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Food for Thought on Annual Supplement to Foreign Trade Policy

APRIL 07, 2010

By R Rangaswamy

ANNUAL ritual of releasing the policy announcements on Foreign Trade Policy and procedures is due later this month. Going by the positive signs of recovery in the economy and with the governments continued objective to make export business less troublesome, the following suggestions are made for consideration by the Commerce Minister.

Point No. 1: Standardization of application for RMCC issued by various Export Promotin Councils ( EPCs):

Present Position: In terms of para 2.44. of F T P, an exporter intending to obtain any authorization or avail benefits / concessions under FTP is required to obtain RCMC from respective EPCs. However the formats in which application is to be made, fee structure and renewal norms are also different.

Suggestion: In these days of government's objective to standardize, automate the business process and to bring down the transaction cost, the following procedure is suggested:

1. All EPCs should be asked to introduce online registration system in letter and spirit

2. Application format should be made standard and common for all EPCs

3. The set of documents to be produced should be made clear

4. The online system should provide for uploading of scanned copies of documents required for registration

5. Online system should provide for instant confirmation of acknowledgement of online application and the applicant – exporter should be in a position to generate the same instantly

6. This electronic acknowledgement should be sufficient for the exporter to apply for authorization / benefits under FTP

7. However a condition that RCMC issued by EPC should be submitted to jurisdictional JDGFT within a period of say one month can be introduced

8. Fee structure should be reasonable taking in to consideration the transaction cost, cost-effectiveness and the real services provided by EPCs

Point No.2: Insistence of permanent IEM – Part II by EPC for giving RCMC:

Present position : EPCs insist that at the time of seeking RCMC, the exporter should produce Part II of IEM submitted to the jurisdictional authorities prescribed under MSMED Act.

This will create problems in the case of companies who are yet to take up production. In terms of prevailing guidelines, such companies will file IEM in Part – I and after the production is started, Part – II will be filed.

Insistence of IEM in Part – II for newly set up companies pose problems in getting RCMC and consequent inability for such companies to get the benefits under FTP

Suggestion: The MoC should therefore issue necessary instructions to the EPCs not to insist the IEM in Part II for newly set up companies which are yet to start production. It may also be mentioned that such companies should submit a copy of IEM in Part II within one month of submitting the same to jurisdictional authorities under MSMED Act

Point No. 3 : Membership with Services Exports Promotion Council (SEPC) not cost-effective for SMEs.:

Present Position : Admission, registration and renewal of RCMC with SEPC appears to be costly when compared to other EPCs., For a 5 year RCMC status, the cost is as follows as on date :

Item of cost

Individual Ordinary Members

Institutional/Corporate Members

One time admission fee

5,000

25,000

Annual membership

7,500

50,000

Membership cost for 5 years

37,500

2,50,000

Total cost for 5 years

42,500

2,75,000

Total annual cost

8,500

55,000

Even a start up corporate entity with no export turnover has to incur cost of Rs. 2.75 lakhs to stay registered with SEPC for 5 years. Going by the return on investment, the benefits to be availed by the exporter should be at least the said Rs. 2.75 lakhs.

The fee structure does not depend on export performance of the exporter

Suggestion: It is therefore suggested that the fee structure of EPCs., should be downwardly revised to a reasonable level like that in case of F I E O

Advance Authorization scheme issues:

Point No. 4: Delay in issuance of E O D C. System required to dispose off in time-bound manner

Present Position : In terms of para 4.24 read with para 4.25 of Ho P an advance authorization holder is required to submit the documents prescribed therein as evidence in fulfillment of export obligation to the jurisdictional JDGFT.

Many a time , the issuance of EODC by JDGFT get delayed for reasons such as heavy work load, shortage of staff and such other reasons. And in the mean time, customs authorities take action to issue notice, insist for submission of EODC and ultimately result in confirmation of order leading to proposal for recovery of duty saved in respect of such advance licences.

Though Para 4.22.2 says that customs may allow provisional clearance of consignment when the exporter submits proof of having applied for EODC from JDGFT , the customs authorities , in all cases, consider this provision.

Chances of customs authorities taking coercive action can not be ruled out. It was in a recently open house meeting with learned Commerce Secretary held on 17 th September 2009 in Bangalore that many of the exporters raised this issue of delay in issuance of EODC.

Suggestion: It is therefore suggested that sufficient system and manpower may be put in place to ensure that the EODC is issued within one month of full and satisfactory documents to JDGFT. Immediately thereafter the JDGFT should issue a letter to jurisdictional customs authorities with a copy to the exporter requesting customs authorities not to take any coercive either to issue notice or to hold up import / export or to deny the benefits otherwise available under FTP.

