EXPORT PROMOTION SCHEME

EXEMPTION SCHEMES

  • Duty exemption scheme
    • Advance Authorisation Scheme
    • Duty free import authorisation scheme (DFIA)
  • Duty Remission Scheme
    • Duty Drawback Scheme (DBK) Sec. 75 customs
    • Duty Remission Scheme under Central Excise law not applicable

REWARD SCHEMES

1. Merchandise Export from India Scheme (MEIS)

2. Service Export from India Scheme (SEIS)

ADVANCED AUTHORISATION SCHEME

What is this Scheme?

Under this scheme, Input which are used in export product can be imported without payment of custom duty.

IGST (ACD 3(7)) and GST (ACD 3(9)) compensation cess have been exempted upto 31st March, 2020, on import under advance authorisation for physical export or following deemed exports:

1. Supply of goods by a registered person against advance authorisation,

2. Supply of capital goods by registered person against EPCG authorisation,

3. Supply of goods by a registered person to EOQ

The goods imported are exempt from Basic custom duty, additional custum duty, education cess, anti-dumping duty and safeguard duty unless and otherwise specified.

Validity 1. Advance authorisation shall be valid for 12 months from the issuance date.

2.  Advance authorisation for deemed export shall be co-terminus with contracted duration of project execution or 12 months from the issuance date, whichever is later.

Export Obligation Period of fulfilment of export obligation under advance authorisation is 18 month from the date of issue of authorisation or notified by DGFT.
Export Realisation Export proceeds shall be realised in freely convertible foreign currency otherwise specified.

  Which goods are imported under this scheme?

Eligible Non- Eligible
Inputs which are physically incorporated in export product (making normal allowance for wastage)

  • Fuel, oil, catalyst which are consumed/ utilized to obtain export product.
  • Mandatory spares which are required to be exported/supplied with restaurant product permitted upto 10% of CIF value of authorization.
  • Specified spices only when used for activities like: crushing/grinding/sterilization/manufacture of oil/oleoresins and not for simply cleaning, grading, re-packing etc.
  • However, item reserved for imports by STEs cannot be imported against advance authorisation.
  • Prohibited items mentioned in ITC (HS)
  • Energy
  • Items reserved by imports for STE (State Trading Enterprises)

Who are eligible for advance authorisation?

Advance authorisation can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s).

1. Physical Export

2. Intermediate supply or deemed export

3. Supplies made to specifies category of deemed exports.

4. Supply of stores on Board of foreign going vessel/aircraft provide there is specific SION in respect of item supplied.

Basis of issuance of Advance authorisation: Advance authorisation issued for inputs in relation to resultant product, on the following basis:

1. As per SION notified (available in the handbooks of procedure or;

2. On the basis of self-declaration: Regional Authority (RA) 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 inputs in the manufacturing product based on self-declaration by applicant. Wastage so claimed shall be subject to the wastage norms decided by norms committee. The applicant shall submit an undertaking to abide by the decision of Norms Committee. Or

3. Application specific prior fixation of norm by the norms committee.

4. On the basis of self-Ratification scheme: where there is no SION or Ad-hoc norms for export product and where SION has been notified but exporter intend to use additional input in the manufacturing process, eligible exporter can apply for an advance authorisation under the scheme on self-declaration and ratification basis. RA may issue advance authorisation in such cases need not to be referred to norms committee for ratification of norms. When Exporter (manufacture or merchant exporter) who hold AEO (Authorised Economic Operators) certificate under Common Accreditation Programme (above 3 stars status holder) of CBI&C is eligible to opt for the scheme.

ACTUAL USER CONDITION FOR ADVANCE AUTHORISATION

Advance authorisation and material imported thereunder will be with actual user condition:

1. Not Transferable: It will not be transferable even after completion of export obligation.

2. Disposal: However, authorisation holder will have an option to dispose of product manufactured out of duty-free input once export obligation is completed.

3. Waste: waste scrap arising out of manufacturing process, as allowed to be disposed off on payment of applicable duty or tax even before fulfilment of export.

Value addition target:

1. Minimum positive value addition is 15%. Except for physical export for which payment are not received in freely convertible currency and some other specified export product.

