Export promotion

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I N C E N T I V E S A N D P O L I C I E S

EXPORT PROMOTION-

FOREIGN TRADE POLICY

• Issued by the MoC to regulate all import-export transactions• 5 year policies issued – Current Policy 2009-2014

• Procedural aspects set out in the Handbook of Procedures accompanying the Policy

• Various goods bifurcated into Free/Restricted/Prohibited

• Prescribes necessary registrations, etc for undertaking such transactions• Obtaining Importer Exporter Code

• Necessary licenses in case of restricted goods

• Export Incentive Schemes for :• Exporters of Goods

• Service Exporters Supported by appropriate

• Deemed Exporters notification from MOF

FTP issued under Section 5 of the F T (D&R) Act, 1992www.StudsPlanet.com

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EXPORT OPPORTUNITIES

Every $ of export results in duty benefitValue Added Services

• Identifying the various transactions undertaken by the client to determine benefits available under FTP including transaction structuring

• Not all service exporters optimizing benefits• SFIS

• EPCG

• Benefits in relation to Deemed Exports not tapped completely

• Review of benefits being availed to identify the most optimum scheme

Compliance Services• Certification

• Application preparation and obtaining licences

• Litigation

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EXPORT PROMOTION SCHEMES

• Promotional Measures• Served from India Scheme (SFIS)• Focus Market Scheme (FMS)• Focus Product Scheme (FPS)

• Duty Exemption & Remission Schemes• Advance Authorization Scheme• Duty Free Import Authorization Scheme • Duty Entitlement Passbook Scheme

• EPCG Scheme• Special Schemes

• Deemed Exports• Export Oriented Unit (EOU) • Special Economic Zone (SEZ)

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CHOOSING APPROPRIATE SCHEME..

• Each Scheme has following 4 aspects:• Objective

• Enables clarity on interpretational issues

• Eligibility• Meeting the eligibility criteria is most critical before any further analysis

as to applicability of the Scheme is undertaken

• Entitlement• With a view to optimise the total benefit, it is critical that such scheme as

would result into maximum benefit, considering commercial requirements is opted

• Imports permitted• Each scheme restricts the nature of goods that can be imported under

the entitlement conferred by the Scheme

• Conditions and obligations• Satisfaction of the conditions is an absolute necessity

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SERVED FROM INDIA SCHEME

• Objective• To accelerate the growth in export of services • To create a powerful and unique SFI brand, instantly recognized

and respected world over• Enhance India’s share in global exports of services• Help small scale service providers

• Eligibility• Individual service provider

• who earn forex of at least Rs. 5 lakhs during preceding financial year

• Other service provider• who earn forex of at least Rs. 10 lakhs during preceding or current

financial year

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SERVED FROM INDIA…

• Professional Opportunities• Advisory

• Applicability and utility of the scheme in varying fact profiles• Analysis of impact of relevant Notifications and Circulars

• Eligibility of kind of goods that can be imported – including office equipment

• Legal and interpretational issues

• Execution / Implementation• Ascertaining eligible service exports of client• Ascertaining the requirement of imported goods• Import restrictions, if any, applicable to a particular client• Getting the SFIS Scrip

• Filing application• Follow up with Department

• Assistance in utilization of the credit scrip• Procedural compliances and documentation requirements

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FOCUS MARKET SCHEME

• Objective• To offset the high freight cost and other disabilities to select

international markets with a view to enhance export competitiveness

• Entitlement• Duty free credit scrip equivalent to 3% of FOB value of exports made

from Aug. 27, 2009• Notified countries set out in Appendix 37 C

• Focus Markets (Table 1- American, African, East European, Asian and CIS-CAR block)

• New Focus Markets (Table 2- Latin American and Asia-Oceania block)

• Eligible exports – all goods to notified countries• Ineligible exports

• Supplies to SEZ units; Service exports; Ores and Concentrates;• Diamond and other precious, semi precious stones; Gold, silver etc..• Cereals of all types; Sugar, of all types; Milk & milk products• Crude / Petroleum Oil

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FOCUS MARKET SCHEME


• Applicability of the scheme in varying fact profiles• Analysis of impact of relevant Notifications and Circulars

• Eligibility of kind of goods that can be imported• Representation for addition of specific countries• Transaction structuring to create eligibility under the scheme• Legal and interpretational issues

