Foreign Trade Policy – CA Final IDT Study Material

Foreign Trade Policy – CA Final IDT Study Material is designed strictly as per the latest syllabus and exam pattern.

Foreign Trade Policy – CA Final IDT Study Material

Question 1.
What is the basic difference between ‘Duty Exemption Schemes’ and ‘Duty Remission Schemes’ under Foreign Trade Policy (FTP) ? Name the schemes available under these two schemes for FTP 2015-20. [Nov. 2014, 4 Marks]
Answer:
The difference between ‘Duty Exemption Scheme’ and ‘Duty Remission Scheme’ can be summarized as:

Basis of Diff.	Duty Exemption Scheme	Duty Remission Scheme
Meaning	Pre-Export Exemption These schemes enable duty free import of inputs required for export production, including replenishment of input.	Post-Export Exemption These scheme enable post export remission/refund of duty on inputs used export product.
Schemes available	Duty Exemption Schemes consist of: Advance Authorization Scheme Duty Free Import Authorization Scheme	Duty remission schemes consists of: Duty Drawback (DBK) Scheme; and Duty Entitlement Passbook (DEPB) Scheme.

Question 2.
Briefly explain the salient features of the duty-free import authorization scheme under Foreign Trade Policy. [May 2015, 4 Marks]
Answer:
The following are salient features of duty free import authorization (DFIA) Scheme:

1. Duty Free: DFIA is issued to allow duty free import of inputs, oil and catalyst which are required for production of export product.
2. Type of duty exempted: The goods imported are exempt ONLY from basic customs duty. IGST will be payable on imports
3. SION Condition: DFIA shall be issued on post export basis for products for which SION have been notified. Separate DFIA shall be issued for each SION and each port.
4. Actual user Condition: No DFIA shall be issued for an export product where SION prescribes ‘Actual User’ condition for any input.
5. Inputs from indigenous manufacturer: Holder of DFIA has an option to procure the materials/inputs from indigenous manufacturer/STE in lieu of direct import against Advance Release Order (ARO)/Invalidation letter/Back to Back Inland Letter of Credit.

However, DFIA holder may obtain supplies from EOU/EHTP/BTP/STP/ SEZ units, without obtaining ARO or Invalidation letter.

Question 3.
Explain the conditions for redeeming authorization under duty free import authorization scheme as per Foreign Trade Policy 2015-2020. [Nov. 2016, 4 Marks]
Answer:
Condition for redeeming authorization under duty free import authorization scheme:

(i) Duty free import authorization is issued to allow duty free import of inputs.

(ii) Duty free import authorization scheme shall not be available for import of raw sugar. Drawback as per rate determined by Central Excise authority shall be available for duty paid inputs, whether imported or indigenous, used in the export product.

(iii) Export shall be complete within 12 months from the date of filing of online application and generation of file number.

(iv) Duty free import authorization shall be issued on post export basis for Products for which standard input output norms have been notified.

(v) Minimum value addition of 20% shall be required to be achieved.

Question 4.
Jigsaw Puzzle has imported inputs, having CIF value of ₹ 25,00,000 without payment of duty under Advance Authorization. Inputs are supplied free of cost valued at ₹ 5,00,000 to meet eventualities of quality issues arising during manufacture. On manufacturing, the products are supplied to units in SEZ and realisation is in Indian currency. Jigsaw Puzzle wants to know whether it is entitled to Advance Authorization scheme and what should be the minimum value addition.

And you are required to compute FOR value of supplies to SEZ.
Jigsaw Puzzle has manufactured and supplied goods to international organisations in India from imported inputs for their office use. The payment for such supply is received in Indian currency. Can Advance Authorization be denied as payment has not been received in free foreign exchange? [May 2018, 4 Marks]
Answer:
Statutory Provision

• Advance authorisation (AA) can be issued for supplies made to SEZ units (as supplies made to SEZ units are considered as physical exports).
• The minimum value addition required to be achieved under AA is 15%.
• The FOR value of supplies made to SEZ units is computed as under:
  Value addition = (FOR value of supply received – CIF value of inputs/CIF value of inputs) X 100
• Notional value of free of cost inputs supplied by foreign buyer needs to be added to the CIF value of imported inputs to compute FOR value of the supplies made to SEZ units.

In the given case

• FOR value of supplies made to SEZ units = 30,00,000 × 115% = ₹ 34,50,000
• Jigsaw Puzzles will, however, be not eligible for AA as the payment from SEZ unit is not realised from its Foreign Currency Account.
• Supply of goods to international organisations in India from imported inputs for their office use is a deemed export eligible for grant of AA.
• However, AA can be issued only when the payment for such deemed exports is realised in free foreign exchange.

