Convoluted phrasing complicates policy

Last year, the commerce ministry reviewed and edited the Foreign Trade Policy (FTP) document and removed many ambiguities. While doing so, a change at Para 8.2(f) created fresh ambiguities; these have worsened due to further amendments this year.

Before June 5, 2012, Para 8.2(f), read with Para 8.4.4, granted deemed export benefits for supply of goods to any project or purpose in respect of which the ministry of finance, by notification 21/2002-Cus dated March 1, 2002, permitted import of such goods at zero customs duty. At the end of Para 8.2, a provision was made that the benefits under Para 8.2(f) would be available only if the supply was made under procedure of International Competitive Bidding (ICB); on mega power projects, the ICB requirement would not be mandatory, if the requisite quantity of power had been tied-up through rate-based competitive bidding or if the project was awarded through rate-based competitive bidding. There was a specific Para 8.7 excluding supplies to non-mega power projects from deemed export benefits.

On June 5, 2012, Para 8.7 and the provisions at the end of Para 8.2 were omitted and Para 8.2(f) was split into two parts. Para 8.2(f)(i) covered supply of goods to any project or purpose in respect of which the MoF, by notification No. 12/2012 -Customs dated March 17, 2012, permitted import of such goods at zero customs duty.

Para 8.2(f)(ii) said the benefits of deemed exports would be available only if the supply was made under procedure of ICB; on mega power projects, the requirement of ICB as noted earlier.

The splitting of Para 8.2(f) led some to believe that Para 8.2(f)(i) gives deemed export benefits to projects or purposes for which zero duty import is allowed, whether the supply is against ICB or not. Also, the first sentence in Para 8.2(f)(ii) was interpreted as grant of deemed export benefits to any project of any entity, so long as the supply was against ICB. Some inferred that any entity could now float an ICB for supply of any goods and any supplies against such ICB would attract deemed export benefits. On April 18 this year, Para 8.4.4 of the FTP was amended, prescribing different benefits for supplies against Para 8.2(f)(i) and Para 8.2(f)(ii). This amendment strengthened the view of some that Para 8.2(f)(i) and 8.2 (f)(ii) are deemed export categories that are independent of each other. I don't think the FTP intended that.

I think the commerce ministry should amend the provisions of Para 8.2(f), merging both and making it a single category or carry the first sentence of Para 8.2(f)(ii) to Para 8.2(f)(i). That way, it would be explicit that deemed export benefits were to be available for all projects and purposes for which zero duty import is allowed, provided the supply is against ICB, and that supplies to mega power projects are an exception, where deemed export benefits will be available even if supply is for projects where the requisite quantum of power has been tied up through rate-based competitive bidding or if the project has been awarded through such bidding.

Email: tncr@sify.com