UNIT – II : BASIC CONCEPTS RELATING TO EXPORT PROMOTION ... · Export Promotion Capital Goods Scheme (EPCG) permits exporters to import capital goods at zero customs duty or procure

FOREIGN TRADE POLICY 6.19

UNIT – II : BASIC CONCEPTS RELATING TO EXPORT PROMOTION SCHEMES UNDER FTP

Export promotion schemes Exports of a country play an important role in the economy. Government always endeavors to encourage exports by introducing various export promotion schemes. Consequently, there are various promotional measures under FTP and other schemes operated under Ministry of Commerce through various Export Promotion Councils.

As per WTO, export incentives cannot be given to the exporters as such otherwise there would be no free competition. Hence, all the export promotion schemes in India are directed towards ensuring that the inputs as well as final products are made tax-free.

1 DUTY EXEMPTION & REMISSION SCHEMES The Duty Exemption and Remission Schemes are the most important schemes in the Foreign Trade Policy, because they are most widely utilized and are largely compatible with the provisions of the Agreement on Subsidies and Countervailing Measures (ASCM) of the WTO.

(A) Duty exemption schemes: Under duty exemption schemes, exporter can import the inputs duty free for export production. The two duty exemption schemes are as follows:-

1. Advance Authorization Scheme

2. Duty Free Import Authorization Scheme (DFIA)

Advance Authorization Scheme

Duty Free Import Authorization Scheme (DFIA)

Advance Authorization Scheme

Duty exemption schemes

Duty Drawback (DBK) Scheme

Duty remission schemes under GST Law

(DBK) Scheme

Duty remission schemes

© The Institute of Chartered Accountants of India

6.20 CUSTOMS & FTP (B) Duty remission schemes: Under duty remission scheme, duty on inputs

and input services used in the export product is either replenished or remitted. Duty Drawback (DBK) Scheme is designed for this purpose. Duty remission is also granted under GST Law.

Duty exemption schemes

1. ADVANCE AUTHORIZATION SCHEME ♦ Under advance authorization scheme, INPUTS which are used in the

export product can be imported without payment of customs duty. IGST and GST Compensation Cess have been exempted upto 31.03.2020 on imports under Advance Authorisation for physical exports or following deemed exports:-

(a) Supply of goods by a registered person against Advance Authorisation.

(b) Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation.

(c) Supply of goods by a registered person to Export Oriented Unit.

♦ The goods imported are exempt from basic customs duty, additional customs duty, education cess, anti-dumping duty and safeguard duty, unless otherwise specified. However, specified2 deemed exports are not exempted from payment of applicable anti-dumping duty and safeguard duty. The conditions for duty free imports against physical exports are provided in notification issued under the Customs law.

♦ Period of fulfillment of export obligation under Advance Authorization is 18 months from the date of issue of Authorization or as notified by DGFT.

♦ Exports proceeds shall be realized in freely convertible currency except otherwise specified.

2 Deemed exports specified for this purpose are Supply of capital goods against EPCG authorisation and supply to goods to UN or international organisations for their official use or supplied to projects financed by them.


FOREIGN TRADE POLICY 6.21 (i) Basis of issuance of Advance Authorisation: Advance Authorisation is issued

for inputs in relation to resultant product, on the following basis:

(A) As per SION💡💡 notified (available in Hand Book of Procedures)

or

(B) On the basis of self declaration Regional Authority may also issue Advance Authorisation where there is no SION/valid Ad hoc Norms for an export product or where SION / Ad hoc norms have been notified / published but exporter intends to use additional inputs in the manufacturing process, based on self-declaration by applicant. Wastage so claimed shall be subject to wastage norms as decided by Norms Committee. The applicant shall submit an undertaking to abide by decision of Norms Committee.

or

(C) Applicant specific prior fixation of norm by the Norms Committee.

or

(D) On the basis of Self Ratification Scheme. Where there is no SION/valid Adhoc Norms for an export product and where SION has been notified but exporter intends to use additional inputs in the manufacturing process, eligible exporter can apply for an Advance Authorisation under this scheme on self-declaration and self-ratification basis. RA may issue Advance Authorisations and such cases need not be referred to Norms Committees for ratification of norms. An exporter (manufacturer or merchant exporter) who holds AEO (Authorised Economic Operator) Certificate under Common Accreditation Programme of CBIC is eligible to opt for the scheme.

💡💡Standard Input Output Norms (SION) are standard norms which define the amount of input(s) required to manufacture unit of output for export purpose. SION is notified by DGFT on basis of recommendation of Norms Committee.

(ii) Items which can be imported duty free against advance authorization:

♦ Inputs, which are physically incorporated in export product (making normal allowance for wastage).

♦ Fuel, oil, catalysts which are consumed/utilised to obtain export product.


http://www.eximguru.com/exim/dgft/default.aspx

6.22 CUSTOMS & FTP

♦ Mandatory spares which are required to be exported/supplied with resultant product permitted upto 10% of CIF value of Authorization.

♦ Specified spices only when used for activities like crushing/ grinding /sterilization/ manufacture of oils or oleoresins and not for simply cleaning, grading, re-packing etc.

However, items reserved for imports by STEs cannot be imported against advance authorization.

(iii) Actual user condition for Advance Authorisation: Advance Authorization and/ or materials imported thereunder will be with actual user condition. It will not be transferable even after completion of export obligation. However, Authorization holder will have an option to dispose off product manufactured out of duty free inputs in DTA once export obligation is completed.

Waste/scrap arising out of manufacturing process, as allowed, can be disposed off on payment of applicable duty even before fulfillment of export obligation.

(iv) Who are eligible for advance authorization: Advance Authorization can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s).

Such Authorization can also be issued for:

(1) Physical exports

(2) Intermediate supply

(3) Supplies made to specified categories of deemed exports

(4) Supply of ‘stores’ on board of foreign going vessel/aircraft provided there is specific SION in respect of items supplied.

(v) Domestic sourcing of inputs: Holder of advance authorization has an option to procure the materials/ inputs from indigenous manufacturer/STE in lieu of direct import against Advance Release Order (ARO)/ Invalidation letter/ Back to Back Inland Letter of Credit. However, Advance Authorisation holder may obtain supplies from EOU/EHTP/BTP/STP/SEZ units, without obtaining ARO or Invalidation letter.

(vi) Conditions for redeeming authorisation: Wherever SION permits use of either (a) a generic input or (b) alternative input, unless the name of the specific input together with quantity [which has been used in



manufacturing the export product] gets indicated / endorsed in the relevant shipping bill and these inputs, so endorsed, within quantity specified and match the description in the relevant bill of entry, the concerned Authorisation will not be redeemed. The name/description of the input in the Authorisation must match exactly with the name/description endorsed in the shipping bill.

Further, quantity of input to be allowed under Advance Authorisation shall be in proportion to the quantity of input actually used/ consumed in production. If goods are imported against advance authorization but export obligation is not fulfilled, duty and interest is payable.

Aforesaid provisions will also be applicable for supplies to SEZs and supplies made under deemed exports.

(vii) Annual Advance authorization: Advance Authorization can be issued for annual requirement also.

• Exporters having past export performance (in at least preceding two financial years) shall be entitled for Advance Authorization for Annual Requirement.

• Entitlement in terms of CIF value of imports shall be upto 300% of the FOB value of physical export and/ or FOR value of deemed export in preceding financial year or ` 1 crore, whichever is higher.

• Authorisation for Annual Requirement shall be issued only where SIONs or valid Ad hoc norms exists on the date of issue of Authorisation. It is not available on self-declaration basis.

(viii) Value addition (VA): will be calculated as follows (except for gem and jewellery sector)–

VA = [(A-B) x 100]/B

A = FOB value of export realised/FOR value of supply received.

B = CIF value of inputs covered by authorisation plus any other imported materials used on which benefit of duty drawback (DBK) is claimed or intended to be claimed.

If some items are supplied free of cost by foreign buyer, its notional value will be added in the CIF value of import and FOB value of export for purpose of calculating value addition. Exports to SEZ Developers/ Co-developers, irrespective of currency of realization, would also be covered.


6.24 CUSTOMS & FTP Minimum value addition required to be achieved under Advance

Authorization is 15%, except for physical exports for which payments are not received in freely convertible currency and some other specified export products. For tea, minimum value addition required shall be 50%.

(ix) Admissibility of drawback: Drawback as per rate determined and fixed by Customs authority shall be available for duty paid imported or indigenous inputs used in the export product.

Illustration

Answer the following questions with reference to the provisions of Foreign Trade Policy:

(i) FIintex Manufacturers manufactures goods by using imported inputs and supplies the same under Aid Programme of the United Nations. The payment for such supply is received in free foreign exchange. Can FIintex Manufacturers seek Advance Authorization for the supplies made by it?

