Changes in AIR entries may upset exporters

EXIM MATTERS

The duty drawback department has changed the description of some entries in the all-industry rates (AIR) table with retrospective effect from May 2, 2005 and changed the AIR rate and value caps in respect of several items with prospective effect.

The changes in the descriptions will help the trade in certain cases. For example, earlier the drawback was restricted to only pharmaceutical grades of zinc oxide; now the drawback is available for zinc oxide of even non-pharmaceutical grades. The description of perfumed agarbatti has been amended to cover "perfumed agarbatti/incense sticks/dhoop/loban".

Export of heat resistant rubber tension tape, slippers and all bicycles (with or without accessories) will now earn drawback. Finished and lining leather of calf and lamb will not earn drawback, but that of lamb will do so.

The descriptions of trunks, suit-cases, vanity-cases, executive-cases, brief-cases, school satchels and similar containers have been made more precise and elaborate to do away with misinterpretation.

Some changes are very subtle. For example, in the description "articles of a kind normally carried in the pocket or in the handbag, made of leather in combination with other materials", the only change is introduction of a comma after the word 'handbag'.

"Articles of apparel of leather" now becomes "Articles of apparel, made of leather". The result, hopefully, is greater clarity.

In quite a few cases, the drawback rates and/or the value caps have been reduced marginally. For example, exports of polypropylene resin, HDPE woven bags with LDPE liner fitted with zips, velcro canvas, snap fastners, HDPE woven sacks, polypropylene plain bags and woven sacks, cotton sewing thread, man-made fibre yarn, etc. will earn marginally lower drawback through cuts in rates and/or value caps.

The reasons for such marginal reductions at this stage are rather difficult to appreciate, when the duty rate cuts in the Budget came through almost nine months back and only three more months remain for the next Budget. The cuts seem to be in response to complaints from the European Union regarding hidden subsidies and threats of anti dumping investigations.

In certain cases, the reductions in drawback rates or value caps are not insignificant. For example, value caps go down from Rs 30 per piece to Rs 24 per piece in case of certain apparel. The value caps refer to the maximum amount of drawback that exports will earn irrespective of what price they are sold at.

So, such significant cuts can be attributed to efforts to discourage over-invoicing that some exporters indulge in with a view to earn higher drawback.

Over-invoicing is not uncommon amongst garment exporters but even some exporters of engineering goods seem to have got into the habit.

So, the value caps are significantly down for cam shafts from Rs 14 per kg to Rs 8 per kg, for crank shafts and wheel pulleys from Rs 17 per kg to Rs 9.70 per kg, for front axle beam from Rs 12 per kg to Rs 7 per kg and so on.

Exports of gaskets and similar joints of metal sheeting will now earn drawback of only 4 per cent instead of 7 per cent earlier.

Exporters who have already booked orders will be upset by AIR or value cap reductions. The government must be transparent and explain its compulsions.

tncr@sify.com