Date:14/04/2006 URL: http://www.thehindubusinessline.com/2006/04/14/stories/2006041402330900.htm

Back Govt withdraws benefit to EOUs for supplies made in DTA

K.R. Srivats

RBI, Revenue Department objections behind the move

Implications
Supplies by EOUs to DTAs not to be counted for fulfilment of export obligation of such units
EOUs, STPs/electronic hardware technology park will have to find new avenues for exports
Policy makers do not want to consider import substitution transaction as exports

New Delhi , April 13

In a major roll back, the Government has withdrawn an existing facility that allowed supplies by export-oriented units (EOUs) to the domestic tariff area (DTA) to be counted towards fulfilment of export obligation of such units.

This benefit was available in cases where the payments were made from the exchange earners foreign currency (EEFC) account of the buyer in DTA.

Supplies by EOUs and units in software technology parks (STP) and electronic hardware technology park (EHTP) to units in DTA against payment from EEFC account of a buyer in DTA would henceforth not be counted for the purpose of fulfilment of positive net foreign exchange obligation.

This policy decision has been implemented through the annual supplement to the Foreign Trade Policy, which was unveiled recently by the Commerce and Industry Minister, Mr Kamal Nath, here last week.

RBI objections

Explaining the rationale behind the move, the Director-General of Foreign Trade, Mr K.T. Chacko, said this facility has been withdrawn on account of the serious objections raised by the Reserve Bank of India and the Revenue Department. It was felt that one export was being counted twice, he said.

For instance, if a unit in DTA had earned $100 through exports and this is deposited in its EEFC account, such a unit was earlier allowed to buy from a EOU by making payment against the EEFC account.

Such a transaction was counted towards export obligation fulfilment for the EOU as it was getting foreign currency. Now, such transaction would not be counted for export obligation fulfilment.

Trade experts pointed out that this move of the Government would imply that those EOUs and STP/EHTP units that were depending on domestic market to fulfil their export obligation would have to find new avenues for exports.

It may also imply that the policy makers do not want to consider any import substitution transaction as exports.