Modvat clause stumps DGFT licence plan

EXIM MATTERS

The director-general of foreign trade (DGFT) has announced a new scheme to regularise all old cases of advance licences but has, perhaps inadvertently, put in such conditions that make it impossible for most exporters to avail of the scheme.

The licensing authorities used to issue duty exemption entitlement certificates (DEEC) along with advance licences till April 2002. The Customs department had to make entries in DEEC of duty-free imports made under the advance licence and exports made in discharge of export obligation against the imports.

Getting duty exemption entitlement certificates Part "F" endorsements relating to exports had been a nightmare for the exporters because it involved getting test certificates that would establish a strict "nexus" between the imported items and the export product in terms of quality, grade and technical specifications.

So, in most cases, the advance licence cases could not be closed for want of duty exemption entitlement certificates Part 'F' endorsements duly audited by the Customs, even though the exporters could produce the export promotion (EP) copy of shipping bills as proof of exports and the bank certificate of exports showing realisation of export proceeds.

In such cases, as per DGFT instructions (Policy Circular 33 dated 20.08.1998), the exporters were not to be declared as defaulters, which meant that most exporters and even licensing authorities forgot about such outstanding cases.

Now, in his New Year gift, the DGFT has allowed regularisation of such old cases without the production of DEEC Part "F" entries duly audited by the Customs department. It is a major relaxation and a very positive and practical step considering the ground realities.

In fact, the DGFT has gone a step further and allowed submission of original or duplicate EP copy or DEEC copy of the shipping bills with endorsement of Custom's examination report, original or bank-attested duplicate copy of bank realisation certificate and Customs attested invoice/packing list. He has also asked for an affidavit-cum-indemnity on stamp paper duly notarised, which most exporters can easily submit.

Where the DGFT has gone wrong is in asking for submission of a copy of a Modvat non-availment certificate duly counter signed by the central excise authorities.

One can understand this requirement in case of value-based advance licences (VABAL), issued before 1.4.1995, because they were covered by the Customs exemption notification no. 203/92 dated 19.04.1992 that did not permit discharge of export obligation by export of goods in respect of which Modvat credit had been availed.

Even in such cases, the exporters were allowed to reverse the Modvat credit under an amnesty scheme notified in January 1997.

In respect of quantity-based advance licences (QUBAL), there was never any restriction regarding availment of Modvat credit, except when the licencee sought a transfer of advance license issued before 1.4.95 under Customs exemption notification 204/92 dated 19.4.1992.

After April 1, 1995, there had been no restriction regarding Modvat availment either under the value-based advance licences scheme or under the QUBAL scheme.

So, most exporters have taken Modvat credit even while availing of the quantity-based advance licences or VABAL scheme and they cannot produce the Modvat non-availment certificate that the DGFT calls for to regularise and close the old advance licence cases.

The new scheme may benefit small exporters or manufacturers of non-dutiable products, who are not eligible to take Modvat credit. It will remain a useless scheme for others, unless the DGFT removes the requirement regarding submission of Modvat non-availment certificate.

tncr@sify.com