Export incentives

In order to promote exports and to obtain foreign exchange, the Government of India had framed several schemes, which grant incentives and other benefits. Some of these schemes from the point of view of indirect taxes are briefly discussed below :-

Free Trade Zones : Several Free Trade Zones have been established in India at various places such as Kandla, Noida, Cochin and Santa Cruz in Mumbai. No excise duties are payable on goods manufactured in these free trade zones provided the goods are exported. Goods brought into this zone from other parts of the India are brought without payment of any excise duty. Similarly, no customs duties are payable on imported raw material and components used in the manufacture of goods exported. Since selling the entire production of units in these free trade zones outside India may not be always possible, such units may sell 25 % of their production in India. Excise duty is payable on such domestic sale at 50 % of basic plus additional customs duty or normal excise duty payable if they were produced elsewhere in India, whichever is higher.

100% Export Oriented Units (EOU) : can import raw materials without payment of any customs duty provided they export their products. Since selling the entire production of units in these free trade zones outside India may not be always possible, such units may sell 25 % of their production in India. If they sell their product in India, duty equal to excise duty if the products were manufactured by another person in India or 50% of custom duty, whichever is higher becomes payable.

Electronic Hardware Technology Park / Software Technology Parks : This scheme is similar to the Free trade Zone Scheme except that it is restricted to units in the electronics and computer hardware and software sector.

Advance Licence / Duty Exemption Entitlement Scheme (DEEC) : Under this scheme, raw material and other components can be imported without payment of customs duty for use in goods to be exported against advance licence. Such licence may either be quantity based (Qbal) or value based (Vabal). i.e upto the quantity or value specified in the licence, duty free imports of specified materials can be made. Such licences are transferable at a price in the open market. Quantity based inputs and output norms has been prescribed for various products for acquiring a licence.

The exporter sometimes uses components manufactured in the domestic market. The domestic manufacturer can get advance intermediate license for raw materials required by him for manufacture and supply of intermediate products to the exporter. Such exports are known as deemed exports i.e. though they are not actual exports, they are treated as exports since they facilitate final exports). Such a domestic manufacturer of intermediate products can get advance customs release order on the basis of the licence of the final exporter. Besides, such a domestic manufacturer can send intermediate goods to the final exporter without payment of excise duty.

Export Promotion Capital Goods Scheme (EPCG) : Under this scheme, a domestic manufacturer can import machinery and plant without payment of customs duty or at a concessional rate of customs duty. However, he has to give an undertaking that he will undertake to export as follows :

Customs duty rate	Export obligation	Time
10%	4 times exports (on FOB basis) of CIF value of machinery	5
Nil incase CIF value is Rs200mn or more	6 times exports (on FOB basis) of CIF value of machinery or 5 times exports on (NFE) basis of CIF value of machinery	8
Nil incase CIF value is Rs50mn or more for agriculture, aquaculture, animal husbandry, floriculture, horticulture, poultry and sericulture.	6 times exports (on FOB basis) of CIF value of machinery or 5 times exports on (NFE) basis of CIF value of machinery	8

NFE stands for net foreign earnings, CIF stands for cost plus insurance plus freight cost of the machinery, FOB stands for Free on Board i.e. export value excluding cost of freight and insurance. Time is in years.

The exporter can also procure such machinery from India with payment of duty or at concessional rate of duty.

Deemed Exports : The following categories of sale will be treated as deemed exports in the hands of the seller provided the goods are manufactured in India :-

• Supply of goods against duty free licences under DEEC scheme
• Supply of goods to a 100 % EOU or a unit in a free trade zone or a unit in a software technology park or a unit in a hardware technology park
• Supply of goods to holders of licence under the EPCG scheme
• Supply of goods to projects financed by multilateral or bilateral agencies or funds notified by the Finance Ministry under international competitive bidding or under limited tender systems in accordance with the procedures of those agencies or funds where legal agreements provide for tender evaluation without including customs duty.
• Supply of capital goods and spares upto 10% of the FOR value to fertilizer plants under international competitive bidding
• Supply of goods to any project or purpose in respect of which the Ministry of Finance permits by notification the import of goods at zero customs duty along with benefits of deemed exports to domestic supplies
• Supply of goods to power, oil and gas sectors in respect of which the Ministry of Finance permits by notification benefits of deemed exports to domestic supplies

The Indian supplier is entitled to take following benefits in respect of deemed exports :-

• Refund of excise duty paid on final products
• Duty drawback
• Imports under DEEC scheme
• Special import licenses based on value of deemed exports

Manufacture under Bond : Under this scheme, if the manufacturer furnishes a bond of adequate amount and undertakes to export his production, he is allowed to import goods without payment of any customs duty. Similarly, he can obtain goods from the domestic market without excise duty. Production has to be under the supervision of the customs or excise authority.

Duty Drawback : Drawback means rebate of duty chargeable on any imported material or excisable material used in the manufacture of goods which are manufactured in India and exported. An exporter is entitled to claim drawback or refund of excise and customs duties paid by his suppliers. Drawback on material used for manufacturer of export products can be claimed by the final exporter. Rules have been framed for the purpose allowing drawback. Drawback is allowed even in respect of goods, which are re imported.

Drawback is equal to :-

• Customs paid on imported inputs plus excise duty paid on indigenous imports
• Duty paid on packing material

No drawback is allowed on inputs obtained without payment of customs or excise duty. If customs and excise duty is paid on part of inputs or rebate or refund has been claimed, only that part of which duty is paid and on that part which refund or rebate has not been allowed will be eligible for drawback.

Drawback is allowable in case goods are re-exported from as such or after use (eg goods brought into India for exhibitions, etc), provided the re-exported goods are clearly be identifiable and are re-exported within 2 years from the date of payment of duty when they were imported. After inspection, 98% of the customs duty paid while importing the goods is allowable as drawback. The market value of the goods re-exported must be more than or equal to the value of goods imported. If goods imported are used before the re-export, drawback will be allowed as at reduced %.