#TaxmannPPT | Discussion on Key Changes in Foreign Trade Policy 2023 | Amnesty Scheme | SCOMET

INDEX

Export growth potential of India

Key changes in new FTP

Overview of various schemes of FTP

Clubbing of various schemes for maximizing benefits

SCOMET

Amnesty Scheme under FTP Q & A

Export growth potential of India

Widening trade deficit, a cause of concern

Service Exports USD 340.29 bn during 2022-23 (estimated) and USD 254 bn during 2021-22

Free Trade Agreements with the UK, EU, Canada and other countries in advanced stages

Foreign law firms allowed to operate in India

Foreign Universities being allowed Focus on Make in India

Foreign Trade Policy 2023

Issued under Section 5 of the Foreign Trade (Development and Regulations) Act, 1992

Formulated and administered by Directorate General of Foreign Trade

Consists of : - FTP - Handbook of Procedures

- Standard Input Output Norms (SION)

No end date to current FTP unlike previous FTPs which were valid for 5 years

Major policy shift from incentives on exports (like MEIS, SEIS etc) to remission of duties

Three new chapters introduced – Developing Districts as Export Hub (Chapter 3), Promoting Cross Border Trade in Digital Economy (Chapter 9) and SCOMET (Chapter 10)

Foreign Trade Policy 2023

Regulates import and export of goods from India

Goods categorized in 3 category:

Free: Import or export allowed without any licence or permission

Restricted: Import allowed with licence / authorisations

Prohibited: Import or export not allowed

Approvals or licences under other laws need to be obtained separately

To boost merchanting activities from India – Merchanting trade involving shipment of goods from one foreign country to another foreign country without touching Indian ports, involving an Indian intermediary allowed subject to compliance with RBI guidelines, except for goods/items in the CITES and SCOMET list.

IEC mandatory for service exporters on the date of rendering service for availing benefits under FTP

Penal provisions

Five times of value of goods (Min. INR 10K)

FTDRA

Suspension of IEC

Customs

Act

Scrip > 50 lacs

+ Imprisonment up to 7 years/ Cognizable / nonbailable

Export Promotion Schemes- Overview

To enable duty free import of inputs for export production

To enable duty free import of capital goods for export production

Duty credit scrip on export of services

Duty credit scrip on export of goods

Cash drawback of input BCD on export of goods

Duty free import and local purchase of goods

Duty free import / local purchase of goods including construction material

Advance Authorisation

• To allow the duty free import of input, required for manufacture of export product Objective

• Manufacturer exporters or merchant exporter tied to supporting manufacturer Coverage

• Import of inputs allowed on the basis of SION (or ad-hoc norms)

Entitlement

• Advance Authorization for Annual requirement allowed to exporters with export performance in at least preceding two financial years

• CIF value of imports can be up to 300% of the physical export and/or FOR value of deemed export in preceding financial year or Rs. 1 Crore, whichever is higher

• Imports exempted from Basic Customs duty, IGST, Additional Customs Duties, SWS, Anti-dumping Duty, Safeguard Duty Benefits

Other Key points

• Imports subject to Actual user condition

• Minimum 15% value addition required on inputs

• Export obligation period 18 months (extendable up to another 12 months)

Export Promotion Capital Goods Scheme (‘EPCG’)

Objective

• To facilitate the duty free import of capital goods for export production

Coverage

• Manufacturer exporters with or without supporting manufacturers, merchant exporters tied to supporting manufactures and service providers

• Import of capital goods required for manufacture of export goods or services

• Import of spares, mould, dies etc. also allowed Entitlement

• Exemption from Customs duty on import

Benefits

• Refund of IGST on local procurements

Other Key points

• Actual user condition till the completion of export obligation

• Export obligation equal to 6 times of duty saved to be achieved in 6 years

• Exports above average of last three years exports are only counted for EO under EPCG

• In case of domestic procurement, EO shall be 25% of applicable specific EO

• Waiver of part EO in case of early fulfilment of substantial EO

Relevant changes under AA and EPCG under FTP 2023

Reduced fee under AA and

Reduced timelines:

Benefits of Self-ratification Scheme for fixation of Input-Output Norms extended to 2 star and above status holders in addition to Authorized Economic Operators at present

Reduced EO for EPCG for Battery Electric Vehicles (BEV) of all types, Vertical Farming equipment, Wastewater Treatment and Recycling, Rainwater harvesting system and Rainwater Filters and Green Hydrogen Dairy sector to be exempted from maintaining Average EO – to support dairy sector to upgrade the technology.

Special AA Scheme extended to export of Apparel and Clothing sector under para 4.07 of HBP on selfdeclaration basis to facilitate prompt execution of export orders. Norms would be fixed within fixed timeframe.