• Execution / Implementation• Identifying countries to which exports are made• Determining utilisation of credit scrip• Getting the FMS Scrip


• Procedural compliances and documentation requirements

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FOCUS MARKET SCHEME

• Imports allowable • Duty Credit Scrip and goods imported there under are freely

transferable• Inputs or Capital goods which are otherwise freely importable

under ITC

• Others• Proof of landing critical for availment of the benefit• Cenvat / Drawback

• Additional Customs duty / Excise duty paid, can be adjusted as Cenvat credit or Duty drawback

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FOCUS MARKET SCHEME



• Eligibility of kind of goods that can be imported• Representation for addition of specific countries• Transaction structuring to create eligibility under the scheme• Legal and interpretational issues

• Execution / Implementation• Identifying countries to which exports are made• Determining utilisation of credit scrip• Getting the FMS Scrip


• Procedural compliances and documentation requirements

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FOCUS PRODUCT SCHEME

• Objective

• To incentivize export of such products, having high employment intensity in rural and semi urban areas

• To offset the inherent infrastructure inefficiencies and other associated costs involved in marketing of these products

• Entitlement & Eligibility

• Exports of notified products to all countries entitled for duty free credit scrip equivalent to 2% (5%-special products) of FOB value of exports for each licensing year

• Following exports shall not be taken into account for credit entitlement• Deemed exports

• Exports made by SEZ units or SEZ products exported by DTA units

• EOUs / EHTPs / BTPs who’re availing direct tax benefits / exemptions

• Exports through transshipment

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• Imports allowable • Duty Credit Scrip and goods imported there under are freely

transferable• Inputs or Capital goods which are otherwise freely importable

under ITC

• Others• Cenvat / Drawback

• Additional Customs duty / Excise duty paid, can be adjusted as Cenvat credit or Duty drawback

• This scheme is an alternate option to • Focus Market Scheme or

• Vishesh Krishi and Gram Udyog Yojana

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• Eligibility of kind of goods that can be imported• Representation for addition of specific products• Transaction structuring to create eligibility under the scheme• Legal and interpretational issues

• Execution / Implementation• Ascertaining eligible goods that have been exported• Getting the FPS Scrip

• Filing application• Follow up and liasoning with Department

• Assistance in utilization of the credit scrip• Procedural compliances and documentation requirements

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DUTY PROMOTION SCHEMES

Advanced Authorisation Scheme(Erstwhile ‘Advance License Scheme’)• Issued on the basis of

• Inputs and export given under Standard Input Output Norms (SION); or

• Adhoc norms or self declared norms • Para 4.7 of the Handbook of Procedure

• Authorization can also be applied for annual requirement for a particular product group by Status holders and by the other exporters having at least past two years export performance

• Eligibility• Manufacturer/Exporter as well as Merchant/Exporter tied up with

supporting manufacturer

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ADVANCED SCHEME

• Entitlement• Duty free imports of inputs & consumables are allowed for

manufacture of export product• Normal allowance for wastage available

• Duty free imports of spares upto 10% of the CIF value of the Authorization which are required to be exported

• Imports allowable• All items except prohibited items

• Conditions• Authorization is under actual user condition i.e. materials imported

cannot be transferred, must be incorporated in the export product• Option with Authorization holder to dispose off the product manufactured

out of the duty free inputs on completion of export obligation• If imports made in higher quantity, then duty alongwith interest to be paid

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ADVANCED AUTHORISATION SCHEME

• Limitation / Practical Issues• Strict enforcement of technical characteristics, quality and

specification of inputs gives very little flexibility to exporters

• Problem in auditing of Duty Entitlement Exemption Certificate (DEEC) after fulfillment of export obligation

• Dual monitoring of export obligation by both DGFT and Customs with little coordination interse between them

• Payment of high interest on the unutilized quantity of raw material even in case of bonafide default

Very widely used Scheme, however, a review of the effectiveness of this scheme vis-à-vis other schemes may

reveal different results

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DUTY FREE AUTHORIZATION SCHEME

• Combined features of• Advance Authorisation Scheme; and• Erstwhile Duty Free Replenishment Certificate Scheme

• Entitlement• Duty free import of inputs which are used in manufacture of export

product as per SION • Normal allowance for wastage available

• Eligibility• Manufacturer/Exporter as well as Merchant/Exporter tied up with

supporting manufacturer

• Conditions• Minimum 20% value addition required with an export commitment • Actual user condition in case of pre-export authorization

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DUTY FREE AUTHORIZATION..

