DGFT restricts use of Target Plus Scheme

EXIM MATTERS

The Director General of Foreign Trade (DGFT) has restricted the scope and coverage of goods that can be imported under the Target Plus Scheme (TPS).

The relevant provisions in the Handbook of Procedures for 2004-05 and 2005-06 have been amended to allow import of only those items that have a "broad nexus" with the export product and are required as "inputs" for the product exported for which the TPS benefit is sought. For exporters, the latest change means a restriction on the flexibility that they felt the TPS gave them.

The TPS for star export houses was introduced in the Foreign Trade Policy (FTP) in 2004 and abolished in 2006. Under the scheme, the exporters could earn duty credit as a certain percentage of incremental exports.

Para 3.7.6 of the FTP allowed import of inputs, capital goods, including spares, office equipment, professional equipment and office furniture, provided the same is freely importable, for use of the TPS holder or that of the supporting manufacturer.

The DGFT held that "broad nexus" would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the duty credit certificate.

The Customs did not quite agree with this view when it was found that dry fruits were being imported under the TPS against the export of rice and took the matter to the law ministry.

The law ministry opined that the item sought to be imported under the TPS should be an "input" in the manufacture of the exported items and it must be required for "use" by the exporter or the supporting manufacturer.

Whereas standard input output norms (SION) will act as prima facie evidence of the inputs and "nexus", the exporter is not debarred from satisfying the authorities that there is a broad nexus between any intended import item as an input with the export product but the intended import item must fall within the same product group. The Central Board of Excise and Customs (CBEC) instructed the Customs field formations accordingly.

The DGFT had to amend Para 3.2.5 (II) of the Handbook of Procedures for 2004-05 and 2005-06, deleting the clause amplifying the meaning of "broad nexus" and inserting notes to the effect that within the duty credit entitlement, separate limits or restrictions on quantities or duty amounts will not apply to the items imported.

The essence of the changes is that any item that is capable of use in the export product, whether mentioned in the SION or not, will be allowed to be imported within the total duty credit allowed, without any quantity restrictions.

The DGFT has also amended the application form for duty credits under TPS requiring not only more details about the supporting manufacturer such as PAN number and telephone number but also detailed description of the inputs that have a broad nexus with the export product. The application must mention the inputs against each export product that earned the credit.

email: tncr@sify.com