Finance Ministry Opposes Mid-Course Drawback Rate Hike

The commerce ministry and the finance ministry are at loggerheads over the former's proposal for a mid-course duty drawback rate hike.

Commerce ministry has proposed that the drawback rates, which are revised in June every year, be increased from their present level and should factor in only the adjustment in excise and customs component following the announcements in this year's budget. This was proposed by commerce and industry minister Murasoli Maran during a meeting with finance minister Yashwant Sinha here yesterday.

"Drawback rates for some product categories at present are below the level that they should have been fixed at," said a commerce department official. "Under the garb of checking evasion, the finance ministry has unnecessarily resorted to capping of rates on a host of items," he added.

However, the finance ministry officials said that an upward revision of the rates to lessen the brunt of falling exports on the exporting community is highly unlikely.

There is no logic for an upward revision of the drawback rates at this point, the finance ministry official told Business Standard. The drawback rates are fixed after a detailed exercise taking into consideration the exact duty incidence suffered for each commodity at the input stage, they added.

Increase in the duty drawback rates would be possible if there was a mid-term upward revision in the customs and excise duty rates, said an official.

He, however, added that with the current exercise of rationalisation of customs and excise duty structures under which duties have already been reduced considerably, it would be difficult to reverse the process. In fact, customs duties have to be reduced further in coming years, said the official.

He added that any enhancement in the drawback rates without increasing the duties would be seen as a subsidy and would open the doors for litigation in the dispute settlement body of the WTO.

Under pressure from the commerce ministry and textiles ministry, finance ministry has already revised the rates in case of certain products.