DEPB expiry may hit major exporters more

The finance ministry’s decision to end the popular Duty Entitlement Passbook Scheme (DEPB) may primarily hurt big companies like Bajaj Auto, Reliance Industries and Dr Reddy’s Laboratories, compared to smaller exporters, as major exporters draw more benefits from the scheme.

After getting periodic extensions, the 14-year-old tax-refund scheme is finally coming to an end in June. An internal analysis by the finance ministry has showed that the revenue outgo on DEPB scheme is primarily towards some steel companies and other large exporters.

“The expiry of DEPB scheme is not going to hit small exporters...We have decided not to give it another extension when exporters are doing well,” a senior finance ministry official, who did not wish to be identified, told Business Standard.

The analysis showed the major outgo of the DEPB scheme is from the Nhava Sheva port. The major exporters comprised Bajaj Auto, RIL, Bharat Forge, JSW Steel, Essar Steel, Sharp Menthol India, Welspun Global Brands, Balakrishna Industries and Bhushan Steel. Outside Nhava Sheva, Dr Reddy’s Laboratories is a major exporter using the DEPB scheme, the official said.

The ministry has also analysed the revenue outgo towards DEPB scheme has increased over the years, while it has come down for Duty Drawback scheme, signalling holes in the DEPB scheme that led to revenue leakages.

With DEPB facility, exporters get credit for customs duty paid on inputs used in making export goods, while under Duty Drawback, they receive duty-free scrips which can be used to pay import duties.

DEPB scheme allows double benefit to exporters. It is based on the assumption that the exporter has used duty-paid imported inputs. Duty Drawback, on the other hand, neutralises levies paid on inputs.

In 2008-09, the government paid exporters Rs 12,120 crore under the Duty Drawback scheme, whereas the outgo towards DEPB was Rs 7,092 crore.

In 2009-10, the Drawback payment came down to Rs 9,231 crore, whereas for DEPB it increased to Rs 8,027 crore. The government has paid Rs 6,643 crore towards Duty Drawback and Rs 6,434 crore towards DEPB till December 2010-11.