INDIA'S TRADE POLICY
INCENTIVE SCHEMES FOR INDIAN EXPORTERS
The Foreign Trade Policy 2015-20 has formulated a number of incentive schemes for Indian exporters. The major schemes announced for exporters are Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS).
The scheme is available for manufacture and exports of notified goods/products with ITC (HS) Code, to notified markets under Appendix 3B. It also lists the rate(s) of rewards on various notified products [ITC (HS) code wise]. The reward is calculated based on the realised FOB value of exports in free foreign exchange, or as given in shipping bills in freely convertible foreign currencies, whichever is less, unless otherwise specified.
MEIS replaced multiple incentive schemes for Indian exporters that were available previously – Focus Product Scheme (FPS), Focus Market Scheme (FMS), Market Linked Focus Product Scrip (MLFPS), Vishesh Krishi and Gram UdyogYojna (VKGUY), Agri. Infrastructure Incentive Scrip.
Export of goods through courier or foreign post office, as notified in Appendix 3C, of FOB value upto Rs 500,000 per consignment shall be entitled for rewards under MEIS. If the value of exports is more than Rs 500,000 per consignment, then MEIS reward would be calculated on the basis of FOB value of Rs 5,00,000 only. MEIS cannot be availed for the following categories:
(i) Supplies made from DTA units to SEZ units
(ii) Export of imported goods covered under paragraph 2.46 of FTP;
(iii) Exports through trans-shipment, meaning thereby exports originating in third country but trans-shipped through India;
(iv) Deemed exports;
(v) SEZ/ EOU/EHTP/BTP/FTWZ products exported through DTA units;
(vi) Export products, which are subject to Minimum Export Price or export duty.
(vii) Exports made by units in FTWZ.
MEIS incentives are available at 2, 3, 4 and 5% and 7, 10 and 20% of the FOB value of exports. At the time of introduction on April 1, 2015, MEIS covered 4914 tariff lines at 8 digits. Keeping in mind the global economic downturn, it was expanded to 7,914 lines, all with global coverage. As of 2019, the scheme covers 8,057 tariff lines at 8-digit level. The total annual financial cover for MEIS during 2018-19 was Rs 30,819.91 crore.
The scheme was launched to promote exports of notified services from India. The list of notified services and rates of rewards is available in Appendix 3D.
Service provider should have minimum net free foreign exchange earnings of US$ 15,000 during the year of rendering service to be eligible for Duty Credit Scrip. For individual service providers and sole proprietorships, the net free foreign exchange earnings should be over US$ 10,000 a year.
Payment in Indian rupees for specified services shall be treated as deemed foreign exchange according to RBI guidelines. The list of these services is available in Appendix 3E.
The service provider needs to have an active IEC to claim a reward under SEIS. Foreign exchange remittances other than those earned for rendering of notified services would not be considered for entitlement. This could include categories like equity or debt participation, donations, receipts of repayment of loans etc. and any other inflow of foreign exchange, unrelated to rendering of service.
SEIS offers reward @ 3 or 5% of net foreign exchange earned, and is only available for Mode 1 and Mode 2 services. Major service covered include legal, accounting, architectural, engineering, educational, hospital services, hotels and restaurants and other business services.
The government provides duty credit scrips as rewards under both schemes (MEIS and SEIS) for Indian exporters. The scrips, as well as goods imported/procured against them, are freely transferable. They are also given as an offset for infrastructural inefficiencies and associated costs involved in exporting from India.
The scrips can be used to pay basic customs duty, safeguard duty, transitional product specific safeguard duty and anti-dumping duty. While they were earlier used for the payment of customs, excise and services tax as well, they can now be used to pay for GST, except for restricted items like petroleum products, tobacco, etc.