Duty Drawback

Objective

• To allow reimbursement of the ‘notional’ Basic Customs duty suffered on inputs/ input services used for import/ manufacture of products intended to be exported

Exporter need to indicate intention to claim drawback in the shipping bill

Coverage

• Manufacturer exporters or merchant exporter

Entitlement

• Cash refund of notional Basic Customs Duty on inputs used in export product

• Drawback is granted at a rate (specified by Government) of FOB value of export

• If rate fixed by Government reimburses less than 80% of actual duty then exporter can seek special brand rate for his product

In case drawback not claimed at the time of exports, then amendment in shipping bills can be sought; authorities insist on filing of appeal for amendments

Other Key points

• Duty drawback not available on exports of EOU, SEZ, Advance authorisation etc.

• Fixation of brand rates take significant time

• Drawback amount cannot be more than market value of the product

Remission of Duties or Taxes on Export Products (RoDTEP)

Cabinet approved the RoDTEP to replace the MEIS (March 2020)

Incentive as a percentage of the FOB value of export

Implementation with end to end digitization

D E F

Monitoring and audit mechanism with IT based Risk Management System (RMS)

A B C 17/04/2023 COMERCINATE ADVISORS LLP 12

Objective of RoDTEP is to make Indian exports cost competitive to International Markets

Taxes / duties remitted under RoDTEP

VAT & ED on fuel used in self incurred transportation costs

VAT and ED used in generation of electricity via power plants or DG sets

Mandi Tax/ Municipal Tax/ Property Tax

Electricity duty on purchase of electricity

VAT and ED on fuel used in running of machineries/ plant

Stamp duty on export documents

Blocked GST due to defaults of suppliers (mismatch of ITC, Section 16(2) & 16 (4)

Blocked GST ITC under Section 17(5)

Points to be noted

What happens if intention to avail benefit under RoDTEP is not declared in Shipping Bill?

Can EPCG or duty drawback scheme be claimed simultaneously along with RoDTEP?

Can unlimited benefits on goods exported be claimed or is there a ceiling? Whether benefit can be claimed if consideration is received in INR?

Factory has MOOWR license – Is benefit under RODTEP available?

What to do if excess scrips have been credited to the exporter?

ICEGATE advisory states that benefit would not be available. Appeal may be filed for amendment of free SB to RoDTEP

Yes. No specific restriction under the Scheme

Scheme is under overall budget outlayindication that there could be ceiling on max. benefit within the overall budget

No. In certain cases, payment received in INR is considered equivalent to forex

Yes. Products manufactured wholly or partly in a warehouse under Section 65 of the CustomsAct, 1962 are ineligible

Similar to duty drawback, surrender back excess amount

EOU/ STP Scheme – Overview and features

Objective

• To provide specific incentives, internationally competitive and conducive environment for exports

IGST exemption on imports extended sine die vide Notification no. 37/2022-Cus dated 30 June, 2022

Coverage

• Manufacturer exporters and service providers; trading not allowed

Entitlement

• Import of capital goods required for manufacture of export goods or services

• Import of raw material, packing material, fuel, spares, mould, dies etc. also allowed

Unlike SEZ, Authorities not demanding import licence on local sale of laptops or other electronic items

Benefits

• Exemption from Customs duty on import of raw material, consumables and capital goods

• Refund of IGST on local procurement of goods

• Deemed export drawback on local procurements

Liberal Business Contingency Plan guidelines

Other Key points

• Sharing of facilities with SEZ not permitted

• No Corporate tax benefit

• Import of restricted goods allowed without authorizations

Liberal Work from Home guidelines

EOU/ STP Scheme – Taxes on supply chain

Outside India India

Capital Goods, inputs and services

• No Customs duty on goods

• IGST under RCM on services

Export

• No Customs Duty or IGST

Relevant provisions for refund / exemption under Customs and GST

• Rule 89 of the IGST Rules

Domestic purchases of capital goods, inputs

• Refund of GST

• Deemed export benefits

Customer Supplier Supplier

EOU/ STP Unit

DTA Sale

• Notification no. 52/2003Cus dated 1 March 2003

Customer

Domestic procurement of Services

• GST; refund available

• GST on sale value of goods

• Payment of Customs duty saved on raw material

Status Holder (‘SH’) scheme

Key aspects Particulars

Objective To grant privileges to exporters with high export performance

Eligibility  Status holders are business leaders who have excelled in international trade and have successfully contributed to country’s foreign exchange

 All exporter of goods or services having IEC on the date of application

 Recognition granted by DGFT/ Development Commissioner

 FOB value of exports in convertible foreign exchange or in Indian rupees considered

 ‘Double weightage’ of exports allowed for One Star Status Holder category



‘Double weightage’ also allowed to MSME, BIS/ ISO certified units, unit in NE states & JK, export of fruits and vegetables

Privileges  Exemption from furnishing of bank guarantee for schemes under FTP unless otherwise specified

 Fixation of SION within 60 days of the application

 DTA sale permission not required to STP units; only intimation

 Authorization and Customs clearances for both imports and exports on selfdeclaration basis

 Exemption from compulsory negotiation of documents through banks

 Two star and above category permitted to set up export warehouse

 Priority treatment in handling of consignment by the authorities

 Manufacturers who are three start or above will be enabled to self-certify their goods as originating from India

 FOC samples allowed subject to annual limit of INR 1 Crores or 2% of average annual export realization during the last three years, whichever is lower.

