FOREIGN TRADE POLICY,

EXPORT PROMOTION SCHEMES

AND DRAWBACK

(IMPACT OF GST)

AT

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA,

HYDERABAD

ON 24.06.2017

BY

N. N. MENON
FOREIGN TRADE, CONSULTANT,
COCHIN
TRADE TRACK
NO. 57/2538 A, II FLOOR,
KARIKODE WARRIAM,WARRIAM ROAD,
COCHIN – 682 016
PH. NO. 0484 – 4029231, 2366122, 2350776
FAX NO. – 0484 – 2370169
MOBILE NO. – 9847034862
EMAIL: tradetrack.nnm@gmail.com;
tradetrack@asianetindia.com
 TOPICS TO BE COVERED

FTP and / or Customs Duty specifically covering:

 Benefit Schemes.
 Impact of burden of IGST in choice of benefits.
 Impact on intermediate suppliers / supporting
manufacturers.
 Deemed exports benefits.
 Relevance of EOU Scheme – new opportunities.
 Benefits of SEZ Act – new opportunities through FTWZ.
 INDEX

SL. NO. TOPIC PAGE NO.

Vedic Prayer

1. Constitution & laws 1

2. Our strength 2

3. Our weakness 3

4. Steps in Export Business 4

5. Genesis and growth of Export facilities under 5-6

Foreign Trade Policy and Department of Revenue

6. Export facilitation schemes extended by 7-11

Department of Revenue and Foreign Trade Policy.

7. Highlights of the Foreign Trade Policy 2015-2020 12- 19

(2-9)

8. Duty Drawback Chart. 20

9. Notification No. 131/2016 Cus (N.T.) dated 21 – 25

31.10.2016.
10. Customs Circular No. 50/2016 Cus dated 26 – 28
31.10.2016

11. Model Schedule of All Industry Rates 29

12. GST Roll Out 30 - 31

13. Impact of GST on Export Facilitation Schemes 32 – 33

14. High Seas Sale of goods under GST 34 - 35

 A VEDIC PRAYER

OM. Poornamadah Poornamidham

Poornath Poornamudachyathae
Poornasya Poornamadaya
Poornameva vasishyathae

OM. That is Whole; this is whole;

From the Whole the whole becomes manifest;
From the Whole when the whole is negated
What remains is again the Whole.

Infinity Plus Infinity is Infinity

Infinity Minus Infinity is Infinity

Shantipad from Isavasya Upanishad

 -1-

CONSTITUTION & LAWS

List I of Schedule 7 (Union List)

List II of Schedule 7 (State List)
List III of Schedule 7 (Concurrent List)

List I (Union List) has 97 Entries

Entry No. Area

36 Currency, Coinage, legal Tender,

Foreign Exchange.

37 Foreign Loan

41 Trade & Commerce with foreign

countries

83 Customs Duties and Export Duties

 -2-

OUR STRENGTH

 37 Export Promotion Councils / Commodity Boards engaged in export promotion

activity.
 Nearly 500 Commercial representatives and about 25 offices work abroad
 75 one-man Export Promotion Cells exist in various Departments of Government
 All State Governments have Export Promotion Departments
 About 325 SEZs already notified.
 20 Agri Export Zones have been sanctioned so far
 Software, Hardware Tech. Parks
 E.O.Us (circa 3500 units all over the country)
 25 E.P Industrial Parks
 Over 10,000 Status Holders (EO/TH etc)
 Board of Trade chaired by the Minister of Commerce
 2 Standing Committees

SCOPE-Shipping
SCOPE-Air

 E.P.B under Cabinet Secretary

 Over 100 ICDS/CFS

 Various Export facility Schemes

 ……………………….

-3-

OUR WEAKNESS

 Political instability and turmoil

 Economic crisis

 Social irritations

 Inadequate Infra structural facilities

 Inadequate availability of raw materials and other inputs at international price

 Inability to adhere to

 Consistant Timely Delivery

 Quality product/packing

 Cumbersome procedures and documentation despite liberalization of Trade

Policies

 Corruption at all levels of operation

 Display of negative attitude by Government Departments arising out of audit

phobia.
 ………………………..