(ii) XYZ Ltd. has imported inputs without payment of duty under Advance Authorization. The CIF value of such inputs is ` 10,00,000. The inputs are processed and the final product is exported. The exports made by XYZ Ltd. are subject to general rate of value addition prescribed under Advance Authorization Scheme. No other input is being used by XYZ Ltd. in the processing. What should be the minimum FOB value of the exports made by the XYZ Ltd. as per the provisions of Advance Authorization?

(iii) ‘A’ has used some duty paid inputs in its export products. However, for the rest of the inputs, he wants to apply for the Advance Authorization. Can he do so? Explain.

Answer

(i) Supply to goods to UN or international organisations for their official use or supplied to projects financed by them are ‘deemed exports’. Advance Authorization can be issued for supplies made to such ‘deemed exports’. Therefore, Flintex Manufacturers can seek an Advance Authorization for the supplies made by it.

(ii) Advance Authorization necessitates exports with a minimum of 15% value addition (VA).

VA = [(A – B)/B x 100]



A = FOB value of export realized, B = CIF value of inputs covered by authorization.

Therefore, the minimum FOB value of the exports made by XYZ Ltd. should be ` 11,50,000.

(iii) Yes, ‘A’ can do so. In case of part duty free and part duty paid imports, both Advance Authorization and drawback will be available. Drawback can be obtained for any duty paid material, whether imported or indigenous, used in goods exported, as per drawback rate fixed by DoR, Ministry of Finance (Directorate of Drawback). Advance Authorization can be used for importing duty free material. Drawback allowed must be mentioned in the application for Advance Authorization. In such case, All Industry Brand Rates are not applicable. The manufacturer has to get specific brand rate fixed from Commissioner for these exported goods.

2. DUTY FREE IMPORT AUTHORIZATION (DFIA) SCHEME ♦ Provisions applicable to Advanced Authorisation are broadly applicable in

case of DFIA. However, these Authorizations shall be issued only for products for which Standard Input and Output Norms (SION) have been notified. Duty Free Import Authorisation (DFIA) is issued to allow duty free import of inputs. In addition, import of oil and catalyst which is consumed / utilised in the process of production of export product, may also be allowed.

♦ The goods imported are exempt ONLY from basic customs duty.

♦ DFIA shall be exempted only from payment of Basic Customs Duty (BCD). IGST will be payable on imports.

♦ DFIA shall be issued on post export basis for products for which SION have been notified. Separate DFIA shall be issued for each SION and each port.

♦ The applicant shall file an online application to RA concerned before starting exports under DFIA. Export shall be completed within 12 months from the date of online filing of application and generation of file number. While doing export/supply, applicant shall indicate file number on the export documents.

♦ After completion of exports and realization of export proceeds, request for issuance of transferable DFIA may be made to concerned RA within a period of:

(a) 12 months from the date of export


6.26 CUSTOMS & FTP

or

(b) 6 months (or additional time allowed by RBI for realization) from the date of realization of export proceeds,

whichever is later.

♦ RA shall issue transferable DFIA with a validity of 12 months from the date of issue.

♦ Exports proceeds shall be realized in freely convertible currency except otherwise specified.

(i) No DFIA for ‘Actual User’ condition inputs: No DFIA shall be issued for an export product where SION prescribes ‘Actual User’ condition for any input.

(ii) Domestic sourcing of inputs: Holder of DFIA has an option to procure the materials/ inputs from indigenous manufacturer/STE in lieu of direct import against Advance Release Order (ARO)/ Invalidation letter/ Back to Back Inland Letter of Credit. DFIA holder may obtain supplies from EOU/EHTP/BTP/STP/SEZ units, without obtaining ARO or Invalidation letter.

(iii) Conditions for redeeming authorisation: It is necessary to establish that inputs actually used in manufacture of the export product should only be imported under the authorization and inputs actually imported must be used in the export product, for redeeming the DFIA. The name/description of the input in the DFIA must match exactly with the name/description endorsed in the shipping bill.

Further, quantity of input to be allowed under DFIA shall be in proportion to the quantity of input actually used/ consumed in production.

If goods are imported against advance authorization but export obligation is not fulfilled, duty and interest is payable.

Aforesaid provisions will also be applicable for supplies to SEZs and supplies made under deemed exports.

(iv) Value addition (VA): will be calculated as follows (except for gem and jewellery sector)–

VA = [(A-B) x 100]/B

A = FOB value of export realised/FOR value of supply received.

B = CIF value of inputs covered by authorisation plus any other imported materials used on which benefit of duty drawback (DBK) is claimed or intended to be claimed.


FOREIGN TRADE POLICY 6.27 If some items are supplied free of cost by foreign buyer, its notional value

will be added in the CIF value of import and FOB value of export for purpose of calculating value addition. Exports to SEZ Developers/ Co-developers, irrespective of currency of realization, would also be covered.

Minimum value addition required to be achieved under DFIA is 20%, except for physical exports for which payments are not received in freely convertible currency.

(v) Admissibility of drawback: Drawback as per rate determined and fixed by Customs authority shall be available for duty paid imported or indigenous inputs used in the export product.

Illustration

Discuss the similarities and differences between Advance Authorization and DFIA (Duty Free Import Authorization) schemes.

Answer

In both DFIA and Advance Authorization schemes, import of inputs, oil and catalyst which are required for export products are permitted without payment of customs duty.

The differences between DFIA and Advance Authorisation schemes are as follows -

(i) ‘Advance Authorisation’ is not transferable. DFIA is transferable after export obligation is fulfilled.

(ii) Advance Authorisation scheme requires 15% value addition, while in case of DFIA, minimum 20% value addition is required.

(iii) Advance Authorisation scheme is available to gem and jewellery sector but not DFIA.

(iv) DFIA cannot be issued where SION (Standard Input Output Norms) prescribes actual user condition [as the material is transferable after fulfilment of export obligation].

(v) Advance Authorisation can be issued even if SION for that product is not fixed. DFIA can be issued only if SION has been fixed for that product to be exported.

(vi) IGST has been exempted on imports under Advance Authorisation scheme upto 31.03.2020, but there is no such exemption available if imports are under DFIA scheme


6.28 CUSTOMS & FTP

Duty remission schemes 1. DUTY DRAWBACK (DBK) SCHEME

Various schemes like EOU, SEZ, DFIA, Advance Authorisation, manufacture under bond etc. are available to obtain inputs without payment of customs duty or obtain refund of duty paid on inputs.

Suppliers who are unable to avail any of these schemes can avail ‘duty drawback’. Here, the customs duty paid on inputs is given back to the exporter of finished product by way of ‘duty drawback’. Section 75 of Customs Act, 1962 provide for drawback on materials used in manufacture or processing of export product.

It may be noted that duty drawback under section 75 is granted when imported materials are used in the manufacture of goods which are then exported, while duty drawback under section 74 is applicable when imported goods are re-exported as it is, and article is easily identifiable.

As per rule 2(a) of the Customs and Central Excise Duties Drawback Rules, 2017, drawback in relation to any goods manufactured in India and exported, means the rebate of duty excluding IGST and Compensation Cess, chargeable on any imported materials or excisable materials used in the manufacture of such goods.

It is important to note that the duty drawback is only of customs duty3. There is no duty drawback in respect of GST.

2. DUTY REMISSION SCHEMES IN GST LAW

Duty remission/exemption is also granted under GST Law.

2. REWARD SCHEMES – MEIS, SEIS AND STATUS HOLDERS

Reward schemes are the schemes which entitle the exporters to duty credit scrips subject to various conditions. These scrips can be used for payment of customs duties on import of inputs/goods including notified capital goods.

3 This scheme has been discussed in detail in Chapter-6: Duty Drawback


FOREIGN TRADE POLICY 6.29 These scrips are transferable, i.e. they can be sold in market, if the holder of duty credit scrip does not intend to import goods against the scrips. Goods imported under the scrip are also freely transferable.

Following are two schemes for exports of merchandise and services:

(i) Merchandise Exports from India Scheme (MEIS)

(ii) Service Exports from India Scheme (SEIS)

A MERCHANDISE EXPORTS FROM INDIA SCHEME (MEIS) The objective of MEIS scheme is to promote the manufacture and export of notified goods/ products.

(i) Reward under the scheme: Under MEIS, exports of notified goods/products to notified markets shall be eligible for reward at the specified rate(s). Unless otherwise specified, the basis of calculation of reward would be:

(i) on realised FOB value of exports in free foreign exchange,

or (ii) on FOB value of exports as given in the Shipping Bills in free foreign

exchange,

whichever is less.

