DEPB must continue: Exporters

Exporters of man-made fibre want the DEPB benefit to continue for their sector

With the government set to review the benefits to textile exporters under the popular duty entitlement passbook scheme (DEPB), exporters of man-made fibre such as synthetic and rayon, have asked the government to continue the benefit for their sector since they still remain under the mandatory excise duty structure.

"The government is considering a cut in the DEPB benefits for textiles on the grounds that the sector has benefited from a zero excise duty structure. But the benefit is only for the cotton sector, the man-made sector still attracts mandatory excise duty of 24 per cent on polyester filament yarn, including textured yarn and 16 per cent on all other filament yarn and man-made fibres," Rakesh Mehra, chairman of the Synthetic and Rayon Textiles Export Promotion Council, told Business Standard.

In a representation to the Finance Minister P Chidambaram last week, the council said, "The man-made textile sector is burdened with the highest fiscal duties, both Customs and excise. The DEPB is being issued to neutralise the incidence of Customs duty only on the inputs. The amount of such DEPB cannot be linked with revenue collection."

The DEPB is a reimbursement of basic and special Customs duty paid by an exporter on an imported input used in the export product.

The benefit is given by way of a grant of duty credit against the export product at specified rates.

According to data compiled by the revenue department, the government had to forego as much as Rs 11,500 crore in 2003-04 on account of DEPB benefit, of which, Rs 3,387 crore was accounted for by the textiles sector alone.

While the finance ministry is keen to drastically cut the DEPB benefit for textiles, the commerce ministry is understood to have said that the cut should not exceed 30 per cent of existing benefits. The textiles ministry has, however, said the present level of benefit should continue.

Mehra pointed out that the DEPB benefit comprises two components "" the Customs duty and the value-addition.

"While the directorate general of foreign trade has been applying a value-addition of 50 per cent, given the substantial increase in the prices of inputs, such a high value-addition is not possible for us to achieve. There has also been no cut in our Customs duty component. Therefore, there is no reason for the government to reduce the benefit for us," he said.

"Exporters purchase their raw materials, namely polyester staple fibre (PSF), viscose staple fibre (VSF) and polyester texturised yarn (PYT) from domestic manufacturers. These manufacturers price their raw materials on the basis of landed cost of inputs. Hence, the exporters suffer the incidence of Customs duty on the raw material," Mehra said.

Mehra said the council had also asked the government to give adequate notice period to the exporters before undertaking any cut in the benefit as the exporters had already booked orders factoring in the benefits from the DEPB scheme.

"With the post-quota regime slated to become effective from January 1, 2005, the government should continue to grant us the benefit under the scheme to help us become competitive. All the levies and taxes should be neutralised," he added.

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Duty bound

• The man-made sector still attracts mandatory excise duty of 24 per cent on polyester filament yarn, including textured yarn and 16 per cent on all other filament yarn and man-made fibres
• The DEPB is a reimbursement of basic and special Customs duty paid by an exporter on an imported input used in the export product
• The government had to forego as much as Rs 11,500 crore in 2003-04 on account of DEPB benefit, of which, Rs 3,387 crore was accounted for by the textiles sector alone