DEPB scheme gets six-month extension

FOREIGN TRADE POLICY/ DEPB

Income tax under Section 80 HHC being imposed with retrospective effect under the DEPB scheme will now be examined by the Prime Minister's Economic Council

The annual supplement to the Foreign Trade Policy proved disappointing to exporters who were hoping to get details and a time frame about the new WTO compatible duty neutralisation scheme to replace the popular duty entitlement passbook (DEPB) scheme.

The present DEPB scheme, which covers nearly 52 per cent of the country's exports, is set to continue at least until September this year.

The supplement to the policy merely stated that the "DEPB scheme will continue till the replacement scheme is put in place.

The replacement scheme is currently under finalisation and inter-ministerial consultations are on for finalising the new scheme". The department of revenue has already notified that the DEPB scheme will be on for the next six months.

There was, however, a major respite granted to exporters with Commerce and Industry Minister Kamal Nath announcing that the issue of income tax under Section 80 HHC of the Income Tax Act being imposed with retrospective effect under the DEPB scheme would now be examined by the Prime Minister's economic council, which would take a decision on the matter within the next 30 days.

Nath said, in the meantime, Prime Minister Manmohan Singh had directed that all outstanding income tax claims under the scheme would be put in abeyance until a decision on the matter was taken by the council.

Until the assessment year 2001-028, exporters had been allowed to treat income out of the DEPB as "exempted income" under Section 28 (iii) (a) in their annual return. However, the central board of direct taxes later decided to treat DEPB income as a taxable one for computation of tax liability.

The contention of the exporters is that earlier, income tax officers were accepting the sale proceeds of the DEPB as an export income for computation of export profits under Section 80 HHC of the Act in spite of the fact that the word DEPB does not appear by its name in Section 28 (iii) (a) of the Act.

It has been stated that the DEPB is an instrument which is eligible for benefits under Section 28 (iii) (a) of the Income tax Act issued by the DGFT to reimburse Customs duty in the inputs used for producing an export commodity and as such, should be accepted as export income for computation of export profits.

Exporters are also seeking a clarification to remove the ambiguity about deduction under Section 80 HHC (3) of export incentives of those assessees who have otherwise suffered losses in the export business.

Meanwhile the annual supplement has clarified that the DEPB benefits would be available for supply of goods from domestic tariff area to units in special economic zones for the period April 2003 to May 11, 2004.