Govt tightens Deemed Export benefit scheme

New Delhi: After detecting several cases of misuse of incentives, the Commerce Ministry has tightened the norms governing the Deemed Export benefit scheme, a move expected to save about Rs 1,800 crore to the exchequer annually.

The Deemed exports refer to those transactions in which goods supplied to the users do not leave the country and payment for such supplies is received either in Indian currency or in foreign exchange.

Generally supply of goods to projects financed by multi-lateral or bilateral agencies qualify for these benefits.

However, concerned over the cases of misuse, especially in the power sector, the Directorate General of Foreign Trade (DGFT) has decided to send recovery notices to those under its scanner, sources said.

The decision to make the rules tough follows a meeting of Policy Interpretation Committee of DGFT held in March.

"By taking these measures, the government would save around Rs 1,800 crore annually," a source said.

It has been decided that the deemed exports would not be available if the bill of entry is in the name of authority executing the project.

Besides it was also clarified that supplies made to the project authority by an entity other than the main contractor of the sub-contractor shall not be eligible for the incentives.

However, the decision has not gone down well with some of the independent power producers who said the government should not throw baby with the bath tub.

"If there are issues with the scheme, they can take corrective actions but do not discard the scheme,` an industry expert said.

The Deemed export benefit include rebate on duty chargeable on imports or excisable material used in the manufacture of goods which are supplied to the projects eligible.