DGFT & CBIC: The ugly face of corrupt practices- 6th Story

There is no educational institution, which taught you to cheat therefore I fail to understand that where did the Indian bureaucracy learn to cheat the citizens. Further, the way systemic corruption pervades the complete system is mind boggling. To me, this is most despicable & disgusting feature of the Indian bureaucracy & every Indian must bow down his head in shame. In the first instance, they write the law as a double meaning dialogue & then the implementers make your life miserable because there is no responsibility & accountability in the system. However, I am more concerned when you expose these corrupt practices, but the policymakers simply pretend to be ignorant & blatantly continue with the corrupt practices.

In this article, we re-visit the Clubbing & redemption policy. The readers will recall that I had written two articles in the past & here are the links. https://taxguru.in/dgft/dgft-export-promotion-policy-favour-defaulters-punish-efficient-exporters.html & https://taxguru.in/dgft/export-promotion-policy-favour-defaulters-punish-efficient-exporters-part-2.html. The articles were sent to all concerned & laid out in threadbare manner that the policymakers cannot favour the defaulters & punish the efficient exporters. The policymakers were told very directly that policy cannot be based on the whims & fancy & abused to favour a select few from time to time but the officials simply preferred to ignore it because that suited them the best. This brazenness then compelled me to pursue the matter for logical conclusion & the policymakers have been compelled to issue the PN No. 70/2015-2020 dtd. 30.1.19. The moot point is that how & why rectification should take so long! Why the policymakers are not held accountable & taken to task whereas the exporters are simply hauled up for mistakes in terms of a comma or a full stop.   Earlier, some stooges in the bureaucracy tried to brazen it out & defend the idiocy but then at the end of the day, truth needs no legs. However, the purpose of this article is that when you are reviewing something with the purpose of rectification sitting in an air conditioned chamber & that review is carried by the officials who have not done a single rupee worth of exports in their lifetime or not obtained & operated a single Advance Authorization, they simply fail to do the job right but continue to add on to the mess. The reason being simple because they fail to apply their minds & then the product is real bad.

In the last communication on clubbing & redemption, I had to finally bring the following to the notice of the policymakers.

Is the real problem about clubbing & redemption understood in the proper perspective & can that be addressed?

The clubbing facility is based on the fact that it should permit the exporters to take care of the mismatch in terms of the exports & imports therefore this rationale cannot be rejected.

Before clubbing found a position in the HBP, I had asked for this relaxation because goods were returned & the AA expired but I was able to achieve the objective of fulfillment of the EO simply by combing the two AAs. It was essential because the duties were around 140% & the interest was to be paid @18% in case of default. These principles are true for a good policy as on date also.

However, like any other policy, the DGFT indulged into extreme relaxations & loopholes for exploitation to help the rich & the powerful. There was a mess created time & again. There was absolutely no stable policy because they were not bothered about the basic tenets of the policy but catering to the favourites.

In 2016, the policy took an adverse turn on the other side. Please understand that the policy cannot be a con game. Please note that the exporters are serving this country & they should be treated with dignity. The principle of clubbing is mismatch & the common sense tells you that that whether there is excess in first AA or tenth AA, it cannot matter provided the exports & imports are within the validity. Further, revalidation/EO extension cannot be disallowed for the purpose of clubbing, again this is common sense & therefore should not be ever challenged! It is not proper to fight through stooges because they are not responsible & accountable at all. However, application of mind is essential to understand the implications.

Please understand that if the exporter is using excess built up in 1st AA as a strategy so as not to default at any point of time, the DGFT cannot nullify the strategy of the exporter because this is not hurting the exchequer in any manner. Therefore, no cunningness in policy making is acceptable. Just think, why the DGFT should conduct the export promotion in such a manner? The stooges don’t understand all this because they never apply their mind. They force the hand of the DGFT for vested interests but then it is for the DGFT to not to succumb to these untenable changes.