Question 5.
Nirav Shah used some duty paid inputs for manufacture of the export products. However, for the rest of the inputs, he wants to apply for advance authorization. Can he do so ? Advise him with reference to foreign trade policy 2015-2020. [May 2019, 5 Marks]
Answer:
Statutory Provision
Drawback can be obtained for any duty paid material, whether imported or indigenous, used in goods exported, as per prescribed drawback rates. Advance authorization can be used for importing duty free material.

Drawback allowed must be mentioned in the application for advance authorization. In such case, All Industry Brand Rates are not applicable. The manufacturer has to get specific brand rate fixed from the Commissioner for these exported goods.

In the given case

• Yes, he can do so.
• In case of part duty free and part duty paid imports, both advance authorization and drawback are available.

Question 6.
Discuss briefly the similarities and differences between Advance Authorization and DFIA (Duty Free Import Authorization) Schemes. [May 2018, 4 Marks]
Answer:
Similarity: In both the schemes, duty free import of inputs, oil and catalyst required for export products is permitted.
Differences:

Basis	Advance Authorization (AA)	Duty Free Import Authorization (DFIA)
1. Transferability	Not transferable.	Transferable after export obligation is fulfilled.
2. Requirement of Value Addition	15% value addition.	Minimum 20% value addition.
3. For Gem & Jewellery Sector	Available	Not available
4. Where SION prescribes actual user condition	AA Can be issued	DFIA cannot be issued as the material is transferable after fulfilment of export obligation.
5. If SION is not fixed for product to be exported	AA can be issued	DFIA cannot be issued
6. Exemption of IGST on imports	Exempted up to 31-3-2020	There is no such exemption available

Question 7.
Mr. Hasmukh is eligible for reward under ‘Service Exports from India Scheme’ (SEIS). He has earned foreign exchange (net) of ₹ 16 lakh during the financial year 2019-20. Discuss the limit of his duty credit script entitlement. [Nov. 2014, 2 Marks]
Answer:

• Mr. Hasmukh is an individual service provider.
• He has free foreign exchange earning of atleast $ 10,000 in the year of rendering service (current year).
• Hence, he Is eligible for SEIS duty Credit Script.
• Duty Credit Scrip would be 5% of ₹ 6,00,000 i.e. ₹ 30,000

Question 8.
Mr. Mukul, a Chartered Accountant received US $ 12,000 (net) during the financial year 2018-19 from M/s. Carter & Company of USA for providing auditing services. Out of this, 1,20,000 equivalents to US $ 2,000 was received in Indian Rupees and US $ 2,000 was received through the credit card of Mr. Romeo, who is the partner of M/s. Carter & Company.

Explain with reference to provisions of new Service Export from India Scheme (SEIS) as provided in new Foreign Trade Policy 2015-2020, whether Mr. Mukul is entitled to avail benefit under SEIS Scheme? If yes, what will be the rate of entitlement of reward? [May 2016, 4 Marks]
Answer:
To check the entitlement to avail benefit under SEIS Scheme

Conditions for entitlement under SEIS	In case of Mr. Mukul
(a) The service provider must be located in India	Fulfilled
(b) It must provide only notified services (auditing services are notified) in specified manner	Fulfilled
(c) In case of individual, he must attain net free foreign exchange earnings, in year of rendering services of US $ 10,000. Payment through credit card is counted. In some cases, payment in Indian Rupee is counted.	Fulfilled
(d) Service provider shall have to have an active IEC at the time of rendering services.	Fulfilled

Since all the above conditions are fulfilled, hence, SEIS benefit is allowable.

Rate of Reward:
The rate of reward in case of auditing services is 5% of net free foreign exchange earnings of 2018-2019.

Question 9.
The objective of MEIS scheme is to neutralize export goods. Whether the statement is correct? What are the ineligible categories for MEIS scheme? Write a brief note with reference to the the customs duties paid What are the ineligible Foreign Trade Policy. [May 2017, May 2019, 4 Marks]
Answer:
(i) Correctness of the given

The objective of MEIS scheme is to neutralize the customs duties paid on inputs used in the export goods.
This statement is Incorrect

Reason:
The objective of “Merchandise Exports from India Scheme (MEIS) is to offset Infrastructural Inefficiency and associated costs involved in export of goods/products, which are produccd or manufactured in India, especially those goods having high export intensity, employment potential and thereby enhancing India’s export competitiveness. So, the given statement that to neutralise the custom duty paid is wrong.

(ii) Exports ineligible for MEIS :The following exports categories/sectors shall be ineligible for Duty Credit Scrip entitlement under MEIS:

1. EOU/EHTP, BTPs/STPs products exported through DTA units
2. Supplies made DTA to SEZ
3. Export of certain Imported Goods
4. Export through transshipment
5. Deemed Export
6. Export Products which are subject to minimum Export Price or Export Duty
7. Export made by units in FTWZ

It may be noted that exports between SEZ/EOU, etc. on behalf of DTA is eligible.