(ii) Ineligible categories under MEIS: Some exports categories/sectors ineligible for Duty Credit Scrip entitlement under MEIS are listed below:

Supplies made from DTA units to SEZ units

Exports through trans-shipment, i.e., exports that are originating in third country but trans-shipped through India

Deemed Exports

SEZ/EOU/EHTP/BPT/FTWZ products exported through DTA units

Export products which are subject to Minimum export price or export duty

Exports made by units in FTWZ.

(iii) Export of goods through courier/foreign post offices using e-commerce*: Exports of handicraft items, handloom products, books/periodicals, leather footwear, toys and tailor made fashion


6.30 CUSTOMS & FTP

garments through courier or foreign post office using e-commerce of FOB value upto ` 5,00,000 per consignment shall be entitled for rewards under MEIS. If the value of exports is more than ` 5,00,000 per consignment, then MEIS reward would be calculated on the basis of FOB value of ` 5,00,000 only.

*E-commerce means buying and selling of goods and services, including digital products, conducted over digital and electronic network. For the purposes of Merchandise Exports from India Scheme (MEIS), e-commerce shall mean the export of goods hosted on a website accessible through the internet to a purchaser. While the dispatch of goods shall be made through courier or postal mode, as specified under MEIS, the payment for goods purchased on e-commerce platform shall be done through international credit/debit cards and as per RBI Circular (RBI/2015-16/185) as amended from time to time.

B SERVICE EXPORTS FROM INDIA SCHEME (SEIS) The objective of SEIS scheme is to encourage export of notified services from India.

(i) Eligible service providers: A service provider (with active IEC at the time of rendering services) located in India, providing notified services rendered in the specified manner* shall be eligible for reward at the notified rate(s) on net foreign exchange earned provided the minimum net free foreign exchange earnings of such service provider in year of rendering service is:

*Specified manner is supply of a ‘service’ from India to any other country;

(Mode 1- Cross border trade) and supply of a ‘service’ from India to service consumer(s) of any other country in India; (Mode 2-Consumption abroad).

• US $ 10,000individual service providers and sole

proprietorship

• US $ 15,000other service

providers



1. Net Foreign exchange earnings = Gross Earnings of Foreign Exchange Minus Total expenses/

payment/ remittances of Foreign Exchange by the IEC holder, relating to service sector in the financial year.

2. ‘Services’ include all tradable services covered under General Agreement on Trade in Services (GATS) and earning foreign exchange.

3. ‘Service Provider’ means a person providing: (i) Supply of a ‘service’ from India to any other country; (Mode1-

Cross border trade) (ii) Supply of a ‘service’ from India to service consumer(s) of any

other country in India; (Mode 2- Consumption abroad) (iii) Supply of a ‘service’ from India through commercial presence in

any other country. (Mode 3 – Commercial Presence) (iv) Supply of a ‘service’ from India through the presence of natural

persons in any other country (Mode 4- Presence of natural persons).

Payment in Indian Rupees for service charges earned on specified services, shall be treated as receipt in deemed foreign exchange as per guidelines of Reserve Bank of India.

(ii) Ineligible categories under SEIS:

(A) Foreign exchange remittances other than those earned for rendering of notified services would not be counted for entitlement. Thus, other sources of foreign exchange earnings such as equity or debt participation, donations, receipts of repayment of loans etc. and any other inflow of foreign exchange, unrelated to rendering of service, would be ineligible.

(B) Following shall not be taken into account for calculation of entitlement under the scheme:

(1) Foreign Exchange remittances

A. Related to Financial Services Sector:

♦ Raising of all types of foreign currency Loans

♦ Export proceeds realization of clients

♦ Issuance of Foreign Equity through ADRs/ GDRs or


6.32 CUSTOMS & FTP

other similar instruments

♦ Issuance of foreign currency Bonds

♦ Sale of securities and other financial instruments

♦ Other receivables not connected with services rendered by financial institutions.

B. Earned through contract/ regular employment abroad (e.g. labour remittances)

(2) Payments for services received from EEFC Account

(3) Foreign exchange turnover by Healthcare Institutions like equity participation, donations etc.

(4) Foreign exchange turnover by Educational Institutions like equity participation, donations etc.

(5) Export turnover relating to services of units operating under EOU/ EHTP/ STPI/ BTP Schemes or supplies of services made to such units

(6) Clubbing of turnover of services rendered by EOU/ EHTP/ STPI/ BTP units with turnover of DTA Service Providers

(7) Foreign Exchange earnings for services provided by Airlines, Shipping lines service providers plying from any foreign country X to any foreign country Y routes not touching India at all

(8) Service providers in Telecom Sector

Common Provisions for Exports from India Schemes (MEIS and SEIS)

(i) Drawback:

Basic Custom duty paid in cash or through debit under Duty Credit scrip shall be adjusted for Duty Drawback as per DoR rules or notifications.

Duty credit scrip shall be permitted to be utilized for payment of customs duty in case of import of capital goods under lease financing.

(ii) Transfer of export performance: Transfer of export performance from one IEC holder to another IEC holder shall not be permitted. Thus, a shipping bill



containing name of applicant shall be counted in export performance / turnover of applicant only if export proceeds from overseas are realized in applicant’s bank account and this shall be evidenced from e - BRC / FIRC.

However, MEIS rewards can be claimed either by the supporting manufacturer (along with disclaimer from the company / firm who has realized the foreign exchange directly from overseas) or by the company/ firm who has realized the foreign exchange directly from overseas.

(iii) Incentives of MEIS & SEIS are available to units located in SEZs also.

Illustration

Examine whether benefit of Service Exports from India Scheme (SEIS) can be availed with respect to notified services provided by service providers located in India in the current financial year in the following independent cases:

(i) Net Foreign exchange earned by Mr. Aniket, a service provider, in the year of rendering service is USD 3,000.

(ii) X and Y Brothers, a firm of service providers, has earned net foreign exchange to the tune of USD 16,500 in the year of rendering service.

(iii) Mr. Ishaan, a service provider, has earned net foreign exchange of USD 12,000 in the year of rendering service. Out of this, USD 3,000 has been paid to Mr. Ishaan through the credit card of the foreign client.

Note: All the above service providers have an active IEC at the time of rendering services.

Answer

In order to be eligible for duty credit scrip entitlement under SEIS:-

(a) Service provider must be located in India.

(b) It must provide only notified services in specified manner.

(c) It must have an active IEC at the time of rendering such services for which rewards are claimed.

(d) An individual service provider/Sole-proprietorship should have minimum net foreign exchange earnings of USD 10,000 and a service provider other than individual/Sole-proprietorship should have minimum NFE of USD 15,000, in the year of rendering service.


6.34 CUSTOMS & FTP Free foreign exchange earned through International Credit Cards and other instruments as permitted by RBI for rendering of service are also be taken into account for computation of NFE.

In the light of the above provisions, the cases are examined as under:

(i) Mr. Aniket is not eligible for SEIS Scheme as his net foreign exchange earnings are less than USD 10,000 (minimum limit for individuals).

(ii) X and Y Brothers are eligible for the Scheme as their net foreign exchange earnings exceed the limit of USD 15,000 (minimum limit for firms).

(iii) Foreign exchange earned through credit cards is counted for the purpose of computing the limit of minimum net foreign exchange required for being eligible to SEIS Scheme. Thus, Mr. Ishaan is eligible for SEIS Scheme.

C STATUS HOLDER Status Holders are business leaders who have excelled in international trade and have successfully contributed to country’s foreign trade. All exporters of goods, services and technology having an import-export code (IEC) number shall be eligible for recognition as a status holder. Status recognition depends upon export performance**.

An applicant shall be categorized as status holder upon achieving export performance during current and previous three financial years*, as indicated below:

*However, for Gems & Jewellery Sector, the performance during the current and previous two financial years shall be considered for recognition as status holder.

Status category

One Star Export House Two Star Export House

Three Star Export House Four Star Export House Five Star Export House

Export Performance [FOB/ FOR (as converted) Value ( in US $

million) ]) ]3

25100500

2,000



**Points which merit consideration while computing export performance for grant of status:

(a) Export performance will be counted on the basis of FOB value of export earnings in free foreign currencies.

(b) For deemed export, FOR value of exports in Indian Rupees shall be converted in US$ at the exchange rate notified by CBIC, as applicable on 1st April of each Financial Year.

(c) For granting status, export performance is necessary in at least 2 out of 4 years.

