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An Overview of Special Incentives on Export of Goods and Services

Article by Smita Singh & Megha Tewari

Foreign trade has a substantial role in the economic growth of a country, hence the policies and guidelines for governing import and export play a pivotal role towards economic development of India. Foreign Trade Policy of the Government of India lays the foundation of promotional measures to boost India’s exports with an intent to overcome infrastructural inadequacies, focusing on the ease of doing business and forming a favourable environment for businesses to access export benefits.

The Government has from time to time introduced multiple export promotion schemes such as the EPCG Scheme, MEIS, SEIS, DFIA, RoSCTL, RoDTEP, MOOWR, etc., targeting at providing a level-playing field for the exporters, shielding them from external competition.

For the purpose of this article, we will discuss a few amongst them.


Advance Authorization Scheme

Advance Authorization Scheme allows duty free import of inputs, which are used in the manufacture of products exported out of India. Any packaging material, fuel, oil, catalyst which is consumed / utilized in the process of production of the export product, is allowed the benefit under this scheme[1]. The exporter is required to fulfill export obligation as a condition for issuing Advance Authorization, within 18 months of the date of issue of Authorization or as notified by the Directorate General of Foreign Trade.

Advance Authorization is issued either to a manufacturer exporter or a merchant exporter tied to a supporting manufacturer and is valid for 12 months from its issuance date. The inputs imported are exempt from duties like Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping duty, Safeguard Duty and Transition Product-Specific Safeguard duty, Integrated tax, and Compensation Cess, wherever applicable, subject to certain conditions. Advance Authorization comes with an actual user condition, which means that the actual user alone may import such goods.

Upon introduction of GST, exemption from payment of IGST as well as Compensation Cess was allowed subject to fulfilment of ‘pre-import condition’ and ‘physical exports’ and accordingly, Foreign Trade Policy was also amended. This amendment saw investigations initiated against various manufacturer-exporters, on the ground that pre-import condition was not satisfied. This amendment was challenged before the Gujarat High Court[2], which held that the pre-import condition, for availing IGST exemption under the Scheme, is ultra vires on the ground that the same does not meet the test of reasonableness and is also not in consonance with the Advance Authorization Scheme.

However, the Apex Court[3] overturned decision of the Gujarat High Court and held that inconvenience caused to exporters by paying IGST and claiming refund thereafter could not be a ground to hold the ‘pre-import’ condition as arbitrary. Further, with respect to the argument on retrospective effect of the Notification[4] vide which pre-import condition was removed on January 10, 2019 as a condition for granting IGST exemption on import of goods, the Apex Court, held that the Government has no power to issue retrospective notification.

Thus, manufacturer-exporters are required to examine and identify non-fulfilment of pre-import condition while replying to notices received from authorities in this regard.


Manufacturing & Other Operations in Warehouse (MOOWR)

Another popular scheme introduced is the MOOWR Scheme, way back in 1966, revamped in the year 2019[5], to provide significant benefit to the manufacturers in India. Under the MOOWR Scheme, manufacturing and other operations are allowed to be carried out in a bonded warehouse. Under said Scheme, deferment of Customs duty (BCD, IGST and Compensation Cess) is allowed on import of inputs and capital goods used in the manufacture of goods in India. Accordingly, in case manufactured goods are exported, no customs duty is payable. However, if the goods manufactured are cleared for domestic consumption, the deferred customs duties are required to be paid. Similarly, when capital goods are removed from the bonded warehouse, the customs duties deferred on import of such capital goods are required to be paid. The MOOWR Scheme thus, aims to provide a working capital advantage to provide impetus to domestic manufacturing. It is relevant to note that the MOOWR Scheme is not specific to any Industry. With benefits like no export obligation, no restriction on physical location of the warehouse, facility to send inputs and capital goods outside bonded warehouse for job work and repairs respectively, duty free bond to bond transfer of goods, no time limit or interest for storage and manufacturing of goods, etc. has made this scheme one of most attractive scheme among the Indian manufacturers.

An amendment was proposed vide the Finance Act, 2023, by virtue of which exemption from IGST and GST Compensation cess has been proposed to be withdrawn, meaning thereby that deferment of duty has been proposed only for the payment of BCD. This amendment shakes the entire basis on which manufacturers sought to take advantage under the MOOWR Scheme, as post the amendment, they would be required to pay IGST and Cess. While the amendment has still not been notified, it has created doubt in the minds of manufacturers exporters and had made the MOOWR Scheme less attractive as compared to other benefits like Advance Authorization or EPCG Scheme.


Remission of Duties or Taxes on Exported Products (RoDTEP Scheme)

RoDTEP was introduced in January 01, 2021, replacing the erstwhile MEIS Scheme in a phased manner. The RoDTEP scheme aims to refund all the hidden taxes and levies, which were earlier not refunded under any export incentive scheme, for example, mandi tax, coal cess, central excise duty on fuel, duty on electricity used during manufacturing of the exported items. The rebate under the RoDTEP Scheme is allowed, based on the allowed percentage of FOB (Freight on Board) value of exports and issued in the form of a transferable duty credit/electronic scrip (e-scrip). All sectors, including textile sectors are covered under the RoDTEP Scheme. Both manufacturer exporters and merchant exporters can avail themselves of the benefit of the RoDTEP Scheme. The RoDTEP Scheme initially notified until September 30, 2023, has been extended until June 30, 2024.

However, the US government initiated various investigations imposing anti-subsidy duties against goods exported from India availing benefit of the RoDTEP, on the ground that the scheme was not compatible with the WTO guidelines.  In this regard it is important to note that the RoDTEP scheme replaced the WTO-incompatible MEIS scheme, that faced several challenges from countries at the WTO as it the benefit thereunder was not transparently established. However, both the US and the EU imposed countervailing (anti-subsidy) duties on Indian exported products such as paper file folders, common alloy aluminum sheets, forged steel fluid end blocks, certain graphite electrode systems[6], against RoDTEP benefits availed. Inspite on such investigations, RoDTEP is one of the sought after schemes availed under the Foreign Trade Policy and fully supported by the Government.

Taking forward the “Make in India” initiative of the Government of India and making India a manufacturing hub, the Foreign Trade Policy – 2023 lays down a blueprint to integrate India with the global markets and make it a reliable and trusted trade partner. It supports various export promotion schemes which involve either exemption or remission of customs duty. With a strong digital infrastructure, encouraging government policies, and an upward consumer base, the country is well-positioned to tap into the immense capacity of the global market. However, the international guidelines must also be adhered to keeping in the long-term goal of India’s export potential.

[1] Foreign Trade Policy – 2023
[2] Shri Jagdamba Polymers Limited & Ors. v. UOI – 2019-VIL-80-GUJ
[3] UOI v. Cosmo films Limited – 2023- VIL-47-SC
[4] Notification No. 01/2019-Cus., dated 10 January 2019
[5] Manufacture and Other Operations in Warehouse Regulations, 2019
[6] officials/article67765837.ece#:~:text=However%2C%20earlier%20this%20fiscal%2C%20both,electrode%20systems%20by%20the%20EC