FTP allows EoUs to procure finished goods for consolidation

The new Foreign Trade Policy (FTP) gives some more flexibility to export-oriented units (EoUs) and makes some provisions simpler. It could have done more.

The big largesse in the new FTP is that EoUs will now be allowed to procure finished goods for consolidation along with their manufactured goods, subject to certain safeguards.

This means that the EoU, in times of any disruption or even when big orders have to be delivered at short notice, can look to other manufacturers to help them out of the situation.

This relaxation is a significant departure from the past for which, the commerce ministry deserves all appreciation. However, it is better to wait for more information on ‘certain safeguards’ before celebrating.

In the FTP 2007-08, Para 6.8 only stated that “Units, other than gems and jewellery units, may sell goods up to 50 per cent of FoB (free on board) value of exports subject to fulfilment of positive NFE on payment of concessional duties. Within entitlement of DTA (domestic tariff area) sale, unit may sell in DTA its products similar to goods which are exported or expected to be exported from units.”

In the FTP 2008-09, an additional sentence was added that “Units which are manufacturing and exporting more than one product can sell any of these products into DTA, up to 75 per cent of FoB value of export of the specific products, subject to the condition that total DTA sale does not exceed the overall entitlement of 50 per cent of FoB value of exports for the unit, as stipulated above.”

In the current FTP (2009-10), the 75 per cent limit has been raised to 90 per cent.

What it means is that there was no limit on individual items in 2007-08 and EoU could sell any item in DTA up to its full DTA sale entitlement but a limit was imposed in 2008-09 and that limit has been raised in 2009-10.

It is still more restrictive than the position that prevailed in 2007-08. In fact, life was made more difficult for EoU in 2008-09 and it is made a little less difficult now.

At a time when EoUs are finding it difficult to export, the government could have reverted to the 2007-08 position and if it did not want to do that, at least allow DTA sale up to 100 per cent of its export of any product instead of restricting 90 per cent.

Anyway, whatever relaxation that the government gives needs appreciation although it is true that more could have been done.

The new FTP highlights said that EoUs will now be allowed Cenvat Credit facility for the component of the Special Additional Duty (SAD) and education cess on DTA sale.

Now, the central excise notification (22/2009-CE (NT) dated September 7, 2009) clarifies that it is the DTA buyer who can take the Credit and not the EoU. Second, the complicated formula for taking Cenvat Credit by the DTA is replaced by a simpler dispensation. A clarification on whether SAD needs to be paid when the Central Sales Tax is paid would have helped.

The FTP highlights said that during this period of downturn, the Board of Approvals (BoA) will consider extension of the block period by one year for calculation of net foreign exchange earnings of EoUs.

This was expected but what was not estimated was the lobbying power of the tea industry that got the DTA sale entitlement raised to 50 per cent from 30 per cent.

Email : tncr@sify.com