It's boom time for exporters

Priya Ranjan Dash / TNN / Aug 8, 2005, 01:03 IST

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Instead of celebrating a growth of 20 per cent, exporters are protesting against tax authorities.

NEW DELHI: It is boom time for exports, but exporters are an agitated lot. Instead of celebrating their achievement of a 20 per cent export growth so far this year as compare to the 24 per cent growth achieved in all of last year, exporters have taken to the street in an unprecedented display of protest against harassment by tax authorities.
The unrest has been brewing for some nine months now.The anxiety is building up as the ��grace period��, courtesy PM Manmohan Singh, from tax actions is fast approaching its August 31 end.
It all began in November/December last year when the taxman slapped demand notices on thousand of small and medium exporters for recovery of presumed dues amounting to Rs 3,000-4,000 crore pertaining to tax assessments over the past 10 years.
"It came as a rude shock to many exporters because the income-tax authorities had accepted, scrutinised and finalised their tax returns all these years without a hitch," explains president of the All-India Exporters Grievances Forum (AIEGF) G K Gupta.

Suddenly, exporters were face to face with the bleak prospects of cuffing up huge amounts in supposed tax arrears. The tax benefits that they had availed under Section 80HHC of the Income-Tax Act had been ploughed into expanding businesses. "The tax demands raised on the basis of retrospective misinterpretation of the provisions leaves thousands of small and medium exporters with no option but to close down their export businesses, rendering large numbers jobless in sectors as varied as handicraft, leather, textiles, carpets, marine engineering and agriculture", says president of FIEO O P Garg.

"The problem we face is that the finance ministry all of a sudden decided to deny us a major part of the tax benefits we always took for granted", explains a Chennai-based leather goods exporter. "All we plead is that we should not be made to suffer because tax authorities now have a different interpretation of the provisions and seek to apply it retrospectively", he adds.
The commerce ministry, which fully backs the exporters, took up the issues with the finance ministry without much success. On the eve of the announcement of the Foreign Trade policy at the end of March, however, commerce minister Kamal Nath managed to earn some respite for the exporters by getting the PM intervene in the matter.
On PM's direction, the finance ministry put in abeyance tax proceedings against exporters for six months effective April even as the chairman of the PM's economic advisory council C Rangarajan was entrusted with the task of finding a solution.
Revenue officials point out that the tax issues concerned are not as simple as the exporters are making them out. The courts and appellate tribunals have given varying decisions on what constitutes "negative profit" while there is no specific provision in the income-tax law to exempt the benefits derived by exporters from the sale of their duty entitlement pass book (DEPB) benefits.
Exporters, on the other hand, argue that DEPB is one of the duty neutralisation scheme provided by the government since 1997 and since other duty neutralisation schemes are covered under Section 28 (ii) of the Income-Tax Act, there is no reason why the tax benefits should not extend to DEPB as well.
"It was never the government's intention to exclude DEPB from tax benefits", says an official of the commerce ministry, which formulated the scheme to serve as a duty-free import window for exporters. "This must have been an oversight that DEPB was not listed under Section 28 (ii)."
Under the trade policy, exporters have the option to get either exemption from duties paid on input used in export production or reimbursement of such duties so that export goods have no incidence of tax and duties. Those opting for exemption of duties can avail the scheme of advance licence whereas exporters willing to claim refund of duties can have recourse to DEPB.
The issue of "negative profit" is more complex. Export profits have been exempt from income-tax under Section 80-HHC. But a firm would be taxed if there has been "negative profits" from exports.

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