Question 10.
Explain the significance of duty credit scripts under Merchandise Exports from India Scheme (MEIS). Vasant exports a consignment of handcrafted items through courier using e-commerce of FOB value of 48,000. Determine whether he is eligible for the above benefit. [Nov. 2017, 4 Marks]
Answer:
The significance of duty credit scrips under Merchandise Exports from India Scheme (MEIS) is to compensate infrastructural inefficiencies and associated costs involved in export of goods/ products, which are produced/manufactured in India especially goods having high export intensity, employment potential and thereby enhancing India’s export competitiveness.

1. The duty credit scrips in goods imported or domestically procured are freely transferable.
2. Utilisation of duty credit scrip is permitted for payment of excise duty for procurement from domestic sources, only of items permitted for imports under duty credit scrips
3. The duty credit scrip will be valid for 18 months from the date of issue. Export of handicraft item through courier, using e-commerce, of FOB value upto 5,00,000 per consignment is entitled for rewards under MEIS.

Since the FOB value of handicraft consignment exported by Vasant is not exceeds 5,00,000, he is eligible for the above benefit.

Question 11.
From the following particulars, you are required to determine reward under Merchandise Exports from India Scheme (MEIS) under Foreign Trade Policy 2015-2020:
(1) Exports of handloom products through notified courier with FOB value of ₹ 5,15,000 per consignment.
(2) Exports of goods which are subject to minimum export price with FOB value of ₹ 50,000.
(3) Exports of goods where FOB value declared in shipping bill is ₹ 8,00,000. FOB value realised with exchange gain is ₹ 8,20,000.
(4) Exports of books through foreign post office with FOB value of ₹ 4,95,000 per consignment
(5) Biotechnology Park products exported through DTA units of ₹ 3,00,000
(6) Supplies made from DTA units to SEZ units of ₹ 2,00,000
(7) Rate of reward under MEIS is 7%. [May 2019, 5 Marks]
Answer:
Computation of rewards under METS

Particulars	Amount eligible for reward (₹)
Export of handloom products through courier with FOB value ₹ 5,15,000 [Working Note 1]	5,00,000
Export of goods which are subject to minimum export price [Working Note 2]                                                  ‘                                                             “	Nil
Export of goods where FOB value declared in shipping bill is ₹ 8,00,000 and FOB value realized is ₹ 8,20,000 [Working Note 2]	8,00,000
Export of books through foreign post office with FOB value of ₹ 4,95,000 [Working Note 3]	4,95,000
Biotechnology Park products exported through DTA units [Working Note 2]	Nil
Supplies made from DTA units to SEZ units [Working Note 2]	Nil
Total amount eligible for MEIS reward	17,95,000
MEIS reward @ 7%	1,25,650

Working Notes:

1. Export of handloom products of FOB value upto ₹ 5,00,000 per consignment is entitled for reward under MEIS.
2. These are ineligible for MEIS.
3. FOB value declared in the shipping bill or the FOB value realized, whichever is lower is considered for MEIS rewards
4. It has been assumed that exports have been made using E-Commerce platform

Question 12.
Answer the following questions with reference to the provisions of Duty Credit Scrips under
Export from India Schemes under FTP 2015-2020.

(i) Neha provides services eligible for SEIS Scheme. She wants to sell SEIS scrips earned by her. Can she do so?
(ii) Can a manufacturer, instead of importing the inputs, source the same indigenously without payment of GST?
(iii) An exporter was issued duty credit scrip dated 15.07.2019. What is the period within which he must utilize the scrip?
(iv) An exporter exported leather foot wears through courier using e-commerce of value of ₹ 24,000. Can he apply for duty credit scrips under Merchandise Exports from India Scheme (MEIS)? [RTP, Nov. 19]

Answer:
Solution.

(i) Yes. The duty credit scrips and goods imported or domestically procured against them are freely transferable.
(ii) No. Utilization of duty credit scrip is not permitted for payment of GST for procurement from domestic sources.
(iii) The duty credit scrip issued on or after 1-1-2016 shall be valid for 24 months from the date of issue and must be valid on date on w’hich actual debit of duty is made.
(iv) Yes. Exports of leather foot wears through courier using e-commerce of FOB value of ₹ 5,00,000 per consignment are eligible for MEIS.

