DEPB may stay as MoF refuses to reimburse states

Duty entitlement pass book (DEPB) scheme—the popular duty reimbursement scheme for exporters—may not be replaced with the duty drawback scheme in the forthcoming fiscal if the finance ministry doesn’t agree to remit state taxes paid by exporters.

According to commerce department officials, the DEPB scheme, which lapses on March 31, will be further extended if no decision is taken on reimbursing state taxes like octroi, electricity tax, mandi tax, sales tax on petroleum products and municipal cess.

The commerce department has moved a separate CCEA note on the need to reimburse state taxes to exporters in addition to the note on overall export sops for exporters that incorporates the issue.

“If a favourable decision is not taken on remission of state taxes, then the DEPB scheme has to be further extended,” an official said. Both notes stress the point that with the steadily appreciating rupee, exports can stay competitive in the international market only if all input taxes are reimbursed.

The commerce department tried for more than two years to come up with an alternative duty reimbursement scheme in place of the DEPB scheme that has been challenged by EU countries a number of times at the WTO for being non-transparent. It finally agreed to the finance ministry’s suggestion that DEPB should be merged with the duty drawback scheme.

However, since the DEPB scheme had some advantages over the duty drawback scheme (reimbursement rates for some items are higher and the scrips are transferable), the commerce department wanted that the finance ministry should shell out something extra in the form of reimbursement for state input taxes.

With the finance ministry objecting to the proposal, the commerce department has dug its heels and said that if the state tax reimbursement doesn’t come about, then the DEPB scheme should be allowed to continue.

The DEPB scheme needs to be continued for just two more years till the goods and services tax (GST) is implemented. Since the GST will merge the Cenvat and the state-level VAT, exporters will be automatically reimbursed all input taxes paid.

Source : Economic Times - Gurgaon, Haryana, India, dated 10/12/2007