Announcements differ from text

EXIM MATTERS

Commerce Minister Kamal Nath made some announcements regarding amendments in the Export Promotion Capital Goods (EPCG) scheme while unveiling the annual supplement to the Foreign Trade Policy (FTP). But the actual provisions in the text of the amended Policy are somewhat different from the announcements.

Nath said that import of spares, tools and spare refractories for all the existing imported plant and machinery would also be allowed under the EPCG scheme and that this should allow manufacturers to replace more optimally their machinery imported earlier. The actual text of the FTP (Para 5.1 A) says that spares (including reconditioned/refurbished spares), tools, spare refractories and catalysts for the existing plant and machinery shall be allowed to be imported. The actual text does not restrict these imports to only imported machinery. The provision also covers imports for indigenously procured machinery.

Nath said whenever more than one concurrent authorisation has been issued, the fresh EPCG authorisation would build upon the last required average export obligation only, notwithstanding the actual achievements of the previous year, and that this way better performance would not be penalised. Para 5.7.8 of the Handbook of the Procedures, Vol. 1 (HB-1) contains similar wordings. However, Para 5.4 (i) of FTP says that export obligation shall be, over and above, the average level of exports achieved by applicant in preceding three licensing years and that such average would be the arithmetic mean of export performance in last three years.

Where the export obligation is to be fulfilled through a group company/managed hotel, the average would be based on previous three years' export of goods and services (put together) achieved by the unit/group company/managed hotel, says Para 5.4 (i) of the FTP. Moreover, Para 5.8.6 of HB-1 says that in case of an existing export obligation under the EPCG scheme, a fresh EPCG authorisation can only be issued provided average of last obligation (including increased amount due to duty saved in last EPCG) has been maintained. These are very confusing provisions and the DGFT should issue Policy Circulars clarifying the correct position, with examples. Para 5.4 (i) of FTP says that export obligation can be fulfilled by export of any product manufactured or services rendered by the applicant. However, the requirement of submitting a Chartered Engineer certificate certifying the 'nexus' between the imported capital goods and export products has not been dispensed with.

Nath did not highlight some unhelpful changes. Import of components under the scheme for assembly by the importer will not be possible now. Henceforth, services exporters will not be exempted from maintaining annual average. The benefits of duty credits under schemes like Focus Market, Focus Product etc will not be available against exports made in discharge of export obligation under the EPCG scheme. Only new capital goods will be allowed for technological upgradation under the EPCG scheme.

The helpful changes include doing away with block-wise fulfilment of export obligation. The upper limit of Rs 25 lakh for imports by SSI is abolished. Procurement under the EPCG scheme from Export Oriented Units (EOU) will be counted for Net Foreign Exchange (NFE) calculation of EOU. Installation certificate from Chartered Engineer can be accepted.

e-mail: tncr@sify.com