Exporters not desirous of going through the licensing route, an optional facility is given under DEPB. The objective of Duty Entitlement Passbook Scheme is to neutralise the incidence of customs duty on the import content of the export product. The neutralization shall be provided by way of grant of duty credit against the export product.  : 

Under the DEPB, an exporter may apply for credit, as a specified percentage of FOB value of exports, made in freely convertible currency.The credit shall be available against such export products and at such rates as may be specified by the Director General of Foreign Trade by way of public notices issued in this behalf, for import of raw materials, intermediates, components, parts, packaging material etc.

The holder of DEPB shall have the option to pay additional customs duty, if any, in cash as well.

Validity

The Depb shall be valid for a period of 12 months from the date of issue.

Transferability

The DEPB and / or the items imported against it are freely transferable. The transfer of DEPB shall however be for import at the port specified in the DEPB which shall be the port from where exports have been made. Imports from a port other than the port of export shall be allowed TRA facility as per the terms and conditions of the notification issued by the Deptt. of Revenue.

Applicability of Drawback

The exports made under the DEPB scheme shall not be entitled for drawback. However the additional customs duty paid in cash on inputs under DEPB shall be adjusted as CENVAT credit or Duty Drawback as per rules framed by the Deptt. of Revenue. In cases, where the additional customs duty is adjusted from DEPB, no benefit of CENVAT / Drawback shall be admissible.

Third Party Exports are also admissible for grant of credit under DEPB.

Both Merchant Exporters and Manufacturer Exporters are eligible for DEPB.

The expression ‘Merchant Exporter’ has been defined in para 3.33 of the Exim Policy1997-2002 to mean a person engaged in trading activity and exporting or intending to export goods.

The expression ‘Manufacturer Exporter’ has been defined in para 3.32 of Exim Policy 1997 - 2002 to mean a person who exports goods manufactured by him or intends to export such goods.

The expression ‘Manufacture’ has been defined in para 3.31 of the Exim Policy 1997 - 2002 to mean to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine a new product having a distinctive name, character or use and shall include processes, such as refrigeration, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining.

Exports are made in freely convertible currency

The import policy does not define freely convertible currency. However, the Exchange Control Manual published by RBI provides that the expression ‘permitted currency’ would include any freely convertible currency. This item is used in the Manual to indicate a foreign currency which is freely convertible i.e. a currency which is permitted by the rules & regulations of the country concerned into major reserve currency like US dollar, Pound Sterling and for which a fairly active market exists for dealings against the major currencies.

Export made to Russian Federation against non - repatriable US dollars shall not be covered under the category of freely convertible currency and thus shall not be entitled for DEPB benefit. Accordingly, exports made under counter trade agreement and export proceeds realised through ‘Escrow account’ in US$ is not entitled for DEPB benefit.

Exports under DEPB

No exports shall be allowed under DEPB scheme unless the DEPB rate of export product is notified.
Any item except those appearing in the negative list of imports are allowed for import without payment of basic customs duty, special duty of customs as well as additional duty of customs, against the credit under DEPB. The holder of DEPB shall have the option to pay additional customs duty, if any in cash as well.

Negative List of Imports

The Negative List of Imports consists of three parts:

Part I: It specifies the list of prohibited items. These items are not permitted to be imported at all. In other words this is a list of banned items of Imports.

Part II:It specifies the list of restricted items whose import is permitted either against a licence or in accordance with public notice issued in this behalf. Condition of import in respect of certain items have also been specified.

Part III: It specifies the list of canalised items and the names of the canalising agencies through which they can be imported.

The credit under DEPB may also be utilised for payment of customs duty on any item imported under freely transferable special import license.

Clearance of goods from customs

The goods already imported/shipped/arrived in advance but not cleared from customs may also be cleared against the DEPB issued subsequently.