The Hindu Business Line : Sales tax on DEPB credit — Exporters advised to approach State Govts for exemption

THE Commerce Ministry has advised the exporting community to approach State Governments individually to ensure that sales tax is not imposed on sale of Duty Entitlement Pass Book (DEPB) credit. The Directorate General of Foreign Trade (DGFT) is now issuing DEPB credits in licence form.

Even as exporters contend that export-related incentives and reimbursements should be exempt from State level taxes/levies, some of the State governments have been levying sales tax on DEPB.

"The Centre has limitations in persuading States to refrain from imposing sales tax on DEPB. Some progressive States agree, while some disagree on account of revenue considerations. I urge you to approach individual State governments as a cohesive group and seek relief on this matter," Mr Dipak Chatterjee, Commerce Secretary, told members of the Federation of Indian Export Organisations (FIEO) at an interactive session on Exim Policy here recently.

DEPB Scheme is an export incentive scheme aimed at neutralising the incidence of basic custom duty on the import content of the exported products. Under the scheme, an exporter is eligible to claim credit as a specified percentage of value of exported product and is available at a rate of exported product as may be determined by DGFT.

The credit amount in DEPB cannot be withdrawn and can only be adjusted towards payment of customs duty. The DEPB credit is also freely transferable.

FIEO members argue that DEPB instrument is a duty credit note that has been issued for the neutralisation of the deemed customs duty. A large number of members feel that DEPB should not be considered as a license and, therefore, no sales tax be imposed on them. The High Courts of different States have, however, come up with different judgments on whether DEPB would constitute a "good" or not.

The Federation has suggested to the Central Government that the nomenclature of the DEPB instrument may be corrected to read as "Import Duty Credit Advice" or "Import duty credit scrip". Once it is is corrected, exporters feel that the State governments can be convinced to exempt the DEPB credit from the levy of sales tax.

The FIEO Vice-President, Mr Subhash Mittal, suggested that an amendment could be made in the Foreign Trade (Development and Regulation) Act and Central Sales Tax Act so that the true objective of DEPB, which is a refund, is brought out clearly. This, he said, would ensure that exporters are not made to bear the financial burden (sales tax on DEPB), which adds to the transaction cost.

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