The Hindu Business Line : Garment exporters grapple with tax, DEPB problems

SIX months after the quota regime was dismantled, garment exporters are grappling with income-tax problems, increased transaction costs and bureaucratic tangles.

I-T authorities have reopened cases from 1997 on the grounds that the DEPB (Duty Entitlement Pass Book) income has been disallowed as export earning and is treated as profit from business.

Mr Ranjit Shah, President, Apparels and Handloom Exporters Association (AHEA), pointed out that until the assessment year 2001-02, the DEPB income was exempted under Section 80 HHC. Many of the exporters have been asked to pay large amounts in back taxes and penalties. A number of exporters are contesting the issue, he said.

Another problem that has cropped up is "negative profits." Many of the units have been making large investments in new plant and machinery and taken the depreciation against these investments. (Showing depreciation as an expense.)

Mr Shah said the new interpretation of the rule is that in cases where units have a net profit, which is less than the duty drawback earned by them in a financial year, the I-T authorities included the drawback amount in the taxable income.

In cases where the net profit is even a rupee more that the duty drawback earned in that particular year, the entire drawback amount is treated as export income and exempted under Section 80 HHC. If the depreciation portion is eliminated most of the units will show a profit in excess of duty drawback or DEPB.

Another area that has become a bugbear for the exporters is the service tax on air and sea freight. Ms Reshma Rao, Secretary General, AHEA, said that now the service tax component is not shown on the airway bill or bill of lading, so there was no way in which this could be recovered from the buyer. Exporters felt that the Government should make inclusion of the service tax component on the invoice mandatory.

She said when local road transport is used either to transport goods to the gateway airport of seaport or transport fabric, exporters are required to register with the Central Excise authorities.

Mr Shah said it was the responsibility of the service provider to collect the tax. Now the exporters or consignees have to register to pay the tax for services rendered by the transporters, he said.

The Ministry of Textiles has instructed the Apparel Export Promotion Council not to release any earnest money deposits or bank guarantees until further instructions. Mr Shah said the exporters in the southern region were severely affected as almost Rs 25 crore has been held up.

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