(d) For calculating export performance for grant of One Star Export House Status category, exports by IEC holders under the following categories shall be granted double weightage:

(i) Micro, Small & Medium Enterprises (MSME) as defined in Micro, Small & Medium Enterprises Development (MSMED) Act 2006

(ii) Manufacturing units having ISO/BIS

(iii) Units located in North Eastern States including Sikkim and Jammu & Kashmir

(iv) Units located in Agri Export Zones.

(e) Export performance of one IEC holder shall not be permitted to be transferred to another IEC holder. Hence, calculation of exports performance based on disclaimer shall not be allowed.

(f) Exports made on re-export basis shall not be counted for recognition.

(g) Export of items under authorization, including SCOMET items, would be included for calculation of export performance.

Privileges of Status Holders: Status holders are granted certain benefits like:

(a) Authorisation and custom clearances for both imports and exports on self-declaration basis.

(b) Fixation of Input Output Norms (SION) on priority i.e. within 60 days by Norms Committee.

(c) Exemption from compulsory negotiation of documents through banks. The remittance/ receipts, however, would continue to be received through banking channels.


6.36 CUSTOMS & FTP (d) Exemption from furnishing of Bank Guarantee in Schemes under FTP.

(e) Two Star Export Houses and above are permitted to establish export warehouses.

(f) Three Star and above Export House shall be entitled to get benefit of Accredited Clients Programme (ACP) as per the guidelines of CBIC.

(g) DGFT vide Notification No. 28/2015-20 dated 27th August 2018 has provided that status holders shall be entitled to export freely exportable items (excluding Gems and Jewellery, Articles of Gold and precious metals) on free of cost basis for export promotion subject to an annual limit as below:

a) Annual limit of 2% of average annual export realization during preceding three licensing years for all exporters (excluding the exporters of following sectors-(1) Gems and Jewellery Sector, (2) Articles of Gold and precious metals sector).

b) Annual limit of Rupees 1 Crore or 2% of average annual export realization during preceding three licensing years, whichever is lower. (for exporters of the following sectors-(1) Gems and Jewellery Sector, (2) Articles of Gold and precious metals sector).

Illustration

Two exporters namely, Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. have achieved the status of Status Holders (One Star Export House) in the current financial year. Both the exporters have been regularly exporting goods (other than Gems and Jewellery) every year. What would have been the minimum export performance of the two exporters to achieve such status?

Both the exporters want to establish export warehouses in accordance with the applicable guidelines. What should be their export turnover to enable them to establish export warehouses?

Answer

Status Holders are business leaders who have excelled in international trade and have successfully contributed to country’s foreign trade. All exporters of goods, services and technology having an import-export code (IEC) number shall be eligible for recognition as a status holder. Status recognition depends upon export performance**.

In order to be categorized as One Star Export House, an exporter needs to achieve the export performance of 3 million US $ million [FOB/ FOR (as


FOREIGN TRADE POLICY 6.37 converted)] during current and previous three financial years. Thus, export performance of Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. would have been at least 3 million US $ million [FOB/ FOR (as converted)] during current and previous three financial years. For granting status, export performance is necessary in at least 2 out of 4 years.

Further, Two Star Export Houses and above are permitted to establish export warehouses. Therefore, Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. can establish export warehouses in India only if they achieve the status of Two Star Export House and above. In order to achieve said status, export performance of the exporters during current and previous three financial years should be as indicated below:

Status Category Export Performance [FOB/FOR (as converted value on us$ million

Two Star Export House 25

Three Star Export House 100

Four Star Export House 500

Five Star Export House 2,000

3. EXPORT PROMOTION CAPITAL GOODS SCHEME (EPCG)

Export Promotion Capital Goods Scheme (EPCG) permits exporters to import capital goods for pre-production, production and post-production at zero customs duty or procure them indigenously without paying duty in the prescribed manner. In return, exporter is under an obligation to fulfill the export obligation.

Capital goods imported under EPCG Authorisation for physical exports are also exempt from IGST and Compensation Cess upto 31.03.2020.

Import under EPCG scheme shall be subject to an export obligation equivalent to 6 times of duties, taxes and cess saved on capital goods to be fulfilled in 6 years reckoned from the date of issue of authorization. Authorisation shall be valid for 18 months from the date of issue of Authorisation.


6.38 CUSTOMS & FTP Import of capital goods shall be subject to ‘Actual User’ condition till

export obligation is completed. After export obligation is completed, capital goods can be sold or transferred.

In case integrated tax and compensation cess are paid in cash on imports under EPCG, incidence of the said integrated tax and compensation cess would not be taken for computation of net duty saved provided input tax credit is not availed.

(i) Eligible exporters: Following are eligible for EPCG scheme:

♦ Manufacturer exporters with or without supporting manufacturer(s),

♦ Merchant exporters tied to supporting manufacturer(s), and

♦ Service providers including service providers designated as Common Service Provider (CSP) subject to prescribed conditions.

(ii) Eligible capital goods:

Capital Goods including capital goods in CKD/SKD condition

Computer systems and software which are a part of the Capital Goods being imported

Spares, moulds, dies, jigs, fixtures, tools & refractories

Catalysts for initial charge plus one subsequent charge

Capital goods for Project Imports notified by CBIC.

(iii) Export Obligation: Export obligation means obligation to export product(s) covered by Authorisation/permission in terms of quantity or value or both, as may be prescribed/specified by Regional or competent authority.

Export obligation consists of average export obligation and specific export obligation.

Specific export obligation (Specific EO) under EPCG scheme is equivalent to 6 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from Authorization issue-date. Specific EO is over and above the Average EO.

Note: In case of direct imports, EO shall be reckoned with reference to actual duty saved amount. In case of domestic sourcing, EO shall be reckoned with reference to notional Customs duties saved on FOR value.



Average export obligation (Average EO) under EPCG scheme is the average level of exports made by the applicant in the preceding 3 licensing years for the same and similar products. It has to be achieved within the overall EO period (including extended period unless otherwise specified).

Conditions applicable to the fulfilment of the Export Obligation (EO):

(a) EO shall be fulfilled by the authorisation holder through export of goods which are manufactured by him or his supporting manufacturer / services rendered by him, for which the EPCG authorisation has been granted.

(b) In case of indigeneous sourcing of capital goods, specific EO shall be 25% less than the EO mentioned above, i.e. EO will be 4.5 times (75% of 6 times) of duty saved on such goods procured.

(c) Shipments under Advance Authorisation, DFIA, Drawback scheme, or reward schemes; would also be counted for fulfilment of EO under EPCG Scheme.

(d) EO can also be fulfilled by the supply of Information Technology Agreement (ITA-1) items to DTA, provided realization is in free foreign exchange.

(e) Both physical exports as well as specified deemed exports shall also be counted towards fulfilment of export obligation.

(iv) Incentives for early fulfillment of export obligation

In cases where Authorization holder has fulfilled 75% or more of specific export obligation and 100% of Average Export Obligation till date, if any, in half or less than half the original export obligation period specified, remaining export obligation shall be condoned and the Authorization redeemed.

(v) Post Export EPCG Duty Credit Scrip(s)

Under this scheme, capital goods are imported on full payment of applicable duties in cash. Later, basic customs duty paid on Capital Goods is remitted in the form of freely transferable duty credit scrip(s) [similar to the Reward schemes discussed earlier].

Salient features of the schemes are as follows:-

♦ Specific EO shall be 85% of the applicable specific EO stipulated under EPCG scheme. Average EO remains unchanged.


6.40 CUSTOMS & FTP

♦ Duty remission shall be in proportion to the EO fulfilled.

♦ These Duty Credit Scrip(s) can be utilized in the similar manner as the scrips issued under reward schemes can be utilised.

(vi) Indigenous Sourcing of Capital Goods and benefits to Domestic Supplier

A person holding an EPCG authorisation may source capital goods from a domestic manufacturer. Such domestic manufacturer shall be eligible for deemed export benefits under FTP and as may be provided under GST Rules under the category of deemed exports. Such domestic sourcing shall also be permitted from EOUs and these supplies shall be counted for purpose of fulfilment of positive NFE by said EOU.

Illustration

XP Pvt. Ltd., a manufacturer, wants to import capital goods in CKD condition from a foreign country and assemble the same in India. The import of the capital goods will be under notified Project Imports. The capital goods will be used for pre-production processes. The final products of XP Pvt. Ltd. would be supplied in SEZ. XP Pvt. Ltd. wishes to sell the capital goods imported by it as soon as the production process starts.

XP Pvt. Ltd. seeks your advice whether it can avail the benefit of EPCG Scheme for importing the intended capital goods.

Note – Base your opinion on the facts given above assuming that all other conditions required for being eligible to the EPCG Scheme are fulfilled in the above case.

