The Duty Entitlement Passbook Scheme (DEPB) is a programme for export incentive conducted by the Indian government for the country’s exporters. The scheme reimburses exporters for duties paid in the form of credit. This plan went into effect on April 1, 1997 and included both pre-export and post-export DEPB, the latter of which was phased out on April 1, 2000.
The scheme’s goal is to provide incentives in importer and exporter policies and to neutralise the rate of basic customs duty on the import content of items exported. The Duty Entitlement Passbook Scheme (DEPB) scheme’s role in encouraging exports cannot be understated, as it not only provides financial incentives but also facilitates smoother cross-border transactions. Its dynamic approach to rate adjustments, along with the strategic integration of designated ports, boosts the ease of trade operations. Moreover, the scheme’s flexibility in addressing defective imports through re-exportation showcases its commitment to maintaining quality standards while minimising disruptions in the supply chain.
What is the Role of Duty Entitlement Passbook Scheme (DEPB)?
The Duty Entitlement Passbook Scheme (DEPB) is an export incentive initiative introduced on April 1, 1997. This program initially comprised two segments: Post-export DEPB and Pre-export Duty Entitlement Passbook Scheme (DEPB), although the latter was phased out in 2000. The Post-export DEPB involves the issuance of a predetermined credit, based on the Freight on Board Value (FOB), to exporters.
The primary objective of this scheme is to provide incentives within the Importer and Exporter policy framework and counterbalance the basic customs duty rate on the imported components of exported goods.
Under this scheme, exporters are eligible to claim a credit equivalent to a fixed percentage of the value of the exported goods. This credit is granted based on the determined and announced rate for the specific exported product, a decision made by the Director-General of Foreign Trade.
Importantly, the credit amount allocated to exporters can only be utilised to offset their customs duty obligations; it cannot be employed to reconcile other liabilities, nor can it be withdrawn as cash. Also, there are no limitations on transferring this credit amount. It can be transferred from one individual to another, facilitating trade flexibility.
DEPB permits the import of various items except those that fall under prohibited categories, such as Gold pen, Gold Nibs, Gold watches, etc. Even though these items could be broadly classified as writing instruments or components of writing instruments and watches, they do not qualify for the benefits offered by the DEPB Scheme.
Duty Entitlement Passbook Scheme (DEPB) Rate Structure
The rate assigned to the Duty Entitlement Passbook Scheme (DEPB) is determined based on the lower of either the Free on Board (FOB) value or the value cap. To qualify for inclusion in the scheme, exporters are required to furnish documentation indicating that the goods being exported contain extraneous material constituting no more than 5% of the total weight.
In instances like these, if the extraneous material remains within the 5% threshold, it will be disregarded and the applicable DEPB rate (actual rate) for the intended export product will be applied. Customs authorities are obligated to maintain a separate record of goods that are either slated for export under the DEPB scheme or have already been exported as part of it.
Calculation of Duty Entitlement Passbook Scheme (DEPB) Rate
The process of establishing the Duty Entitlement Passbook Scheme (DEPB) rate involves a comprehensive assessment by the Government of India. This assessment is based on scrutinising Import Export Code Data, including the Free on Board (FOB) value of exports and the Cost Insurance Freight (CIF) value of the inputs utilised in the production of exported goods, as per Standard Input-Output Norms (SION). To access the necessary data and information to finalise the DEPB rate, the government is obligated to liaise with the Export Promotion Council and request the relevant insights. Subsequently, this data-driven approach guides the determination of the applicable DEPB rate.
Implementation of Duty Entitlement Passbook Scheme (DEPB) Rates
The factors involved in implementation of DEPB scheme are as follows:
Rationalised Rates for Custom Duties Modification by implementation of Duty Entitlement Passbook Scheme (DEPB)
One of the key aspects of implementing the Duty Entitlement Passbook Scheme (DEPB) involves rationalising the rates to effect adjustments in customs duties. This step facilitates the alignment of rates with prevailing customs regulations and policies.
Capping on Specific Items with Unverified Present Market Value
While specific items are subject to a predetermined cap, the implementation process does not require verification of the Present Market Value of these items. This simplifies the procedure by eliminating the need for market value assessment.
Pre-Designated Ports Integration into DEPB Scheme
As part of the DEPB implementation strategy, designated ports have been seamlessly integrated into the scheme. This integration ensures a cohesive approach to the scheme’s functioning across various ports.
Absence of Threshold Limit for New DEPB Rates
The implementation framework of the DEPB scheme does not incorporate a threshold limit for the establishment of new DEPB rates. This flexibility allows for a dynamic adjustment of rates without predefined constraints.
Credit Allocation and Present Market Value (PMV) in DEPB Scheme
For goods eligible to receive credit within the scheme, in cases where the credit amounts to 10% or higher, the credit value allotted must not surpass 50% of the Present Market Value (PMV). In the process of exporting goods, the exporter must submit a shipping bill that adheres to the scheme’s criteria. This submission should demonstrate that the benefit acquired does not exceed 50% of the Present Market Value of the exported goods. However, it’s important to note that the presentation of the PMV declaration is not obligatory for goods or products subject to a value cap, irrespective of the Duty DEPB rates applicable to the product.
Utilisation of Duty Entitlement Passbook Scheme
The credit acquired through the scheme holds the purpose of offsetting the Indian Customs Duty and can also be utilised for the payment of import-duty-free capital goods.
Re-Exporting Imported Goods
In instances where imported goods are identified as defective, they can be re-exported to the designated recipient. In such cases, 98% of the credited amount will be debited from the Duty Entitlement Passbook (DEPB) account, specifically allocated for goods’ export. The relevant Commissioner will issue a certificate detailing the generated amount and original DEPB particulars. Subsequently, the Regional Authority of the Director-General of Foreign Trade (DGFT), empowered for this purpose, will release a new DEPB. This newly issued DEPB will maintain the identical validity period and port of registration as specified in the original DEPB.
Final Thoughts
The Duty Entitlement Passbook Scheme (DEPB) emerges as a multidimensional framework that strives to strengthen India’s export sector while simultaneously simplifying customs duties and incentives. Through its well-structured rates and credit allocation, the DEPB scheme incentivises exporters to engage in international trade while optimising the utilisation of resources. The integration of Present Market Value (PMV) considerations, capping of credit percentages and the efficient handling of defective imported goods demonstrate the scheme’s adaptability and practicality.
By incentivising exports, mitigating duty burdens and promoting collaboration between various stakeholders, the DEPB scheme contributes significantly to India’s trade ecosystem. However, as trade dynamics evolve, continuous assessment and adaptability will be essential to ensure that the scheme continues to serve its intended purpose effectively and contributes to the nation’s sustained economic growth and global engagement.
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