2. For tea, minimum value addition require shall be 50%.

Domestic Sourcing of Inputs: Holder of advance authorisation has an option to procure the materials/input from indigenous manufacturer/ STE in lieu of direct import against Advance Release Order (ARO)/ Invalidation letter/ Back to back inland credit letter. However  Advance Authorisation holder may obtain supplies from EOU/EHTP/BTP/STP without obtaining ARO/Invalidation Letter.

Annual Advance Authorisation(AA): AA can be issued for annual requirement also.

Annual AA Limit Entitlement (In items of CIF value of imports shall be higher of:

a.  Rs. 1 crore or

b. 300% of FOB value of Export/FOR value of deemed export in the preceding F/Y

Criteria Exporters have past export performance (in at least preceding two f/y) shall be entitled for advance authorisation for annual requirement.
Eligibility Authorization for annual requirement shall be issued only where SIONS or valid Ad hoc norms exist as on the date of issue of authorisation. It is not on the self-declaration basis.

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

2. DUTY FREE IMPORT AUTHORISATION

Under DIFA, Inputs which are used in export products can be imported without payment of custom duty.  The goods imported are only exempted from basic custom duty. IGST will be payable on Imports.

1. Eligible Goods:

i) Input required from production of export goods.

ii) oil

iii) catalyst

Fuel cannot be imported under DIFA.

2. SION for DIFA: These authorisations shall be issued only for the product for which SION have been notified. DIFA Shall be issued pre/post export.

3. No DIFA for Actual user condition for any inputs: No DIFA shall be issued for an export product where SION prescribes Actual user condition for any input.

Procedure & Condition
  • The application shall be filled online to RA before starting exports. Exports shall be within 12 months from the date of online filling of application and generation of file number. While doing the export/supply, applicant shall indicate the file no. on the export documents.
  • No DIFA for Actual user condition for any inputs: No DIFA shall be issued for an export product where SION prescribes Actual user condition for any input.
Transferability After completion of export and realisation of export proceeding, request for issuance of DFIA may be made to concerned RA within a period of:

a) 12 Month from the date of export

Or

b)  6 month (additional time allowed by RBI for realization) from the realisation of export proceeds, whoever is later.

  • RA shall issuer transferable DIFA within a period of 12 months from the date of issue.
Realisation Export proceeds shall be realised in freely convertible currency except and otherwise specified.
Domestic sourcing of Input Domestic Sourcing of Inputs: Holder of DFIA has an option to procure the materials/input from indigenous manufacturer/ STE in lieu of direct import against Advance Release Order (ARO)/ Invalidation letter/ Back to back inland credit letter. However, Advance DFIA holder may obtain supplies from EOU/EHTP/BTP/STP without obtaining ARO/Invalidation Letter.
Value addition Target Minimum positive value addition is 20%.

Except for physical export for which payment are not received in freely convertible currency and some other specified export product.

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

 REWARD SCHEMES

  • Reward schemes are scheme which entitle the exporters to duty credit scrip subject to various conditions.
  • These scrips can be used for the payment of custom duties on import of input/goods including notified capital goods.
  • These scrips are transferable that is they can be easily sold in the market, if the holder of duty credit scrip doesn’t intend to import goods against the scrips. Goods imported under the scrips are also freely transferable.
  • Following Scheme for export of merchandise and services:

1. Merchandise Export from India Scheme (MEIS) [going to be replaced by Refund of Duty or Taxes on Export Goods (RODTEP)]

2. Service Exports from India Scheme (SEIS) 

Particulars MEIS SEIS
Objective The objective of MEIS is to promote the manufacture and export of notified goods/products. The objective of SEIS scheme is to encourage notified services from India. The scheme applies to export of services made on or after 01.04.2015.

However, services provided in the manner/mode specified are eligible.

1. Supply of a ‘service’ from India to any other country (Mode 1- Cross Border Trade)

It means supply of service is directly made and not through any commercial place of same supplier located outside India.

2. Supply of a ‘service’ from India to service consumers of any other country (Mode 2- Consumption abroad)

Eligible exporter

(Claimant of Reward)

1.  Exporter who has realised foreign exchange

2. Supporting manufacture

Service Provider with IEC where net free foreign exchange earned of such service provider in the year of rendering service is:

1. Individual service provider and sole proprietorship = US $ 10,000

2.  Other service provider = US $ 15,000

Note: Payment in Indian Rupees for service charges earned on specified services, shall be treated as receipt in deemed foreign exchange as per the guideline of RBI.