Answer

Export Promotion Capital Goods Scheme (EPCG) permits exporters to import capital goods at zero customs duty or procure them indigenously without paying duty in prescribed manner.

In return, exporter is under an obligation to fulfill the export obligation. Export obligation means obligation to export product(s) covered by Authorisation/permission in terms of quantity or value or both, as may be prescribed/specified by Regional or competent authority. Exports to SEZ unit/developer/co-developer will be considered for discharge of export obligation of EPCG Authorization, irrespective of currency.

The authorisation holder can either procure the capital goods (whether used for pre-production, production or post-production) from global market or


FOREIGN TRADE POLICY 6.41 domestic market. The capital goods can also be imported in CKD/ SKD to be assembled in India.

An EPCG Authorization can also be issued for import of capital goods under Scheme for Project Imports notified by CBIC. Export obligation for such EPCG Authorizations would be 6 times of duty saved.

However, import of capital goods is subject to ‘Actual User’ condition till export obligation is completed. After export obligation is completed, capital goods can be sold or transferred.

Therefore, based on the above discussion, XP Pvt. Ltd. can import the capital goods under EPCG Scheme. However, it has to make sure that it does not sell the capital goods till the export obligation is completed.

4. EOU, EHTP, STP & BTP SCHEMES Units under Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme:

export their entire production of goods and services (except permissible sales in DTA), and

can import inputs and capital goods without payment of customs duty.

STP/EHTP/BTP schemes are similar to EOU schemes and provisions are more/ less identical. EOU scheme is administered by Ministry of Commerce and Industry, while STP/EHTP/BTP schemes are administered by their respective administrative ministries.

Software Technology Park (STP) is set up for development of software exports. Electronic Hardware Technology Park (EHTP) are for export of electronics hardware and software. STP/EHTP Scheme is administered by Ministry of Information Technology. Bio Technology Park (BTP) is established on the recommendation of Department of Biotechnology.

(I) ELIGIBILITY

Such units may be set up for manufacture of goods, including repair, re-making, reconditioning, re-engineering, rendering of services, development of software, agriculture.

Trading units are not covered under these schemes.


6.42 CUSTOMS & FTP

Only projects having a minimum investment of ` 1 crore in plant & machinery shall be considered for establishment as EOUs. However, this shall not apply to units in EHTP/ STP/ BTP, EOUs in Handicrafts/ Agriculture/ Floriculture/ Aquaculture/ Animal Husbandry/ Information Technology Services, Brass Hardware and Handmade jewellery sectors. Board of Approvals (BoA) may also allow establishment of EOUs with a lower investment criteria.

(II) NET FOREIGN EXCHANGE EARNINGS

EOU/ EHTP/ STP/ BTP unit must be a positive net foreign exchange earner. However, a higher value addition is specified for some sectors.

How to compute NFE earnings?: NFE Earnings shall be calculated cumulatively in blocks of 5 years, starting from commencement of production.

In case unit is not able to achieve NFE due to:

(i) prohibition/ restriction imposed on export of any product, 5 years block period may be extended suitably by BoA.

(ii) adverse market condition or any grounds of genuine hardship having adverse impact on functioning of the unit, 5 year block is extendable upto 1 year.

Who monitors NFE?: Performance of EOU/ EHTP/ STP/ BTP units shall be monitored by Units Approval Committee as per prescribed guidelines.

Which supplies to DTA can be counted for positive NFE?: Following supplies effected from EOU/ EHTP/ STP/ BTP units to DTA (Domestic Tariff Area) will be counted for fulfillment of positive NFE:

(a) Supplies in DTA to holders of Advance Authorisation/ Advance Authorisation for annual requirement/ DFIA under duty exemption/ remission scheme/ EPCG scheme subject to certain exceptions.

(b) Supplies affected in DTA against foreign exchange remittance received from overseas.

(c) Supplies to other EOU/ EHTP/ STP/ BTP/ SEZ units, provided that such goods are permissible for procurement in terms of relevant provisions of FTP.

(d) Supplies made to bonded warehouses set up under FTP and/ or under section 65 of Customs Act and free trade and warehousing zones, where payment is received in foreign exchange.



(e) Supplies of goods and services to such organizations which are entitled for duty free import of such items in terms of general exemption notification issued by MoF.

(f) Supplies of Information Technology Agreement (ITA-1) items and notified zero duty telecom/ electronics items.

(g) Supplies of items like tags, labels, printed bags, stickers, belts, buttons or hangers to DTA unit for export.

(h) Supply of LPG produced in an EOU refinery to Public Sector domestic oil companies for being supplied to household domestic consumers at subsidized prices under the Public Distribution System (PDS) Kerosene and Domestic LPG Subsidy Scheme, 2002, subject to specified conditions.

(III) ENTITLEMENTS TO UNITS UNDER EOU, EHTP, STP AND BTP SCHEMES

(a) Entitlements for supplies from DTA

• Supplies from DTA to EOU/ EHTP/ STP/ BTP units will be regarded as “deemed exports” and DTA supplier shall be eligible for relevant entitlements for deemed exports, besides discharge of export obligation, if any, on the supplier. The refund of GST paid on such supply would be available to the supplier subject to specified conditions and documentations under GST law.

• In addition, EOU / EHTP / STP / BTP units shall be entitled to following:-

Imported goods are exempt from basic customs duty. Further, IGST and GST compensation cess is exempt upto 31.03.2020.

Input Tax Credit of GST paid on inputs and capital goods.

(b) Other Entitlements

• Units will be allowed to retain 100% of its export earnings in the EEFC account.

• Unit will not be required to furnish bank guarantee at the time of import or going for job work in DTA, subject to fulfillment of required conditions.


6.44 CUSTOMS & FTP

• 100% FDI investment permitted through automatic route similar to SEZ units.

(IV) EXPORT AND IMPORT OF GOODS

Export : Following exports are permitted:

all kinds of goods and services except items that are prohibited in ITC(HS),

Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) subject to fulfillment of the conditions indicated in ITC (HS).

Import : Following imports are permitted:

1. Export promotion material upto a maximum value limit of 1.5% of FOB value of previous years exports.

2. All types of goods, including capital goods, required for its activities, from (i) DTA, (ii) bonded warehouses in DTA/ International exhibition held in India, subject to ‘Actual User’ condition, provided such goods are not prohibited items of import in the ITC (HS) subject following conditions:

(a) The imports and/ or procurement from bonded warehouse in DTA/International exhibition held in India shall be without payment of basic customs duty. Such imports and/ or procurements shall be made without payment of integrated tax and GST compensation cess upto 31.03.2020.

(b) The procurement of goods covered under GST from DTA would be on payment of applicable GST and compensation cess. The refund of GST paid on such supply from DTA to EOU would be available to the supplier subject to such conditions and documentations as specified under GST law.

Goods including capital goods (on a self-certification basis) required for approved activity, free of cost or on loan/ lease from clients, subject to ‘Actual User’ condition are permitted to be imported.

3. Certain specified goods from DTA for creating a central facility, with/without payment of duty/ taxes as provided in point 2(a) and 2(b) above.

4. Second hand capital goods, without any age limit, with/without payment of duty/ taxes as provided in point 2(a) above.



Procurement and export of spares/ components, upto 5% of FOB value of exports, may be allowed to same consignee/ buyer of the export article, subject to the condition that it shall not count for NFE and direct tax benefits.

(V) LEASING OF CAPITAL GOODS

An EOU/EHTP/STP/BTP unit may, on the basis of a firm contract between parties, source capital goods from a domestic/ foreign leasing company with/without payment of duty/ taxes as provided in point 2(a) and 2(b) of heading (IV) above. In such a case, EOU/EHTP /STP / BTP unit and domestic/ foreign leasing company shall jointly file documents to enable import/ procurement of capital goods.

An EOU/ EHTP/ STP/ BTP unit may sell capital goods and lease back the same from a Non Banking Financial Company (NBFC) subject to fulfillment of specified conditions.

(VI) INTER UNIT TRANSFER

Transfer of manufactured goods from one EOU / EHTP / STP / BTP unit to another EOU / EHTP / STP / BTP unit is allowed on payment of applicable GST and compensation cess with prior intimation to concerned Development Commissioners of the transferor and transferee units as well as concerned Customs authorities, following the prescribed procedure.

Capital goods may be transferred or given on loan to other EOU/ EHTP/ STP/ BTP/ SEZ units, with prior intimation to concerned DC and Customs authorities on payment of applicable GST and compensation cess. Such transferred goods may also be returned by the second unit to the original unit in case of rejection or for any reason on payment of applicable GST and compensation cess.

Note: Goods supplied by one unit of EOU/ EHTP/ STP/ BTP to another unit shall be on payment of applicable GST and compensation cess following the prescribed procedure.

