The New Economic Policy (NEP) 1991 introduced, by the then Finance Minister Mr. Manmohan Singh, planted the concept of LPG (Liberalization, Privatisation & Globalisation) at a time when the Indian foreign exchange reserves were depleting and there was a need to substantially improve the weak Indian market. The NEP 1991 emphasised on the importance of Foreign Direct Investment (FDI) more than ever, which acted as a catalyst to the growth of Indian economy and since then, Indian Industry has never looked back. NEP 1991 enhanced the scope for FDI by progressively increasing the number of sectors opened to FDI as well as eased the restrictions on FDI inflows.
FDI helps a country to expand exports with the introduction of additional capital, foreign technology, managerial know-how, marketing expertise with access to global, regional and expanding home country markets to the foreign territory. The go ahead to the FDI in the most of the sectors of the Indian market allowed the Industry to capitalise on the above-mentioned benefits and targeted at faster integration of Indian economy with the global economy.
The FDI with its unending list of advantages, also brought a threat to the amateur Indian Industry from its foreign participants. Hence, for any developing nation, there is a need of protection policy to protect its industries from Foreign competition. This led the Indian government to strengthen and focus on the Foreign Trade Policy (FTP) or the Export-Import (EXIM) policy. The EXIM policy which was announced post NEP 1991, for FY 1992-97 was a landmark policy as it gave away with outdated previous trade policy’s which were not in lines with the India’s venture to the foreign market.
Since FTP 1992-97, the Ministry of Commerce & Trade (Government of India) adopted 5-year plan policy, where FTP is announced for a tenure of 5 years so as to provide stability and minimize the uncertainties of importers and exporters. The last issued foreign trade policy (FTP) was unveiled on 1st April, 2015 and was for the period FY 2015-2020.The existing FTP 2015-20 was due to expire on March 31, 2020 and all beneficiaries were counting high on the Government, to unveil the new FTP 2020-25, wherein the stakeholders are expecting that the issues faced in the existing FTP are addressed and other measures are taken to help to boost the Indian economy.
In this article, we will discuss one of the most important schemes namely Merchandise Export from India Scheme (‘MEIS’) introduced in the FTP 2015-20, which entitles rewards to the exporters of goods and its expected position in the new FTP 2020-25. We will be discussing on Remission of Duties and Taxes on Exported Products (‘RoDTEP’) and Rebate of State & Central Taxes and Levies (‘RoSCTL’), which are in lines with MEIS.
II. Current Scenario
Extension of FTP 2015-20: Due to the outbreak of the novel Covid-19 pandemic, things are now in a halt and since the entire nation is focussing hard to stop the spread of the virus and to bring relief to the businesses, Ministry of Commerce and Industry (Government of India) vide Press release dated March 31, 2020, has deferred the introduction of new FTP 2020-25 as of now and has extended the validity of FTP 2015-20 for 1 year till March 31, 2021.
Challenge on viability of MEIS scheme: The MEIS is currently under the scanner and is likely to be discontinued in the FTP 2020-25, after an adverse judgement against India by World Trade Organisation (WTO). In March 2018, The United States of America had filed a complaint to WTO, in relation to the benefits and exemptions from duties and taxes of 5 different schemes provided in the FTP 2015-20 to the exporters, namely the following:
i) Export Oriented Units (EOU) Scheme and sector-specific schemes, including the Electronics Hardware Technology Parks (EHTP) Scheme and the Bio-Technology Parks (BTP) Scheme (the EOU/EHTP/BTP schemes);
ii) Merchandise Exports from India Scheme (MEIS);
iii) Export Promotion Capital Goods (EPCG) Scheme;
iv) Special Economic Zones (SEZ) Scheme; and
v) Duty-Free Imports for Exporters Scheme (DFIS)
The WTO Agreement on Subsidies and Countervailing Measures (SCM agreement), which mentions the do’s and don’ts for the WTO member countries had a clause that the WTO member countries are not allowed to grant subsidies that are contingent upon the export performance, but this restriction is not applicable to certain specific nations as specified in the SCM agreement. As all the above schemes ensures rewards that are contingent upon the export performance, this clause was contested by USA and the WTO concluded that India has failed to comply with these provisions. Hence, all the schemes including the MEIS benefit are inconsistent with the provisions of SCM agreement and are to be withdrawn.
