Govt notifies new duty drawback rates for 4000 export items‎

Exporters will get lower tax refunds from October 1, as the Union finance ministry on Friday announced a new Duty Drawback Scheme, ending the 14-year-old Duty Entitlement Passbook Scheme (DEPB).

To provide a smooth transition from the popular tax credit scheme to the drawback scheme, the ministry said the drawback rate would have a floor rate of 5.5 per cent of the value of export consignments for most items.

The decision, taken after years of dallying, to neutralise the input tax paid on duties, may primarily affect companies in the engineering sector, including automobiles and the auto component industry, chemicals, textiles, pharmaceuticals and the marine sector, which were major exporters, getting the benefit of the DEPB scheme.

The finance ministry has softened the blow, as the new duty drawback rates will mean a moderate reduction of one to three per cent in the existing DEPB rates. The lower reduction has been provided only for the current financial year and the rates may be rationalised next year.

“Since the DEPB scheme will not continue beyond September 30, it has been decided to provide a smooth transition for these items, while incorporating these in the drawback schedule. As a transitory arrangement, these items will suffer a modest reduction in the existing DEPB rates, to the extent of one per cent to three per cent, which represents the ad hoc rates of DEPB introduced in 2007,” Finance Secretary R S Gujral told a press conference.

There are 2,130 items on the DEPB list, of which 1,030 are also covered in the drawback schedule.

The remaining 1,100 items would now be incorporated in the new drawback schedule, taking its total count to about 4,000 items from the present 2,835.

With the DEPB facility, exporters got credit for customs duty paid on inputs used in making export goods. Under duty drawback, they receive duty-free scrips which can be used to pay import duties. The DEPB scheme was based on the assumption that the exporter used duty-paid imported inputs. Duty drawback neutralises levies paid on inputs. The revenue outgo towards the DEPB scheme has increased over the years and was Rs 8,700 crore last year.

“With withdrawal of the DEPB scheme, the government’s revenue forgone will be less. But our intention was to unify export promotion schemes, not maximise revenues,” said the Central Board of Excise & Customs chairman, S Dutt Majumder. He said the rates would be notified by the end of next week.

The ministry said the duty drawback rates for items under DEPB were recomputed taking into account prevailing customs duty rates. It was observed that for most items, the recomputed rate worked out to be far lower than the existing DEPB rates, even after removal of the ad hoc element of one to three per cent. Despite that, the ministry decided to have the minimum drawback rate at 5.5 per cent for most items, so that exporters were not adversely affected. For another 340 items, such as worsted woollen yarn, blankets and nylon twine, where the recomputed rate worked out to more than 5.5 per cent, the government has decided to provide the higher recomputed rate. The rate could be over 10 per cent for some items.

Ramu S Deora, President, Federation of Indian Export Organisations, said since reduction would be only to the extent of the stimulus component, added to DEPB rates in October 2008, the new rates will be, by and large, acceptable to the industry. He said even if the new drawback rates were a little less, the saving on account of transaction time and cost would offset the disadvantage.

Despite sluggishness in other sectors of the economy, exports turned out to be the silver line. They grew 54.2 per cent in the first four months of this financial year to touch $134.5 billion year-on-year. However, exporters were worried over discontinuation of the DEPB scheme.

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India may hike refined palm oil import duties

NEW DELHI/KUALA LUMPUR: India is considering an industry request to raise import duties on processed palm oil, government and industry sources said, after Indonesia lowered its export taxes on the product -- a move seen as dealing "a death blow" to Indian refineries.

India, the No 1 buyer of vegetable oils, has already begun importing more of refined, bleached and deodorised (RBD) palm olein from Indonesia ahead of Diwali, potentially leaving refining capacity idle.

With Indonesia, the biggest producer, now more than halving export taxes of refined palm oils in mid-September, Indian industry officials are pushing New Delhi to raise the base price, or tariff value, for refined palm oils.