-4-

STEPS IN EXPORT BUSINESS

01. I.E Code

02. R.C.M.C
03. Market Research
04. Sourcing right buyer
05. Check Credit worthiness of Buyer
06. Communication infrastructure
07. Bid Bond/Guarantee etc.
08. Foreign Exchange Fluctuation Risk Management
09. Check L/C terms & conditions
10. Arrange export finance
11. Procurement of inputs for export order
12. DGFT / Central Excise / Customs / Sales Tax facilities
13. Shipping arrangements (Central Excise, Customs and Steamer Agents)
14. Shipping documentation
(to keep in mind export incentives to be availed obligations undertaken)

15. Redemption of Bonds / Guarantees given for Export Obligation

16. Forex Realisation and GRI compliance
17. Claim Benefits if applicable from Government Department
18. Record keeping – Returns filing etc.
 ……………………
-5-

GENESIS AND GROWTH OF EXPORT FACILITIES UNDER

FOREIGN TRADE POLICY AND DEPARTMENT OF REVENUE
Introduction
Export trade is undoubtedly a very prestigious and attractive activity provided the
game is properly understood and well played. Everybody desires to be an exporter
but very few deserve that coveted title in real terms. It is reported that we have
about 6 lakhs of registered exporters but 95% of total exports are effected by about
20000 exporters. Thus about 1.85 lakhs of registered exporters are only titled
holders without title to any significant export earnings. The reason for this
phenomenal variations are varied but the main reasons that contribute to such
situation are:

(a) Lack of a firm determination to remain in export trade

(b) Lack of capacity to identify export market
(c) Lack of knowledge about the various incentives offered by Government of India
to exporters.

The purpose of this article is to highlight various export inventive schemes available
as of date to the exporters.

Trade Pattern
The pattern of growth in our production infrastructure over the last 5 decades has
acquired great strength resilience and diversity. If in early 50's we were importing
pencils and erasers, in 2000 we are exporting sophisticated computer software and
hi-tech machineries. As the trade pattern changes the law of the land will also
change to keep pace with the trade pattern. Law is very often and rightly termed as
a 'gate-keeper of status quo'. Lord Delvin's observation is very pertinent: "There are
always host of new ideas galloping about the outskirts of societies thoughts.
All of them seek admission; but each must first win its spurs. The law at first
resists but it submits to the conqueror and becomes his servant. In a changing
society the law acts as a valve. New policies must gather strength before they
can force an entry. When they are absorbed into the consensus the legal
system should expand to hold them as also it should contract to squeeze out
old policies which have lost consensus they once enjoyed". The genesis and
growth of various export incentive scheme must be viewed in the light of above
observation.

-6–

Need for Forex Conservation:

Mobilisation of scarce foreign exchange resources was, is and shall ever be the
matter of great concern to all right thinking citizens. The national wealth of foreign
exchange will have to be first created before it is distributed. The song of Oliver Gold
Smith ring in our ears.

"Ill fares the land where hastening ills aprey

Where wealth accumulate and men decay".

"How much more ill will it fare a land where wealth does not accumulate and men
decay?" queried an eminent jurist of our times. Therefore conservation of foreign
exchange has been the primary concern of the Government since Independence.
With the changing pattern and growth of Foreign Trade especially from mid 60's,
various schemes have been formulated by the Government, some of them amended,
some of them modified, some of them totally eliminated. It is indeed interesting to
study the various export facilities available as of date to an Indian Exporter as also
its origin and growth.

……………………………….
 -7–
EXPORT FACILITATION SCHEMES EXTENDED BY DEPARTMENT
OF REVENUE AND FOREIGN TRADE POLICY

DEPARTMENT OF REVENUE:
1. Duty Drawback Scheme: The Duty Drawback Scheme is incorporated in
Customs Act 1962 (Section 75).Duty Drawback Rules framed under Section 75 of
the Customs Act enables the exporter to get 98% of the duty paid on materials used
in the manufacture of exported goods.

2. In - Bond Manufacture :This facility is provided to the exporters under

Section 65 of the Customs Act wherein the exporter is permitted to carry on
manufacture and other operations in a Bonded Warehouse. The exporter could bring
in materials to the Bonded Warehouse without payment of Customs duty and carry
on manufacturing activities and export.

3. Jobbing: Exports on jobbing basis can be undertaken without payment of

duty on free supply of goods made by the buyer. This provision is covered under
Customs Notification No. 32/97 dated 01.04.97.

4. Rebate of Central Excise duty on export goods and inputs used thereon:
This facility is available under Rule 18 & 19 of Central Excise Rules 2002.

FOREIGN TRADE POLICY:

5. Duty Exemption Schemes : There are a few provisions under the duty
exemption scheme for the exporter to access duty free inputs required for export
production. They include :

(i) Advance Authorization: This is a scheme to allow duty free

import of inputs required in the manufacture of export product.
Advance Authorization is issued for physical exports, intermediate
supplies and deemed exports. All items of inputs except that is figuring
in the “prohibited” list will be permitted under the Scheme. A Merchant
Exporter or Manufacturer can avail this facility. In the case of merchant
exporter, he has to have a tie up with supporting manufacturer. Basic,
additional, safe guard and anti dumping duties are exempt. The
minimum value addition required under this Scheme is 15% except for
 items specified in Appendix 4D, 4C and para 4.61(for Gem and
Jewellery) of the Hand Book. This Authorisation or materials imported
against the same are not transferable even after Export Obligation is
fulfilled.

