After several cases of misuse of Importer-Exporter Code (IEC) were detected by the Directorate of Revenue Intelligence (DRI), the finance ministry has told the Directorate General of Foreign Trade to impose additional conditions for issuing these codes. DRI is the revenue intelligence arm of the Central Board of Excise and Customs in the department of revenue. It checks and books cases of misuse of several export promotion schemes.

The finance ministry has asked DGFT to be careful in issuing IECs as it fears the "propensity for its misuse is likely to increase with the introduction of online issuance of IEC". To check its misuse, the ministry has recommended several additional measures to DGFT before issuance of IEC. One of these is providing details of transactions with bank account mentioned in the IEC application.

Besides bank details, income tax returns for at least two previous financial years, submission of previous VAT returns and copy of passport has also been recommended as mandatory for an applicant to get an IEC. DRI said it continued to detect numerous cases of commercial fraud, primarily consisting of misuse of various export promotion schemes such as over-valuation of export items with intent to obtain undue Duty Entitlement Passbook (DEPB) scheme drawback and other benefits.

The revenue forgone by the government on account of DEPB alone is estimated to be Rs 8,500 crore annually. Duty foregone on some other duty neutralization and export promotion schemes such as the Advance Licence, Export Oriented Units, EPCG ( Export Promotion Capital Goods) and DFIA (Duty Free Import Authorisation) together amounts to more than Rs 58,000 crore a year.

Despite repeated reminders to the commerce ministry on misuse of duty drawbacks, it had made a high-pitched argument in favour of continuance of DEPB. Industry minister Anand Sharma, in an interview to TOI last week, said that he had got the finance ministry to continue the scheme. Instead of ending on June 30, it will terminate after three months, revenue secretary Sunil Mitra told reporters on Monday.

Rampant misuse of DEPB involved over-valuation of export consignments. DRI also booked several cases in 2010-11 relating to export of inferior quality items, misdeclaring them as high-value and high-quality products with an intent to earn undue DEPB and other export incentives.

Some of these duty drawbacks were also availed for fulfilling export obligation against imported goods. Diversion of imported goods into the open market by EOUs has also been reported. Forgery of DEPB and their misuse on account of fraudulent export and trade which has not taken place have also been found in many cases of duty drawbacks.