Approval of new RoDTEP Scheme: The adverse decision by WTO compelled Indian government to reassess its schemes and with this, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Shri Narendra Modi, on March 13, 2020, approved the Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP), which is a WTO compliant scheme and a replacement of MEIS.
Clarity on the applicability of MEIS or RoDTEP: The extension of the FTP 2015-20 has also extended the validity of MEIS till March 31, 2021, which implies that both the MEIS and RoDTEP scheme coexist for certain period of the year 2020-21, whereas only one benefit can be availed by the exporter.
The government under Trade Notice 03/2020-21 dated April 15, 2020, has clarified that RoDTEP will be introduced in a phase manner and till the time, goods are not notified under RoDTEP, the same shall be covered under MEIS (i.e. Goods once notified under RoDTEP cannot be claimed under MEIS). The MEIS will be available upto December 31, 2020. The government will issue the entire mechanism for claiming RoDTEP in due course of time.
III. Overview of Merchandise Export from India Scheme (‘MEIS’)
Objective of MEIS: The MEIS aims to reduce the burden on the exporters of goods by extending rewards, to offset the associated costs on export of goods manufactured in India and generate employment potential, which will enhance the overall competitiveness of Indian market.
Eligibility under MEIS: Exporter of notified goods to notified markets, realising foreign exchange on such export, are rewarded in the form of transferrable duty credit scrip. Such duty credit scrip can be used for payment of tax liabilities such as basic customs duty, additional customs duty, safeguard duty, transitional specific safeguard duty, and anti-dumping duty, but cannot be used to set off GST, compensation cess.
Rewards & Entitlement under MEIS: Under MEIS, the duty scrips rewards are entitled at specified rates, ranging from 2%-5%, and are calculated on the realised FOB value of exports in free foreign exchange or on FOB value of exports in Shipping Bill in free foreign exchange, whichever is lower. The rates applicability depends on the product exported and the country to which it is exported. The notified markets are categorised into 3 groups i.e. Category A, B & C, which includes more than 200 countries and the notified product includes approximately 4000 items.
Time limit to apply for MEIS: The prescribed date to file the application form for obtaining Duty Credit Scrip under MEIS in respect of shipments for which claim is being filed, is the later date of the following:
i) 12 months from the Let Export (LEO) date; or
ii) 3 months from the date of:
a. Uploading of EDI shipping bills onto the DGFT server by Customs.
b. Printing/ release of shipping bills for Non-EDI shipping bills.
In case where the application could not be filed within the above-mentioned dates, the government has allowed a relaxation to file the application form with a late cut charge of 2% or 5% or 10%, as applicable, for further period of two years. This essentially means that an application form can be filed within 3 years from the LEO date or Date of uploading/printing of shipping bills, whichever is applicable. (i.e. 1 year of normal time plus 2 years of extended time)
The government considering the Covid-19 pandemic has extended filing criteria of 12 months from the LEO date to 15 months from LEO date, where LEO date of shipping bill falls between February 01, 2019 to May 31, 2019.
IV. Overview of Rebate of State & Central Taxes and Levies (RoSCTL) Scheme
Introduction of new RoSCTL scheme: The Ministry of Textile, introduced a new scheme named RoSCTL w.e.f. March 07, 2019, applicable only to exporters of Apparels and Made-ups sector (thereafter referred as ‘Specified items’), wherein such exporters are reimbursed the incidence of various State as well as Central taxes / levies suffered on specified items.
With introduction of RoSCTL, an old scheme of Rebate of State Levies (‘RoSL’) was discontinued w.e.f. March 06, 2019, where such specified item exporters were reimbursed only the state taxes and levies, suffered on specified items.
