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| Benefit clause relaxed for power projects, but ambiguity not over | | EXIM MATTERS |
| T N C Rajagopalan / New Delhi Jan 25, 2010, 00:31 IST |
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Last week, the commerce ministry relaxed the condition of international competitive bidding (ICB) for supplies to mega power projects for the purpose of eligibility to deemed exports benefits under the Foreign Trade Policy (FTP).
A mega power project means a thermal power plant of a capacity of at least 700 Mw or a hydel power plant of a capacity of at least 350 Mw located in the states of Jammu and Kashmir, Sikkim, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland and Tripura, or a hydel power plant of minimum 500 Mw capacity or a thermal power plant of minimum 1,000 Mw capacity or more located in other states.
The projects need not be inter-state power projects. Serial number 400 of customs exemption notification number 21/2002 dated March 1, 2002, allows goods required for setting up such projects at zero duty, provided the power purchasing state has constituted the regulatory commission with full powers to fix tariffs and undertakes to carry out distribution reforms as laid down by Ministry of Power.
There is no condition of ICB for the exemption benefit. Serial number 91 of the excise exemption notification number 6/2006 dated March 1, 2006, allows supplies to such projects at zero duty but only if the supplies are against ICB.
The FTP now allows deemed export benefits to such projects even if the supplies are not against ICB, provided the requisite quantum of power has been tied up through competitive bidding, or the project has been awarded through tariff-based competitive bidding. The necessary amendment to Para 8.2 of the FTP has been carried out through notification number 24/2009 dated January 14, 2010.
However, the first sentence in Para 8.4.4 (iv) of the FTP continues to say that supply of capital goods and spares up to 10 per cent of the free on board value of capital goods to such power projects shall be entitled for deemed export benefits provided the ICB procedures have been followed at independent power producer (IPP)/engineering and procurement contract (EPC) stage. The Director General of Foreign Trade (DGFT) has not made consequential amendment to the format of Project Authority Certificate in Appendix-27 of the Handbook of Procedures, Vol. 1 (HB-1) and the Payment Certificate in Appendix 22-C of HB-1.
Quite obviously, the provisions in the Customs exemption notification, the FTP and the excise exemption notification are inconsistent. Even the provisions in Para 8.2 of the DTP and Para 8.4.4 (iv) of the FTP are not consistent. The Ministry of Power may be required to bring together the concerned officials of the commerce and finance ministries and prevail upon them to make the provisions consistent.
Last month, the finance ministry allowed zero duty imports for goods required Customs duty exemption to goods required for expansion of mega power projects also. Last week, the Commerce Ministry allowed deemed export benefits for supplies of goods required for expansion of mega power projects. These benefits would be available even if the supplies are not against ICB. However, excise exemption notification still allows exemption only for supplies against ICB.
Last week, the finance ministry allowed zero duty imports to goods required for setting up units 7 and 8 of Rawatbhata atomic power project in Rajasthan and units 3 and 4 of Kakrapar atomic power project. Consequently, the deemed export benefits will be available for supplies to such projects according to Para 8.48 of the FTP.
Email: tncr@sify.com
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