After a long wait Government has announced Remission of Duties and Taxes on Exported Products (RoDTEP) Rates for 8,555 Products and set aside ₹12,454 crore for refunds under the scheme for the current fiscal, that came as a huge relief for exporters by easing the liquidity issues and remove uncertainty from the minds of the trade and industry to have clarity on Export Benefits so that they can fetch now new Export Contracts with proper Cost & Price Financials. It will also helps competitiveness of exports over a long-time horizon. Under the RoDTEP, various Central and State duties, taxes, and levies imposed on input products, among others, would be refunded to exporters. The scheme is intended for the Exporters to make Indian products cost-competitive and create a level playing field for them in the Global Market by Refund, un-refunded Taxes or Duties / Levies, not Exempted or Rebated at Present by any other Mechanism, including Prior Stage Cumulative Indirect Taxes on goods and services used in the production of the exported product and such indirect Duties/ taxes / levies in respect of distribution of exported product.
The rebate under the Scheme shall not be available in respect of duties and taxes already exempted or remitted or credited.
Under the WTO rules, certain Taxes & Duties like state taxes on power, oil, water, transportation, and other cesses and local levies are allowed to be refunded.
The scheme was notified on January 1, after discontinuation of the controversial Merchandise Exports from India Scheme (MEIS) after a World Trade Organisation (WTO) ruling stated that it violated the provisions of the global trade body by giving export subsidies for a wide range of goods. The RoDTEP Scheme will Not only Replace the Merchandise Exports from India Scheme (MEIS), but goes beyond it to Refund of un-refunded Taxes or Duties / Levies as discussed above. The new RoDTEP is a well-Conceived & Intended Scheme – fully compliant with WTO Norms and need of the hour in this critical juncture in view of Exit of MEIS.
The RoDTEP scheme came into effect from January 1 this year and allowed the exporters to claim in the Shipping Bill, even though Rates were not Announced. Once the rates are notified, System would automatically calculate the RoDTEP amounts for all the items where RODTEPY was claimed. No changes in the claim will be allowed after the filing of the EGM.
The RoDTEP scheme along with Rebate of State and Central Taxes and Levies (RoSCTL) scheme which was announced for the export of garments and apparels, together would cover 95% of the Tariff Lines for export of goods which are categorized under the notified 8 digit HS Code. RoDTEP rates are subject to Review on an annual basis and notify them well in advance before the beginning of a financial year.
However, three sectors of Steel, Chemicals and Pharmaceuticals would not get the benefit of RoDTEP as they have “done well without” incentives.
Also, certain categories which would not avail the benefits of RoTEP include export goods which are subject to minimum export price, restricted and prohibited items, deemed exports, Export of imported goods, Exports through trans-shipment, Products manufactured in EOU, EHTP and BTP, supplies of goods manufactured by domestic tariff area units to SEZs, and products manufactured or exported by units situated in special economic zones, Products manufactured partly or wholly in a warehouse under section 65 of the Customs Act, 1962 and Exports for which electronic documentation in ICEGATE EDI has not been generated/ Exports from non-EDI ports.
Products manufactured or exported in discharge of export obligation against an Advance Authorization or Duty Free Import Authorization or Special Advance Authorization issued under a duty exemption scheme of relevant Foreign Trade Policy also are not Eligible for the Scheme.
The reimbursement of taxes under RoDTEP such as duty on power charges, VAT on fuel in transportation, farm sector, captive power generation, mandi tax, stamp duty and central excise duty on fuel used in transportation, Duty on Electricity, Compensation Cess on Coal for Captive Power used during manufacturing etc would make Indian products competitive in global markets as these Duties, Taxes and Levies are being absorbed as Cost.
RoDTEP support will be available to eligible exporters at a notified rate as a percentage of Freight On Board (FOB) value. Rebates on certain export products will also be subject to value cap per unit of the exported product to Prevent Misuse of the Scheme by claiming on Inflated Values.
Mechanism of Issuance of Rebate: The Scheme would be implemented through end-to-end digitization of issuance of rebate amount in the form of a transferable duty credit/electronic scrip (e-scrip), which will be maintained in an electronic ledger by the Central Board of Indirect Taxes & Customs (CBIC). Necessary rules and procedure regarding grant of RoDTEP claim under the Scheme and implementation issues including manner of application, time period for application and other matters including export realization, export documentation, sampling procedures, record keeping etc. would be notified by the CBIC, Department of Revenue on an IT enabled platform with a view to end to end digitization. The e scrips would be used only for payment of duty of Customs leviable under the First Schedule to the Customs Tariff Act, 1975 viz. Basic Customs Duty.