(VII) SALE OF UNUTILIZED MATERIAL

In case an EOU/ EHTP/ STP/ BTP unit is unable to utilize goods (including capital goods and spares that have become obsolete/surplus) and services, imported or procured from DTA, it may be


6.46 CUSTOMS & FTP

transferred to another EOU/ EHTP/ STP/ BTP/ SEZ unit; or

disposed off in DTA with intimation to Customs authorities on payment of applicable duties and/ or taxes and compensation cess. Further, exemption of basic customs duties availed, if any, on the goods, at the time of import will also be payable and submission of import Authorisation; or

exported.

Such transfer from EOU/ EHTP/ STP/ BTP unit to another such unit would be treated as import for receiving unit.

In case of capital goods, benefit of depreciation, as applicable, will be available in case of disposal in DTA only when the unit has achieved positive NFE taking into consideration the depreciation allowed.

No duty shall be payable other than the applicable taxes under GST laws in case capital goods, raw material, consumables, spares, goods manufactured, processed or packaged, and scrap/ waste/ remnants/ rejects are destroyed within unit after intimation to Customs authorities or destroyed outside unit with permission of Customs authorities.

Disposal of used packing material will be allowed on payment of duty on transaction value.

(VIII) DTA SALE OF FINISHED PRODUCTS/ REJECTS/ WASTE/ SCRAP/ REMNANTS AND BY-PRODUCTS

Entire production of EOU/ EHTP/ STP/ BTP units must be exported. However, the following are allowed as exceptions subject to the conditions specified:

(1) Sale of goods in DTA:

Units (other than gem and jewellery units) will be permitted to sell finished goods manufactured by them which are freely importable under FTP in DTA, subject to fulfilment of positive NFE, on payment of applicable GST and compensation cess along with reversal** of basic customs duty availed as exemption, if any on the inputs utilized for the purpose of manufacturing of such finished goods.



**on the basis of SION published by DGFT or norms approved by Norms Committee of DGFT (when no SION is fixed)

No DTA sale shall be permissible in respect of, pepper & pepper products, marble and such other notified items as also to units engaged in only packaging. Labelling, refrigeration, pulverilasiton etc.

Such DTA sale shall also be subject to refund of deemed export benefits availed by the EOU/supplier as per FTP, on the goods used for manufacture of the goods cleared into the DTA.

An amount equal to Anti-Dumping duty under section 9A of the Customs Tariff Act, 1975 leviable at the time of import, shall be payable on the goods used for the purpose of manufacture or processing of the goods cleared into DTA from the unit.

(2) Services provided in DTA: For services (including software units), sale in DTA shall also be permissible up to 50% of FOB value of exports and/ or 50% of foreign exchange earned, where payment of such services is received in foreign exchange.

(3) Sale of rejects in DTA: Rejects may be sold in DTA on payment of applicable GST and compensation cess along with reversal of basic customs duty availed as exemption on inputs on prior intimation to Customs authorities. Sale of rejects upto 5% of FOB value of exports shall not be subject to achievement of NFE.

(4) Sale of scrap/ waste/ remnants, arising out of production, in DTA: Scrap/ waste/ remnants arising out of production process or in connection therewith may be sold in DTA, as per SION notified under Duty Exemption Scheme, on payment of applicable duties and/ or taxes and compensation cess. Such sales of scrap/ waste/ remnants shall not be subject to achievement of positive NFE. Scrap/waste/remnants may also be exported.

In case scrap/ waste/ remnants are destroyed with permission of Customs authorities, no duties/ taxes payable on same. However, the expression “no duties/ taxes” shall not include applicable taxes and cess under the GST laws.

(5) Sale of by-products in DTA: By-products may also be sold in DTA subject to achievement of positive NFE, on payment of applicable GST


6.48 CUSTOMS & FTP

and compensation cess along with reversal of basic customs duty availed as exemption on inputs.

(6) Procurement of spares / components, up to 2% of the value of manufactured articles, cleared into DTA, during the preceding year, may be allowed for supply to the same consignee / buyer for the purpose of after-sale-service. The same can be cleared in DTA on payment of applicable GST and compensation cess along with reversal of basic customs duty availed as exemption on inputs.

(IX) EXPORT THROUGH OTHER EXPORTERS

An EOU/ EHTP/ STP/ BTP unit may export goods manufactured/ software developed by it through another exporter or any other EOU/ EHTP/ STP/ SEZ unit subject to specified conditions

(X) EXIT FROM EOU SCHEME

With approval of DC, an EOU may opt out of scheme. Such exit shall be subject to payment of applicable IGST/ CGST/ SGST/ UTGST and compensation cess, if any, and industrial policy in force. If unit has not achieved obligations, it shall also be liable to penalty at the time of exit.

(XI) CONVERSION

Existing DTA units may also apply for conversion into an EOU/ EHTP/ STP/ BTP unit. Existing EHTP / STP units, who have applied for conversion / merger to EOU unit and vice-versa, can avail exemptions in duties and taxes as applicable. Applications for conversion into an EOU / EHTP / STP / BTP unit from existing DTA units, having an investment of ` 50 crores and above in plant and machinery or exporting ` 50 crores and above annually, shall be placed before BOA for a decision.

5. DEEMED EXPORTS The objective of deemed exports is to ensure that the domestic suppliers are not in disadvantageous position vis-à-vis foreign suppliers in terms of the fiscal concessions. The underlying theory is that foreign exchange saved must be treated at par with foreign exchange earned by placing Indian manufacturers at par with foreign suppliers.

Deemed Exports for the purpose of this FTP

It refers to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free


FOREIGN TRADE POLICY 6.49 foreign exchange. Supply of goods as specified in FTP shall be regarded as “Deemed Exports” provided goods are manufactured in India.

Deemed Exports for the purpose of GST

It would include only the supplies notified under section 147 of the CGST/SGST Act, on the recommendations of the GST Council. The benefits of GST and conditions applicable for such benefits would be as specified by the GST Council and as per relevant rules and notification.

We will restrict our discussion to ‘Deemed exports for the purpose for FTP’ in this chapter.

Deemed exports broadly cover three areas.

a. Supplies to domestic entities who can import their requirements duty free or at reduced rates of duty.

b. Supplies to projects/ purposes that involve international competitive bidding.

c. Supplies to infrastructure projects of national importance.

(I) CATEGORIES OF SUPPLIES CONSIDERED AS ‘DEEMED EXPORT’

Supply by manufacturer Supply by main/sub-contractors(s)

Supply of goods against Advance Authorisation/ Advance Authorisation for Annual Requirement/ DFIA

Supply of goods to projects or turnkey contracts financed by multilateral or bilateral agencies/Funds notified by Department of Economic Affairs (DEA), under International Competitive Bidding.

Supply of goods to units located in EOU/ STP/BTP/EHTP

Supply of goods to any project where import is permitted at zero customs duty as per customs Notification No. 50/2017-Customs dated 30.6.2017, provided supply is made against International Competitive Bidding.

Supply of capital goods against EPCG authorisation

Supply of goods to mega power projects against International Competitive Bidding (even if customs duty on imports made by such project is not zero). The ICB procedures should be followed. Supplier


6.50 CUSTOMS & FTP

is eligible for benefits as specified. International Competitive Bidding (ICB) is not mandatory for mega power projects if requisite quantum of power has been tied up through tariff based competitive bidding or if project has been awarded through tariff based competitive bidding.

Supply to goods to UN or international organisations for their official use or supplied to projects financed by them.

Supply of goods to nuclear projects through competitive bidding (need not be international competitive bidding).

(II) BENEFITS FOR DEEMED EXPORTS

Deemed exports shall be eligible for any/ all of following benefits in respect of manufacture and supply of goods, qualifying as deemed exports, subject to specified terms and conditions:

a. Advance Authorisation/ Advance Authorisation for Annual requirement/ DFIA

b. Deemed Export Drawback. The refund of drawback in the form of basic customs duty of the inputs used in manufacture and supply under the said category shall be given on brand rate basis upon submission of documents evidencing actual payment of basic custom duties.

(III) COMMON CONDITIONS FOR DEEMED EXPORT BENEFITS

(i) Supplies shall be made directly to entities listed in the point (I) above. Third party supply shall not be eligible for benefits/exemption.

(ii) In all cases, supplies shall be made directly to the designated Projects/Agencies/Units/ Advance Authorisation/ EPCG Authorisation holder. Sub-contractors may, however, make supplies to main contractor instead of supplying directly to designated Projects/ Agencies. Payments in such cases shall be made to sub-contractor by main-contractor and not by project Authority.