In the alternative, consultations may be had with MoF and necessary circular be got issued by MoF instructing the field formations not to initiate any recovery proceedings or to hold up import / export or to deny the benefits otherwise available under FTP when the exporter submits proof of evidence that the documents for issuance of EODC are submitted to JDGFT.

In these days when the exporters are struggling to gain the lost – hold of global competitiveness and trying to come out of global melt down, above suggestion if put to effect in all earnestness will greatly help the exporting community

EPCG SCHEME ISSUES:

5. For getting licence:

Point No., 5.1: Format of C Engineer certificate for service providers – change required

Present position : para 5.3 of HoP, requires nexus certificate obtained from a Chartered engineer in Appendix 32A is to be submitted along with other documents to obtain EPCG licence. The said format is common for manufacturer – exporter and service provider – exporter as well. However format of the said certificate appears to have been prescribed keeping in mind manufacturer – exporter only.

Suggestion : In the case of service provider, process flow chart is not applicable. Points such as End use, stage and how used may not be applicable in every case of service provider. Therefore a separate appendix as appropriately applicable for service exporter may be prescribed

Point No.,5.2: Calculation of Average export obligation: Clarity needed

Present position : In terms of para 5.5(i) of FTP, the EPCG licence holder is required to maintain average level of export achieved in the preceding three licensing years for the same and similar years. The said para also specifies that s uch average would be the arithmetic mean of export performance in the last three years for the same and similar products. But the RLA calculate the average exports as follows: The said procedure is said to be based on a circular issued by Headquarters

Year

Exports ( rupees in lakhs)

1

100

NIL

100

2

NIL

NIL

100

3

200

300

100

Total

300

300

300

Annual Average exports

150

300

100

Suggestion : Arithmetic mean means “the value obtained by dividing the sum of a set of quantities by the number of quantities “. Applying this proper meaning, the average export for the above illustration should be calculated as follows:

Year

Exports ( rupees in lakhs)

1

100

NIL

100

2

NIL

NIL

100

3

200

300

100

Total

300

300

300

Annual Average exports

100

100

100

Accordingly, the circular based on which RLAs calculate the average exports should be amended

Point No. 5.3: Clarity on whether deemed exports in terms of para 8.2 of F T P should be considered to calculate average exports under para 5.5(i) required

Present position: Neither the ANF 5A at column No., 12 nor the Appendix 26 at sl. No. VII. makes any mention about the deemed exports. Therefore it is not known whether deemed exports (such as supplies to 100% EOUs) should be considered for arriving at average export obligation.

Suggestion: It is therefore suggested that a clarification may be given as to whether deemed exports in terms of para 8.2 should be or should not be considered for arriving at average exports to be indicated in ANF 5A / Appendix 26 may be issued

6. Regarding installation certificate:

Point No. 6.1: No format prescribed.

Present position : Para 5.3.1 of H o P requires the EPCG licence holder to submit a certificate of installation obtained from a chartered engineer or jurisdictional central excise office depending on whether the licence holder is registered under central excise or nor or whether the licence holder is a service provider However no format of the said certificate is prescribed

Suggestion: It is therefore suggested that a format of certificate of installation to be produced in terms of Para 5.3.1 of H o P be prescribed. This will also serve to maintain uniformity across the board

Point No. 6.2: No instruction / circular on procedure to be followed for seeking extension of time to produce installation certificate

Present position: Para 5.3.1 of H o P requires the EPCG licence holder to submit a certificate of installation obtained from a chartered engineer or jurisdictional central excise office depending on whether the licence holder is registered under central excise or nor or whether the licence holder is a service provider However there is no provision / guidelines covering a case of genuine delay in submission of installation certificate either owing to delayed import or problems in installation or when the imported goods are found to be defective.

Suggestion: It is therefore suggested that necessary provisions be made in para 5.3.1 of H o P providing for procedure to b followed in cases of delay in submission of installation certificate as a result of business related difficulties / problems

Point No. 6.3: No procedure prescribed for shifting of machinery imported under EPCG scheme – Procedure to be prescribed

Present position: Para 5.4 specifies that the goods imported under EPCG scheme shall be subject to actual user condition till the export obligation is completed which means that the EPCG licence holder shall not transfer or sell or dispose off in any way till the export obligation is completed. It also means that the said EPCG goods can be sold or can be disposed off in any manner as the exporter feels after the Export obligation is completed.

Para 5.7.6 mentions that Goods, excepting tools imported under EPCG scheme by such sectors, shall not be allowed to be transferred for a period of five years from date of imports even in cases where export obligation has been fulfilled. Transfer of capital goods to group companies, within five years from the date of import would however be permitted after fulfillment of EO, under intimation to RA and jurisdictional Central Excise Authority

A reading of this para leads to a view that the transfer is limited to sectors mentioned in para 5.7.6. It appears, this is not the restricted intention of the government to limit the transfer of goods to only such sectors.

