Just leave I-T! No action against defaulting exporters for now

Exporters can raise a toast. Prime Minister Manmohan Singh has directed the Finance Ministry to put on hold any action against exporters who have not paid income-tax on profits arising from the sale of DEPB licenses, at least for the near term.

The controversial issue of tax liability on sale of DEPB licenses has now been referred to the PM’s Economic Advisory Council which would give its recommendations in a month. Income-tax authorities, which had re-opened past assessments, will keep these in abeyance till the council gives its recommendations on the issue, commerce and industry minister Mr Kamal Nath announced today.

DEPB benefit is an incentive given to exporters to neutralise the incidence of basic customs duty on the import content of the export product. This is provided by granting a duty credit against the export product at specified rates. Exporters are given a license to import duty-free goods and this license is saleable.

Exporters and the income-tax department have been locked in a dispute for several months over whether the income arising out of the sale of DEPB licenses were taxable.

The process of taxing DEPB benefits had been kept in abeyance since August 2003, when a committee was appointed by CBDT to examine this issue. The committee was set up after exporters protested over taxing of DEPB benefits for the first time in 2002-03. Revenue authorities were directed to keep all the appeals in abeyance and banned from collection of demand attributable to such issues. The review was aimed at reducing litigation.

The ban was lifted after six months — when CBDT issued a circular on February 17 2004 — saying it was not possible for it to intervene in the matter. This meant that the I-T department could impose tax on DEPB benefits.

Exporters were eligible for income tax benefits under Section 80 HHC of the I-T Act which has now been fully phased out.