NEW DELHI: The finance ministry may lose up to Rs6,000 crore in revenue, if the Supreme Court rules against the Centre in a dispute pertaining to an export incentive scheme.
The dispute is coming up for hearing in the apex court on Thursday. The case pertains to the Duty Free Credit Entitlement Scheme announced by the commerce ministry in March 2003.
The scheme provides 10% credit to the exporter for achieving an increase in his export turnover. The exporter can use this credit to settle his customs duty on imported inputs, instead of cash.
The commerce ministry had made amendments to the scheme in August 2004, following instances of its misuse by some exporters, unearthed by the Directorate-General of Revenue Intelligence (DRI). The modified scheme was called the Target Plus Scheme.
However, following large-scale misuse of the scheme, the government withdrew it, with effect from 1 April 2006. The modifications made to the scheme was challenged by some exporters in the Gujarat High Court. The ruling of the High Court was later challenged by the Centre and Adani Exports in the Supreme Court, which is being heard on Thursday.
Some exporters, who were misusing the scheme, were following a modus operandi of purchasing exports from other firms through contract-basis to inflate their turnover. The turnover of just five exporters, who were found to be misusing the scheme, varied from 300% to 3,800%, according to documents submitted to the court by the government.
Similarly, some of the exporters resorted to large-scale export of low-volume and high-value items such as rough diamonds and gold. Export consignments were declared as ‘studded gold jewellery’ or ‘bangles’ at the time of exports, while they were cleared as gold scrap at the port of destination. In one instance, the same set of diamonds was rotating, and these neither entered the Indian domestic territory nor reached the consumers abroad.
According to evidence collected by DRI, more than Rs10,000 crore-worth of exports of cut and polished diamonds came from small rooms of 10x12 sq ft, where manufacturing activity was not allowed. There were also instances of some exporters sending goods to their own counterparts in Dubai and Sharjah.
If the government loses the case, it will have to pay exporters as much as Rs6,000 crore under the scheme, retrospectively. The payment due to just five export firms, including Adani Exports, Kanak Exports, Vishal Exports and Rajesh Exports, will be more than Rs1,300 crore.