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The Directorate General of Foreign Trade (DGFT) would soon change the deemed export benefit scheme under the Foreign Trade Policy (2009-2014), following its large-scale misuse over several years, especially by power companies. A draft policy by DGFT would be put up for feedback by all stakeholders, after which the scheme would undergo significant changes.
In May 2011, the Ministry of Commerce & Industry had constituted a committee under the chairmanship of Director General of Foreign Trade Anup K Pujari. This had representatives from the Department of Industrial Policy and Promotion, the Department of Economic Affairs, the Reserve Bank of India and the Department of Revenue.
Deemed exports refer to transactions in which goods supplied to users do not leave the country and the payment for these supplies is received either in Indian currency or in foreign exchange. But these are subject to several conditions. Deemed export benefits include a rebate on duty chargeable on imports or excisable material used in the manufacture of goods supplied to projects.
“Essentially, we want to bring in a level playing field between domestic manufacturers and exporters. Since the benefits have been misused for several years now, the government first decided to issue clarifications on this scheme last year. However, we have now decided the policy needs to be relooked. The draft report is ready, we should be coming out with the policy soon,” Pujari told Business Standard.
The new policy would seek to reduce benefits and provide these only to deserving suppliers. It might also do away with the benefits altogether. In 2010-11, the DGFT had brought to the notice of the finance ministry fake claims by certain suppliers, especially firms that supplied boilers, turbines and generator.
“In 2010-11, the DGFT noticed deemed export dues to the tune of about Rs 5,000 crore were not paid. At the same time, we noticed a large number of companies were misusing the benefits and making fake claims, and the government could save about Rs 4,000 crore. We also issued guidelines clarifying the policy, as the companies complained of ambiguity in the policy,” Pujari added.
Companies that didn’t pay dues have dragged the DGFT to court and the case is currently underway.
The revised scheme would focus on the relevance of import substitution in today’s scenario and equitable treatment between domestic and international suppliers. The move is aimed at saving about Rs 2,000 crore annually, officials said.