Ministries spar over steel duty

The commerce ministry and its finance counterpart are at loggerheads over allowing duty-free supply of steel to special economic zones (SEZs). The commerce ministry is likely to approach Cabinet Secretary KM Chandrasekhar over the matter.

The tussle has arisen out of the country's war against inflation, which touched 11.42 per cent for the week ended June 14. The government on May 10 had imposed an export duty of 5-15 per cent on various iron and steel products to boost the availability of the metal in the domestic market.

Government sources told Business Standard that the finance ministry had stuck to its stand that the export duty would be applicable to supplies to SEZs, which is classified as exports. "The matter is likely to be put up before the cabinet secretary," said an official.

The commerce ministry has been demanding a clarification or amendment to the Central Board of Excise and Customs (CBEC) notification, which exempts steel supplies to the zones from duties.

On its part, the Directorate General of Foreign Trade (DGFT), which is under the commerce ministry, has relaxed the ban on cement exports to SEZs. The ban was ordered on April 12.

Steel, especially bars, is a key ingredient in construction of the infrastructure in the zones and the export duty has pushed up the costs of the developers and units.

Other contentious SEZ-related issues between the commerce and finance ministries include norms providing income tax exemption to the zones. Commerce Secretary Gopal K Pillai recently told SEZ developers in Mumbai that the issue would be referred to the Empowered Group of Ministers (EGoM) on SEZs, headed by External Affairs Minister Pranab Mukherjee.

The export profit of SEZ units is calculated by taking into account the total turnover of the assessee, who owns the unit. The commerce ministry, in its pre-Budget consultations with the finance ministry, had suggested that instead of total turnover of the assessee, the turnover of the SEZ unit should be taken into account for calculating profit of the unit.

As a result of the present norms, many SEZ units whose holding companies have units in the domestic tariff area, get less income tax exemption. The suggested change was not reflected in this year's Budget.

Meanwhile, the commerce ministry is planning to amend the SEZ Rules, 2006, to streamline many procedural matters for the zone developers and the units inside them. This would be the fourth round of amendments to the rules, which came into force in February 2006.

The ministry will take into account more than 25 proposals from the zone developers for amendment in the rules. "It's been more than two years that the SEZ rules are in place. There are many operational issues faced by the zone developers and units," said LB Singhal, director general of the Export Promotion Council for EOUs and SEZs.

SEZ developers are demanding that the process to avail of duty exemption for goods procured from the domestic tariff area (which is outside the zone) at a short notice or in small quantities, should be streamlined. Currently, the process is long drawn, forcing them to avoid it altogether.

For zones engaged in gems and jewellery business, duty-free re-import of goods exported at an earlier date is not allowed. Occasionally, a piece of jewellery exported from the SEZs may not be sold by the retailer, or the foreign client may default on payments.

Such piece of jewellery needs to be imported back. Many SEZ units have been demanding duty-free re-import of goods.