Date:03/07/2005 URL: http://www.thehindubusinessline.com/2005/07/03/stories/2005070301760300.htm

Back Ministries to hold talks on DEPB replacement scheme

K.R. Srivats

New Delhi , July 2

THE Finance Ministry and the Commerce Ministry are to hold another round of talks on July 6 as part of their efforts towards giving a shape to the new duty neutralisation scheme that would replace the duty entitlement passbook (DEPB) scheme.

The existing DEPB scheme, which serves around 52 per cent of the country's exports value-wise, is likely to be in force till September end. Under the scheme, an exporter may apply for duty credit as a specified percentage of the free on board (FOB) value of exports.

The DEPB credits are freely transferable and, importantly, they may be utilised for payment of customs duty on any item that is freely importable except capital goods. The DEPB scheme covers over 2,000 items and had been devised with an objective of neutralising the incidence of basic customs duty on the import content of export product.

Official sources indicated that the new scheme might not only neutralise the basic customs duty but also try to neutralise certain un-rebated taxes levied by the States like electricity duty.

The Commerce Minister, Mr Kamal Nath, had on April 8, at the launch of the annual supplement 2005 to the Foreign Trade Policy 2004-09, announced that a new scheme would replace the DEPB scheme in about six months' time. He had also then assured exporters that the existing scheme would continue till the replacement scheme is put in place.

Over the past few years, importing countries including the US and the European Union have been treating the DEPB scheme as subsidy practices and were levying countervailing duties on imports from India. Their contention is that the DEPB related certificates could be used to pay customs duty for any import and not necessarily imports of inputs used in the production of export products.

Meanwhile, the Planning Commission has in the recent Mid-Term Appraisal (MTA) of the Tenth Five Year Plan highlighted that the "absence of the requirement to import the very inputs that have been used in the exported product makes the DEPB payments countervailable in terms of WTO rules".

The MTA has therefore underscored the need to consider "suitable modifications in the DEPB scheme to make it non-countervailable, or, better still to subsume it under the duty drawback scheme".