The government’s move to impose export duty on certain steel products to rein in inflation has put itself in a fix as the decision is now affecting supplies of steel to Special Economic Zones (SEZ), where there is a huge demand for it.
Sales from domestic tariff area (DTA) to SEZs are treated as deemed exports. DTA is the area within the country where normal tariffs apply. This does not include SEZs, which is deemed as foreign territory for tax purposes and are therefore tax-free enclaves. Imposition of export duty on such steel products has made these items costlier in SEZs.
On May 10, the finance ministry had issued a notification regarding the imposition of 5-15% export duty on semi-finished and finished steel products. “We have sought a clarification from the law ministry in the matter. Also, a reference has been made to the finance ministry,” a senior commerce ministry official said.
A concerned commerce ministry, in charge of SEZs, has sought a clarification from law and finance ministries on the matter. The commerce ministry has demanded that the export duty be exempted for sale of steel products for ‘consumption within the SEZs.’
In a similar instance, commerce and industry minister Kamal Nath had given some relief to the cement sector saying that export ban on cement will not apply to sale of cement from DTA to SEZs.
These tax free zones, under various stages of becoming operational, are witnessing massive construction activity that needs huge quantity of cement and steel. Besides, SEZ units manufacturing items including auto-components and engineering products also use steel products.
The commerce ministry and Export Promotion Council have received several queries from SEZ units and developers on the issue of export duty on steel products for export oriented units and SEZs (EPCES).
L B Singhal, director general, EPCES, said the SEZ rules define ‘export’ as goods exported out of the country, supply of goods from DTA to SEZ and supply of goods from one SEZ to another. Since the finance ministry’s notification is applicable only to goods exported out of the country, it should issue a clarification or carry out an amendment to that extent, he said.
In the case of cement exports, the directorate general of foreign trade (DGFT) had subsequently carried out an amendment saying the prohibition of cement export is not applicable to supply of cement to SEZs for consumption within SEZs. Meanwhile, the steel industry is lobbying the government hard to withdraw the export duty, arguing that they have already helped calm inflationary impact of rising steel prices by cutting their prices by Rs 2,000-4,000 per tonne.