TROUBLESHOOTING: G. K. Pillai (centre), Special Secretary, Ministry of Commerce and Industry, addressing an open house on EOUs and SEZs in Chennai on Saturday.

CHENNAI: The Commerce Ministry has agreed in principle to pay to banks the interest on loans that the banks advance to exporters against receivables in the form of refund of Central sales tax (CST).

This was announced here on Saturday by G. K. Pillai, Special Secretary to the Ministry of Commerce and Industry, at an open house meeting organised by the Export Promotion Council for EOUs and SEZ Units (EPCES). Mr. Pillai also announced that early this week, an amount of Rs. 20 crore had been released towards refund of CST to units in the MEPZ SEZ in Chennai and Rs. 10 crore in respect of units in the Cochin EPZ.

Mr. Pillai said the present limit of 150 SEZs for approval had been fixed by the Empowered Group of Ministers (EGoM) initially and was not the final limit. The SEZ Act and Rules allowed the government (through the EGoM) to raise the ceiling. The government had fixed the limit at 150 because it had not expected the kind of enthusiastic response that the SEZ scheme had elicited.

Mr. Pillai said a total of 105 approvals for establishing SEZs had been granted in three months. In respect of developers, benefits in accordance with rules for accessing domestic inputs would be granted.

Responding to complaints from exporters about excise/customs officials not recognising certain provisions of the Foreign Trade Policy in respect of service tax, Mr. Pillai said the provisions of the SEZ Act would prevail when they were in conflict with other laws (as per Sec. 51 of the Act).

Clarifying that DTA (domestic tariff area) supplies of books against foreign exchange payment from overseas publishers will be counted for arriving at the net foreign exchange earning (NFE), Mr. Pillai agreed to look into the problem faced by certain plastics units which were similar to the ones faced by the publishing industry following the removal of Chapter 9 (b) from the Foreign Trade Policy.

Granite exporters said the Income-Tax Department had refused to grant them tax benefits because granite making was not "manufacture", though the Central Excise department considered the activity as manufacture and levied excise on the units. Mr. Pillai said this problem had arisen also in the case of some other sectors like agriculture. He said the Central Board of Direct Taxes (CBDT) had made it clear that it was not possible for the board to ignore court rulings, which held that production of granite did not amount to manufacture.

Mr. Pillai said his ministry was examining the anomaly in Sec. 10 AA of the Income Tax Act, initiated by the SEZ Act 2005, wherein expenses incurred in foreign exchange in rendering specified services (including computer software) outside India were disallowed for purposes of deciding the export turnover, while such reduction was not envisaged for calculating the total turnover. (Tax exemption is based on the formula: profits of the undertaking multiplied by the export turnover and divided by the total turnover).

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