Our Bureau

New Delhi , March 30

STUNG by the demand of the tax authorities in retrospectively taxing the duty entitlement passbook credit (DEPB) given to them for promotion of exports, the exporters all over the country are on the war path, threatening to stage a dharna here on April 21 to draw the continued apathy of the Government to their problems.

Addressing a joint press conference with leading export organisations covering engineering, textiles and the Federation of Indian Export Organisation (FIEO), the FIEO President, Mr O.P. Garg, said the issue of levying income tax on the profits of the sale of DEPB certification retrospectively is causing serious concern to the exporters. He pointed out that duty drawback and profit from sale on licences of exporters are correctly exempted from income tax, while the DEPB which came into existence in 1997 was not included by an inadvertent omission.

He said till assessment year 2001-02, exporters had been allowed to treat income out of DEPB as exempt under Section 80-HHC, while suddenly some field officials had raised the issue on technical ground that the world "DEPB" is not specifically mentioned in the said section.

Mr Garg noted that in the past too export benefits was included in Sec. 28(iii) with retrospective effect. Duty drawback has been so included effective April 1,1972, and profit on sale of import entitlement licences included from as far back as April 1, 1962 by an amendment made in the Finance Act 1990. He recalled that on a clarification sought by the Apparel Export Promotion Council, the tax authorities in a notification dated February 23, 1998 stated that premium obtained from the transfer of export quotas would be treated as part of export profits eligible for deduction under the relevant section of the Income Tax Act.

Hence, a proper solution could be through suitable amendment of Section 28 to include "DEPB" through Finance Bill 2005 so as to make it effective retrospectively from April 1, 1997.

Mr Garg and other functionaries of other apex export councils said that the basic issue to be thrashed is what constitutes "negative profits". Whether the negative profit is to be computed after adding export incentives with profit directly derived from exports or "negative profits" meant if there is loss in exports excluding export incentives, they said.

Stating that exporters who export merchandise/products with high value addition are not largely hit, a vast majority of the small and medium exporters are directly hit because their only margins are the fillips such as duty drawback or DEPB made available to them as a reimbursement of the customs and excise duty incidence borne by them in the manufacture of the end products.

They contend that the export reimbursements are provided by the government to the exporter for purchase of material and are a reduction in purchase cost. As such, these export reimbursements/incentives are an integral part of export profits.

It is in this light that the exporters are seriously concerned over the reopening of old cases in DEPB and the issue of negative profits and the resultant attachment of bank accounts of exporters. The FIEO Vice-President, Mr G.K. Gupta, cautioned that exporters are on the verge of collapse if the tax authorities continue to harass them on benefits they were legitimately entitled to by the Government policy. They said the persistent harassment might make as many as 30,000 small export units go bankrupt and more than Rs 35,000 crore worth of the country's exports would be lost.

The AEPC Chairman, Mr A. Sakthivel, who was present, said that if an exporter has even one rupee profit from export activity, he would get full deduction of export incentives and if he incurs a loss of Rs 1 from export activity he will get no deduction under relevant section. Moreover, he said, any tax on refunded amount to exporters given by way of legitimate incentives is not a logically correct step.

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