"The domestic refining industry has been demanding $1,100-$1,200 per tonne tariff value on RBD palmolein," said a government source on Thursday who did not want to be named due to sensitivity of the issue.

The finance ministry did not comment on the issue as it usually refrains from making public statements to avoid speculation.

Importers are currently taxed 7.7 per cent duties based on the tariff value set at $484 a tonne, irrespective of purchase price -- a low price to pay and bring in processed edible oil cargoes at time when food inflation is still high.

Indonesia made minor cuts to export taxes of crude palm oil that forms the bulk of India's imports. But even with crude palm oil's import tax-free status in India, traders are shifting to refined products.

From last week, Indian traders have snapped up 50,000 tonnes of RBD palm olein for delivery in October to coincide with higher food demand during the Diwali festival.

Benchmark palm oil on the Bursa Malaysia Derivatives dropped 1.8 per cent on Thursday on concerns over the bleak global economic outlook although traders said festival demand could limit losses.

Indian domestic prices were also down. At 0727 GMT the most-active soyoil for October delivery on India's National Commodity and Derivatives Exchange was 0.6 per cent lower at 649 rupees ($13.429).

"The contract may fall to 620 rupees if cheaper imports will remain there for next few more weeks," said Vimla Reddy, an analyst with Karvy Comtrade.

India buys about 6 million tonnes of crude palm oil every year from Indonesia for its refiners to process into cooking oil and other food products.

Refining capacity in the country stands at 15 million tonnes and could turn idle if more refined palm oil is shipped in, traders estimate.

Food Minister KV Thomas this week expressed concern about Indonesia's move, which the head of Indian's leading vegetable oils industry association has said could be "a death blow" to the refining industry.

India's food ministry has since passed on the industry's request for higher tariff values to the finance ministry, the sources said.

Finance minister, Pranab Mukherjee, will take a final decision bearing in mind high food-driven inflation has forced the central bank to hike rates 12 times in the last 18 months.

"If the food ministry recommends any action on the demands of the domestic industry, we will inevitably examine it," a finance ministry official said.

The edible oils weight in India's wholesale price is 3.04 per cent, and the wholesale edible prices have moved up by 3.65 per cent since March 2011 until August.

The wholesale prices of edible oils were up 3.5 per cent in August from a year ago period. The WPI rose 9.78 per cent in August and is a major concern for policy makers.

"There is still plenty of room to move," said a palm oil analyst in Singapore.

"Raising the tariff value for refined palm oils will make it expensive but the inflation aspect can be mostly avoided as India will shift back to crude palm oil and still save its refiners," she added.

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Fraudulent Chinese firms swindle Indians in six innovative ways

Alarmed by the growing instances of fraud being committed by Chinese companies, to which Indian small and medium firms are falling victim, New Delhi has swung into action and has — for the first time — done an analysis on the types of trade disputes.


The government has also cautioned Indian companies against trusting business-to-business (B2B) sites before zeroing in on a Chinese partner. It has also asked the Indian missions in that country to help in establishing the authenticity of Chinese firms. There have been 66 disputes this year alone between January and July, the value of which exceeds $1.8 million. A majority of the disputes have taken place with companies based in Hebei province (29 cases) and Tianjin municipality (26 cases). The government is also circulating a list of 48 companies that committed fraud this year.

According to sources, the ministries of external affairs and commerce have analysed the cases, and have issued an advisory that identifies six ways in which fraud is being committed.

They are the following:

TYPE 1: A Chinese company gets in touch with an Indian company and invites the latter to visit China and meet company executives and local government officials as a confidence-building exercise. Before the Indians leave for China, the Chinese ask for cash towards gifts for local officials citing cultural values, to which the Indians agree. The Chinese pull out all stops and once the Indians return, all communications go unreplied. The Indian company loses on costs of transportation, accommodation and the gifts.

