New drawback rates disappoint business

The Union finance ministry has notified the revised All Industry Rates (AIR) for duty drawback though notification 98/2013-Customs (NT) dated September 14. Reduction of these rates on most items has drawn adverse reactions from sections of exporters.

Many items already covered under the drawback schedule prior to incorporation of the erstwhile Duty Entitlement Pass Book (DEPB) items show reductions in the new AIR. The process of realignment on items incorporated in the drawback schedule from the erstwhile DEPB scheme continues and AIR for these items have got reduced.

Some items - gold and silver jewellery, silk yarn, silk fabric, silk garments and made-ups, wooden artware, etc, show an increase. Nil-rated items under chapters 4, 15 and 22, a few items in chapter 24, and casein and its derivatives in chapter 35 get the residuary AIR of one per cent (composite) and 0.3 per cent (customs). Articles of silver (silversmiths' wares) also get AIR, subject to certain conditions. Most items with AIR above two per cent% are now subject to value caps.

Rafeeque Ahmed, president, Federation of Indian Export Organisations, said the drawback rates were, by and large, on expected lines - generally, the declines are in the range of 0.1-0.5 per cent, with a few exceptions. He welcomed the increase in rates for silk garments, fabrics and yarn, gold and silver jewellery, and bringing milk products under drawback. However, he expressed concern on the sharp decline in rates for electronics' sectors.

The Engineering Export Promotion Council (EEPC) expressed strong resentment over the cut of 26-30 per cent in their relevant rates and said it was a shocking development, negating the positive impact of rupee depreciation. Aman Chadha, chairman of EEPC, said such a sharp reduction would seriously impact engineering exports, which fell 4.7 per cent during April-August. He also complained about delay in disbursement of the drawback, especially at the land customs stations. His complaint makes sense when one looks at the 47 per cent rise in drawback disbursements in the first quarter of this financial year - mostly those that should have taken place last financial year but held back deliberately to show better fiscal deficit figures.

Exporters apprehend fiscal constraints have contributed to the cut in their drawback rates. In the conference of senior indirect tax officials on July 17-18, the finance minister had asked for AIR to be re-fixed, considering the weak rupee. A strange directive, as a weak rupee increases the duty incidence on inputs that AIR seek to rebate. He had also asked for a lower rate to be effective from April 1 but, luckily, the revisions would be effective only from September 21.

The finance ministry used its emergency powers to raise the tariff rate of duty on import of jewellery, precious metal and articles of goldsmiths' or silversmiths' wares from 10 per cent to 15 per cent. It also withdrew the exemption from anti-dumping duty and safeguard duty on imports under transferred Duty Free Import Authorisations (DFIA) and on goods already imported under DFIA, when transferred. Tough guidelines for arrest for violation of tax laws and stringent conditions for bail have also been issued.

On his part, the Director General of Foreign Trade has warned that use of the Importer Exporter Code (IEC) by anyone other than the IEC holder himself/herself will invite serious consequences.

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