The Hindu Business Line : Raw sugar imports — Finance, Commerce Ministries at loggerheads

A VIRTUAL tug of war has broken out between the Finance and Commerce Ministries over the issue of relaxing the "grain-for-grain" nexus for duty-free import of raw sugar against advance licences.

According to the Finance Ministry, the relaxation has already been made, which means the raw sugar imported by mills under the advance licence scheme does not have to be re-processed into white sugar for exports. The mills can, instead, utilise the imported raw sugar to manufacture white sugar and sell it first in the domestic market. The obligation to export one tonne of white sugar for every 1.05 tonnes of raw sugar imported within 24 months of issuing the licence can be separately met by processing domestically sourced sugarcane.

While the claim that the "grain-for-grain" correspondence no longer applies for raw sugar imports was endorsed even by the Finance Minister, Mr P Chidambaram, in his address at the Indian Sugar Mills Association's (ISMA) Annual General Meeting on Thursday, the Directorate General of Foreign Trade (DGFT) is, however, singing an altogether different tune.

In a letter to the Additional Export Commissioner, Chennai, dated November 24, the Joint DGFT, Mr Amiya Chandra, has said the policy pertaining to duty-free import of raw sugar against AL would be "guided" by an earlier communication of the DGFT, Mr KT Chacko, to the Secretary, Department of Food and Public Distribution, on September 15.

In that, Mr Chacko said under the current policy, advance licences were issued with actual user condition. "Any diversion to the domestic market will constitute a violation of the policy and is not acceptable. (Further), it would go against the fundamental policy governing duty-free imports against advance licences," the communication added.

In fact, as per the Foreign Trade Policy for 2004-09, an advance licence is issued to allow duty free import of inputs, which are "physically incorporated in the export product". The nexus condition is also mandated in the notification of the Central Board of Excise and Customs (CBEC), dated September 10, which provides duty exemption on materials imported against an advance licence, subject to the export obligation being discharged by exporting "resultant products" (i.e processed from the imported material).

Finance Ministry officials, however, say the decision to dispense with the grain-for-grain nexus condition for raw sugar was taken by the Union Cabinet on September 17. Subsequently, on September 21, the Member (Customs & Export Promotion), Mr S.K. Kak, wrote to all Chief Commissioners of Customs that with regard to sugar, "it may not be necessary to establish a one to one co-relation (nexus) between the imported goods (raw sugar) and the export product (refined sugar".

So long as the export obligation is fulfilled by the licence holders within the period specified in the licence, "the customs authorities may not insist on such co-relation" and "the above decision may be brought to the notice of the field formations under your charge for compliance", the letter had said.

Millers though are not satisfied with the Finance Ministry's clarification in the form of a letter, which, they point out, has no legal validity unlike a gazette notification.

This is more so in the context of the Joint DGFT's letter of November 24 contradicting that issued by the CBEC Member on September 21.

"Which arm of the Government do we believe, the Commerce Ministry that issues the licences (DGFT) or the Finance Ministry (CBEC)? In the absence of a notification that specifically exempts raw sugar from the grain-for-grain nexus deriving from the CBEC's September 10 notification, there is scope for ground-level ambiguity," a miller said.

Interestingly, when the issue was raised at ISMA's AGM, Mr Chidambaram insisted that "a letter is as good as a notification" and there was no need for the industry to get into "bureaucratic niceties".

During the ongoing 2004-05 season (October-September), advance licences for Rs 1,075 crore have been issued, against which, as on December 15, 8.01 lakh tonnes of raw sugar have been imported or contracted. Raw sugar imports for the whole season are slated to top 15 lt.

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