• Benefit• Exemption from following duties on procurement

• Customs, Additional Customs & Excise duty, Education Cess, Anti-dumping duty & Safeguard duty

• Import allowable• All items except prohibited items

• Transferability• Allows transferability of scrip as well as goods imported there under

• Cenvat facility• Cenvat credit facility available for inputs either imported or procured

indigenously against the Authorization

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DUTY FREE IMPORT AUTHORIZATION


• To identify appropriate scheme DFIA Vs. AAS• Minimum value addition criteria reduces quantum of benefit• Transferability ensures benefits to producers using domestic inputs


• Whether scrip should be purchased at all by non-exporters• Legal and interpretational issues

• Execution / Implementation• Calculation of input output norms to confirm eligibility under the

scheme• Calculation of quantum of value addition• Preparation and filing of application including all supporting

documentation• Procedural compliances and documentation requirements

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DUTY ENTITLEMENT PASSBOOK

• Objective• To neutralize the incidence of Customs duty on import content of the

export product

• Entitlement• Duty credit on the basis of pre-notified entitlement rates• Such credit can be utilized to import goods without payment of duty• DEPB or Products imported against it are freely transferable

• Advantages• Freely transferable• No actual user condition• Additional Customs Duty/Excise Duty paid in cash or through debit

under DEPB can be adjusted as Cenvat Credit

• Applicability of Drawback• Additional Customs duty / Excise duty paid in cash or through debit

may also be adjusted as Cenvat Credit or Duty Drawback

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EXPORT PROMOTION CAPITAL GOODS

• Objective:• Achieve growth in exports by allowing capital goods to be imported

at concessional rate of duty• Entitlement

• Pre export benefit – import at consessional rate of 3% and 0% customs duty• Components and spares also eligible to concession

• Eligibility • Manufacturer exporters• Supporting manufacturers• Service providers

• Imports allowed - capital goods, including • spares (including refurbished/reconditioned spares), • tools, jigs, • fixtures, • dies and moulds • Second hand capital goods without any restriction on age

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EXPORT PROMOTION CAPITAL GOODS

• Benefits• Deemed export benefits on domestic sourcing

• Leasing of imported capital goods permissible

• Obligations • Export Obligation to be fulfilled up to 50% by export of goods

manufactured or services rendered, balance can be through other units/Group Companies • EO = 8 times duty saved (6 times in 6 years in case of 0% duty)

• To be fulfilled within 8 years from issue of license;

• To be fulfilled within 12 years in case amount of duty saved exceeds Rs. 100 Cr

• Exports under Advance Authorization, DFIA, Drawback, etc. can also be considered towards fulfillment of EO

• Special extended period to achieve EO for BIFR / SSI

• Actual user condition till fulfillment of export obligation

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DEEMED EXPORT

• Concept• Unique to India• Specified transactions where goods are not physically exported

outside the country• Payment for such supplies is received either

• in Indian rupees or • in free foreign currency

• Objective• Public Interest• Encourage exports directly / indirectly

• Benefits• Deemed Exporters shall be entitled to

• Advance Authorization / DFIA• Deemed export Drawback• Refund of Terminal Excise duty

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DEEMED EXPORTS

• Entitlement• Following categories of supplies by main contractors / sub-

contractors treated as deemed exports• Against Advance Authorisation / Advance Authorisation for annual

requirement / DFIA• To EOU / STP / EHTP / BTP• Capital goods to EPCG Authorisation holders

• Projects financed by multilateral or bilateral agencies / funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding (ICB)

• Supply of goods where legal agreements provide for tender evaluation without inclusion of Customs duty

• Supply and installation of goods and equipment where bids are evaluated on the basis of Delivered Duty Paid (DDP) prices for goods manufactured abroad

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DEEMED EXPORTS

• Capital goods to fertilizer plants• including CG in unassembled / disassembled condition

• plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till stage of commercial production, and

• spares to the extent of 10% of FOR value

• To any project or purpose in respect of which the MoF, by notification, permits import of such goods at zero Customs duty

• To power projects and refineries not covered above (Subject to ICB)• Supply of marine freight containers by 100% EOU

