Duty exemption needs to be made more user-friendly

In the new Foreign Trade Policy, Commerce Minister Anand Sharma should try to revamp the duty exemption scheme and make it more user-friendly. The advance authorisation scheme, put in place about four decades ago, has stood the test of time and become the basic scheme around which many alternative schemes (some of them very poorly conceived) have been introduced from time to time and discarded. This basic quantity-based duty exemption scheme deserves to be simplified further and made more user-friendly.

The advance authorisation scheme allows the exporter to get duty-free imports for export production. The Standard Input Output Norms (SION) specify how much quantity of inputs can be imported against a unit of export product. The General Notes to SION, however, require the exporter to declare the quality, grade and specification of the inputs and export product. Sometimes this ‘nexus’ condition creates problems for the importers in compliance as well as documentation. Considerable simplification can result if the ‘nexus’ condition is restricted to only a few select ‘sensitive items’, as in the case of Duty-Free Import Authorisation (DFIA) and Annual Advance Authorisation (AAA) schemes.

Advance authorisation can be issued by simply stating the description of the inputs and export product and the value, without stating the quantity to be imported against each input. The exporter may be required to account for the inputs at the time of redemption, the way it is being done under AAA and through Appendix-23 consumption statement. This will eliminate the need for AAA.

Similarly, the advance authorisation scheme can allow excise duty free procurement from domestic sources under notification number 43/2001-CE(NT) dated June 26, 2001, the way it allows the facility under the DFIA scheme. Transferability may be allowed upon condition of CVD (countervailing duty) payment. In that case, the DFIA scheme can be given a quiet burial.

Quite a few redemptions are held up for want of proper documentation. The condition of realisation of export proceeds and production of Bank Realisation Certificate must be done away with. The redemption must be granted on the basis of the shipping Bill transmitted electronically to the Regional (licensing) Authority by the Customs. The requirement to submit hard copy of the shipping Bill must be done away with. Once the Regional (licensing) Authority issues the export obligation discharge certificate, the exporter should not be required to again submit all the documents to the Customs get the bond/Bank Guarantee redeemed.

In cases where the Advance Authorisation is issued on ‘no norms’ basis, a ‘norms committee’ should fix the Input-Output Norms within reasonable time. Although categorical provisions exist to treat the norms applied as final after elapse of a certain time, the regional (licensing) authorities are not allowed to redeem the authorisation, unless norms are fixed. Specific provisions must be made to redeem the authorisations, once the exporter is able to properly account for the inputs, whether the Norms Committee has finalised the norms or not. The exporter should not be made to suffer due to delay by the Norms Committee.

The scheme can be better administered through Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. That way, a single monitoring authority, the excise, can issue the Procurement Certificate, monitor proper end use and ensure fulfilment of export obligation and, thereby, plug rampant misuse of the scheme.

Email: tncr@sify.com