Arun Goyal | 18 Jul, 2006
The
Department of Revenue has gone through a heart transplant. The sore
exporters are pleased at the significant hike in the drawback rates in
the new schedule effective from 15 July, 2006. The Service Tax on the
inputs going into the production of export commodities along with
Education Cess and the duty on diesel and furnace oil have been
included in the drawback rates. The drawback rules have been amended so
as to include the incidence of tax on input services to give permanency
to the measure and also to lay the base for inclusion of service tax in
the fixation of brand rates.
What is
more, after a long period of cuts, the drawback cap has been have been
raised to take into account rise in the raw material prices and also
promote export of high value and labour intensive goods. The brass
handicrafts drawback is up from 11 percent to 15 percent and the cap
has more than doubled from Rs. 33 per kg to Rs. 75 per kg. The value
cap of silk fabrics was raised from Rs. 140 per kg to Rs. 250 per kg.
It is party time for exporters.
The revision in drawback is specially significant since the peak rates
have gone down to 15 percent from 12.5 percent and even the overall
duties have not increased very much even after factoring in the new
special CVD of 4 percent. The exporters were fearing a cut on the lines
of 3 July DEPB slash.
Apparently, the Department of Revenue has succeeded in its game of
beating down the DEPB. In the recent DEPB schedule released on 3 July
2006, the DEPB rates were reduced by one to two percent with no
revision in the cap value under pressure from the Department. It is
pumping the blood from DEPB to the drawback. The competition between
two schemes results in a high level of sensitivity on the part of the
government agencies to reimburse various taxes and transaction costs
suffered by the exporters.
New items:
As many as 84 new items are included in the drawback schedule. Cotton
bags (5%), leather caps (5%), aluminium artware (8.5%), plastic suit
cases (8.5%), hand bags (8.5%) and compressors (5.5%) have entered the
scene. Polypropylene combs will now get 10.5 percent drawback. The
increase for cotton bags, leather caps and plastic combs is with
retrospective effect from 5 May, 2005 to correct an injustice due to
classification problem. All agro items starting from chapter 2 to
chapter 24 will get minimum one percent drawback at the time of export
in cash on the day the let export order is issued by the Deputy
Commissioner of Customs. This novel feature of the one percent drawback
will return most of shipping cost at the port itself to the exporter
bringing the international market to his door.
Textiles:
Drawback on the men’s shirts and ladies blouses is up by 0.7 percent to
6.7 percent, the cap too was raised by Rs four per piece to Rs. 32 per
piece. This is good since the export prices of garment are falling,
specially after the crash in cotton prices. There is a similar increase
in the rate of knits in which too the cap is up by Rs 4 per piece along
with increase in rate to 6.7 percent.
Madeups are the one of the
biggest gainers. The cap rates are up by Rs 14 per kg to Rs 64 per kg
while the rate itself is now 6.4 percent, a good increase of 1.4
percent.
Finance Minister has a special dispensation for lungis and real Madras
hand kerchiefs which are now at par with dyed fabrics , both get 5.7
percent drawback with cap of Rs. 20.50 per kg. The rates for cotton
yarn, fabrics and denim are up by one percent or so along with an
increase in cap by a quarter over previous rates.
Leather: Finished
leather cap was raised by Rs. 3 per sq ft to bring the ceiling Rs. 7
per sq ft, the rate is up by 0.3 percent to 6.6 percent. Footwear cap
is now Rs. 85 per pair as against Rs. 75 per pair in the previous
dispensation. The rate is also up by a good 1.2 percent to 9.5 percent.
The apparel manufacturers will now get two percent more drawback at 9.5
percent with an increase in cap value by Rs. 133 per piece in the
previous rate of Rs. 400 per piece.
Handicrafts:
The handicrafts industry is very happy with the new drawback rate of
9.4 percent and the cap rate of Rs. 565 per sq m on carpets which is
significantly better than the earlier dispensation of 8 %/Rs. 315 per
sqm. Cotton durries too get 9.4 percent/Rs. 20 per kg compared to the
earlier 8 %/Rs. 16 per kg.
The high
prices of copper are reflected in increase on copper handicrafts
drawback cap by Rs. 44 per kg which is now Rs. 110 per kg. The rate too
is up from 11 percent to 15 percent. For brass handicrafts, there is a
good jump of cap to Rs. 75 per kg from the earlier Rs. 33 per kg. What
is more, the discrimination against brass hardware has been removed,
hardware such as taps and nozzles get the same rate as handicrafts
which are supposed to contain features of artistic merit and are
predominantly manufactured by hand.
Steel:
The rate for steel have gone up by one to 3.5 percent with nearly
doubling the cap to Rs. 1,000 per MT. However, these rates are well
below the rival DEPB scheme. Stainless steel utensils are, however, up
from 11 percent to 15 percent. Cutlery too will get the same rate.
Others:
The drawback on chemicals, bicycles have gone up marginally while the
rates for machinery have fallen by half percent due to the reduction in
peak rate. Similar reductions are visible in the case of electronics
products and electrical machinery.
Conclusion:
The upward revisions in drawback have restored some faith in the
government which seemed to have lost the sense of proprietary reason in
recent times. Changes with retrospective effect were the order of the
day and the trade has developed doubts on the ground under the
government policy.