-8-

(ii) Annual Advance Authorisation : Status Certificate Holders and

other categories of exporters having past export performance in
preceeding two years will be entitled for an annual Advance
Authorisation to an extent of 300% of the FOB value of physical
exports / deemed exports in preceeding Licensing year. This facility is
only for SION notified products and the Authorisation Holder will have
the flexibility to export any product falling under the export product
group using duty free materials.

(iii) Duty Free Import Authorisation (DFIA) : This facility is

available only for export products for which standard input and output
norms have been notified. The Licence Holder has the option to utilize
the Licence under actual user condition or transfer the entitlement after
the Export Obligation is fulfilled. In case of transfer he will not be
entitled for exemption of additional duty of Customs. The minimum
value addition prescribed is 20%.

(iv) Gem and Jewellery replenishment Authorisation : This

scheme is outlined in Chapter 4 of the Foreign Trade Policy and Hand
Book.

6. EPCG: Harmonising of the Zero rate EPCG Scheme is a bold step in the right
direction. It would help reduce capital cost of the Project. Reduction cum Increase in
the EO Norms to 6 times the duty in six years’ time may not be a difficult criteria for
the exporters to fulfill. Reducing the import period to 18 months is indeed a
pragmatic step and would keep the Authorisation holders on their toes. Facility to
discharge EO by alternate product and accounting of exports of Group Companies
has been withdrawn. The facility created more confusion than convenience. It is a
good move to discontinue this facility. Permission to avail Zero EPCG for exports who
availed TUFS is a sound amendment which would increase “investment mood” of the
exporters. Reduction of EO by 25% for exporters who source indigenous capital
goods under EPCG is a shot in the arm for domestic Capital Goods Industry. Ban on
import of cars and other vehicles under EPCG for Hotel and Tourism Sector will do
away with rampant misuse of the Scheme, although genuine exporters will suffer.
Having granted all these benefits, the FTP gives a “hit below the belt” of the
exporters, by not permitting second hand capital goods under EPCG. This will be a
big blow for the entrepreneurs and DGFT may kindly consider to restore the facility.

-9-

The incremental export obligation should be over and above the average export
obligation based on the proceeding 3 years exports as on the date of application for
Authorisation. The average export obligation has however been waived for certain
selective export products like Handicrafts, handloom, Tiny and cottage sector ,
fisheries, jute, coir etc.

An exporter can also obtain an EPCG Authorisation and procure goods from
indigenous sources. The indigenous supplier can apply for and get back the Central
Excise Duty paid after effecting to supply and on receipt of the payment. However,
the export obligation will be reckoned at 8 times in 8 years or 6 times in 6 years as
the case may be based on the deemed Customs Duty saved when imported.

The Post Export EPCG Scheme continues in the new FTP for 2015-20.
Exporters if they choose to, may import Capital Goods on payment of duty in cash
and subsequently receive duty credit scrip on completion of export obligation. Thus
there would be no duty remission / duty exemption at the time of import of the
Capital Good (CG). Applicant will have to inform the Regional Office of DGFT (RA)
about the import of CG and based on which RA will fix export obligation. Since the
duties have been paid upfront at the time of import of CG, the EO would be 85 % of
normal EO. On the basis of export performance, a Duty Credit Scrip will be issued
subsequently, by RA, in proportion to export obligation so fixed. This would obviate
the monitoring and reporting requirements, as the scheme would be self-monitored.
Reduced transaction cost coupled with comparatively reduced EO would make this
scheme attractive.

7. EOU/SEZ Scheme: This is an exclusive scheme for medium / large-scale

exporters whose plant and machinery excluding land and building is valued at
Rs.100 lakhs minimum. There are large number of concessions under this scheme
like duty free import, sale tax exemption etc. Supply to SEZ are physical exports and
the provisions of SEZ Act and Rules will apply. Instead of shipping bill in the case of
real export, for supplies to SEZ, a Bill of Export to be filed if, export benefits are to
be claimed. The EOU Scheme is currently under very serious review by the Ministry
of Commerce with a purpose to re-model or re-vamp the scheme in toto especially in
the wake of the IT Sunset Clause not being extended. Even without any changes, the
EOU Scheme, per se, would appear to be far more simpler and better for the
exporters as compared to EPCG and Duty Exemption Scheme, put together. The
ease of operation and the reduction of transaction cost prompts many exporters to
opt for the EOU scheme. The Government is actively considering to revamp the
Scheme so as to attract more entrepreneurs to come under this Scheme.

