EY Tax AlertForeign Trade Policy 2015 - 2020

2 April 2015

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Executive summaryThis Tax Alert gives an update on the Foreign Trade Policy (FTP) 2015-2020,which has been released by the Ministry of Commerce and Industry on 1 April2015.

The FTP 2015 - 2020, which comes into effect from 1 April 2015, has beennotified by the Central Government1 in exercise of the powers conferred underthe Foreign Trade (Development and Regulations) Act, 1992.

It introduces two schemes namely “Merchandise Exports from India Scheme”(MEIS) for export of specified goods to specified markets and “Services Exportsfrom India Scheme” (SEIS) for exports of notified services, in place of theschemes issued earlier. The benefits of these reward schemes will also beextended to SEZ units.

Further, measures have been taken to encourage manufacturing and exportsunder 100% EOU/EHTP/STPI/BTP schemes such as fast track clearance facility,sharing of infrastructural facilities etc.

The major focus areas of this FTP are trade facilitation and ease of doingbusiness. Accordingly, a number of steps have been taken such as reduction innumber of mandatory documents for export and import, creation of facility foruploading documents in exporter / importer profile etc.

_________________1vide Notification no. 1/2015-2020 dated 1 April 2015

Background► The Foreign Trade Policy 2009-2014,

which was to remain in force until 31March 2014, was extended beyond thatdate as notified by the Director Generalof Foreign Trade (DGFT) vide Notificationno. 69/(RE-2013)/2009-2014 dated 19February 2014.

► The Foreign Trade Policy 2015-2020 hasbeen released on 1 April 2015, and shallremain in force upto 31 March 2020,unless otherwise specified.

► The new FTP provides a framework forincreasing exports of goods and servicesas well as generation of employment andincreasing value addition in the country,integrating the “Make in India”, “DigitalIndia” and “Skills India” initiatives of theGovernment.

Key Highlights

Exports from India Scheme

► MEIS► Five earlier schemes for rewarding

merchandise exports [namely, FocusProduct Scheme, Market LinkedFocus Product Scheme, Focus MarketScheme, Agriculture InfrastructureIncentive Scrip, Vishesh Krishi andGram Udyog Yojana (VKGUY)] havebeen merged into a single scheme i.e.MEIS.

► No conditionality to be attached toscrips issued under the scheme.

► Rewards under the MEIS shall bepayable for the export of notifiedgoods to notified markets2, based ona percentage of realized Free onBoard (FOB) value of exports.

► The debits towards Basic Customsduty in the duty credit scrips wouldalso be allowed adjustment as dutydrawback. At present, only the

2 Category A – Traditional markets (EU countries, USA,Canada); Category B – Emerging & Focus markets(Africa, Latin America & Mexico, CIS countries, Turkeyand West Asian countries, ASEAN countries, Japan,South Korea, China, Taiwan); Category C – Othercountries

additional duty of customs / exciseduty / service tax is allowedadjustment as CENVAT credit ordrawback, as per Department ofRevenue rules.

► Higher levels of reward under MEISproposed for export items with highdomestic content and value additionas compared to products with highimport content and less valueaddition.

► Export shipments filed under allcategories of Shipping Bills willrequire a mandatory declaration forthe intent to claim rewards underMEIS. In case of shipping bills (otherthan free shipping bills), suchdeclaration of intent shall bemandatory w.e.f. 1 June 2015.

► E-Commerce:Exports of goods falling in thecategory of handloom products,books / periodicals, leather footwear,toys and customized fashiongarments, through courier or foreignpost office using e-commerce, of Freeon Board (FOB) value upto INR 25000per consignment shall be entitled forrewards under MEIS. In case the valueexceeds INR 25000, MEIS rewardwould be limited to FOB value of INR25000 only.

► SEIS► SEIS, which has replaced the earlier

Served From India Scheme (SFIS),shall now apply to “service providerslocated in India” instead of “Indianservice providers”, regardless of theconstitution or profile of the serviceprovider.

► The present rates of reward are 3%and 5% and would be based on netforeign exchange earned. The list ofservices and the rates of rewardswould be reviewed after 30 Sept2015.

► SEIS scrip would no longer be with“actual user condition” and would notbe restricted to usage for specifiedtype of goods. It would be freelytransferable and usable for all type ofgoods and service tax debits on

procurement of services/ goods.Such debits would be eligible forCENVAT credit or drawback.

