In this article we will explore DEPB scheme in details and understand the salient features of the scheme.
There are certain activities that are critical to boost an economy. One such activity is exports. When goods are produced locally and sold domestically, it amounts to self-sufficiency or self consumption from a macro perspective of the economy and does not really lead to any sort of growth in the financial reserves of the country. This is why the government provides several incentives to the export sector. The Madras HC recently allowed the Benefit of Duty Entitlement Passbook Scheme under Import-Export Policy in case of 100% EOUs (Export Oriented Units).
But when the same goods are exported and sold to other economies, then there is an influx of foreign currency in terms of sales and they boost the economic reserves of the country. The court has reaffirmed the earlier decision of a single bench and dismissed the petition challenging it. So what exactly is the Duty Entitlement Passbook Scheme (DEPB) and how does it work? Let us find out.
What is Duty Entitlement Passbook Scheme (DEPB)?
Notified on Ist of April, 1997, Duty Entitlement Passbook Scheme (DEPB) is an export incentive scheme which initially consisted of two parts: (a) Post-export DEPB and (b) Pre-export DEPB. However, pre-export was abolished in the year 2000. In Post-export DEPB, the exporter is given a DEPB at a predetermined credit on the Freight on Board Value (FOB).
The objective behind the scheme is to give incentives in Importer and Exporter policy and neutralize the rate of basic customs duty on the import content of the goods exported.
Within the scheme, an exporter of the goods is entitled to claim credit which would be a fixed percentage of the value of the goods that are exported and is available at a rate of exported product which is decided and notified by the Director-General of Foreign Trade (DGFT).
It should be noted that the credit amount that is made available to the exporters can only be used to pay off the amount of customs duty that they are liable to pay and cannot be used to adjust it with any other liability nor can it be withdrawn. However, there is no restriction on trading the amount, i.e., it can be transferred to another person and then can thereafter be transferred from him to another person.
Duty Entitlement Passbook Scheme allows the import of any items except those that are prohibited such as Gold pen, Gold Nibs, Gold watched, etc. Though such articles fall under the generic description of writing instrument and component of writing instrument, watches, etc these are still not eligible to avail the benefit of DEPB Scheme
Rate Of DEPB
The rate of DEPB is based either on Free On Board (FOB) value or the value cap whichever is found to be lower. To fall under the ambit of the scheme the exporter has to produce documents showing that the goods exported are having an extraneous material of up to 5% by weight. In a situation like this, an extraneous material of up to 5% will be ignored and the rate of DEPB (actual rate) for the product to be exported will be taken into account.
It is made mandatory of the Custom houses to keep a separate record of the goods that will be or are exported under the DEPB scheme.
Provisional Rates
To encourage the export of new products and encourage diversification, a provisional rate is available. However, these rates are valid only for a limited period and are to be produced during export and import for the regular fixation of the rates. You can Know more about DEPB rates from our Experts!
How To Determine The Rate of DEPB
Before determining the DEPB rate, the Government of India will first look at the Export-Import Data on the FOB value of exports and the Cost Insurance Freight (CIF) value of the inputs that are used on the exported products, as per SION. The Government will have to apply to the Export Promotion Council for obtaining the required data and information to decide the (DEPB) rate.
Duty Entitlement Passbook Scheme Rates Implementation
Facilities for the implementation of the (DEPB) include:
- The rates are rationalised to the account to make a change in the custom duties
- Though the cap is fixed on certain items, no verification is available for the Present Market Value of those items.
- The ports have been pre-added in the DEPB scheme
- There is no threshold limit to fix the new DEPB rates.
Credit Under DEPB And Present Market Value
For the goods that are eligible to avail credit under the scheme come to 10% or more, the amount of such credit cannot exceed or cannot be more than 50% of the Present Market Value (PMV). While exporting goods, the exporter is required to present a shipping bill that falls under the scheme and have to show that the benefit availed is not more than 50% of the Present Market Value of the goods that is exported. However, it is not required to present the PMV declaration on the goods/products that have a value cap regardless of the Duty DEPB rates of the product.
Port Of Registration
For availing the scheme, export and import can be done from selected ports only which would include seaports, airports, ICDs, LC’s and SEZ areas.
The state or district falling under the respective head is provided by the department.
Duty Entitlement Passbook Scheme Utilisation
The credit availed under the scheme can be used to pay off the Indian Custom Duty and on the payment of capital goods that are free to import.
Re-Export Of The Imported Goods
Where the imported goods are found to be defective, they are exported to the concerned person. In such a situation, 98% of the amount that is credited will be debited against the (DEPB) for the export of goods. The Commissioner concerned will issue a certificate in this regard which would mention the amount that is generated and the details of the original DEPB and a new DEPB is then issued by the DGFT regional authority that is authorised to do so. The new DEPB will have the same validity period as that mentioned in the original DEPB and will be having the same port of registration.
Conclusion
The amount of paperwork involved in the application as well as the returns that have to be filed on a frequent basis require a lot of technical understanding and hands on experience. So it is always advisable to seek the assistance of a financial and regulatory expert who knows the workings of the tax authorities and their policies. If you have any queries with regards to taxation or require some assistance with the same, feel free to get in touch with us and we will ensure you receive immediate attention from our team of experts at Vakilsearch.
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