In order to boost exports from India, the Government of India has come up with different Export Promotion Schemes which are concerned with the development and regulation of foreign trade by facilitating imports into and augmenting exports from India.

In this article, we shall be discussing some important Export Promotion schemes, their procedures & benefits, and a comparison of these schemes with one another in order to help businesses in evaluating and choosing the correct scheme for their business environment.

Before we dwell into the detailed comparative analysis of various schemes, we shall first briefly understand the same.

1. Advance Authorization (AA) Scheme:

Salient Features & Benefits:

♦ It allows duty-free import of inputs that are physically incorporated in the export product.

♦ AA are issued for physical exports as well as deemed exports.

♦ The AA and the materials imported are not transferable even after the completion of EO.

♦ Validity of an AA for making imports is 12 months.

♦ Imports under AA are exempted from IGST & Compensation Cess and are available for physical exports only.

♦ All Industry rate of Duty Drawback is not admissible with AA. Key Conditions to be fulfilled:

♦ Export obligation (EO) under AA is to have a minimum value addition of 15% (except for the Gems & Jewellery sector)

♦ EO is to be fulfilled in 18 months from the date of issue of Authorization.

♦ An AA holder is required to deposit Custom Duties with interest in case EO is not fulfilled.

Key Procedures to be followed:

♦  The AA holders are required to file a bond with a 100% Bank Guarantee for the duty difference with the Customs at the time of importing duty-free inputs however certain exemption/ relaxation is available subject to fulfilling conditions.

♦  Authorization holder shall file the application online by linking details of shipping bills against the authorization within two months from the date of expiry of the EO period.

2. Export Promotion Capital Goods (EPCG) Scheme:

Salient Features & Benefits:

♦ It allows the duty-free import of capital goods (except those specified in the negative list in Appendix 5F of Handbook of Procedure)

♦ Import of capital goods has to be made within 18 months from the date of issue of the Authorization.

♦ The CG imported are subject to actual user condition and the goods imported cannot be transferred or sold, etc. till the fulfillment of EO.

♦ Imports under EPCG by all sectors are exempted from IGST & Compensation cess which is available only for physical exports.

Key Conditions to be fulfilled:

♦ Export Obligation to be fulfilled which is equivalent to 6 times of the duties/ taxes and cess saved on the capital goods imported with an EO period of 6 years (extendable by 2 years) from the date of issue of Authorization.

♦ EO is to be fulfilled in two blocks i.e., 4 years and 2 years wherein 50% EO is to be fulfilled in the respective blocks.

♦ EO is to be over and above the average level of exports achieved in the preceding 3 licensing years for the same & similar products.

♦ In cases where the Authorisation holder has fulfilled 75% or more of the specific export obligation and 100% of Average Export Obligation in half or less than half the original export obligation period, the remaining export obligation shall be condoned, and the Authorisation redeemed by RA concerned.

♦ If the Export obligation is not fulfilled or partially fulfilled custom duty with Interest is payable proportionate to the export obligation not fulfilled.

Export Promotion Schemes

Key Procedures to be followed:

♦ The Authorization holder is required to file a bond with a 100% Bank Guarantee with the Customs prior to the commencement of the import of goods however certain exemption/relaxations is available subject to fulfilling conditions.

♦ The EPCG Authorization holder is required to indicate the EPCG Authorization No./date on the shipping bill/ invoice (in case of deemed exports)

♦ Installation certificates for capital goods are permitted to be obtained from the jurisdictional customs authority or independent Chartered Engineer.

3. Export Oriented Unit (EOU):

Salient Features & Benefits:

♦ The units undertaking to export their entire production of goods are allowed to be set up as an EOU and can export all products/services except prohibited items of export in ITC (HS).

♦ EOUs are allowed to import raw materials/ capital goods duty-free (including exemption from IGST and Compensation cess up), and also allowed to procure excisable goods without payment of duty indigenously.

♦  The DTA supplier or recipient EOU can avail refund of GST paid on supplies to EOU.

Key Conditions to be fulfilled:

♦ Projects having a minimum investment of Rs. 1 Crore and above in building, plant, and machinery are considered for establishment under EOU Scheme

♦ The EOU unit is required to be a positive net foreign exchange earner and the same is calculated cumulatively in blocks of 5 years from the commencement of commercial production.

Key Procedure to be followed:

♦ Three copies of the application in the prescribed form (ANF6A) are required to be submitted to the Development commissioner.

♦ Letter of Permission (LOP/LOI) is issued by the jurisdictional Development Commissioner on approval for setting up an EOU by Unit Approval Committee.

♦ The unit is required to execute a general-purpose B-17 bond with the jurisdictional Assistant/ Deputy Commissioner of Customs and Central Excise after obtaining LOP & execution of Legal undertaking.

4. MOOWR Scheme:

Salient Features & Benefits:

♦ This Scheme enables the conduct of manufacture and other operations in a Customs Bonded Warehouse and aims to attract investment into India and strengthen Make in India.

♦ Under this scheme, the factory must be declared as a private bonded facility, and raw materials and capital goods can be imported under Customs Duty Deferment with no Interest Liability. If the goods are cleared as such then interest is levied on duty deferred beyond 90 days.

♦ In the case of capital goods, duty will be only payable at the time of clearing the said capital goods in the domestic market i.e., if the capital goods are exported, no duty is payable. However, at the time of domestic clearance duty will be paid at the original value i.e., duty deferred at the time of procurement and not the WDV value.

♦ Improved liquidity with the deferment of import duty and no interest liability & enables efficient capacity utilization, as there is no limit on the quantum of clearances that can be exported or cleared to the domestic market.