► MEIS and SEIS incentives are proposedto be extended to SEZ units.

► Duty credit scrips and the goodsimported against these scrips would befreely transferable.

► Duty credit scrips can be used for thefollowing:- Payment of customs duty for import

of inputs / goods except certainspecified items.

- Payment of Excise duty on domesticprocurement of inputs or goods,including capital goods as perDepartment of Revenue (DoR)notification.

- Payment of service tax onprocurement of services as per DoRnotification.

- Payment of customs Duty, in case ofExport Obligation (EO) default andvarious fees under the FTP.

► Basic Customs Duty paid in cash orthrough debit under Duty Credit Scripcan be adjusted as Duty Drawback as perrelevant Rules, if inputs so imported areused for exports.

► Status holders► The nomenclature of Export House,

Star Export House, Trading House,Star Trading House, Premier TradingHouse certificate has been changedto One, Two, Three, Four, Five StarExport House.

► The criteria for export performancefor recognition of status holder havebeen changed from Rupees to USdollar earnings. The new criteria vis-a-vis the old one is as follows:

Statuscategory

ExportPerformance(FOB/FOR USD inmillion) duringcurrent andprevious twoyears

One StarExport House

3

Two StarExport House

25

Three StarExport House

100

Four StarExport House

500

Five StarExport House

2000

► Manufacturers who are also “StatusHolders” will be able to self-certifytheir manufactured goods asoriginating from India, with a view toqualify for preferential treatmentunder different agreements3, whichare in operation. They shall also bepermitted to self-certify themanufactured goods as per theirIndustrial Entrepreneur Memorandum(IEM)/ Industrial Licence (IL) / Letterof Intent (LOI).

Changes to Export Promotion CapitalGoods (EPCG)► Specific Export Obligation under EPCG

scheme, in case of domesticprocurement of capital goods, has beenreduced from 90% of the normal EO to75%.

► Obtaining and submitting a certificatefrom an independent CharteredEngineer, confirming the use of spares,tools, refractory and catalysts importedfor final redemption of EPCGauthorizations has been dispensed with.

► The requirement to maintain records byEPCG Authorization holders has beenreduced from 3 years after redemptionof authorization, to 2 years. TheGovernment intends to gradually phaseout this requirement.

Trade Facilitation and Ease of DoingBusiness► The number of mandatory documents

for import/export, reduced from ten tothree vide CBEC Circular4.

Export documents now required:- Bill of Lading/Airway Bill- Commercial Invoice cum Packing List- Shipping Bill/Bill of Export

3 Preferential Trading Agreements; Free TradeAgreements; Comprehensive Economic CooperationAgreements; Comprehensive Economic PartnershipsAgreements4 CBEC Circular No. 01/15-Customs dated 12/01/2015

Import Documents now required:- Bill of Lading/Airway Bill- Commercial Invoice cum Packing List- Bill of Entry

► Online procedure to be developed foruploading digitally signed documents byChartered Accountant / CompanySecretary / Cost Accountant, which areat present being submitted physically.

► Hard copies of applications underChapter 3 and 45 of FTP would not berequired to be submitted to RegionalAuthority. Applications under Chapter 56

to be taken up in the next phase.

► An exporter may upload scanned copy ofBill of Entry under his digital signature.Also Status Holders falling in thecategory Three, Four and Five StarExport House may upload scannedcopies of documents.

► Facility has been created for uploadingof documents in Exporter / Importerprofile. Thus, once uploaded, there willbe no need to submit copies ofrecords/documents with eachapplication.

► Certain information like mobile number,email address etc. has been added asmandatory fields in Importer ExporterCode (IEC) database, so as to facilitatecommunication with exporters regardingthe issuance of authorizations or statusof applications.

► Online application for refund of TerminalExcise Duty (TED) introduced for which anew form is created.

