EPCG duty cut a trade-off with FinMin

EXIM MATTERS

In the annual supplement to the foreign trade policy (FTP), the major change this year is the duty reduction to 3 per cent under Export Promotion Capital Goods (EPCG) Scheme. Importers will now pay 3.09 per cent duty, including cess, as against 5.15 per cent earlier, which means a saving of 2.06 per cent and consequent increase in export obligation by 16.48 per cent.

Capital goods normally suffer 28.64 per cent aggregate duty at basic Customs duty of 7.5 per cent and additional duty of Customs (CVD) of 14.42 per cent. Under the EPCG scheme, the duty saved would work out to Rs 25.55 and export obligation would be Rs 204.40.

The requirement of maintaining past three years' annual average exports has been retained, except for premier trading houses, who have the option to work out the average of past five years exports.

At least 50 per cent of the export obligation against authorisations (licenses) to be issued will have to be fulfiled by export of goods that have a nexus with the imported capital goods.

The balance may be fulfilled by export of other goods manufactured or services rendered by the same firm/company or group company. The past licenses will not have this restriction.The duty credits under reward schemes like focus market scheme etc. will be available against exports under EPCG scheme.

The earlier irrational restrictions have been removed.For extension in the period of export obligation, composition fee of 2 per cent of the duty saved proportionate to the unfulfilled export obligation will have to be paid. The Regional (Licensing) Authorities can enhance the licence value beyond 10 per cent and proportionately enhance the export obligation.

The Central Board of Excise and Customs had clarified vide Circular no. 76/98-Cus. dated October 12, 1998 that since there is no restriction on the nature of goods to be imported under DEPB (Duty Entitlement Passbook) scheme, goods which are being imported under other schemes like EPCG and project import can also be cleared against DEPB scrips.

The exemption under DEPB scrip is operated by making a debit of duty leviable in the DEPB scrip. In case the imported goods are eligible for another partial exemption from payment of duty, such exemption would also be applicable to goods imported against DEPB scrip, provided the import goods meet the conditions laid down in the partial exemption notification.

In other words, the duty debitable in the DEPB scrip, in such a case would take into account the concessional rate of duty permitted under the partial exemption notification, and not tariff rate of duty, clarified the circular.

Based on the circular, the Customs have been accepting not only DEPB but even other duty credit scrips towards payment of basic customs duty under EPCG scheme.

The FTP now suspends this facility till January 1, 2009. This unwarranted restriction is either a result of ignorance or a trade off with the finance ministry for 2 per cent duty reduction under the EPCG scheme. It is not facilitation, as the commerce minister seemed to claim.

tncr@sify.com