Notified goods & Rate of Reward Under MEIS Export of notified goods/Product to notified markets (creation of new market) shall be eligible for reward at the specified rate(s) (General Rate 7% but in some cases 5% or 4% is applicable).

Unless otherwise specified the basis of calculation of reward would be:

(i) On realised FOB value of export in free foreign exchange. or

(ii)  On FOB value of export as given in the shipping bills in free foreign exchange, Whichever is less

Refer policy as rate differs on different products (3% to 5%)
%of Reward of Scrip based on FOB value of export goods Net foreign exchange earned
Ineligible category The following export categories/sectors shall be ineligible under MEIS (amended with effect from 05.12.2017)

i) Supplies made from DTA unit to SEZ unit

ii) Export of imported goods (without any manufacture)

iii) Export through transhipment (like imported from USA than change of vessel in India than exported to Japan)

iv) Deemed Export

v) SEZ/ EOU/ EHTP/BTP/FTWZ products exported through Domestic Tariff unit (DTA) unit. (Export of goods by EOU or SEZ etc to foreign consumer on the behalf of DTA unit would be eligible for MEIS if such goods are manufactured by EOU, SEZ etc. and directly exported by EOU, SEZ etc.

vi) Export product which are subject to Minimum export price or export duty.

vii)   Export made by units in FTWZ.

Service based

  • Service providers in telecom sector.
  • Export turnover relating to:
  •  Services of units operating under SEZ or,
  • Supplies of services made to such units;

Source based

Other sources of foreign exchange earning such as equity or debt participation, donation receipt of payment of loans etc. any other inflows of foreign exchange, unrelated to rendering of service, would be ineligible.

Account based

  • Payment for services received from EEFC account.

Goods based Export of Goods

 Export of goods through courier/foreign post offices using e-commerce:

Export of handicraft items, handloom products, books/periodicals, leather footwear, toys and tailor-made fashion garment through courier and foreign post office using e-commerce of FOB value upto Rs. 5,00,000 per consignment shall be entitled to get reward under MEIS. If the value is more than Rs. 5,00,000 per consignment, then MEIS reward would be calculated on the basis of FOB value of Rs. 5,00,000 only.

Common provisions for export from India Scheme (MEIS & SEIS)

  • CENVAT/ Drawback:
  • Basic duty paid in cash or through debit under Duty credit scrip shall be adjusted for Duty Drawback as per Department of Revenue rules and adjustments. (means full drawback shall be considered)
  • Duty Credit Scrip shall be permitted to be utilised for payment of customs duty in case of import of capital goods under lease financing.
  • Transfer of export performance: Not allowed but if the shipping bill are in name of applicant shall be counted only if export proceeds from overseas are realised in applicants bank account and this shall be evidenced from e-BRC/FIRC. However, MEIS can be claimed by the supporting manufacturer.
  • Incentive of MEIS are available to units located in SEZs also. But SEIS benefit is not available to units located in SEZ.

Net Foreign exchange earnings for the scheme are defined as under:

Net Foreign Exchange = Gross Earnings of Foreign Exchange – Total expenses / payment / remittances of Foreign Exchange (any expenses in Indian currency shall not be deducted) by the IEC holder, relating to service sector in the Financial year.

Note:

  • Receipt of Forex unrelated to provisioning of service shall not be considered. Other source of forex earning equity, dept participation, donation, receipt of repayment of loan etc. are unrelated service and would be ineligible.
  • Foreign exchange earnings and expenses in the capacity of service provider shall only be considered.

EXPORT PROMOTION CAPITAL GOODS SCHEME

  • Export Promotion Capital goods Scheme (EPCG) permits exporters to import capital goods for
Pre-Production
  • At Zero Custom Duty
  • Procure them indigenously without paying duty in the prescribed manner.
Production
Post Production
In return, exporter is under obligation to fulfill the export obligation

  • Capital goods imported under EPCG Authorisation for physical export are also exempt from IGST and compensation cess upto 31st March, 2020.