TYPE 2: The Indian firm finds a Chinese exporter from B2B portals and other online sources. The exporter insists that the Indian company should send a percentage of the total amount as advance. After payment, the Chinese firm reneges on the commitment.

TYPE 3: The Indian company finalises the deal and asks the Chinese for a sample of the products, which meet the desired standards. Orders are placed and the advance paid. The consignment reaches Indian shores and the payment is released after inspecting the bill of loading. The actual product, seen after release by Customs, is found to be substandard or at variance from the agreement. The Chinese brush aside all complaints and blame extraneous conditions.

TYPE 4: The Indians and the Chinese agree that the buyer (Indian) has to make an advance payment for the consignment. Once the advance is received, the Chinese partner goes slow and after repeated requests, asks for the remaining payment and cites delays, increased costs, supply problems, and even threat of no dispatch to exact the sum. The Indians pay up and the Chinese renege.

TYPE 5: The Chinese company, before or after finalisation of the deal, insists on `Notarisation of the Agreement’, cost of which has to be shared equally by both parties. The Indian company duly pays up its share. On return, the Indians are asked to pay extra towards ‘increased’ notarisation fees. The Indian firm risks losing its share of notarisation fees if it does not pay and the total amount if it pays up the extra fee.

TYPE 6: Before finalising the negotiations, the Indians receive an instruction to transfer the advance/full amount in a bank account different from that of the Chinese company. They comply and there is no answer after the amount is received. Later when the whereabouts of the consignment is enquired into, the Chinese respond that the said account is not the company’s account, or that the employee left the firm.

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DEPB Scheme to go on 30th September

NEW DELHI: Tax incentives for exporters will be lowered from Oct 1 as the government said Friday it will do away with the popular tax refund scheme, Duty Entitlement Pass Book (DEPB), and bring them under an existing duty drawback scheme from the beginning of next month.

At the same time, the number of items eligible for the drawback scheme have been increased by 1,100 to take the number of eligible items to 4,000.

After unveiling a transitory scheme for the 14-year old DEPB scheme, Finance Secretary R.S. Gujral said tax refunds on exports of 2,130 items will be reduced by 1 to 3 percent.

"An endeavour has been made to soften the reduction and transition from the DEPB to duty drawback scheme," Gujral told reporters.

Exporters of engineering, chemical, pharmaceuticals, marine and textile products are the major beneficiaries of DEPB scheme. Tax refunds under DEPB scheme resulted in the revenue loss of Rs.8,700 crore to the government exchequer last fiscal.

The revenue loss would be reduced significantly due to the replacement of the DEPB scheme, said Chairman of Central Board of Excise and Customs S.D. Majumdar.

The reduction in tax incentives might affect the growth of exports.

India's exports jumped 54.2 percent at $134.5 billion in April-August period, led by a sharp increase in exports of engineering goods.

Officials said the government will shortly notify "all industry rates" of duty drawback for the current fiscal.

The government had constituted a committee in January under Planning Commission member Saumitra Chaudhuri for formulating the "all industry rates" duty drawback.

The committee recently submitted its report.

"Recommendations of the committee form the basis for the rates being notified," the finance ministry said in a statement.

"The DEPB Scheme has been in existence since 1997. Presently, there are 2,130 line items covered under this scheme. Incorporating these items within the drawback schedule and assigning appropriate duty drawback rates for these items was a challenge both from a product classification perspective as well as from a drawback rate perspective," an official statement said.

"Consequently, the new drawback schedule will incorporate an additional 1,100 line items(approx.) which are being taken from the DEPB list. With this, the total number of items in the drawback schedule will number approximately 4000 line items, as against the present 2835 line items," the statement added.

Most items which are already covered under the duty drawback scheme will suffer a minor reduction in the existing rates.

"The reduction is mainly on account of the reduction in basic customs duty on crude petroleum from 5 percent to nil as well as a reduction in central excise duty on diesel from Rs.4.40 per litre to Rs.2.40 per litre," a finance ministry statement said.

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