The revenue department has challenged the commerce department-prepared note on export sops claiming that proposals contained in the note were pure tax proposals and fell within the concern of the revenue department as per the allocation of business rules of the government.
However, the commerce department, which prepared the note for the Cabinet Committee on Economic Affairs (CCEA), is unfazed and says that it will let the CCEA take a call on the note.
In a letter to commerce secretary G K Pillai, revenue department secretary P V Bhide has said that the commerce ministry should carefully examine the consequence of providing ad-hoc tax concessions to exporters, as apart from the revenue implication, it may also run the risk of being construed as subsidy to exporters and thus liable to be challenged at the World Trade Organization.
The commerce department prepared the note on export sops to support exporters reeling under the rising rupee.
On the demand for bringing in more services under the exemption list for exporters, the revenue department has said that unless linkage could be established with exporters, it would be difficult to consider the exemption. Moreover, the subject of service tax exemption pertains to the revenue department and the matter should thus be deleted from the CCEA note, it said.
Enhancement of DEPB and duty drawback rates by 1% was unacceptable, the letter said, as the peak customs duty was reduced in the last budget. The drawback and DEPB are basically duty neutralisation schemes and the rates should not be increased arbitrarily to compensate for exchange rate fluctuation, Mr Bhide reasoned.
The proposal seeking neutralisation of state taxes by the Centre is a complete departure from the existing policy and would encourage states to devise more levies that would be loaded on to the Centre, the revenue department argued.
Sources said all demands and arguments were now placed before the CCEA which would take a decision soon. It is a fact that exporters have lost their competitiveness because of the appreciating rupee. The CCEA will decide what is appropriate to address the situation, a source said.
On the issue of providing benefits of duty-free tradable scrips at the rate of 2% of the FOB value of exports to sectors like gems & jewellery and 100% EoUs and SEZs that do not benefit from drawback and DEPB, the revenue department said the proposal was unacceptable.