Post-export transfer of duty free entitlement allowed

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: The foreign trade policy has unveiled a new scheme called Duty-free Import Authorisation Scheme, to allow transfer of post-export duty-free import entitlements. The new scheme has been formulated by clubbing the salient features of the advance licensing scheme and the duty-free replenishment certificate (DFRC). It will co-exist with the advance licence scheme and replace the DFRC.

Kamal Nath said the new scheme offers the facility to import the required inputs before exports. It allows transferability of scrip once the export obligation is complete. The rationale behind introduction of the new scheme is that export production requires use of many inputs in small quantities, import of which under advance licence is economically unfeasible.

Even though such inputs are allowed for import without payment of customs duty under advance licence scheme, exporters generally do not import them because of lack of economies of scale and are forced to source them locally at a higher price. This, director-general of foreign trade KT Chacko said, could dent the competitiveness of the exporter in the international markets.

Imports made under authorisation will be exempt from payment of basic customs duty, additional customs duty, education cess, anti-dumping duty and safeguard duty, if any. The scheme will come into effect from April 1.

Currently, there is 15-20% under-utilisation of the advance licence entitlement thanks to its non-transferability. This is more evident in export sectors dominated by small-scale leather, garments and gems and jewellery units, as it is not economically viable for such units to import small quantities of specific inputs and claim the entitlement.

With the introduction of the new transferable instrument exporters will be given the freedom to choose between it and the advance licence scheme as per finance ministry data, quantity-based advance licence scheme cost the exchequer Rs 8,851 crore in 2004-05 in terms of duty foregone. The government had foregone Rs 783 crore on account of DFRC in 04-05.

The advance licence scheme and the DFRC differ as the former allows pre-exports duty-free imports subject to actual user condition of export production and the latter is not directly linked to use. Also, while advance licence is transferable, the DFRC is not transferable.

With the transfer facility, even merchant traders can import these inputs in bulk for the export industry and pass the benefit on to the actual exporter.