JULY 1, 2008

By An Agitated Netizen

IT is more than a month since export duty has been levied on iron and steel products vide Notification No. 66/2008-Cus dt. 10/05/2008; however still there is no clarity as to whether the clearances of iron and steel products made to SEZ units attract export duty or not. The field formations of Finance Ministry (both Customs & Central Excise departments) are of view that SEZ clearances should also attract export duty as per SEZ Act.  It is learnt that  the intelligence agencies  of the department  are waiting in the wings to book cases against all manufacturers who have not paid export duty on clearances to SEZ. What is stopping these intelligence agencies from taking a precipitate action is the reports that the issue is already before Ministry of Finance for taking a decision. Though, the Finance Ministry is quick in enhancing the export duty on steel items from initial 10% to 15%, albeit in the name of containing price rise, it is unfortunate that it failed to take a decision to clear the ambiguity surrounding the issue of export duty liability on SEZ clearances.

The babus of the Ministry, whose salary is assured irrespective of whether they deliver any good or not, perhaps, do not understand the plight of running an industry, especially, in the regime of uncertain tax liabilities. The steel industry gets orders from SEZ units against much competition from others in the business, which force them to operate with very thin margins. In most of the cases the Purchase Orders are given by the SEZ Units as per the terms conditions dictated by them, and there is little scope for re-negotiation of price in the event of any new taxes imposed. In such a competitive market, if the steel units are saddled with 10%/15% of export duty, which will eat away little margins they have in the SEZ clearances and it would certainly spell doom for the industry. It is already more than a month since export duty was imposed on steel items and the industry is taking financial risk by clearing the goods to SEZs without paying export duty.  This risk is mounting with every passing day and the industry is hoping that the Finance Ministry would take a decision in their favour. However, if the Finance Ministry decides that export duty is liable to be paid on SEZ clearances, the industry has to cough up huge amounts towards as export duty liability (with interest) for which the industry is not financially prepared for nor it can hope to  realize export duty from the units in SEZ. Needless to say this will ultimately wreck the steel units, depending on SEZ clearances, beyond repair. When this uncertainty is breaking nerves of management, the industry is receiving instructions, on the other hand, from the Ministry of Commerce and Industry vide letter F.No. 6/2/2008-SEZ dt. 23/05/2008 and the Development Commissioner, Visakhapatnam Special Economic Zone letter No. 9/SEZ/Misc./2008 dt. 2/06/2008 for executing bonds / bank guarantees to cover the export duty liability.                                   

In these days of uncertainty, a ray of hope came from the Commissioner of Central Excise, Hyderabad III Commissionerate, Hyderabad, who has taken a view by clarifying that clearances to SEZ units do not attract export duty, as SEZ units are with in the customs territory of India and as such the clearances to SEZ are not to be treated as “exported out of India”.  Though the industry is gladdened at the decision of the Commissioner and appreciate the Commissioner for taking such a bold decision, on an issue which even the FM or CBEC failed to take, the industry is worried, at the same time, as to how far this clarification given by the Commissioner, Hyderabad III Commissionerate, is binding on the officers of his own department or on the authorized officers of SEZ.

When the industry is in this confusion, it seems the officers of the department are equally confused as to where the export duty is to be collected. While the Central Excise officers are of the view that the export duty is to be collected at Range level by mentioning in the ARE-1s, the Customs officers manning the SEZs want us to file an Export Bill so that they can assess the export duty liability.  At some places the officers are insisting execution of Bonds (as per the directions of DGFT / Development Commissioners of SEZ mentioned above) before effecting clearances whereas in other places clearances are being allowed without any hassles. May be the department is of view that that duty can be demanded at any time before one year.

It is unfortunate, that this is happening in a country where the Finance Ministry is headed by a person educated in Harward Business School, who is expected to know better the difficulties the industry to plan for its finances / capital in an environment of uncertain tax regime. The steel industry  appreciate the recent preaching given by FM to OPEC countries about the problems faced by the economies world over due to uncertain oil prices. The industry wants the FM to understand, the plight of the steel industry (especially those who are supplying Iron and steel goods to SEZs) reeling under uncertain tax regime with the same vigour.

Dear FM! this issue is not  as knotty as J& K problem so that it can  be passed on to next generation, nor is this a Nuclear Deal issue where the ministry can have umpteen number negotiations with communist colleagues without taking a decision, just to fool the gullible people of this country.  For the industry, the issue of export duty on SEZ clearances is hanging like a sword of Damocles, leaving the management sleepless nights.  The industry is praying the FM to take a decision, quickly, this way or that way, it any way is not going to spoil his prospects of winning the next election.