Trade policy in choppy waters

Waiver on service tax for exporters and suppliers associated with exports may be delayed.

The revenue department has decided to stall the operationalisation of some key elements of the Foreign Trade Policy like the Target Plus initiative, deemed export benefits and sops for farm exports because of differences with the commerce department.

In addition, the decision to waive service tax for exporters and suppliers associated with exports is expected to be delayed as the revenue department is working out the details of the scheme. The coverage of exports eligible for the benefits is also expected to be restricted.

Officials said instead of a service tax waiver for all vendors providing services to exporters, the revenue department wanted to limit the scope of service tax waiver only to actual exporters.

Initially, the benefits will be available to the 161 services listed under the General Agreement on Trade in Services. In addition, a system of credit on the lines of Cenvat was being proposed for the service exporters.

Officials told Business Standard that Commerce and Industry Minister Kamal Nath had announced several measures despite objections from the revenue department.

For instance, the Target Plus initiative was included in the Foreign Trade Policy despite Finance Minister P Chidambaram being against it, officials said.

"There is no clause on value addition and it only encourages circular trading which will not boost our exports in any way," said an official.

Under the scheme, the export performance transferability clause and the deemed exports has been waived. The revenue department is pressing for the clauses to be inserted in the Krishi Upaj Yojna as well.

Similarly, the revenue department is opposed to the inclusion of the agricultural machinery among the items eligible for duty-free imports under the export promotion capital goods scheme.

The commerce department is planning to list out items which can be imported and is of the opinion that there is hardly any use of the export promotion capital goods (EPCG) mechanism in the farm sector and the benefits would hardly result in any revenue loss.

The issue of certain deemed export benefits for export oriented units was also being discussed with the commerce department.

Revenue department officials said the commerce department had not complied with a request for furnishing data on textiles, edible oil and steel products, despite several reminders.

They said the duty neutralisation schemes for the sectors were resulting in a daily loss of at least Rs 10 crore for the exchequer.

A top finance ministry source, however, played down the service tax issue, saying that the notification would be issued in due course and the payments were in any case due only next month.

Commerce vs Finance

Kamal Nath
Commerce & Industry Minister

• Service tax exemption for all exporters and those providing them services
• Target Plus scheme to enable star exporters to claim duty credits
• EPCG benefits for agriculture

P Chidambaram
Finance Minister

• Actual exporters to be defined who will be eligible for exemption
• May lead to circular trading; wants insertion of value addition clause
• Will result in revenue loss to the government