The Drawback Commissioner says that he is devising a practical system to check the payment realization which does not depend too much upon blind computer instructions. The new system will be exporters friendly. Sufficient time to the exporters to show the proof of payment will be given. The drawback disbursal system will continue without stop even when there is delay in submission of proof of payment. In other words, status quo ante prevailing before the mischief of the May 2005 circulars implementing the BRC verification module will prevail for the time being.
The woes of the exporters started with the Reserve Bank Circular of 25 March 2004 by which the Central Bank said that it no longer wanted evidence of payment realization for all consignments below USD 25,000. In other words, the Reserve Bank did not care whether the foreign exchange was brought into the country, the matter of non realization was between the exporter and buyer is the other end. It was an apparent move to liberalise the rigours of exchange control. The customs, however, said that contrary to the view of the Central Bank, it did care about payment realization, the drawback incentive is related to the benefit of foreign exchange earning and as long as Regulation 9 of the Foreign Exchange Management Regulations, 2000 is in place, the RBI liberalisation has no meaning. The collapse of the XOS system on consignments upto USD 25,000 under which the bank reported the outstanding export realization to customs for monitoring the realization linked drawback was the opportunity for the customs software wizards moved to devise their own restrictions in the form of the BRC module.
The sudden order on blocking drawback pending submission of export realization for shipping bills for a period of nine months put a stop to most disbursals of drawback as 85% of current claims were shifted to the pending BRC queue by the computer. The officer on the spot had the powers only to recover the “wrong” drawback past disbursal from the current claims, there was no way he could modify the orders of the computer! Now that the BRC module is suspended, the show can go on for the time being.
There was no study of the implications of the burden on the exporters in terms of time, money and organization efforts in getting the bank realization certificate of 15 month old shipping bills. (We did point out the problems ahead in these columns but the North Block did not heed the signal). North Block forgot that lakhs of shipping bills are generated every month, more often than not, the bill is filed in the name of one person while the payment is realized by somebody else. The exporter and the recipient of the payment may be located in different places separated by a large distance. The bank also do not give the certificate on a mere application, it verifies the documents and charges a fee going upto Rs. 1,000 per invoice. It is amazing how the change was announced without a due diligence exercise by the CBEC and its battalions in the field. Even more surprising is that it should act only after exporters organizations protest and move the Finance Minister himself to start the rethink process.
The loss in transaction cost suffered by the exporters during the 105 days of computer raj on drawback must be compensated. The events of the case make an interesting case study on how modern gadgets and a trained professional man power are adding to cost burden instead of increasing efficiency. Given the poor rate of drawback, (hardly Rs. 4,000 crores are distributed every year on some Rs. 300,000 crores of exports) it may be worth while to return to the established XOS system from the banks with an amendment to drawback rules to provide for payment realization only in cases above USD 25,000 per consignment. The DGFT too should make a parallel amendment in the connected DEPB and Advance licence schemes. The insistence on payment realization as proof of final export is contrary to current law where change of ownership is upon transfer of title documents or possession.
New faces in CBEC
The fresh lettering on the brass plates of North Block carries the names of the new members of the CBEC team. The captain now is M Jayaraman, who was earlier holding the customs portfolio. AP Sudhir, a new entrant, holds the key customs and export promotion charge besides revenue intelligence and investigation. VP Singh gets excise while budget and service tax are with Chitra Saha and Kailash Sethi respectively. (Sri Krishna, the third entrant is waiting in the wings after the board appointment order was stayed by the administrative tribunal in Chandigarh following complaints of wrongful supercession). The current team will be in place for only a year or so since most of the members have only a year left before retirement. Only VP Singh and Chitra Saha will be in the Board for another two years.
The key field posts of revenue intelligence and excise intelligence are in the hands of AP Kala and AK Raha. Another 20 Chief Commissioners have been moved in the reshuffle to new positions. Finance Minister Chidambaram now has persons of his choice in senior positions in the CBEC. This fits well with the recently constituted special economic investigation inter departmental body to monitor serious and big cases of economic offences under the Finance Minister’s own chairmanship. He will get direct information on what is going on and the access to the levers of power to carry out his wishes.