DGFT clarifies position on EPCG export obligations

EXIM MATTERS

The Export Promotion Capital Goods (EPCG) scheme enables manufacturers and service providers to import capital goods at 5 per cent customs duty against an obligation to export 8 times the duty saved in 8-12 years.

Capital goods for pre-production, production or post-production facilities, spares for existing machinery, spare refractory, catalysts and consumables can be imported under the scheme.

The export obligation has to be fulfilled by exporting goods capable of manufacture by using the imported capital goods or by exporting any other products manufactured by the EPCG licence holder in his factory or by group companies, says the Exim Policy.

The Director General of Foreign Trade (DGFT), however, has prescribed a certain undertaking and a Chartered Engineer Certificate to be submitted along with the applications that require the export obligation to be fulfilled by export of such goods that require the use of the imported capital goods at pre-production, production or post-production stage.

As the stipulations are not consistent with the Exim Policy provisions, the participants at an interactive meet with the Directorate General of Foreign Trade at Baroda took up the matter with DGFT L Mansingh.

Mansingh clarified that the government had not abandoned the concept of 'nexus' under the EPCG scheme. He reiterated that the export of goods that required the use of the capital goods imported under the EPCG licence alone must fulfill the export obligation.

He said the flexibility of exporting some other substitute or alternate products manufactured by the applicant or any other group company could be considered and allowed only in situations where the EPCG licence holder was unable to fulfill the obligations by exporting the products that required the use of the imported capital goods. The flexibility was not available at the time of asking for the licence or on an automatic basis, he said.

The DGFT's important clarification might be termed as far from satisfactory but it has the merit of removing the confusion that had clouded the specific flexibility provisions under the policy.

The best course for the DGFT would be to get the policy amended suitably and issue suitable policy circulars so that everyone was aware of the correct position. The DGFT refused to be drawn into discussions on the controversial restrictions on the Duty Free Entitlement Certificates for export houses as the matter was sub-judice.

He felt that exporters must reconcile to the reality that exchange rates were market determined.

He also said the confusion regarding the legal framework for Special Economic Zones would be cleared after the elections. The DGFT informed that work was on to give shape to Kelkar Committee recommendations to notify All-Industry Rates of Drawback for all items, for which Standard Input Output Norms existed.

This can be taken as an indication that the Duty Entitlement Passbook scheme will give way to a broad-based duty drawback scheme by next year.

He also agreed to sort out the glitches in the schemes for fuel under Duty Free Replenishment Certificate scheme, deemed export benefits for supply of items that could be imported duty free and bank guarantees under duty exemption and EPCG schemes.

The Supreme Court, meanwhile, has held, in the Allied Photographics India Ltd 2004 (166) ELT 3 (SC) case, that the bar of unjust enrichment would not apply to refunds consequent upon finalisation of provisional assessment. That should make importers and manufacturers feel good.

email : tncr@sify.com