Withdrawal of Item in the Apparel and Made-ups sector from MEIS notified list: The Ministry of Commerce & Industry decided to withdraw the MEIS benefit on export of such specified items w.e.f. March 07, 2019. This implies that the notified goods list under MEIS did not include the above entry, but the same goods were included in the RoSCTL scheme.
Position of rewards for such exporters:
Date of Let Export Order
Benefits available to Item in the Apparel and Made-ups sector
Before March 07, 2019
RoSL + MEIS
On or after March 07, 2019 till March 31, 2020
Eligibility of RoSCTL: The exporters of such specified items, realising foreign exchange, where the LEO date falls from March 07, 2019 till March 31, 2020, are eligible to apply for RoSCTL scheme.
Rewards & Entitlement under RoSCTL: The rates under the scheme were notified in four schedules (i.e. Schedule 1,2,3 & 4). Based on the rate specified in the schedules for the particular item of export, exporters are issued duty credit scrips, calculated on the FOB value, similar to the MEIS.
Along with the above benefit, in order to compensate the loss due to withdrawal of MEIS & RoSL, Ministry of Textiles also provided an Additional Ad-hoc Incentive of up to 1% of FOB value, to be given to such exports, with LEO dates between March 07, 2019 to December 31, 2019.
Time Limit to apply for RoSCTL: The last date for filing of the application for Duty Credit Scrips is as follows:
i) For shipping bills with LEO dates between 7th March 2019 and 31st December 2019 – 30th June 2020. (Date extended to December 31, 2020 as a relief measure due to COVID-19)
ii) For shipping bills with LEO date on or after 1st January 2020 – One year from the date of LEO.
Please note that there is NO relaxation to file the RoSCTL application after the prescribed time limit, unlike MEIS where late application can be filed with a late cut charge.
V. Glimpse on Remission of Duties and Taxes on Exported Products (RoDTEP)
The objective of RoDTEP is to extend rewards to encourage the export market. However, the scheme is formulated ensuring that it doesn’t flout any rules mentioned by the WTO. This scheme is also for the exporter of goods and a detailed mechanism is yet to be announced by the Government, which is expected to be in lines with the MEIS.
· Under RoDTEP, a mechanism would be created to reimburse the taxes/ duties/ levies, which are currently not being refunded under any other mechanism, but which are incurred in the process of manufacture and distribution of exported products.
· Under zero rated export concept, presently only the GST and the custom duties on input purchases used to manufacture exports are either fully exempted or are fully refunded. Hence, to ensure a complete zero-rated policy on exports, this scheme intends to refund all those taxes and duties which are incurred on manufacture of exported goods, but are not refunded such as VAT paid on petroleum, Mandi tax, Duty paid on electricity etc.
· The rewards under this Scheme will be issued in the form of transferable duty credit scrip. The reward would be claimed as a percentage of the Freight on Board (FOB) value of exports. The rate and items will be determined by the inter-ministerial committee subsequently.
A short comparison of all the 3 schemes are summarised below for a quick reference:
To exporters of notified goods to notified countries
Can be availed on exports till December 31, 2020 (owing to extension of FTP 2015-20 due to COVID 19)
To exporters of apparels and made ups
Can be availed on exports till March 31, 2020
To exporters of goods which will be notified subsequently
Will be availed on exports as when notified (in year 2020)
The Government is very clear in their intention to protect, support, and boost India’s exports and the exporters who are the backbone for ensuring the flow of foreign exchange into the economy. With the global economic conditions reeling under the current circumstances of COVID-19, the policymakers are making constant efforts to ensure that they tick all the boxes correctly while formulating the new FTP 2020-25, which plays a critical role for the economy of the next 5 years. Meanwhile, the Government also expects that no one takes any undue advantage of the existing schemes and only the beneficiary are benefitted from the scheme, by building a strong mechanism under the regulation of Directorate General of Foreign Trade.