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Exclusive | Facing order cancellations, exporters seek to be spared from refunding export benefits

Many global buyers have filed for bankruptcy, leading to order cancellations that have shaken exporters. The rules say that if a buyer does not pay for shipped goods, exporters would have to return with interest the government benefits they availed of.​

December 27, 2021 / 03:42 PM IST
Representational Image. Source: Reuters

Representational Image. Source: Reuters

Exporters have sought a one-time exemption from refunding government benefits they received, citing a raft of order cancellations that has already left them with a pile of losses.

The government is weighing all options on the demand by exporters, people familiar with the situation said.

To promote outbound trade, the government offers several export promotion schemes, which provide tax benefits to exporters once they ship their goods. According to the trade rules, if the buyer does not pay for the shipped goods, exporters would have to return the benefits they received and pay interest as well.​

With the global pandemic wreaking havoc with economies across the world, many foreign buyers have gone bankrupt without paying exporters.

As a result, exporters stand to lose out on the benefits they had sought. At a time when the sector is already strapped for cash, this would be a big setback.

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The Federation of Indian Export Organisations (FIEO) has urged the Finance Ministry to allow exporters to claim benefits under the Duty Drawback scheme and the Rebate of State and Central Levies and Taxes (RoSCTL) scheme from November 2019 until March 2021. This demand has been supported by other export organisations as well, people familiar with the development said.

Export benefits

The Duty Drawback Scheme allows exporters to get a refund on customs duty paid on imported goods that have been used to manufacture export items. RoSCTL rebates all embedded state and central taxes/levies paid by the exporter for inputs into the manufacturing process.

This includes the value-added tax on petrol, mandi tax, electricity duty, and stamp duty on all export documents, among others. It is meant for exports of made-up articles, such as blankets, bed, table, toilet or kitchen linen, and garments.

FIEO says that since the onset of the pandemic, exporters have faced the unique issue of a large number of foreign buyers suddenly facing  bankruptcy.

As a result, already manufactured goods have been left languishing on the factory floor, or in transit. In many cases, the goods have been shipped but the payments have not arrived.

Coupled with existing high levels of order cancellations, this has caused the working capital of exporters to dry up.

"We request for Exemption from refunds of ROSCTL and Duty Drawback due against non-realization of Export sales proceeds in the cases of filling of bankruptcy/insolvency and Chapter 11 proceedings by the Buyers and non - payment of Export proceeds and where discounts had been forced by the buyers," FIEO said in a pre-budget memorandum submitted to the Finance Ministry.

The pandemic has left major importers and large trading multinationals struggling for survival, said Ajay Sahai, director general and chief executive officer of FIEO.

"In India's overall Foreign Trade Policy, there is already a provision that in the case of a buyer going bankrupt, the exporter does not need to refund the benefits he had applied for. Because it is not in the control of the exporter. But such a provision is missing in other cases. We pointed this out to the government," he added.

Multiple options open

Officials said they are studying the proposal, adding there exists no precedent for a blanket amnesty.

"There has been no doubt a large amount of disruption in the trade volumes of the average export unit over the past two years. We will make a decision after calculating the level of impact that has reached domestic industry," a senior commerce department official said.

Another official said the request can be accepted only in the case of exporters from specific categories that have been affected the most.

"Case in point, the apparel industry has sent multiple deputations saying that it is a seasonal industry with products which can be considered to be perishable," he said.

The idea is that in the case of tailor-made, design-specific, fashion-specific exports, any cancellation this year may make them redundant and leave them with little or no value to salvage next year.

The Apparel Export Promotion Council (AEPC) has pleaded that most units in the sector are operating with extremely competitive margins in the range of 3-4 percent, and are completely dependent on export benefits granted by the government, a senior AEPC functionary said.

Export bodies stressed that relaxation with regard to drawback duties can be directly granted by the government under a provision available in line with Rule 19 of Drawback Rules, 2017.

Order cancellations

In this case, FIEO wants the government to consider the export obligation by the exporters fulfilled also for purposes of advance authorisations, and export promotion of capital goods licenses.

Order cancellations were rife throughout 2020 and the first quarter of 2021 as the important markets of the United States, United Arab Emirates and European Union all faced significant economic disruption.

Even this month, cancellations continue, mostly in the commodities sector, with exports of metals and agri products especially affected, according to industry estimates.

"This is also happening for low-value, high-volume cargo such as granite, fertilizers and furniture because freight costs have become more than production value," Sahai said.

Despite a government push over the past five years to increase exports of high-value manufactured goods across major markets, India’s export basket remains dominated by the commodities category.

This includes chemicals, ores, non-industrial diamonds, plastic, cotton and pulses which make up for nearly 35 percent of exports.
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 6 years. He has also extensively covered evolving industry and government issues. He was earlier with Business Standard newspaper.
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