- 10 -

8. Deemed Export: Certain category of supplies where goods are supplied in

India are treated as “deemed export” like supplies to EOU, supply to EPCG/Advance
Licence holder, supply to projects financed by multilateral or bilateral
agencies/funds as notified by Ministry of Finance. These suppliers are eligible for
obtaining Advance Authorisation / EPCES or duty drawback and also refund or
terminal excise duty.

9. Other Benefits under Chapter 3 of the Foreign Trade Policy : The objective of
the Schemes under this Chapter is to provide rewards to exporters to offset
infrastructural deficiencies and associated cost involved therein and to provide the
exporters a level plain field, as far as possible. The whole chapter has been
revamped and 2 new Schemes are introduced, namely Merchandise Export from
India Scheme (MEIS) for export of specified goods to specified markets and Service
Export from India Scheme (SEIS) for increasing export of notified services to any
country. These two Schemes has now replaced a plethora of earlier confusing
Schemes with a number of conditionalities attached to each Schemes.

MEIS :

The percentage of reward for MEIS ranges from 2% to 5% depending upon the
country to which the export is destined for. There is an attempt to provide higher
level of rewards to products with high domestic content and value addition as
compared to products with high import content and less value addition. The
countries have been categorized into three Groups of A, B and C. The products
eligible for rewards are listed in Appendix 3B, ITC (HS) and Code wise and the
percentage of Entitlement of 2 ,3 & 5 are indicated in jexta position under Group A ,
B and C of countries. The present Scheme is exporter friendly in terms of its
procedure and transparency.

SEIS:

The erstwhile SFIS has been now replaced with SEIS and shall apply to “Service
Provider located in India” instead of “Indian Service Provider”. The rate of reward
under the Scheme would be based on the net foreign exchange earned and the rate
would be 3% and 5% based on the nature of service rendered.
The scrips issued under the above Schemes are freely transferable and can be
utilized for :

(i) Payment of Customs Duties for import of inputs or goods, except items
listed in Appendix 3A.

- 11 -

(ii) Payment of excise duties on domestic procurement of inputs or goods

including capital goods as per DoR Notification.

(iii) Payment of service tax on procurement of services as per DoR

Notification.

(iv) Payment of Customs Duty and free as per paragraph 3.18 of this Policy.

A list of ineligible exports both for MEIS and SEIS have been specifically in the
Chapter to avoid any ambiguity.

9. Status Holders : Business leaders who have excelled in international trade and
have successfully contributed to country’s Foreign Trade are proposed to be
recognized as Status Holders and given special treatment and privileges to facilitate
their trade transactions, in order to reduce their transaction costs and time. The
nomenclature of Export House, Star Export House, Trading House, Star Trading
House, Premier Trading House Certificate has been changed to One, Two, Three ,
Four,Five Star Export House. The criteria for export performance for recognition of
Status Holder have been changed from Rupees to US Dollar earnings. The new
criteria is as under :

STATUS CATEGORY EXPORT PERFORMANCE FOB/ FOR (as

converted) VALUE (in US $ million) DURING
CURRENT AND PREVIOUS TWO YEARS

ONE STAR EXPORT HOUSE 3

TWO STAR EXPORT HOUSE 25

THREE STAR EXPORT HOUSE 100

FOUR STAR EXPORT HOUSE 500

FIVE STAR EXPORT HOUSE 2000

Manufacturers who are also Status Holders will be enable to self-certify their
manufactured goods as originating from India with a view to qualify for preferential
treatment under different Preferential Trading Agreement (PTAs), Free Trade
Agreements (FTAs), Comprehensive Economic Cooperation Agreements (CECAs) and
Comprehensive Economic Partnerships Agreements (CEPAs) which are in operation.
They shall be permitted to self-certify the goods as manufactured as per their
Industrial Entrepreneur Memorandum (IEM) / Industrial Licence (IL) / Letter of
Intent (LOI).
…………………………
 -20-
DUTY DRAWBACK
Embedded in

THE CUSTOMS ACT 1962

SEC 74 SEC 75

Refund of duty on re-export of goods Refund of duty paid on Inputs used in export
imported as such. Product.
(Governed by the Notification issued
under Sec 74 )
(i) Cust. Notification No. 19 dated 06.02.1965 Duty Drawback Rules 1975
as amended.
(ii) Cust. Ntfn. 36/95 dated 26.05.1995 as
amended

All Industry Rate DBK Governed Brand Rate and Spl Brand
by Notification accompanying Rate DBK. To apply to jurisdictional
the DBK Schedule announced Commissioner of Central Excise of
Generally once in a year, the exporter as per procedure
Usually 3 months after the laid down in Duty Drawback
Union Budget. Rules 1995 and Circulars issued
(Cust. Non Tariff Notification No. by Department of Revenue.
131/2016-Cus dated 31.10.2016
and Cus. Circular No. 50/2016 Cus dated 31.10.2016)