Suggestion : It is therefore suggested that para 5.4 and para 5.7.6 should be realigned to provide for hassle-free transfer of machineries imported under EPCG scheme consequent or shifting of facilities to a new premises / additional premises /new supporting manufacturer. Following procedure may be prescribed:

++ The details of premises to which the goods are to be shifted should have been updated in the IEC certificate

++ IEM/IL should have also been amended

++ RCMC should be got updated not necessarily before effecting transfer but within a reasonable time period of say two moths

++ The present condition applicable for submission of certificate of installation from chartered engineer certificate / certificate from jurisdictional central excise, as the case may be, in case of fresh imports be continued

III. For getting EODC :

Point No. 7.1: “Guidelines to applicants” missing in ANF 5B:

Present Position : Para 5.15 of H o P requires the EPCG licence holder to seek redemption by applying in ANF 5B together with the documents specified in the said ANF. However the said ANF 5B does not contain any guidelines / documents to be submitted. It is not known whether this is an unintended mistake while finalizing ANF 5B

In the earlier FTP, 2004-09, as amended the ANF 5B contained a detailed guidelines which also specified the documents to be submitted along with ANF 5B.

Suggestion : It is therefore suggested that the missing “ guidelines to applicants “ be incorporated in ANF 5B

Point No. 7.2: Supply of goods by EPCG licence holder to 100% EOU. Documents to be submitted by manufacturers under exempted limits to be specified properly

Present Position: At present, supplies to EOUs are considered as deemed exports and the present guidelines require submission of CT – 3 / ARE – 3 duly certified by the customs authorities in charge of receiving – EOU or customs-attested copies of supply invoice / statement.

In case of units registered under central excise, submission of CT – 3 / ARE – 3 attested by the customs authorities would not be a problem. However in respect of unit manufacturing exempted goods or units which are within exemption limits will face problems.

Present requirement of getting supply invoices certified by customs authorities in charge of customer – EOU adds to transaction cost.

Point No.8: Definition of expression “service provider” para 9.53 of FTP requires clarity

Present position: Prevailing foreign rade policy guidelines define a service provider “ as a person providing

(i) Supply of a ‘service' from India to any other country;

(ii) Supply of a ‘service' from India to service consumer of any other country in India ;

(iii) Supply of a ‘service' from India through commercial or physical presence in territory of any other country. and

(iv) Supply of a ‘service' in India relating to exports paid in free foreign exchange or in Indian Rupees which are otherwise considered as having being paid for in free foreign exchange by RBI.

However this definition does not cover the case of a service provider who provides services to a SEZ developer, SEZ co-developer or a unit in SEZ“

As a result. it is not clear whether the benefits of export promotional schemes such as EPCG scheme are available to a service provider who wants to cater to the needs of SEZ developer / co-developer or a SEZ unit

Suggestion: It is therefore suggested that the definition of “service provider “ should be amended to include the supply of services to SEZ developer , co-developer and SEZ unit.

Point No.9: Representation of exporter/importer before the JDGFT authorities:

Present position: At present, Indian laws provide for representational rights to every person approaching the government authorities either through a validly constituted power of attorney, authorized representative or a lawyer. However, guidelines are prescribed in the respective enactments as to the categories of person who could represent the other person.

Professionally qualified persons such as lawyer, chartered accountants, cost accountants, company secretaries and registered tax practitioners are authorized to represent their clients before various government agencies. However no such provisions exist under FTDR Act or the FTP framed under FTDR Act.

For day to day requirements the exporters are complied to either go by themselves and their employees who would not be conversant enough to clarify the doubts or defend their position before the JDGFT authorities. Even during, the consultants are not permitted to represent the exporters.

Important government agents such as customs, central excise, service tax and income tax departments have well established under their respective laws permitting the assessee to be represented during appearance before the authorities in day to day functioning or during hearing.

Income tax department some time back and service tax department recently have come up with system of qualified intermediary system whereby the income tax return / service tax return could be filed by department – recognized return preparer. Customs House agents concept prevalent in customs side is another noteworthy representational system well accepted both by the department and the trade and industry alike.

In the absence of any representational rights by competent professional consultants, the exporters are left high and dry many a time. More so, whenever any clarification on policy and procedural guidelines require interpretation. Needless to mention, the exporters can not be expected to know all the intricacies of foreign trade polcy, Ho P, customs, central excise and FEMA guidelines. That is why the Indian system provide for representational rights to every person be it a trader, manufacturer, income tax assessee or an exporter.

Suggestion : It is therefore suggested that representational rights given for service providers such as CHA on customs side, income tax return/service tax preparer scheme in income tax / service tax and Tax practitioner on income tax / VAT laws should be provided under FTDR Act also.

Entry level can be restricted by way of prescribing qualification, experience and such other factors.

(The author is bangalore based consultant)

 

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