Key Conditions to be fulfilled:

♦ Manufacturing or processing activity in the factory must be carried out using this raw material or capital goods and the duties are fully remitted if the goods resulting from such operations are exported.

Key Procedures to be followed:

♦ A single application cum approval form for uniformity of practice with a single point of approval to set up the operations of such units.

♦ Factory area would be designated as a bonded facility which needs to be governed as per the Customs (MOOWR) regulations. Customs may undertake periodic audits of the unit.

♦ Commissioner of Customs acts as the single point of contact for all approvals and common application & approval forms for a license for a private bonded facility and permission for manufacturing and other Operations.

♦ Online application as per Annexure A of MOOWR,2019 has to be filed along with the required details and documents and triple duty bond to be executed as per Annexure C.

5. Special Economic Zone (SEZ):

Salient Features & Benefits:

♦  SEZs are deemed to be a territory outside the Customs territory of India for the purpose of undertaking the authorized operations and goods/services entering it (from DTA) are treated as exports.

♦ SEZ unit or developer/co-developer may import without payment of duty, taxes or cess & Supply of goods from the Domestic Tariff Area to SEZ unit is treated as zero-rated supply under Section 16 of IGST Act 2017.

Key Conditions to be fulfilled:

♦ SEZ units shall achieve positive Net Foreign Exchange Earnings (NFE) which are calculated cumulatively for a period of 5 years from the commencement of production.

♦ The Goods admitted into a Special Economic Zone shall be used by the Unit or Developer for carrying out the authorized operations only otherwise it will lead to the payment of duties as if these goods have been cleared for home consumption.

Key Procedures to be followed:

♦ It can be set up in a notified area and any person who intends to set up SEZ has to make a proposal to the Concerned authority and a Letter of Approval will be granted by the Authority.

♦ The Letter of Approval (LOA) will be issued by the Development Commissioner for setting up of the Unit and it shall specify the items of manufacture or particulars of service activity, projected annual export, NFE for the first five years of operations.

♦ The LOA will be valid for one year within which the unit has to commence the production or service or trading and shall intimate the same to Development Commissioner (DC).

6. The Development (Enterprise and Services) Hubs (DESH) Bill, 2022:

Salient Features & Benefits:

♦ Development Hubs (DH) deemed to be a territory outside the customs territory of India for the purpose of undertaking authorized operations.

♦ Development hub has been bifurcated into Enterprise Hub & Service Hub.

♦ Government will specify a negative list of operations in First Schedule that shall not be considered Authorized operations.

♦ Deferral or Exemption has been granted from duties of customs on the import of goods or services into DH.

♦ Exemption from Customs duties has been provided for the export of goods or services from the DH.

♦ Removal from DH to DTA will be chargeable to payment of GST with reversal of custom duty on Inputs plus IGST plus Equilization levy and for capital goods duty on depreciation.

♦ There is no requirement for foreign currency realization in case of export of service.

♦ The provisions for SEZ under the IGST, CGST, and SGST Act have been replaced by provisions for Development Hubs.

♦ Easing denotification of Hubs including partial denotification without contiguity & other denotification norms eased.

Key Conditions to be fulfilled:

♦ DESH area has been demarcated by the Govt.

♦ Instead of NFE requirement Net Positive Growth criteria will be used to evaluate unit performance.

Key Procedures to be followed:

♦ A single application form needs to be submitted electronically for obtaining licenses, permissions, registrations, or approvals by a developer or unit under one or more Central Act.

♦ Periodic return needs to be filed on the online portal to enable the monitoring of the performance of units and Development hubs.

WTO Objection on India’s Export Promotion Scheme

While analysing the above schemes, it must be borne in mind that there is an objection being raised by the WTO on various export based incentives given by India as under: + WTO Dispute Resolution Panel seriously objected to India’s export promotion Schemes such as Advance Authorization, EPCG, MEIS, EOU & SEZ

♦ As per WTO, norms for international trade only actual taxes incurred at the processing stage shall be refunded/exempted for exporters.

♦ WTO Ruled some of India’s export promotion Schemes arbitrarily fixed without considering the actual tax incidence at the processing stage.

♦ This led the Indian Government to scrap some of the Schemes & introduce new Schemes like RODTEP, MOOWR, 2019, and DESH Bill 2022.

♦ Fate of export-incentive schemes such as Export Promotion Capital Goods (EPCG), Special Economic Zone (SEZ), and Export Oriented Unit (EOU) is uncertain due to the dispute at the World Trade Organization (WTO)

Therefore, it would be important for us to also evaluate the fate of the continuance of these schemes in the future. More clarity on this can emerge once the revised foreign trade policy is announced in April 2023.

Considering the above, organizations must carry out a feasibility study of the Schemes before opting for the same to suit their business and helps in reducing duties cost & generating more benefits. The parameters discussed above play a very important role in choosing the correct Export Promotion Scheme. Also, one must also consider their financial figures along with these parameters while taking a decision.

It can be noted that benefit under Duty Drawback & RODTEP benefit is not available if any of the above schemes have opted thereby one must also analyze the total customs duty cost vis a vis cumulative benefit availed under Duty Drawback & RODTEP schemes.

These schemes are beneficial to businesses/industries that are exporting most of their supplies outside India. While each scheme and the benefit is different, thereby it is recommended to carry out an independent study/cost-benefit analysis based on the facts and circumstances of each case which can help in optimizing the various benefits & incentives along with a reduction in cost of duties/ taxes.

CA Ravi Kumar Somani and CA Sonali Porwal

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Author Bio

Qualification: CA in Job / Business
Company: Hiregange & Associates LLP Chartered Accountants
Location: Pune, Maharashtra, India
Member Since: 01 Mar 2023 | Total Posts: 1

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