The readers would note that the DGFT had simply removed the idiocy of excess exports in 1st AA but then not paid attention to the other idiocies. The basic fact is that Revalidation & Export Obligation Period extension for the purpose of clubbing cannot be disallowed as per the policy provisions because on clubbing, all the clubbed AAs are treated as one. Further, in the case of clubbing & redemption, the validity & EO period of the AA must be seen in relation to the first AA. Therefore, if there is excess exports in the first AA then the EOP extension is to be allowed for the purpose of clubbing because in case of excess exports under a specific AA there cannot be any collection of fees (the collection of fees is based on the shortfall in exports) & without this extension the clubbing cannot be completed as such. Therefore, this is simply driven by common sense & in all fairness, this should be carried out on deemed basis just based on mention in the cover note to the clubbing & redemption request to save time, energy & efforts of all concerned. Therefore, if the original EOP period is 18 months & there are two EOP extensions of 6 months permissible then clubbing & redemption up to 30 months should be in order. To put an end to misuse, all the exports must be within the initial/extended validity of the first AA & fulfillment of the export obligation stand accounted for on prorate basis in every subsequent AA to be clubbed. Similarly, in case of validity of imports, the re-validation of AA cannot be denied for the purpose of clubbing. If the initial validity is 12 months & two extensions of 6 months are allowed then the fee can be simply collected for the two extensions & the validity extended up to 24 Months to facilitate the exporters. These vested rights of the exporters should not be interfered with at any point of time.

The DGFT is obligated to write the law in transparent & crystal-clear manner. The DGFT also needs to understand that in case of EOP extension with the excess exports in the AA, there cannot be any objection raised. Further, any exports beyond 30 months & up to 36 months cannot result into levy of any penalty if effected within the validity of the individual AA. The DGFT may please note that even while carrying out the rectification of the policy, there is an error to this extent & this needs to be addressed immediately without fail. This is explained by the following case study:

 Actual Exports:

Now, the fact of the case is that in the 1st AA, the quantum of exports is 120 Kgs. & US$ 120 is realized up to 15.11.16. The EOP Extension up to 15.11.17 cannot be denied without any composition fees. In the 2nd AA, the quantum of exports is 180 Kgs. & US$ 180 is realized. Out of this 180 Kgs., 100 Kgs. exports are beyond 15.11.17 i.e. beyond the extended EO period of the 1st AA. In both the AAs, the imports & exports are conducted within the respective initial/extended period of validity of the AA as well as the Export Obligation (EO) period respectively. Now, the DGFT should understand that the exporter cannot be made to pay any penalty because the exports in case of 2nd AA are within the initial validity of the AA itself therefore these exports cannot be treated invalid just because of the clubbing. The DGFT will also note that the excess in 1st AA is 20% only (being adjusted in 2nd AA) & exports to the extent of 80% are beyond the extended EOP of the 1st AA therefore the exporter cannot be subjected to grave injustice of paying penalty on this 80% of exports because this simply defies common sense & logic.  In other words, the Export promotion policy cannot be a con game!

Actual Imports:

Needless to add here that imports are within the respective validity of the AAs & within the extended validity of the 1st AA.

No purpose is served by pointing out the errors but there must be a solution. If you apply your mind, the solution unfolds right there. The Maximum period for clubbing & redemption is determined by the initial validity plus the extensions permissible in terms of EOP extensions. Therefore, if initial validity is 18 months & two EOP extensions of 6 months are allowed then the clubbing & redemption up to 30 months cannot be objected to. However, to incorporate this provision in an implementable manner, the AAs should be issued within 1 year from the date of the 1st AA. This then ensures complete overlapping of the EOP & no one can draw any advantage beyond what is permitted under the Export Promotion policy except facilitation in cases of mismatch in exports & imports. The same principle can be applied to define the maximum validity for the AAs to be clubbed. This then gives you the ideal clubbing & redemption policy sustainable & the one not granting any undue favours to the defaulters. This is the upholding the spirit of the policy when I requested clubbing & redemption when no such policy existed. If the DGFT is not able to understand this then the position should be vacated for better mindset to uphold public interest. The policy cannot be whimsical & an instrument of abuse.

The DGFT took more than 9 months to amend the wrongs & I hope they will comprehend & make amends faster this time because the subject of clubbing & redemption is fresh in their mind. I am compelled to reiterate that India needs a liberal Export Promotion policy in terms of facilitation much more than the incentives & at the very least the DGFT can permit that because the exporters are doing a service to the nation & they need to be treated with dignity.

(Above are personal view of Author and he can be reached at [email protected])