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Finmin, DGFT rift over TPS reaches courts
November, 11th 2006

The tug of war between the finance and commerce ministries over the target plus scheme (TPS) has put both exporters and importers in a tight spot. While the commerce ministry allows an exporter to avail of duty credits on imports if he establishes a broad nexus between the products exported and those being imported, the finance ministry has recently asked revenue officials to ensure a direct nexus.

The matter came to light after the Indo-Afghan Chamber of Commerce (IACC) filed a petition in the Delhi High Court alleging that certain rice and wheat exporters were taking advantage of the earlier DGFT clarification requiring only a broad nexus and were importing dry fruits and almonds using the credit. The IACC members said this was affecting their business since they had to pay customs duty on dry fruits and almonds imports.

The finance ministry calls this as the misuse of the TPS by certain exporters who import goods with no whatsoever relation with the goods being exported, thereby violating the actual user condition. The foreign trade policy, however, provides that the DGFTs views will be final.The rift between the two ministries on one hand, and the differences between different sections of the trading community, has resulted in several petitions being filed by affected parties in different High Courts across the country.

Given the serious differences between the department of revenue and the Directorate General of Foreign Trade, the law ministry is believed to have asked them to file separate affidavits. Accordingly, the DGFT has filed an affidavit in the Delhi High Court justifying its broad nexus stand.

The Delhi High Court will hear the IACC matter on November 16, said counsel for the rice exporters Vikram Nankani and Tarun Gulati.

When contacted, FIEO director general, Ajay Sahai said, Once the commerce ministry has taken a decision regarding the Foreign Trade Policy, the finance ministry should not take unilateral decision to take it off.

The unilateral cuts in duty benefits from 10-15% earlier to 5% now under the TPS has also been separately challenged by exporters in various other High Courts. The Indian Exporters Grievance Forum (IEGF), a committee under FIEO, on Thursday moved a petition against this in the Bombay High Court. The case is expected to come up for hearing after 10 days. A similar petition was filed by Supreme Petrochem Ltd in the Bombay High Court and in the Gujarat High Court by Wellspun Industries Ltd.

Confederation of Export Units president SK Saraf, The move to bring down the duty benefits under the TPS has caused heavy loss to exporters, who went all out to increase exports to get these benefits as per an earlier government directive. This new notification reducing the benefits is like punishing them for their performance.

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