(iii) Supply of domestically manufactured goods by an Indian Sub-contractor to any Indian or foreign main contractor, directly at the designated project’s/



Agency’s site, shall also be eligible for deemed export benefit provided name of sub-contractor is indicated either originally or subsequently (but before the date of supply of such goods) in the main contract. In such cases payment shall be made directly to sub-contractor by the Project Authority.

6. PENALTIES In case any exporter or importer in the country violates any provision of the Foreign Trade Policy or for that matter any other law in force, like GST, Central Excise or Customs or Foreign Exchange, his IEC number can be cancelled by the office of DGFT and thereupon that exporter or importer would not be able to transact any business in export or import. The premises where any violation of the provisions of FTP has taken place or is expected to take place can be searched and the suspicious material seized.

Violations would cover situations when import or export has been made by unauthorized persons who are not legally allowed to carry out import or export or when any person carries out or admits to carry out any import or export in contravention of the basic FTP.

7. GLOSSARY (ACRONYMS) Acronym Explanation

AA Advance Authorisation

ACC Assistant Commissioner of Customs

ANF Aayaat Niryaat Form

BG Bank Guarantee

BIFR Board of Industrial and Financial Reconstruction

BoA Board of Approval

BRC Bank Realisation Certificate

BTP Biotechnology Park

CBIC Central Board of Indirect Taxes and Customs

CCP Customs Clearance Permit

CEA Central Excise Authority

CEC Chartered Engineer Certificate

CIF Cost, Insurance & Freight


6.52 CUSTOMS & FTP CVD Countervailing Duty

DC Development Commissioner

DFIA Duty Free Import Authorisation

DGCI&S Director General, Commercial Intelligence & Statistics.

DGFT Director General of Foreign Trade

DoR Department of Revenue

DTA Domestic Tariff Area

EDI Electronic Data Interchange

EEFC Exchange Earners’ Foreign Currency

EFC Exim Facilitation Committee

EFT Electronic Fund Transfer

EH Export House

EHTP Electronic Hardware Technology Park

EIC Export Inspection Council

EO Export Obligation

EOP Export Obligation Period

EOU Export Oriented Unit

EPC Export Promotion Council

EPCG Export Promotion Capital Goods

FDI Foreign Direct Investment

FIEO Federation of Indian Export Organisation

FOB Free On Board

FT (D&R) Act Foreign Trade (Development & Regulation) Act, 1992

FTP Foreign Trade Policy

GATS General Agreement on Trade in Services

ICD Inland Container Depot

IEC Importer Exporter Code

ISO International Standards Organisation

ITC(HS) Indian Trade Classification (Harmonised System)


FOREIGN TRADE POLICY 6.53 Classification for Export & Import Items

ITPO India Trade Promotion Organisation LoC Line of Credit LoI Letter of Intent LoP Letter of Permit LUT Legal Undertaking MEA Ministry of External Affairs MoD Ministry of Defence MoF Ministry of Finance NC Norms Committee NFE Net Foreign Exchange NOC No Objection Certificate PSU Public Sector Undertaking R&D Research and Development RA Regional Authority RBI Reserve Bank of India RCMC Registration-cum-Membership Certificate S/B Shipping Bill SEZ Special Economic Zone SION Standard Input Output Norms SSI Small Scale Industry STE State Trading Enterprise STP Software Technology Park TEE Towns of Export Excellence VA Value Addition


6.54 CUSTOMS & FTP

TEST YOUR KNOWLEDGE 1. What do you understand by the term ‘Foreign Trade Policy’ (FTP)? Which is

the governing legislation for FTP? Which Government authorities administer FTP in India?

2. Briefly explain as to how FTP is linked with customs laws.

3. Enumerate the various matters in respect of which policies and regulations are framed under FTP.

4. With reference to the provisions of FTP 2015-2020, discuss giving reasons whether the following statements are true or false:

(i) If any doubt arises in respect of interpretation of any provision of FTP, the said doubt should be forwarded to CBIC, whose decision thereon would be final and binding.

(ii) Authorization once claimed by an importer cannot be refused by DGFT.

(iii) IEC is a unique 12 digit PAN based alphanumeric code allotted to a person for undertaking any export/ import activities.

(iv) Waste generated during manufacture in an SEZ Unit can be freely disposed in DTA on payment of applicable customs duty, without any authorization.

(v) A Customs Clearance Permit (CCP) is required from DGFT in certain specific cases of import of gifts.

5. Mr. A has brought a laptop from USA with him. Such laptop has been used by Mr. B - the seller for few months there. Mr. A contends that he can freely import such laptop as baggage without any restriction/ authorization. Examine the correctness of Mr. A’s claim in the light of the provisions of FTP 2015-2020.

6. State in brief policy for import of samples.

7. State salient aspects of Advance authorisation for annual requirements to exporters.

8. What are the salient features of Duty-Free Import Authorization Scheme (DFIA)? Which duties are exempted under this scheme?

9. Answer the following questions with reference to the provisions of Duty Credit Scrips under Export from India Schemes under FTP 2015-2020.

(i) Rishita provides services eligible for SEIS Scheme. She wants to sell SEIS



scrips earned by her. Can she do so?

(ii) Can a manufacturer, instead of importing the inputs, source the same indigenously without payment of GST?

(iii) An exporter was issued duty credit scrip dated 15.07.20XX. What is the period within which he must utilize the scrip?

(iv) An exporter exported leather footwears through courier using e-commerce of value of ` 24,000. Can he apply for duty credit scrips under Merchandise Exports from India Scheme (MEIS)?

10. Mention the reward scheme provided under FTP which aims to promote the manufacture and export of notified goods/ products. Discuss the basis of computation of reward under said scheme. How can the duty scrips issued under the Scheme be utilized?

11. Explain salient features of post export EPCG scheme.

12. With reference to the provisions relating to EOU, EHTP, STP, BTP & SEZ Schemes as contained in FTP, answer the following questions:

(i) A unit intending to trade in handicrafts wants to set up an EOU. Is it allowed?

(ii) An EOU has started production after 4 years 10 months from the date of grant of Letter of Permission (LoP)/ Letter of Intent (LoI). Is it correct?

(iii) A EOU wants to import a second hand capital goods which is prohibited under ITC (HS). Can it do so?

13. List some supplies which are ‘deemed exports’ for purpose of benefits under Foreign Trade Policy 2015-2020.

14. Explain the salient features of Foreign Trade Policy.

15. Write a short note on ‘Board of Trade’.

16. What are the features of Advance Authorization Scheme? Enlist the items which can be and which cannot be imported against Advance Authorization.

17. Discuss the benefits granted under FTP to Status Holders.

18. Explain the significant features of EPCG Scheme. Which type of capital goods cannot be imported under such Scheme?

19. Write short notes on the following with reference to the provisions relating to EOU/EHTP/STP/BTP as contained in the FTP:


6.56 CUSTOMS & FTP

(i) Entitlement for supplies from DTA

(ii) Inter-unit transfer

(iii) Sale of unutilized material

(iv) Replacement/repair of imported/indigenous goods

(v) Exit from EOU Scheme

20. What is ‘deemed exports’? Which type of supplies are regarded as deemed exports?

ANSWERS/ HINTS 1. Foreign Trade Policy is a set of guidelines or instructions issued by the

Central Government in matters related to import and export of goods in India viz., foreign trade. The FTP, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position.

In India, Ministry of Commerce and Industry governs the affairs relating to the promotion and regulation of foreign trade. The main legislation concerning foreign trade is the Foreign Trade (Development and Regulation) Act, 1992 FT (D&R) Act.

In exercise of the powers conferred by the FT (D&R) Act, the Union Ministry of Commerce and Industry, Government of India announces the integrated Foreign Trade Policy (FTP) in every five years with certain underlined objectives. This policy is generally updated every year in April, in addition to changes that are made throughout the year.

The FTP is formulated, controlled and supervised by the office of the Director General of Foreign Trade (DGFT), an attached office of the Ministry of Commerce & Industry, Government of India. DGFT has several offices in various parts of the country which work on the basis of the policy formed by the headquarters at Delhi.

Though the FTP is formulated by DGFT, it is administered in close coordination with other agencies. Other important authorities dealing with FTP are:

(i) Central Board of Indirect Taxes and Customs (CBIC)

(ii) Reserve Bank of India (RBI)


http://business.gov.in/outerwin.php?id=http://commerce.nic.in/

http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199222

http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=199222


(iii) State VAT Departments

2. The Foreign Trade Policy is closely knit with the Customs laws of India. However, the policy provisions per-se do not override tax laws. The exemptions extended by FTP are given effect to by issue of notifications under respective tax laws (e.g., IGST Act, CGST Act, SGST/UTGST Act, Customs Tariff Act, 1975, Central Excise Act, 1944, Customs Act, 1962 etc.). Thus, actual benefit of the exemption depends on the language of exemption notifications issued by the CBIC.

