Domestic companies have complained to the Ministry of Finance that some Asean countries, particularly Indonesia, are misusing provisions of the preferential trade agreement (PTA) to export cocoa powder, used in making chocolates and other confectionery items, to India.
Similar complaints were made against Sri Lanka for misusing norms under the free trade agreement (FTA) with India.
The companies want the finance ministry to ask the Directorate of Revenue Intelligence (DRI) to order an investigation into the issue.
Cocoa powder imports draw a basic customs duty of 30 per cent. However, they are exempted from the duty under the PTA. To avail of this condition, there is a requirement that there has to be a value addition of 35 per cent in the exporting country to use the duty benefits.
The companies complained that these provisions are not met and Asean countries are misusing the agreement by importing cocoa powder from third countries and then exporting to India. "In respect of export of cocoa powder by Indonesia, Singapore and Malaysia collectively into India under Asean agreement, they are not achieving the minimum value addition of 35 per cent," said a complaint to the finance ministry.
For instance, Indonesia did value addition of 25.13 per cent in 2017-18, abusing the norms, the complaint alleged.
Pankaj Rawal of Jindal Drugs, one of the largest manufacturers of cocoa powder, said, "Southeast Asian countries such as Malaysia, Singapore and Indonesia are importing powder from third countries and exporting it to India without achieving the minimum value addition under PTA. The cocoa products from these countries coming to India without duty are 25 per cent cheaper."
The complaint said the quantity of imports of cocoa powder by Indonesia, at 25,124.86 tonnes, was substantially higher than the quantity of exports of the product by that country to India, at 10,301.20 tonnes, in 2017-18.
This, Abhishek Rastogi, partner at Khaitan & Co, said can only happen if imported cocoa powder is being diverted via Indonesia to India. This is resulting in heavy revenue loss to the government, he added. The complaint pegged total revenue loss to the exchequer at Rs 879 million in 2017-18.
Malaysia and Singapore exported 2,500 tonnes and 2,000 tonnes to India in 2017-18, respectively. Sri Lanka exported almost 1,200 tonnes to India that year.
Exports of cocoa powder to India are not high in value terms, but they grew 41.29 per cent to $43.03 million in 2017-18 from $30.45 million in the previous year.
Rastogi said the lapses of conditions mentioned in the PTAs was a matter of dispute. The government should not hesitate to protect the domestic industry to accomplish the goals of Make in India and should show that India is strict when it comes to agreed conditions, he said.