The Comptroller and Auditor General of India (CAG) has detected instances of “procedural deficiencies and absence of clear provisions” in the duty drawback scheme, aimed at promoting exports by neutralising all duties/taxes embedded in the cost of manufacture of exported products.

importance

The CAG report on duty drawback, recently tabled in Parliament, assumes importance as the Government is set to wind up another popular export promotion scheme, the Duty Entitlement Passbook (DEPB) scheme by the end of this month by replacing it with a reinforced duty drawback scheme.

But, exporters had clearly voiced their reservations that the new duty drawback rates would not be attractive enough as the DEPB scheme since the DEPB credit was tradable.

Drawback is payable on manufactured articles when exported and is also granted on re-export of duty paid imported goods. Besides, drawback is also available on ‘deemed exports' in which goods do not leave the country and payment for such supplies is received either in Indian rupees or in free foreign exchange.

Re-exports

Stating that the total financial implication of this audit intervention was Rs 120.25 crore out of the total payment of drawback of Rs 36,000 crore between April 2006 and March 2011 the audit study covered, the CAG observed that no supplementary rules have been framed under Section 74(3) of the Customs Act 1963, laying down the parameters for identification of goods in case of re-exports. Hence, it urged the Revenue Department to issue requisite instructions or frame rules indicating parameters for identification of re-exported goods with the originally imported items.

It said physical properties of goods placed for re-export, along with documentary declarations, should be cross-verified with particulars of related imports on the basis of instructions issued.

Goods used after import

The CAG has also urged the Department to issue suitable instructions to clarify the typical conditions under which goods are to be treated as “used after import” because, in case of used goods, drawback is to be sanctioned on depreciated value at the rate specified.

This is particularly so because according to the provisions, when any goods capable of being easily identified have been imported and duty has been paid on drawback, duty drawback at the rate of 98 per cent of duty paid at the time of import is to be repaid if the goods are re-exported without being put to use.

Claim process

Referring to unconscionable delays in claims processing, a common complaint widely voiced by exporting community, the CAG asked the department to streamline the verification procedures to enable faster processing of claims.

Where the documents filed are found to be deficient, these should be communicated to the applicant in clear, unambiguous terms within the stipulated timeframe of ten days, it added. The CAG also said the process of rate fixation by the Drawback Committee should be fully documented so that independent assurance could be derived on methodology of rate fixation. This is an area where exporters have sought transparency and factoring in other cost disabilities they suffer from.

The CAG has also drawn attention to instances of non-compliance to rules and provisions on processing of time barred claims, delays in fixation of brand rates, sanction of drawback on products not specified in brand rate letters and excess payment of drawback due to misclassification.

It said the department might consider creation of standard industry norms to enable meaningful verification of information and ensure uniformity in fixation of brand rates.

Published on September 4, 2011