The rebate allowed is subject to the receipt of sale proceeds within time allowed under the Foreign Exchange Management Act, 1999 failing which such rebate shall be deemed never to have been allowed. The rebate would not be dependent on the realization of export proceeds at the time of issue of rebate. Necessary provisions for recovery of rebate amount where foreign exchange is not realized, suspension / withholding of RoDTEP in case of frauds and misuse, as well as imposition of penalty will also be built suitably by CBIC.
The Appendix 4R containing the eligible RoDTEP export items, rates and per unit value caps, wherever applicable is available at the DGFT portal www.dgft.gov.in under the link Regulatory Updates >RoDTEP’.
Issue – 1: Low Rates of RoDTEP
Some Exporters & Industry Bodies, Export Promotion Councils are expressing displeasure over Low Rates announced under RoTEP. They are feeling that Various Duties, Taxes & other Levies suffered at Different Stages in the Entire Supply Chain are not being adequately covered by the Rates. In some cases the RoDTEP rates are much lower than MEIS Rates previously entitled.
In fact Government vide its Circular of 10th August’2020, requested Export Promotion Councils / Commodity Bodies / Trade & Industry Associations / Chamber of Commerce to provide Data w.r.t inputs used in the Respective Export Products in the Specified Proforma Comprising three parts viz. Proforma R1, R2, & R3. Provided ample time to Collect and submit the data. However, unfortunately the data was not completely provided by the Exporters / Industry. They specially found difficulty in providing Data for VAT & Ex. Duty on Fuel Used in Transportation (Inbound & Outbound Transport) in Form R2 and Incidence of Taxes/ Duties / Levies Borne by the Exported Product on account of Prior Stage Cumulative Taxes on Raw Materials / Inputs Consumed in the Manufacture of Exported Product in the Form R3. Government & Export Promotion Councils are also not come forward with certain formula to workout prior stage incidents of taxes. Failing which various Incidence of Embedded Taxes/ Duties / Levies on Prior Stage (beyond the First Tier Supply) are not completely captured, resulting in Lower Rates announced.
Nevertheless, Exporters, Export Promotion Councils and Industry Bodies must come out with proper data in the Form R2 & R3 in case the RoDTEP Rates are found Lower. There is provision in the scheme to review the RoDTEP rates on an annual basis if the Industry provides substantial information and data supporting evidence of higher incidents of embedded taxes.
Issue – 2 : Not Eligible for Certain Categories
By putting some built-in checks in the System to disallow RoDTEP benefit where the benefit of certain other schemes like Advance Authorization, EOU, SEZ etc. are illogical as the Objective of the scheme is to refund, all the un-refunded taxes or duties / levies, Embedded in the Entire Value Chain, those are not exempted or rebated at present by any other mechanism currently in practice.
At present under various schemes like Advance Authorization, EOU, Jobbing, SEZ etc. Taxes / Duties on only immediate (First Tier) Inputs are being Exempted and no other incidents of Duties, Taxes & Local Levies Embedded in the Entire Value Chain beyond First Tier. There are certain taxes / duties / levies, at different stages at the central, state and local level, which are incurred in the process of manufacture and distribution of exported products but are not being refunded under any mechanism currently in practice. For example, in the Processed Food Industry, at the originating Stage Supplies of Farm Inputs like Seeds, Fertilizers, Pesticides, Diesel etc. the Various Taxes are being Suffered are Not being Rebated / Refunded & Absorbed as Cost. Similarly in the Subsequent Stages of Value chain different taxes are being born as Cost.
So, the Rates proposed under RoDTEP are Mutually Exclusive basis with other Schemes, therefore the Benefits of RoDTEP should be allowed to Exporters availing Advance Authorization, EOU, SEZ etc.
Step – 3 : Payment of Interest for Delay
Even as the refund rates were announced eight months after the scheme was notified, the government said that the benefits will kick in from 1st January, 2021. However, the rates were not announced, therefore the Exporters are not able benefit from the Scheme and suffered working capital constraints and financial loss.
Since Exporters are suffered a huge liquidity crisis during the Period and Financial Loss, on genuine grounds and natural justice, Interest at the market rates for the delayed period shall be paid to the Exporters.
Disclaimer : The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.
Author : SN Panigrahi, GST & Foreign Trade & Project Consultant, Practitioner, International Corporate Trainer & Author.
Author can be Reached @ [email protected]; Mobile : 9652571117