Following points need to be noted for these schemes:
a) Additional Customs duty specified under Sections 3(1), 3(3) and 3(5) of the Customs Tariff Act, 1975/Central excise duty paid in cash or through debit under Duty Credit scrip shall be adjusted as CENVAT Credit or Duty Drawback as per DoR rules or notifications. 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.
b) Duty credit scrip shall be permitted for payment of duty in case of import of capital goods under lease financing.
c) Export performance cannot be transferred from one IEC holder to another.
d) MEIS rewards can be claimed either by the suppor1ing 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.
e) Duty credit scrip can be utilised/debited for payment of custom duties in case of EO defaults for authorisations issued under Chapters 4 and 5 of Foreign Trade Policy.
f) Duty credit scrips can also be used for payment of composition fee under FTP, for payment of application fee under FTP, if any and for payment of value shortfall in EO under Para 4.49 of Hand Book of Procedures (HBP) 2015-20.
EPCG scheme is aimed at facilitating imports of capital goods to produce quality goods and services and improve India’s manufacturing competitiveness.
The EPCG Scheme permits imports of capital goods (except those specified in the negative list in Appendix 5 F) for pre-production, production and post-production at zero customs duty. Capital goods imported under EPCG Authorisation for physical exports are also exempt from IGST and Compensation Cess upto March 31, 2020. Duty is leviable thereon under the sub-section (7) and sub-section (9) respectively, of section 3 of the Customs Tariff Act, 1975 (51 of 1975), as provided in the notification issued by Department of Revenue.
(a) The Authorisation holder may also procure Capital Goods from indigenous sources in accordance with paragraph 5.07 of FTP. Capital goods for the purpose of the EPCG scheme shall include:
(i) Capital goods as defined in Chapter 9 including in CKD/SKD condition thereof;
(ii) Computer systems and software, which are a part of the capital goods being imported;
(iii) Spares, moulds, dies, jigs, fixtures, tools & refractories; and
(iv) Catalysts for initial charge plus one subsequent charge.
(b) Import of capital goods for project imports notified by Central Board of Excise and Customs is also permitted under this Scheme.
(c) 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 date of issue of authorisation, which shall be valid for import for 18 months from the date of issue of authorisation.
The scheme covers manufacturer exporters with or without supporting manufacturer(s), merchant exporters tied to supporting manufacturer(s) and service providers. It also covers a service provider who is designated/certified as a Common Service Provider (CSP) by the DGFT, Department of Commerce or State Industrial Infrastructural Corporation in a town of export excellence subject to conditions as specified in the policy.
The Interest Equalisation Scheme came into effect on April 1, 2015. The scheme provides for interest equalisation @ 3% per annum on pre-shipment and post-shipment rupee export credit. The scheme is available to all exports under 416 specified tariff lines [at ITC (HS) code of 4 digit, largely covering labour intensive sectors] and to all exports made by Micro, Small & Medium Enterprises (MSMEs) across all ITC (HS) codes. The sector coverage mostly comprises agriculture or food items, auto components, handicraft, electrical engineering items, and telecom equipment.In November 2018, the RBI increased the interest subsidy under IEC to 5% for MSMEs. Furthermore, in January 2019, the scheme was extended to merchant exporters.
The government categorises certain transactions wherein goods supplied do not leave the country and payment is received in Indian rupees or free foreign exchange as deemed exports, provided the goods are manufactured within India. In the case of manufacturers, the following categories shall be regarded as “Deemed Exports”:
(a) Supply of goods against Advance Authorisation/Advance Authorisation for annual requirement /DFIA;
(b) Supply of goods to EOU/STP/EHTP/BTP;
(c) Supply of capital goods against EPCG Authorisation
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 terms and conditions:
(a) Advance Authorisation/Advance Authorisation for annual requirement/DFIA.
(b) Deemed Export Drawback for Basic Customs Duty (BCD).
(c) Refund of terminal excise duty for excisable goods mentioned in Schedule 4 of Central Excise Act 1944 provided the supply is eligible under that category of deemed exports and there is no exemption.