► Forthcoming E-Governance initiatives:- Online inter-ministerial consultations- Message exchange for transmission

of export reward scrips from DGFT toCustoms

- Message exchange for transmissionof Bills of Entry (import details) fromCustoms to DGFT

- Online issuance of Export ObligationDischarge Certificate (EODC)

5 Chapter 3 – Exports from India Schemes Chapter 4 – Duty Exemption/ Remission Schemes6 Chapter 5 – EPCG Scheme

- Message exchange with MCA forCorporate Identification Number (CIN)and Director Identification Number(DIN)

- Message exchange with CBDT forPAN

- Facility to pay application fee usingdebit card / credit card

- Open API for submission of IECapplication

- Mobile applications for FTP

Initiatives for EOUs /EHTP/STP/ BTP► EOUs, EHTPs, STPs have been allowed to

share infrastructural facilities amongthemselves. Inter unit transfer of goodsand services has also been allowedamong EOUs, EHTPs, STPs, and BTPs

► EOUs have been allowed facility to set upwarehouses near the port of export.

► STP units, EHTP units, software EOUshave been allowed the facility to use allduty free equipment/goods for trainingpurposes.

► 100% EOU units have been allowedfacility of supply of spares/ componentsup to 2% of the value of manufacturedarticles, to a buyer in domestic marketfor the purpose of after sale services.

► Period of 5 years for Net ForeignExchange Earnings (NFE) for 100% EOUscan be extended by 1 year on grounds ofgenuine hardship or adverse marketconditions.

► Time period for validity of Letter ofPermission (LOP) for EOUs/EHTP/STPI/BTP Units has been revised. It willnow have an initial validity of 2 yearsand can be further extended by 1 year.Extension beyond 3 years can begranted on the completion of 2/3rd ofthe activity by the units.

► In case capital goods, which aretransferred by EOUs/EHTPs/STPI unitsto other units, are rejected by therecipient, then it can be returned to thesupplying unit without payment of duty.

► A simplified procedure to be provided tofast track the de-bonding / exit of theSTP/ EHTP units.

► EOUs having physical export turnover ofINR 10 crore and above, have beenallowed the facility of fast trackclearances of import and domesticprocurement, on the basis of pre-authenticated procurement certificate.Procurement permission for everyimport consignment will not be requiredto be sought by EOUs.

Duty exemption► Imports against Advance Authorization

shall be eligible for exemption fromTransitional Product Specific SafeguardDuty (TPSSD).

► In order to encourage manufacturing ofcapital goods in India, import underEPCG Authorisation Scheme shall not beeligible for exemption from payment ofanti-dumping duty, safeguard duty andTPSSD.

Other new initiatives► Validity of SCOMET7 export

authorisation has been extended fromthe present 12 months to 24 months.

► Authorisation for repeat orders will beconsidered on automatic basis, subjectto certain conditions.

► Verification of End User Certificate (EUC)is being simplified if SCOMET item isbeing exported under Defence ExportOffset Policy.

► EO period for export items falling in thecategory of defence, military store,aerospace and nuclear energy shall be24 months from the date of issue ofauthorization or co-terminus withcontracted duration of the export order,whichever is later.

► Calicut Airport, Kerala and ArakonamICD, Tamil Nadu have been notified asregistered ports for import and export.

► India has already extended Duty FreeTariff Preference (DFTP) to 33 LeastDeveloped Countries (LDCs) across theglobe. This is being notified under FTP.

7 Special Chemicals, Organisms, Materials,Equipment and Technology

► A new risk management and internalaudit mechanism is proposed to beintroduced.

Quality complaints and trade disputes► A new chapter on “Quality Complaints

and Trade Disputes” has beenincorporated in the FTP in an endeavourto resolve quality complaints and tradedisputes.

► For resolving such disputes at a fasterpace, Committee on Quality Complaintsand Trade Disputes (CQCTD) is alsobeing constituted.

Transitions Provisions► Any licence/ authorization/ certificate/

scrip/ any instrument bestowing fiscalbenefits issued before commencementof the new FTP shall continue to be validfor the purpose and duration for which itwas issued, unless otherwise stipulated.

CommentsThe new FTP aims at rationalizing thereward schemes which will benefitboth, merchandise and serviceexporters.

Extending the SEIS incentive toservice providers located in India(earlier restricted to Indian serviceproviders) irrespective of theirconstitution or profile, will help theentities of foreign multinationalsdoing business in India, who wereearlier denied benefit on the pretextthat they did not create “Served fromIndia” brand.

Removal of restrictions on benefit ofCENVAT credit / drawback and freetransferability of MEIS and SEIS creditscrips and the goods imported againstthese scrips, will go a long way tofacilitate export trade.

Further, extending the benefits ofMEIS and SEIS to SEZ units willprovide impetus to SEZ exports.

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