Homework on past only partially done

A few weeks earlier, the commerce ministry amended the Foreign Trade Policy (FTP). It has prescribed a stricter nexus, in terms of description of goods, between the inputs actually used in the manufacture of products exported under the duty exemption scheme and the imports allowed or made under the related licences/authorisations.However, implementation of the new requirement, especially under the Duty Free Import Authorisation (DFIA) scheme, has created fresh difficulties at the ground level.

The controversy is not new. In 1994, many domestic manufacturers complained of several exporters using inferior inputs in their export products but importing duty-free inputs of superior quality, bearing the same description under advance licences. This led to a stipulation of a strict nexus between the inputs allowed under the advance licence and those actually used in the export product in terms of quality, grade and technical specifications. Accordingly, an insertion was done in the General Notes to Standard Input Output Norms (SION).

In the year 2000, the advance licence was made non-transferable and the transferable Duty-Free Replenishment Certificate (DFRC) Scheme was introduced. Exporters complained that the strict correlation required for every input with regard to quality, grade and technical specification and endorsement against each input in DFRC made it difficult to find buyers. So, in 2002, the nexus requirement was restricted to only some sensitive items specified in Para 4.31 of the Handbook of Procedures, Vol.1 (HB-1). That has continued, even after replacement of the DFRC scheme with the Duty free Import Authorisation Scheme (DFIA) scheme, at Para 4.32 of the current HB-1. In 2005, the directorate-general of foreign trade (DGFT) allowed any alternative input/product mentioned in the SION, capable of use in the export product, to be imported. Effectively, this flexibility allowed duty-free import of inputs not used or required for use in the manufacture of export product under DFIA. On August 1 this year, the commerce ministry introduced Para 4.15 in the FTP, stating the name/description of the input used (or to be used) in the Authorisation/DFIA must match exactly the name/description endorsed in the shipping bill. At the time of discharge of export obligation or at the time of redemption, the authorities shall allow only those inputs specifically indicated in the shipping bill, says the new provision. Para 4.32 of HB-1, however, remains untouched. So, the DFIA holders need to establish the nexus in terms of quality, grade and specification only in respect of specified sensitive inputs but the flexibility to import alternative inputs capable of use in the export product is gone.

Few can quarrel with the new provision taking away the option to import inputs not required for use in the manufacture of export products, as it only removes distortions that the flexibility entailed. The problem is that the 'nexus' condition is being insisted on, even where exports and imports have already been made or authorisations/DFIA issued/redeemed but the transferability endorsements held up. It is not possible to make changes to shipping bills or bills of entry already cleared by the Customs. Every notification operates prospectively, unless it is clarificatory or explicitly given retrospective effect. Therefore, the DGFT should clarify that the new Para 4.15 of the FTP will apply only for exports/imports made after August 1.

email: tncr@sify.com