The Hindu Business Line : DGFT assures to clarify tax exemption on export incentives

"Changes were not made in the I-T Act and this led to the I-T Department raising huge demands on exporters, causing severe cash crunch for many exporters."

Kolkata , Nov. 17

THE engineering goods exporters, long embroiled in disputes with the Income Tax Department over allowable tax exemption (under Section 80HHC) on export incentives such as DEPB (duty entitlement passbook), DFRC (duty free replenishment certificate) and DBK (duty drawback), now see a ray of hope. The Directorate General of Foreign trade (DGFT), Mr K.T. Chacko, has assured the Engineering Export Promotion Council (EEPC) that efforts are being mounted for issuance of suitable clarifications by enabling Department of Revenue Notifications, which may lay to rest all the multiple litigations.

Talking to Business Line on the current developments in this regard, Mr Rakesh Shah, Chairman of EEPC, said the I-T Department has taken the stand that export incentives such as DBK, DEPB are not covered for exemption under section 80HHC because of implications of Section 28 (iii) of the I-T Act. The said Section refers to profit on sale of a licence granted under the Imports (Control) Order 1955, made under the Import & Export (Control) Act, 1947 (IEC Act), cash assistance (by whatever name called) received or receivable by any person against export under any scheme of the Government and any customs duty or excise re-paid or receivable as drawback to any person against export under the Customs and Central Excise Duties Drawback Rules 1971.

Mr Shah said, over a period of time, the IEC Act and DBK Rules were substituted by new Acts to cope with the changing times. The IEC Act was repealed and replaced by the Foreign Trade (Development and Regulation) Act, 1992, which came into force from June 19, 1992, and DBK Rules were substituted by DBK Rules 1995. He said the corresponding changes were not made in the I-T Act and this led to the I-T Department raising huge demands on exporters, many of whom are engaged in 100 per cent export activity, and therefore entitled to full deduction under the said I-T section. Tax disputes, he said, have resulted in the creation of huge demands, and tax collection against these was creating a severe cash crunch for many exporters.

Describing the stand of the I-T authorities as grossly unjust, Mr Shah said that exporters could not be held at fault merely because necessary updations have not been made in the I-T Act. Pointing out that most of the courts have struck down the flimsy additions made by the department, Mr Shah felt the need of the hour was to furnish suitable clarifications at national level so that all pending disputes are finally settled.

Seeking sales tax exemption for DEPB, he described DEPB as an alternative to the DBK scheme. While no ST is levied if an exporter opts for DBK, the DEPB scheme attracts ST. He sought a clarification that DEPB was not a licence in the strict sense of the term, but only a credit note issued for neutralisation of the deemed customs duty akin to the DBK. He suggested that exports not only be exempted from ST, but also from CST, and VAT, whenever the latter is implemented.

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