Value addition under advance authorisation a retrograde step

The new Foreign Trade Policy (FTP) has some significant provisions in the duty exemption scheme that can impact exporters significantly.

Under the advance authorisation scheme, the new FTP mandates minimum 15 per cent value addition. There are many exporters who do business even with much lower value addition. They will find it difficult to sustain exports.

At the time of introduction of the advance licence scheme more than three decades ago, the government prescribed a minimum value addition of 33 per cent. In 1996, the Policy raised the value addition under quantity-based advance licence scheme to a minimum of 67 per cent of the value addition stipulated for value-based advance licences. The trade represented against the move and the government reverted to 33 per cent value addition.

Exporters, however, continued to represent that in his own interest every exporter would try to realise as much proceeds as possible against exports and that it is not necessary for the government to prescribe any value addition.

Moreover, as the prices do fluctuate, the price at the time of exports may even be lower than the price at the time of imports and so, the exporter must be free to decide at what price he should sell. After considerable deliberation, the government appreciated the merit in the submissions and only positive value addition was stipulated from 1998 onwards. The submissions have lost none of their merits even today.

What has changed this year or what has provoked the government to raise the value addition to 15 per cent this year is something difficult to understand. It must be understood at the top levels that in business it is the exporter who risks his money. If he can get more money from the customer, he will do so. It is in very difficult circumstances that the exporter may settle for lower margins. It is not necessary for the government to tell an exporter how much money he should make. Nor is it the government’s business.

The new FTP continues to prescribe 33 per cent minimum value addition for exports to former Soviet Union countries against payment in non-convertible rupees. However, the tea exporters have lobbied well to get the value addition stipulation down to 50 per cent from 100 per cent, besides wangling other benefits under the Vishesh Krishi Gram Udyog Yojana and getting higher DTA (domestic tariff area) sale entitlement under the Export-Oriented Units scheme.

The new FTP now says that where the export is made towards discharge of export obligation against advance authorisation by using inputs in respect of which Cenvat (Central Value Added Tax) credit is availed, the replenished inputs must be used in the manufacture of dutiable products only. This plugs an important loophole. But it also means an additional document to be presented. The advance authorisation holder will have submit to the licensing authorities a certificate from the central excise authorities about use of replenished goods in the manufacture of dutiable goods.

A very useful decision is to allow payment of Customs duty by debit to Duty Entitlement Passbook to regularise bonafide defaults under the duty exemption scheme as well as the Export Promotion Capital Goods scheme. However, interest must be paid in cash. Import of replenished items will, henceforth, be allowed against transferred Duty Free Import Authorisation.

Overall, useful measures have been taken but stipulation of 15% value addition under advance authorisation scheme is a retrograde step.

Email : tncr@sify.com