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In The News
Exporters cry foul over latest government notification
 The
government by way of Notification no 28/2005 has withdrawn the exemption enjoyed
by the air cargo operators from June 16 2005, resulting in an additional burden
of 10.2% service tax to be levied on export cargo freight rates.
This means that all the freight rates from India automatically become 10.2%
more expensive. The notification says that this tax is to be collected for services
rendered in Indian rupees.
According to Mr Amit Goyal, president, CIAE said, "The apparel exporters
ship their goods on CIF basis which means we collect the freight amount form
the customer in foreign currency and make the payment to the airlines in India
in rupees, but this is foreign inward remittance so why should we be paying
the service tax, This is totally illogical."
According to Mr J B Jain of Rupam the notification is even more hard hitting
than what it looks as this 10.2% is to be paid on the published freight rate
as most exporters normally get 20-25% discount on the freight rates depending
on their volumes, so how can an exporter pay on the published rate when he is
actually making a payment on the actual discounted rates."
According to Mr Goyal, India is already fighting hard with China to compete
in the new quota-free world and with negative government policies, several exporters
will be forced to close down as they are already working on wafer thin margins
and they cannot afford this new tax. Also, this goes against the government
policy that taxes should not be exported but here is a classic case of the taxes
being actually exported when the remittance is in foreign currency, he explained.
According to CIAE, there seems to be a cartel of the airlines who are determined
to grab the business with their monopolistic policies as they are still charging
war risk surcharge, insurance surcharge and now the service tax. CIAE has written
to the prime minister, finance minister, and the commerce ministry to immediately
intervene and reverse this notification failing which the apparel sector could
loose upto Rs 500 crore.
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A special bench
set up by the Income Tax Appellate Tribunal to look into the 80 HHC matter
has given its judgment on June 23, 2005, in favour of the department,
and against the exporters. According to exporters, when the assessments
were done from 1991 to 1997 and the same was accepted by chartered accountants
and the department itself, then why suddenly from 1998 onwards did the
department only in Mumbai take a complete U-turn by changing the interpretation
of this section 80HHC and ignoring grossly the spirit and the intention
behind the legislation. With duty drawback being as high as 20% in the
late 1990's it was almost impossible for any exporter to make a profit
in excess of 20% so most exporters' gross profits before adding duty drawback
was always lower than 20%. The exporters have a net profit after adding
the duty drawback and are asking for the tax benefit on the net amount
only which the IT department had accepted when the assessments were done
in the 1997/8/9, but now they have taken a U-turn on this matter.
Exporters were
hoping for a judgment in favour their favour, considering that the commerce
minister had gone on record to agree with the exporters, and the finance
minister too had given a favorable opinion in similar cases in his independent
capacity as a senior counsel prior to being the FM. Mr Amit Goyal, president,
Confederation of Indian Apparel Exporters (CIAE), said, "We will
fight the case till the Supreme Court, but we would like the government
to understand the intention of the 80HHC benefit when it was announced
and make the necessary legislative changes required to settle the matter
amicably within a short time failing which the exporters will have no
choice but to go on a strike and dharna (protest rally) in Delhi."
Mr J B Jain, Rupam said that income tax laws which are framed by the central
government and applicable all over India in a uniform basis. In Delhi
a tribunal bench has given a favorable judgment in February 2005 of P&G
Enterprises in favour of the exporters and accordingly exporters in Delhi
are getting the relief under 80HHC with regard to negative profit. How
can the income tax law be different in various cities when it is a uniform
law for the entire country."
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