Export Obligation Import under EPCG scheme shall be subject to an export obligation equivalent to 6 times export of duty, taxes and cess saved on capital goods to be fulfilled in 6 years reckoned from the date of issue of authorisation.
Validity of authorisation Authorisation shall be valid for 24 months (Import of Capital Goods) from the date of issue of authorisation.
Actual user condition Import of goods shall be subject to actual user condition till export obligation is completed.
Transferability After export obligation is completed capital goods can be sold or transferable.

1. In case of integrated tax (ACD 3(7)) and compensation cess (ACD 3(9)) paid in cash on import of EPCG goods, incidence of the said integrated tax and compensation would not be taken for computation of net duty saved provided input tax credit is not availed.

2. Eligible exporters: Following are eligible for EPCG scheme:

  • Manufacturer exporter with or without supporting manufacturer(s),
  • Merchant exporter(s) tied to supporting manufacturer(s), and
  • Service providers including service providers designated as common service provider subject to prescribed conditions.

3. Eligible capital goods:

  • Capital Goods including Capital goods in CKD/SKD (Complete (completely dis-assembled (or Semi (partly disassembled) Knockdown condition)
  • Computer system and software which are a part of capital goods being imported
  • Spares, moulds, dies, jigs, fixtures, tools & refractories
  • Catalyst for initial charge plus one subsequent charge
  • Capital goods for projects imports notified by CBIC
  • Restricted Items: Import of restricted items (capital goods) shall be permitted under EPCG scheme only after approval from EXIM facilitation committee (EFC) of DGFT

IGST & GST Cess exempt on imports (w.e.f 13-10-2017) Capital Goods imported under EPCG scheme for physical exports are exempt from IGST & GST compensation cess upto 31st March 2020 (levied under sec 3(7) and 7) and 3(9) of custom tariff act provided in notification under dept of Revenue).

Domestic purchases free of duty: Alternatively, the authorization holder may also procure capital goods from indigenous sources.

Indigenous Sourcing of capital goods and benefits to domestic supplier:

A person holding an EPCG authorization 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 export. Such domestic sourcing shall be permitted from EOUs and these supplies shall be counted for the purpose of fulfilment of positive NFE by said EOU.

4. Export Obligation: Export Obligation means obligation to export product(s) covered by authorization/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 custom duties saved on FOR value.

Average Export Obligation (AEO): Under EPCG scheme the average level of export made by the applicant in the preceding 3 three licensing years for the same and similar products. It has to be achieved within the overall EO period (including extended period unless otherwise specified).

5. Conditions applicable to the fulfillment of export obligation:

  • EO shall be fulfilled by the authorization holder through export of goods which are manufactured by him or his supporting manufacturer / services rendered by him, for which the EPCG authorization have been granted.
  • In case of indigenous 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.
  • Shipments under advance authorization, DFIA, Drawback Scheme, would also be counted for fulfillment of EO under EPCG scheme.
  • EO can also be fulfilled by the supply of Information Technology agreement (ITA-1) items to DTA provided realisation is in free foreign exchange.
  • Both physical exports as well as specified deemed exports shall also be counted towards fulfilment of export obligation.

6. Incentives for early fulfillment of export obligation:

In case 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.

7. Post Export EPCG Duty Credit Scrip(s):

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

8. Salient feature of scheme are as follows:

  • Specific EO shall be 85% of the applicable EO stipulated under the EPCG scheme. Average EO remained unchanged.
  • Duty remission shall be in proportion to the EO fulfilled.
  • These Duty credit scrips can be utilized in the similar manner as the scrips issued under reward schemes can be utilized.

Summary of EO:

Cases Specific EO in addition to average EO Duty saved
1. Import of CG under EPCG Scheme (Duty/taxes & cess saved)  X (6 times) Actual Duty Saved Amount
2. Indigenous sourcing of Capital goods under EPCG Scheme (Notional Custom Duty saved) X (4.5 times) It may be calculated on notional custom duty saved on FOR value.
3. Post Export EPCG Duty credit scrip 85% of 6 times base on duty rewarded It is based on duty rewarded

Also Read-

Brief Understanding on Foreign Trade Policy (2015-20)- Part III

Brief understanding on Foreign Trade Policy (2015-20)- Part I

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