The finance ministry had strongly opposed the hike announced by the commerce ministry.
The hike in the Duty Entitlement Passbook Scheme rates, announced by the commerce ministry in July, is being reviewed after stiff opposition by the finance ministry. The review is to be completed in three weeks, a senior government official has said.
Although in the initial stages, the review may result in the new rates (which have not been implemented yet) being trimmed closer to the earlier levels.
The scheme is used by 30 per cent of India's exporters to neutralise the taxes paid on inputs for making export goods.
Sources said the finance ministry was not happy with the increase and sought to know the method followed by the commerce ministry to arrive at the new rates.
The commerce ministry had hiked the rate by 3 percentage points for nine sectors, including textiles and leather, and by 2 per cent for others. This was to cushion the exporters, who have been hit by the appreciating rupee.
The increased rates were announced hours after the finance ministry increased the rates for duty drawback scheme by up to 3 percentage points and decreased the interest rate on export credit by 2 percentage points.
The duty drawback rates were increased after a prolonged study by a committee chaired by Saumitra Chaudhuri, a member of the Prime Minister's Economic Advisory Council.
"The commerce ministry officials gave a presentation to their finance ministry counterparts on the method used to reach at the revised DEPB rates," said a source. Trade analysts say the revenue implication of the hiked DEPB rates is between Rs 700 crore (Rs 7 billion) and Rs 800 crore (Rs 8 billion).
Sources said the members of the duty drawback committee who were present during the presentation were also not convinced by the calculations by the commerce ministry.
Exporters have not been able to avail of the increased DEPB rates as the Directorate General of Foreign Trade has not finalised a mechanism for implementing the measure. Exporters use DEPB to neutralise Customs duty on the import content of export goods.
They can also use it to neutralise special additional duty and Customs duty on fuel in case they do not avail of CENVAT credit. Companies are given credit based on the percentage of the DEPB rates on the freight-on-board value of exports.
This credit can either be used by an exporter to pay Customs duty on imported items or sell it to other exporters. The DEPB scheme will be scrapped in March, 2008, as it is not compliant with the WTO norms. The DGFT is formulating a new policy to replace the scheme.