DEPB scheme decision today

Meeting to discuss whether textile and steel benefits should continue

Prime Minister Manmohan Singh has convened a meeting on Tuesday to decide on the future of the Duty Entitlement Passbook Scheme (DEPB), a popular duty neutralisation scheme covering nearly 52 per cent of the country's exports.

Government officials told Business Standard that Prime Minister Manmohan Singh would discuss with Finance Minister P Chidambaram and Commerce and Industry Minister Kamal Nath whether the benefits under the scheme should be continued for textiles and steel.

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 the DEPB benefit.

The revenue department is understood to be in favour of withdrawing the DEPB benefit to textiles since the sector has been brought under a new tax regime with an optional zero excise duty.

Since the DEPB benefit covers 82 textile products, the textiles ministry has said that the government should not discriminate against textiles by withdrawing the benefit for it alone.

The ministry has also argued that the DEPB benefit is on the customs duty component and since this has remained unchanged for the textiles sector in the Budget, the DEPB benefit in the present form should continue. Tomorrow's meeting will also discuss the issue of continuing the benefit of the scheme on steel.

The government had earlier this year withdrawn the DEPB benefit on steel which was restored later. One of the options which is likely to be taken up at the meeting is the setting up of an inter-ministerial committee to examine both the DEPB and the duty drawback scheme.

The previous government had announced the intention to set up a committee but the same was never operationalised.

Concern over continuation of the DEPB in its present format has also arisen on account of reports that the transferable and saleable DEPB scrip is being misused by importers of products such as crude palm oil who are submitting the DEPB scrip in lieu of making payment of import duty in cash, thereby reducing customs duty earnings.

The agricultural ministry has already mooted that the DEPB benefit should not be eligible on imports of any agricultural product including edible oil.

Due to the confusion over the scheme, the government has not been able to issue new DEPB and drawback rates. These rates are usually revised after the duty cuts are announced in the budget. Officials pointed out that exporters were still getting the benefits at the old rates which is some cases was nearly double that benefit they should be getting.