In most of the cases the exemption notifications refer to policy provisions for detailed conditions. Ministry of Finance/ Tax Authorities cannot question the decision of authorities under the Ministry of Commerce (so far as the issue of authorization etc. is concerned).

Decision of Director General of Foreign Trade (DGFT) is final and binding in respect of (a) Interpretation of any provision of foreign trade policy or provision of Handbook of Procedures, Appendices, Aayat Niryat Forms (b) Classification of any item in ITC(HS).

3. Following issues are covered under FTP 2015-2020 -

♦ General provisions regarding import and export of goods – Chapter 2 of FTP 2015-2020.

♦ Export from India Scheme [MEIS and SEIS] to encourage exports of specified goods to specified countries and also export of services – Chapter 3 of FTP 2015-2020.

♦ Duty Exemption and Remission Schemes [Advance Authorisation, DFIA and Duty Drawback Scheme and duty remissions schemes under GST law] to enable exporters to import inputs without payment of customs duty – Chapter 4 of FTP 2015-2020.

♦ Export Promotion Capital Goods (EPCG) scheme [to obtain capital goods without payment of customs duty] – Chapter 5 of FTP 2015-2020.

♦ EOU/EHTP/STP and BTP schemes – Chapter 6 of FTP 2015-2020.

♦ Deemed Exports – Chapter 7 of FTP 2015-2020.

♦ Quality Complaints and Trade Disputes – Chapter 8 of FTP 2015-2020.

Policy in respect of Special Economic Zones [SEZ] is contained in SEZ Act, 2005 and Rules.


6.58 CUSTOMS & FTP 4. (i) False. If any question or doubt arises in respect of interpretation of

any provision of the FTP, said question or doubt ought to be referred to DGFT whose decision thereon would be final and binding.

(ii) False. No person may claim an Authorization as a right and DGFT shall have power to refuse to grant or renew the same in accordance with provisions of FT(D&R) Act, rules made thereunder and FTP.

(iii) False. IEC is a unique 10 digit code allotted to a person for undertaking export/ import activities.

(iv) True. Any waste or scrap or remnant including any form of metallic waste & scrap generated during manufacturing or processing activities of an SEZ Unit/ Developer/ Co-developer are allowed to be disposed in DTA freely, without any authorization, subject to payment of applicable customs duty.

(v) True. A Customs Clearance Permit (CCP) for import of gifts is not required from DGFT if such goods are otherwise freely importable under ITC(HS). Thus, only when the goods imported as gifts are not freely importable under ITC(HS), a CCP is required.

5. Import of one laptop computer (notebook computer) as baggage is exempt from whole of the customs duty. Further, Foreign Trade Policy 2015-2020 provides that import of second hand laptop requires authorization.

In view of above, Mr. A’s claim is not correct as second hand laptops can be imported only against an authorization.

6. No authorisation is required for import of bona fide technical and trade samples. These are importable freely. Samples upto ` 3,00,000 can be imported by all exporters without duty.

Authorisation for import of samples is required only in case of vegetable seeds, bees and new drugs. Samples of tea upto ` 2,000 (CIF) per consignment will be allowed without authorization.

7. Annual Advance authorisation would be issued to exporters having past export performance for at least two financial years, to enable them to import the inputs required by them on annual basis.

Advance authorization for Annual Basis can be only on basis of prescribed manner and not on basis of ad hoc norms.


FOREIGN TRADE POLICY 6.59 Annual Advance Authorisation in terms of CIF value of imports will be

granted upto 300% of FOB value of physical exports in preceding financial year and/or FOR value of deemed exports in preceding year or ` 1 crore, whichever is higher.

8. DFIA is issued to allow duty free import of inputs, oil and catalyst which are required for production of export product. The goods imported are exempt ONLY from basic customs duty.

DFIA shall be issued on post export basis for products for which SION have been notified. Separate DFIA shall be issued for each SION and each port.

No DFIA shall be issued for an export product where SION prescribes ‘Actual User’ condition for any input.

Holder of DFIA has an option to procure the materials/ inputs from indigenous manufacturer/STE in lieu of direct import against Advance Release Order (ARO)/ Invalidation letter/ Back to Back Inland Letter of Credit. However, DFIA holder may obtain supplies from EOU/EHTP/BTP/STP/SEZ units, without obtaining ARO or Invalidation letter.

Drawback as per rate determined and fixed by Customs authority shall be available for duty paid inputs, whether imported or indigenous, used in the export product.

DFIA or the inputs imported against it can be transferred after the fulfillment of the export obligation. A minimum 20% value addition is required for issuance of DFIA except for items in gems and jewellery sector.

9. (i) Yes. The duty credit scrips and goods imported or domestically procured against them are freely transferable.

(ii) No. Utilization of duty credit scrip is not permitted for payment of GST for procurement from domestic sources.

(iii) The duty credit scrip will be valid for 24 months from date of issue.

(iv) Yes. Exports of leather footwears through courier using e-commerce of FOB value of ` 5,00,000 per consignment are eligible for MEIS.

10. The scheme is known as Merchandise Exports from India Scheme (MEIS).

The objective of MEIS scheme is to promote the manufacture and export of notified goods/ products.


6.60 CUSTOMS & FTP Under MEIS, exports of notified goods/products to notified markets shall be

eligible for reward at the specified rate(s). Unless otherwise specified, the basis of calculation of reward would be:

(i) on realised FOB value of exports in free foreign exchange,

or

(ii) on FOB value of exports as given in the Shipping Bills in free foreign exchange,

whichever is less.

These scrips can be used for payment of customs duties on import of inputs/goods including notified capital goods.

11. In EPCG scheme, first capital goods are imported without payment of customs duty and then export obligation is fulfilled. In case of post export EPCG scheme, the capital goods are imported on full payment of applicable duties in cash. Later, basic customs duty paid on Capital Goods shall be remitted in the form of freely transferable duty credit scrips. Capital goods imported under EPCG Authorisation for physical exports are also exempt from IGST and Compensation Cess upto 31.03.2020. In case integrated tax and compensation cess are paid in cash on imports under EPCG, incidence of the said integrated tax and compensation cess would not be taken for computation of net duty saved provided input tax credit is not availed.

These Duty Credit Scrips can be used for payment of applicable custom duties for imports. All other provisions of EPCG Scheme apply to post export EPCG scheme also.

Specific Export Obligation under this Scheme shall be 85% of the applicable specific EO [6 times of duties, taxes and cess saved on capital goods imported under EPCG scheme to be fulfilled in 6 years reckoned from authorization issue date]. Average EO remains unchanged.

Duty remission shall be in proportion to the Export Obligation fulfilled. The advantage of the scheme is that the exporter does not have any specific

export obligation when he imports capital goods on payment of full customs duty. Later, he gets remission on the basis of exports made by him.

12. (i) No. Units undertaking to export their entire production of goods and services (except permissible sales in DTA), may be set up under the



Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme for manufacture of goods, including repair, re- making, reconditioning, re-engineering and rendering of services. Trading units are not covered under these schemes.

(ii) No. EOU/ BTP/ EHTP/ STPs should start production within 2 years from the date of grant of Letter of Permission (LoP)/ Letter of Intent (LoI). In other words, LoP/ LoI have an initial validity of 2 years, by which time unit should have commenced production. Its validity may be extended further up to 2 years by competent authority. However, proposals for extension beyond four years shall be considered in exceptional circumstances, on a case to case basis by BoA.

(iii) No. Though an EOU is permitted to import duty free second hand capital goods, without any age limit, it cannot import capital goods that are prohibited items of import in the ITC(HS).

13. As per FTP 2015-2020, following are treated as deemed exports:

♦ Supplies against Advance Authorisation/DFIA

♦ Supplies to EOU/STP/EHTP/BTP

♦ Supplies against EPCG authorization

♦ Supply of marine freight containers by 100% EOU

♦ Supplies to projects against International Competitive Bidding

♦ Supplies to projects where imports permitted at zero customs duty

♦ Supply to mega power projects

♦ Supplies to UN or International Organizations for their official use.

♦ Supplies to nuclear projects

14. Refer para 1 of Unit I

15. Refer para 1 of Unit I

16. Refer para 1 of Unit II






Documents

UNIT – II : BASIC CONCEPTS RELATING TO EXPORT PROMOTION ... · Export Promotion Capital Goods Scheme (EPCG) permits exporters to import capital goods at zero customs duty or procure