Generosity halved in drafting export subsidy promise

The finance ministry has amended the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. The amendment seeks to give useful dispensations to the exporters but fails to deliver in full measure the intended relief.

The intention behind the amendment is to treat the exporter in the same manner as the Foreign Trade Policy (FTP) does and not deny duty drawback in some situations even if the exporter fails to get payments for exports.

Under various export promotion schemes administered through the FTP, as a general rule, the export benefits are not admissible if the proceeds are not realised. However, there are exceptions. Payment through ECGC cover would count for benefits under FTP, though export proceeds remain outstanding. A separate provision introduced in 2009 says the incentives need not be surrendered if the Reserve Bank of India writes off the requirement of realisation of sale proceeds on merits based on a certificate from our embassy there about the fact of non-recovery of sale proceeds from the buyer. The two exceptions are independent.

The Drawback Rules did not have similar exceptions but only mandated that drawback granted would be recovered if export proceeds were not realised. Last week, the ministry amended (through notification no. 30/2011-Customs (NT) dated 11th April 2011) Rule 16A of the said Drawback Rules. The change says where sale proceeds aren’t realised by an exporter within the period allowed under the Foreign Exchange Management Act, 1999, but this is compensated by the Export Credit Guarantee Corporation under an insurance cover and the Reserve Bank of India writes off the requirement of realisation on merits and the exporter produces a certificate from the foreign mission concerned, the amount of drawback paid to the exporter or the claimant shall not be recovered.

The idea was to bring the dispensations under Drawback Rules on par with those under the FTP. However, the drafting conveys that unless all three conditions — ECGC settlement of claim, grant of writeoff by RBI and certificate from the foreign mission — are met, the drawback will be recovered. As the amendment reads, if any of these three is not met, the dispensation will not be available. That is very different from what the FTP says.

The ministry could also have taken note that under the FTP, the amount of insurance cover for transit loss by general insurance and private approved insurance companies in India is treated as payment realised for exports under various export promotion schemes.

Besides, where an exporter applies for duty credit scrip or discharge of export obligation against exports made and documents shown to the bank against a confirmed letter of credit (or bill of exchange unconditionally accepted/guaranteed by a bank) and this is confirmed by the exporter’s bank, payment of export proceeds shall be deemed to be realised for status holders. Even if the irrevocable letter of credit is not confirmed, the same treatment is available. Similar provisions could have been made in the Drawback Rules.

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