Sinha's much-awaited nod to the report, including the controversial soft bonded IT units (S-BIT scheme), has rekindled hopes that the prime minister's office may finally be able to put up the same for cabinet's consideration once prime minister Atal Behari Vajpayee has cleared it within a fortnight.

The PMO will also put up before the cabinet the third and final report of the task force relating to initiatives in research and development, human resource development and content creation. The third report is less likely to find opposition from any quarters as it relates to a long-term policy vision.

When contacted, National Informatics Centre director general N Seshagiri confirmed that the report had cleared the GoM hurdle, but added that it may take at least two weeks to go through the governmentprocedures.

With Sinha's approval, all seven ministers in the advisory group of ministers (GoM) have given their nod to the report. The other six ministers had already approved it well before the budget.

However, this does not mean that the hardware report will necessarily sail through as the finance ministry officials still remain opposed to the report, citing a potential Rs 800-crore revenue loss to the exchequer if the S-BIT scheme is implemented.

The industry has contradicted this view by pointing out that an expected tremendous increase in volumes due to the concessions will more than offset the perceived loss and result in gain of an additional revenue of Rs 300 crore per annum.

But this argument has not been accepted by the bureaucrats. According to sources, with the revenue department expected to raise the bogey of the revenue loss again, an understanding has been reached between the finance minister and the industry represented by the task force officials to somewhat dilute the S-BIT schemebefore it is gazetted. Sources said Sinha has cleared the report with minor alterations in the proposed S-BIT structure.

Since the report had proposed that for domestic sales, the excise duty will be paid on the finished products sold by the unit, the revenue department has been doggedly opposing the it saying that the proposed letter of undertaking (LUT) system for self-declaration of duty will be liable for misuse by the entrepreneurs. S-BIT, they said, would create serious enforcement problems affecting the efficacy of administering tax laws because of misuse potential.

Similarly, the report had proposed that supplies from the domestic tariff area to S-BIT unit shall be treated as deemed exports. To this, revenue department observed that since S-BIT units will be eligible to receive inputs without payment of excise duty and sales tax, the deemed export status appeared to be an additional sop, particularly in view of there being no export obligation on their part.

They had further objected to thereport saying that acceptation of the duty sops to computer and electronics hardware sector would lead to other sectors too demanding similar concessions. But this argument does not seem to have found favour with the finance minister.

It may be noted that speaking at an industry seminar last week, the prime minister had noted that the government was keen to encourage manufacturing and export of hardware from the country.

With Vajpayee more favourably inclined towards passing the report, it is likely to be forwarded for cabinet consideration before the end of this month.