Manufacture norms sought to be aligned

The commerce and industry ministry has asked the finance ministry to follow the definition of 'manufacturing' given in the Foreign Trade Policy while dealing with exports.

Differences between the income tax and export rules over its definition has led to ambiguity and is affecting the export of agricultural products and marble.

"There have been cases where exporters are being harassed by excise or income-tax officials on grounds that their activity are not tantamount to manufacturing. We have now asked the finance ministry to issue a notification specifying the definition of manufacturing as given in the Foreign Trade Policy, which will be valid for exports under the excise and income tax rules too," a senior ministry official told Business Standard.

Officials said over 80 cases of individual exporters had come before the commerce ministry where excise and income tax officials had refused to recognise the activity as manufacturing and asked exporters to pay excise or income tax with retrospective effect.

The Export Promotion Council for special economic zones (SEZs) and export-oriented units (EOUs) had also taken up the matter with the commerce ministry since many of the affected units are EOUs.

"There has been an instance where an EOU was given a Letter of Permission (LEP) to undertake manufacturing activity by the development commissioner but after six years the units was asked by the Income tax officials to pay tax with retrospective effect overruling the permission of the commissioner," Lalit Singhal, Director General of the council said.

"Section 10A and 10B of the Income tax act which provide tax relief to units in Special Economic Zones and Export Oriented units respectively do not have any definition of manufacturing. We want the definition of manufacturing given in the trade policy to be made valid for these sections," Singhal said.

The foreign trade policy recognises agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining as manufacture.

In addition to these activities, re-conditioning repair, remaking, refurbishing, testing, calibration, re-engineering are also treated as manufacturing under the policy.

The revenue department however considers the definition to be too liberal. The department has already sought modifications in the Foreign Trade Policy announced by the Commerce and Industry Ministry regarding the definition of service exports which defines such exports as "payments for such services is received in free foreign exchange".

The revenue department is of the view that service exports should not be confined as foreign exchange earnings as there may be instances where a foreigner comes to India to get a service and pays for it in foreign currency but since the service has been extended within Indian shores it cannot be termed as an export.