Foreign Trade Policy (“FTP”) issued by the Ministry of Commerce prescribes various incentives to the exporters to ensure competitiveness of Indian exports in the international markets. These incentives are operationalized through schemes such as advance authorization, export promotion of capital goods (“EPCG”), duty drawback, merchandise exports from India scheme (“MEIS”), rebate of state and central levies and taxes (“RoSCTL”), etc. These schemes aim at neutralizing the duties and taxes suffered by the exporters on their procurements to ensure that the tax costs do not form part of export value. However, schemes such as MEIS provide the incentive to the exporters as a percentage of the export proceeds, and therefore perceived as export subsidy.
India is constrained to revisit and rationalize the export incentives as World Trade Organization (“WTO”) has held some of the schemes under the FTP such as MEIS, EPCG etc., to be inconsistent with the framework agreed between the member countries for granting such incentives. Therefore, the Government is phasing out such non-compliant schemes and introducing schemes compliant with the WTO framework.
In line with the above, the Government has announced the Remission of Duties and Taxes on Exported Products Scheme (“RoDTEP”) with effect from January 1, 2021 to replace MEIS and RoSCTL Schemes. RoDTEP allows reimbursement of unabsorbed duties, taxes and levies to the exporters suffered during manufacture and distribution of exported products and are presently not rebated / refunded under any other scheme. Such un-rebated duties include value added tax or central excise duty incurred on fuels, mandi tax, electricity duty and other cesses and surcharges.
The refund under the RoDTEP Scheme is to be granted in the form of duty credit scrips based upon rate of rewards prescribed for each class of goods. Such scrips can be utilized to pay basic customs duty on import of goods or can be traded. However, while the scheme is implemented with effect from January 1, the press release issued in this respect mentions that the Government shall shortly provide the operational details with respect to the scheme.
As of now, it is not clear as to which goods are eligible for the reward under the scheme. Further, the rate of rewards along with the monetary limits for such rewards along with the conditions, restrictions and procedure for the scheme also need to be notified. While it appears that the reward would be fixed as a percentage of net export realization, it remains to be clarified as to how the rates for reward would be computed and which taxes, duties and levies form part of such computations.
Given the above, the exporters are finding it difficult to evaluate the benefits under the scheme and decide whether they should opt for the scheme for the exports made in the intervening period, by declaring such intention in the shipping bill. Basis the information made available in the public domain it appears that RoDTEP benefits will be disallowed to exporters who claim benefits under certain other schemes such as advance authorization, export-oriented units, job-work, etc.
Since the rates of reward under the scheme are yet to be notified and the benefit cannot be quantified, the exporters are finding it difficult to price the goods. It is likely that the benefits under RoDTEP may not match the benefits available under the erstwhile MEIS scheme, since MEIS granted the incentive regardless of the amount of un-rebated taxes suffered by the exporters, whereas RoDTEP may fix such rate of rewards based on the amount of un-rebated taxes incurred.
In addition, it may be considered to operationalize the scheme in conjunction with advance authorization, EPCG and drawback schemes, which provide exemption from customs duties incurred on import of inputs and capital goods used in the manufacture. As of now it appears that incidence of such customs duties may not be factored in while fixing the rates of reward under RoDTEP. In addition, the scheme should factor in the GST costs suffered by the businesses, but not creditable due to specific restrictions contained in the GST laws.
While it is a positive move on part of the Government to introduce RoDTEP given the WTO constraints, it is important that the Government clarifies the above aspects at the earliest, to provide certainty and clarity to the exporters.
Originally Published by J. Sagar Associates, January 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