• Containers to be exported out of India within 6 months or such further period as permitted by Customs

• To projects funded by UN Agencies• To nuclear power projects through competitive bidding as opposed

to ICB

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DEEMED EXPORTS


• What transactions qualify as deemed exports• Impact of Notifications / Circulars / precedents on varying fact profiles

• Structuring of transactions as deemed exports• Legal / Interpretational issues

• Execution / Implementation• Conceptualization and implementation of the transaction to

qualify as deemed exports• Preparation & maintenance of accounts & documents• Procedural compliances

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EXPORT ORIENTED UNITS

• Concept• Unit primarily expected to export• Covers capital goods (including raw material for making capital

goods), raw materials and others• Entitlement to sell upto 50% of FOB value of exports to the

Domestic Tariff Area (DTA)• Sub-contracting to DTA permitted

• Fiscal benefits• Exemption from Customs Duty on import / local procurement and

Excise duty on manufacture for export• Refund of Central Sales tax on inter state procurement of goods• Exemption from Income tax in respect of export earnings• Leasing of Capital Goods without payment of Customs / Excise

duty

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EXPORT ORIENTED UNITS

• Obligation• The unit should be positive net foreign exchange earner

(NFEE) • Duty, interest and penalty payable on non fulfillment of NFEE

The biggest incentive of Income Tax holiday fading out at end of the current

fiscal year

SPECIAL ECONOMIC ZONE“Specially delineated duty free enclave”

“No licence required for import”

“Deemed foreign territory for trade, operations, duties and tariff”

“Manufacturing, trading or service activity allowed”

“SEZ unit to be positive net foreign exchange earner within three years”

“Full freedom for subcontracting including subcontracting abroad”

“Job work on behalf of domestic exporters for direct exports allowed”

“No separate documentation required for Customs and Exim Policy”

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SEZ- DEVELOPMENT OF SEZ

• Developer• Person responsible for procuring the land on which the SEZ will

be set up and arranging for the construction, development, provision of infrastructure, operation and maintenance of the SEZ

• Co-developers• Person who enters into an agreement with the Developer to

assist the Developer in providing infrastructure in the SEZ or undertaking any other operations as have been authorized by the Board of Approval

• Units in SEZ • Entrepreneurs

• Units are set up within the SEZ by Entrepreneurs to undertake manufacturing activities and / or provide services

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OTHER KEY PLAYERS

• Parties involved in the development of a SEZ • Contractors• Service Providers and • Vendors

• Contractors / Service Providers / Vendors• Application to DC for getting approval• Post Approval will be eligible for SEZ benefits

DIRECT TAX BENEFITS - UNITS

• Deductions of Profits (Section 10AA)

*Deduction is allowed provided the amount is credited to a Special Reserve Account which is created and utilized for the business of the unit within 3 years

• Deduction available only in respect of profit and gains from physical exports

Deduction (% of Profit)

Years

100 0-5

50 5-10

50* 10-15

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INDIRECT TAX BENEFITSAPPLICABLE

LAWSEXEMPTIONS

Excise • Goods manufactured and exported out of the SEZ units • Goods procured from the Domestic Tariff Area into the

SEZ

Customs • Goods imported into a SEZ• Goods exported from a SEZ Unit (other than except DTA

Sale)• Drawback on goods brought from the DTA into a SEZ Unit

Service tax • Taxable Services exported out of the SEZ units to a place outside India

• Taxable Services procured from the Domestic Tariff Area into SEZ

• Drawback on services provided from the DTA into a SEZ• Drawback on services provided in SEZ by service

providers located outside India

Central Sales tax • Exemption from CST on purchase of goods from DTA • No exemption on sale by SEZ unit into the DTA

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POSITIVE NFE REQUIREMENT

The unit shall achieve positive Net Foreign Exchange (NFE) NFE to be calculated cumulatively for a period of 5 years from the

commencement of production NFE to be computed as :-

A - B > 0 A = FOB value of exports

Includes supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, colour display tubes for monitors and deflection components for colour monitors or other items notified by Central Government

Includes supply to other units and developers in the same or other SE or EOU/EHTP/STP/BTP

B = CIF value of imported inputs and imported capital goods (for annual calculation of NFE, the value of imported capital goods and lump sum payment of foreign technical know-how fee shall be amortized over 10 years @ 10% of the value)