destroyed, which is the basis for determination of import duty payable, shall be determined according to consumption rates of products of the same category.

In response to PV’s proposal, General Department of Customs has provided instructions in Official Dispatch No. 3862/TXNK-CST dated 16/7/2018, according to which imported raw materials and supplies used for production of semi-finished products or damaged products that have to be destroyed are subject to import duty.

For your information./.