Trade policy unclear on old goods

EXIM MATTERS

Readers have sent a few queries relating to recent amendments to the Foreign Trade Policy and Procedures. I deal with some of them here. The policy allows import of second-hand capital goods but restricts import of re-manufactured goods.

There is no definition of "re-manufacture" in the policy. Quite a few second-hand goods are reconditioned before sale and in cases, even some major components are replaced. Sometimes, the old machines are dismantled and re-assembled, with some new components put in place of old ones.

It will be left to the discretion of the Customs to determine whether a machine is re-manufactured. It is difficult to appreciate the restriction. The metal scrap in un-shredded form can be imported only directly from overseas suppliers who are registered with the Director General of Foreign Trade, after the transition period of three months during which time the imports can be cleared against pre-shipment certificate from notified inspection agencies.

The imports have to be made against letters of credit and no high-seas-sale will be acceptable. The shipments have to come through specified ports.

The new restrictions seem to be a result of unsatisfactory experience with the pre-shipment inspection regime. The Duty Free Import Authorization (DFIA) is a transferable advance licence with all the features of advance licence except five.

DFIA shipments can be made only for items for which Standard Input Output Norms (SION) are notified. DFIA mandates 25% value addition. Unlike advance licence, the "nexus" requirement applies only for notified sensitive items. DFIA is transferable after the discharge of export obligation and cannot be revalidated except in specific situations.

The trade may prefer DFAI because unlike the Duty Free Replenishment Certificate (DFRC), imports under it will attract exemption from all types of duties.

However, it is too early to celebrate because the finance ministry is yet to issue the exemption notification for DFAI. It is expected that the finance ministry will insist that DFAI can be claimed only against export of items manufactured without availing of Cenvat Credit on the inputs used.

Even a restriction regarding duty paid nature of inputs cannot be ruled out as many Target Plus Certificate holders are planning to use the certificates to import inputs duty free and claim DFAI against export of items manufactured by using such duty free inputs.

An unexpected nasty surprise for exporters is that the export obligation against advance licences will not be available beyond 36 months from the date of issue of the licence. The year before last, the policy was amended to allow extension in export obligation period up to 48 months and last year for unlimited period, subject to payment of a prescribed "composition fee".

Now, that facility is gone. The second extension in export obligation period under Export Promotion Capital Goods (EPCG) scheme will now be restricted to two years and will be available only against payment of 50% of the Customs duties on the import value proportionate to unfulfilled export obligation.

The earlier dispensation of three or five years extension subject to taking up higher export obligation of 50% or 100% is now gone. The new name for licence is authorisation. Regional Licensing Authority now becomes Regional Authority. Advance License Committee is renamed as Norms Committee.

The reasons for changes are best known to the commerce ministry.

email: tncr@sify.com