The duty entitlement passbook (DEPB) scheme was introduced in April 1997, that is, more than four-and-a-half years back. The scheme is due for a phase-out by April 2002. Even at this stage, exporters face problems from the licensing authorities and customs, which come up with different interpretations.
The latest issue concerns the value cap. Export of formulations, usually, get DEPB at 75 per cent of the DEPB rate applicable to relevant bulk drug. For example, if a bulk drug earns DEPB rate at 20 per cent, the formulation, say tablet, using that bulk drug, would earn DEPB at 15 per cent of the FOB value of exports.
Some DEPB rates are subject to a value cap. If the value cap of a bulk drug is say Rs 100 per kg and the DEPB rate is say 20 per cent, the DEPB entitlement will be restricted to Rs 20, even if the exporter earns the FOB value of Rs 200 per kg.
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What happens, if an exporter exports tablets made of the same bulk drug and earns Rs 400 per kg, and there is a value cap against the export of bulk drug but there is no value cap against export of tablets?
No doubt his DEPB rate at 75 per cent of the rate applicable for the relevant bulk drug gets limited to 15 per cent. But, will he earn DEPB at 15 per cent of Rs 400 or at 15 per cent of the Rs 100? The licensing authorities say that he will earn DEPB at 15 per cent of Rs 400, that is, Rs 60, whereas the customs say that his DEPB entitlement should be restricted to 15 per cent of Rs 100 ie, Rs 15.
Obviously, tablets are more expensive because they involve not only the relevant bulk drugs, but also other ingredients such as fillers and also the packing materials. The marketing costs of tablets involve brand-building and approval by several doctors who have to be given free samples.
That is why the DEPB rate schedule does not prescribe a value cap against export of tablets or for that matter the formulations. The customs, however, apply the value cap applicable for bulk drugs to formulations also at the verification stage.
In the case of Kanhaiya Exports [2001 (133) ELT 281], the Calcutta high court categorically ruled that the customs and licensing authorities operate in distinct and different field and that one can not sit in appeal over the other.
In spite of strictures against the customs in that case for acting arbitrarily at the DEPB verification stage, the customs simply reduce the DEPB entitlement, instead of referring the matter to the licensing authorities.
Another problem relates to the FOB value to be endorsed on the DEPB that will limit the value of imports against the DEPB. Should that be the actual FOB value earned or the value cap?
The licensing authorities endorse the FOB value as per the value cap although the instructions relating to value cap do not explicitly say so.
Everyone understands that it is difficult for policy makers to foresee all the eventualities while formulating a scheme. But, surely if problems keep cropping up four-and-a-half years after introduction of a scheme, the policy makers should ask 'why?' and introspect. The high powered committee set up to draft the next five year exim policy needs to do that.