The Hindu Business Line : Silk exporters sore over move to tax DEPB credit

The Income-Tax authorities not only demand tax on DEPB but also threaten to reopen past cases where DEPB credit was availed of by exporters, causing hardship to exporters.

New Delhi , March 17

SILK exporters are sore over the Income-Tax notice served on some exporters on the Duty Entitlement Passbook Scheme (DEPB) credit that they are entitled to by way of an export promotion scheme instituted in 1997.

The $500-million silk export industry is overwhelmingly dependent on raw silk (yarn) import from China and other countries in order to add value domestically and export to third country markets.

It is counting on the DEPB scheme, which gives credit to the industry paying Customs duty for import of raw silk and other accessories for value addition, said the President of the Silk Exporters Association, Mr Atul Gupta.

Speaking to newspersons on Wednesday, Mr Gupta said that the DEPB scheme has been in vogue for the past seven years.

However, in August 2003 in a few cases the Income-Tax authorities started taxing DEPB credit as income accruing to the exporters and demanded that tax be paid on that credit.

The industry approached the Revenue Department and got a reprieve for three months. Again, in November 2003 it was notified by the authorities that the taxation of DEPB credit was deferred for another three months, pending amendment to the Income-Tax Act in the 2004-05 Budget through the Finance Bill.

But when this second deadline was over in February this year and Parliament was dissolved for reconstitution of the 14th Lok Sabha after the general elections, the necessary amendment to the IT Act could not be effected, leaving the issue to the discretion of the Income-Tax Department officials for the time being, exporters said.

The Income-Tax authorities not only demand tax on DEPB but also threaten to reopen past cases where DEPB credit was availed of by exporters, causing hardship to exporters, he said.

The direct fallout of this move is that more than 25 per cent of the silk exporting units located in domestic tariff area (DTA) in the country's export processing zones or special economic zones would be wound up.

"This would also translate into the loss of employment for one crore persons, particularly in rural areas, and force sericulturists and artisans to commit suicide."

Any denial of full benefit of DEPB to exporters by way of imposing taxes under the pretext that DEPB credit was an income to exporters would lead to cash crunch, leading to loss of at least 25 per cent of export business or even more, he said.

Mr Gupta said that exporters' efforts would be diverted from export promotion to endless litigation with the IT authorities, driving up the transaction cost to industry immensely.

According to Mr Shubash Mittal, Chairman of the Indian Silk Export Promotion Council (ISEPC), 40 per cent of Indian exports come under DEPB export promotion scheme.

Import-dependent export products like silk, leather, gem and jewellery and even rice - where imported packaging material is used for export of rice in bags - would be hit hard if the Income-Tax authorities decide to drive the exporters to the wall by demanding tax on DEPB credit.

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