Status Holder (‘SH’) scheme (Contd.)

Status Category

Under erstwhile FTP

Threshold export performance to be achieved in during current and previous three financial years

Under FTP 2023

Threshold export performance to be achieved in during current and previous three financial years

Export performance is necessary in at least two out of four years

For deemed exports, FOR value shall be converted into US $ at the exchange rate notified by CBIC as on 01 April each year.

Export performance is necessary in all the three financial years

For deemed exports, FOR value shall be converted into US $ at the exchange rate notified by CBEC as on 01 April each year.

Validity- 5 Years

Clubbing of various schemes

Deemed export

Certain specified supplied regarded as deemed export even though goods do not leave the country and payment is received in INR

Deemed export as per GST law are the supplies specified by notification issued under Section 147 of CGST Act, 2017

Under FTP and GST law, supplies to AA, EPCG, EOU/STP/BTP scheme holders eligible as deemed export

In addition under FTP, supplies to specified projects eligible for deemed export benefit

Under GST law, refund of GST available post supply

Under FTP, deemed export drawback (AIR) and refund of terminal excise duty available; granted by DGFT

In addition,AA may also be issued for supplies to deemed export category

Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET)

India signatory to International conventions on dis-armament and non-proliferation

United Nations Security Council Resolution 1540 obliges all countries to prohibit access of weapons of mass destruction and their delivery systems to non-state actors (in particular for terrorist purposes)

India is also member of major multilateral export control regimes like Missile Technology Control Regime, Wassenaar Agreement and Australia Group

India formulated Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 which regulates export, transfer, re-transfers, brokering in specified goods, technology and services

Special Chemicals, Organisms, Materials, Equipment and Technologies or SCOMET now part of FTP; earlier only part of ITC (HS)

SCOMET

India’s export control list specifies items and technology which have dual use – civil as well as military

Export of items mentioned in SCOMET list allowed only with the approval of DGFT or other authorities

Exporter need to self declare in the shipping bill if export item covered in SCOMET list

Products grouped under total 8 chapters

Non-compliance attracts penal provisions under Customs Act, 1962 and FTDRA, 1992

SCOMET

Products grouped under total 8 chapters

SCOMET category SCOMET items

0 Nuclear materials, nuclear-related other materials, equipment and technology

1 Toxic chemical agents and other chemicals

2 Micro-organisms, Toxins

3 Materials, Materials Processing Equipment and related Technologies

4 Nuclear-related other equipment and technology, not controlled under Category ‘0’

5 Aerospace systems, equipment, including production and test equipment, and related Technology and specially designed components and accessories thereof.

6 Munitions List

Jurisdictional Licensing Authority Remark

Department of Atomic Energy (DAE) Including items mentioned in Note 2 of CIN of SCOMET List

Directorate General of Foreign Trade (DGFT)

Department of Defence Production (DDP)/ Ministry of Defence Excluding those covered under Note 2 and 3 of CIN and Sub-category 6A007, 6A008

Department of Defence Production (DDP)/ Ministry of Defence

Excluding those covered under Note 2 and 3 of CIN and Sub-category 6A007, 6A008

Amnesty Scheme

• An Amnesty Scheme vide Public Notice no. 2/2023 dated 1 April 2023 Announced

1

• Scheme covers only default under Advance and EPCG authorization

2

• Scheme does not cover defaults under other schemes like EOU, STPI, duty drawback etc.

• Default in export obligation only covered under the scheme

3

• AA and EPCG authorizations issued under FTP 2009-14 till 31.03.2015 covered

• AA and EPCG issued under previous FTP covered only when EO period valid beyond 12.08.2013

4

• Advance and EPCG authorizations issued under FTP 2015-20 not covered

• All duties in proportion to unfulfilled EO need to be paid back

5

• Interest amount capped to the 100% of basic duty amount

• No interest payable on Additional Customs Duty and Special Additional Customs duty

Amnesty Scheme (Contd.)

• Substantial saving of interest possible

6

• CVD and SAD paid under Amnesty scheme cannot be claimed as credit or refund

7

• Application needs to be filed DGFT by 30.06.2023 and payment of duties by 30.09.2023

• Application to be filed in an application form given at DGFT portal

8

• In case of 100% default in EO; pay duty and interest and then approach DGFT

• In case of partial default, DGFT will suggest the amount payable after examination

9

• Payments already made for closure of authorization not eligible for refund

• Cases pending under adjudication or appeal may be closed under the scheme