The CVD was imposed on most imports in Budget 2006-07, in lieu of value added tax (Vat) on domestic goods.
Official sources said exporters, however, will be free to take credit for the duty paid, in keeping with the principle of Cenvat chain.
Apparently, the government is drawing a parallel between the Vat system and the CVD. In the Vat system, tax is levied on value addition at multiple points with the input tax credit facility.
Sources from the exporters community, however, have raised some objections. They pointed out that while state Vat is applicable to most products and all elements in the value chain, there are many broken links in the Cenvat chain. The small scale industry is exempt from excise duty. There are also many industries like leather, handicrafts, handloom etc that are exempt from excise duty. This means that these industries would not be able to avail of the credit for the CVD paid on imports.
So far as the manufacturer-exporter sells his produce in the domestic market, he can get the credit for the CVD paid. But disallowing the credit through the export promotion schemes would mean that the benefit is not available for exports. The existing facility for encashing the accumulated credit with manufacturers who export bulk of their products is highly cumbersome.
Exporters, will be free to take credit for the duty paid, in keeping with the principle of Cenvat chain
In Budget 2005-06, finance minister P Chidambaram had taken the power to impose a countervailing duty (CVD) on all imports to compensate for state-level taxes. This levy was initially applied to only imports of information technology agreement-bound items and their inputs, except IT software. In Budget 2006-07, the 4% CVD was imposed on all imports with a few exceptions. The finance minister had said that full credit of the duty would be allowed to manufacturers of excisable goods.