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RAJEEV GUPTA
That the export promotion scheme favours unscrupulous exporters is not merely the writer's opinion, but a remark made by the Public Accounts Committee (PAC) but then it does not impact the regime of export-promotion. The whole thing lacks credibility rather than the actual reimbursement of taxes and duties suffered by the exported product. If you take into consideration the cumulative effect of export-promotion schemes such as duty exemption, drawback, DEPB, EPCG, EOU/FTZ and 80 HHC i.e., it is beneficial, but the cost of export-promotion is ridiculously high. As a matter of fact since these are administered separately by different agencies/ministeries, the cumulative effect will not even be known, otherwise the parliament will be debating only this subsidy, rather than waste time on other subsidy discussions. Subsidisation is the main cause for the corruption in this area. Plenty of schemes, with permutations and combinations and with various loopholes are made available so that exploitation can continueunabated and everybody's interest is served. This is very significantly evident in the case of DEPB scheme but the government continues with the same.
DEPB is the modified Value-Based Advance Licence (Vabal) Scheme with greater flexibility. This was confirmed by the DGFT office, when LB Singhal, in FIEO open house, revealed the formula of DEPB rate fixation, the first time. The ministry of finance had estimated misutilisation in Vabal Scheme to the extent of Rs 1,000 crore, which is not a small amount in any case, but still in case of DEPB, they have been callous in plugging loopholes even after being informed. How much recovery has been there from Rs 10,000 crore misutilisation in case of Vabal has not been declared by the government. There are hundreds of cases pending in the customs houses to be finalised on account of over-valuation problems, related to Vabal, leave aside the recoveries. In spite of all this experience, their approach in DEP scheme is like a knee jerk reaction and laughable. Even therecent changes come in that category. Because of the hue and cry, it is being made to appear that action is being taken but the real fact is that appropriate action is not taken.
After a lapse of almost two and a half years, the condition of present market value (PMV) declaration has been imposed in case of DEPB with even 10 per cent DEPB rate.
The stipulation that 50 per cent of PMV being cut off limit for DEPB credit in case of 10 per cent and 22 per cent DEPB rates only helps to strengthen the view that in case of 10 per cent DEPB there is much more over valuation of exports being indirectly sanctioned. This is said so because the limit is being indirectly sanctioned. This is said so because the limit is to check unscrupulous exports. Because mathematics is a pure science, the cut off limit of 50 per cent of PMV with a widespread of 22 per cent and 10 per cent DEPB rate cannot make sense to anybody. It serves to create bottlenecks in case of genuine exporters whereas the unscrupulous exporters who arecalculative and work towards exploiting the system, get away with flying success in their motives. Thus apparently the rule is made to show that the loopholes are being plugged but enough leeway is left for unscrupulous exporters to exploit the system. The customs duty is less than 40 per cent in case of all imports therefore it is highly improbable that DEPB credit will exceed PMV. This is also established from the fact that if you apply the cap value imposed in case of various products and use the restriction of PMV as test parameters to determine the sredit limit, you will arrive at results with glaring disparity of more than 50 per cent even. Thus within the different systems adopted by the government there is no parity. It is not a criticism for the sake of criticism but a stark reality.
In case of Present Market Value, there have been many cases in the past where the department has failed to reverse the wrong credits. Most significant is the judgement of Madras high court in case of JG Exports vsCommissioner of Chennai in case of CD Exports overvaluation. Further recently, The Times of India carried an article in connection with gold watches exports running into several crores of rupees pertaining to overvaluation and utilisation of DEPB. As a matter of fact, all these type of misuses were notified to be possible to the export-promotion policy formulators but then they did not take timely action. It has been pointed out time and again that DEPB schedule should bear a cross reference with HS Code and SION but the pleas fall on deaf ears. However, if we analyse these cases, then we see that, this was possible because of faulty policies. Secondly, the policy implementors are able to get away with these cases also by shifting the blame on policy/exporter or by just making a reference on record to the investigation wings of the customs. In the gold export case, it is reliably learnt that files were cleared by the investigation wings even and there was lot of pressure put on the officials who exposed thecase to hush it up. Do you then think that these cases can ever reach a logical conclusion?
Even the study of changes in the notification/guidelines for implementation of PMV stipulation will reveal that changes seem to have been effected in a manner to help certain selected quarters in a deft manner and all this has been governed by the ministry of finance.
Vide CBEC circular No.15/97 dated June 3, 1997, only a time period of 30 days was allowed to complete market enquiries regarding PMV and finalise the cases. This was reconfirmed vide circular No 69/97 dated December 8, 1997 and it was specified that where no show cause notice was issued challenging the declared PMV within 30 days from the date of export, the PMV declared shall be deemed to have been accepted. This would have definitely helped several unscrupulous exporters because they know how to avoid the show cause notices for 30 days. There was a committee envisaged to help resolve these matters at the time of launch of scheme comprising DGFT,customs and export promotion council officials. This would have been sensible approach but nothing came of it. Vide CBEC circular No 79/98 dated 22, 1998 the time limit for market enquiry and finalization of PMV was increased to 90 days. However, vide another circular No 23/99 dated May 11, 1999, the time period now stands at five years. What is surprising is that the circular tries to negate their own earlier circulars in an oblique manner probably to save their own skin and lessen the burden of wrong doing and owes allegiance to fraud/collusion/willful burden of wrong doing and owes allegiance to fraud/collusion/willful misstatement or suppression of facts as if wrong declaration of PMV was not covered under the scope of any of these misdeeds. This now means that government has armed its officials with powers that DEPB can be delayed for five years. In five years time, will the value of DEPB be not reduced to zero because of the delay factor? How such stupidity is tolerated and permitted is then a bigquestion.
Not only these lacunae, there is one more unguarded territory which is patently illegal. Vide CBEC circular No. 68/97 dated December 2, 1997 the refund of additional/excise duty is permitted through brand rate in case of non Modvatable products in addition to the DEPB entitlement. Now the position is such that DEPB rules restrict DEPB credit to 50 per cent of the PMV and the drawback rules permit the drawback payment in case the PMV is more than the drawback amount. Thus there is wide disparity between the two rules and there is no rule governing the combination. Is it because of the fact that combination will expose the very high incidence of refunds being permitted through this route to certain select sectors. Thus you will realize that this PMV declaration is more of a sham and responsible for a scam.
Now let us take another change where the export-promotion authority has tried to plug another loophole i.e., negative value addition in DEPB exports. It is once again apparent that in the nameof export-promotion, the exchequer was allowed to be looted. Though there was newspaper advertisements on regular basis permitting interest-free credit ranging from 30-60 days in case of DEPB clearances depending upon the duty structure, the export-promotion authorities broke the record of `Kumbhakaran' to wake up from their slumber.
The irony is that as of now also, the action taken is too little and too late. It is not that the bureaucracy is not aware of the remaining half of the agenda.
Vide a recent public notice No 10(RE 99)/1997-2002 dated June 7, 1999, it is stipulated that CIF value of imports will not exceed the FOB value against which the DEPB has been issued. This aims at balancing imports with exports in terms of foreign exchange. However, what is being ignored is that this is not a healthy approach because if all DEPBs simply result in neutralisation then what is the benefit to the country in terms of foreign exchange. Are we not promoting exports to earn foreign exchange? Can this poorcountry otherwise be used as a sourcing base for subsidising the developed world? Are the western countries then not right in imposing countervailing (anti-subsidy) duties.
At the time of fixation of DEPB rate, the data called for, has details of value addition then why this scheme should not be made to run in duty neutral fashion. This would then ensure that the government is not a big looser in the whole game.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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