Question 13.
Saksham exports a consignment of handicraft items through courier using e-commerce of free on board (FOB) value of ₹ 4,48,000. Determine whether the export consignment of Saksham is eligible for the MEIS benefit.
Answer:
Export of handicraft items through courier, using e-commerce, of free on board (FOB) value up to ₹ 5,00,000 per consignment is entitled for rewards under MEIS.
Therefore, the entire consignment of handicraft items exported by Saksham (FOB value ₹ 4,48,000) is eligible for MEIS benefit.

Question 14.
Define Export Obligation under Export Promotion Capital Goods Scheme (EPCGS) of Foreign Trade Policy 2015-2020. What will be specific export obligation if the Capital Goods are indigenously sourced under EPCG Scheme? [May 2016, 4 Marks]
Answer:
Export Obligation:
Export obligation means obligation to export product(s) covered by authorization/permission in terms of quantity or value or both, as may be prescribed, specified by regional or competent authority. It consists of average export obligation and specific export obligation.

Specific export obligation:
In case of indigenous sourcing of capital goods, specific EO shall be 25% less than the EO applicable for imports under EPCG scheme.
Thus, EO = Duties, taxes and Cess saved × 4.5 times

Question 15.
Which exporters are eligible for Export Promotion Capital Goods Scheme as per Foreign Trade Policy 2015-20? Also describe which capital goods are eligible for import under this scheme? [Nov. 2018, 4 Marks]
Answer:
Following exporters are eligible for Export Promotion Capital Goods Scheme (EPCG) as per Foreign Trade Policy 2015-20:

1. Manufacturer exporters with or without supporting manufacturer(s),
2. Merchant exporters tied to supporting manufacturer(s), and
3. Service providers including service providers designated as Common Service Provider (CSP) subject to prescribed conditions.

Following capital goods are eligible for imports under EPCG schemes:

1. Capital goods including capital goods in CKD/SKD condition
2. Catalysts for initial charge plus one subsequent charge
3. Capital goods for Project Imports notified by CBIC.
4. Computer systems and software which are a part of capital goods being imported
5. Spares, moulds, dies, jigs, fixtures, tools & refractories

Question 16.
What do you mean by “Deemed Exports” under Foreign Trade Policy? [Nov. 2015, 2 Marks]
Answer:
Deemed exports referred to those transactions in which goods manufactured in India are supplied to specified projects or to specific categories of consumers. In deemed exports, goods supplied do not leave the country and payment for such supplies is received either in Indian rupees or in free foreign exchange by the recipient of the goods.

Question 17.
Indicate five benefits available to “Status Holders” under the reward scheme of Foreign Trade Policy 2015-2020. There is no need to define the term “status holder”. [May 2018, 5 Marks]
Answer:
The benefits available to Status holders are as under:
(a) Authorization and Custom clearances for both imports and exports on self-declaration basis.
(b) Fixation of Input Output Norms (SION) on priority i.e. within 60 days.
(c) Exemption from compulsory negotiation of documents through banks. The remittance receipts, however, would continue to be received through banking channels.
(d) Exemption from furnishing of Bank Guarantee in Schemes under FTP
(e) Two Star Export Houses and above are permitted to establish export warehouses.
(f) Three Star and above Export Houses shall be entitled to get benefit of Accredited Clients Programme (ACP) as per the guidelines of CBIC.
(g) Grant of double weightage for calculation of Export Performance for Grant of Status

1. Eligible Exports for double weightage:

• Micro, Small & Medium Enterprise
• Manufacturing units having ISO/BIS
• Units located in North Eastern States Including Sikkim, Jammu & Kashmir.
• Units located in Agri Export Zones.

2. One Star Export House only eligible: Double weightage shall be available for grant of One Star Export House Category only. Such benefit of double weightage shall not be admissible for grant of status recognition of other categories namely Two Star Export House, Three Star Export House, Four Star Export House and Five Star Export House.
3. A shipment can get double weightage only once in any of above categories.

Question 18.
Payal Company, a unit located in Agri Export Zone has made exports of machineries worth US $ 30 lakh per annum (on an average) during the last three years and in the current year. It wants to export certain goods for export promotion on free of cost basis, which are worth ₹ 25 lakh. 1 US$ = ₹ 50. Examine whether Payal Company can export, export promotion goods on free of cost basis as proposed? [Nov. 2018, 5 Marks]
Answer:
Status holders are entitled to export freely exportable items on free of cost basis for export promotion subject to an annual limit of 2% of average annual export realization during preceding 3 licensing years.
All exporters of goods having an import-export code (IEC), number shall be eligible for reorganization as a status holder. Payal Company, upon achieving export performance of US. $ 12 million [30 lakh × 4] during current and previous 3 financial years, is eligible for status reorganization as One Star Export House.

Being a unit in Agri Export Zone, exports of Payal Company is eligible for grant of double weightage for calculation of export performance for grant of status of One Star Export House. However, the same is not relevant for Payal Company as it is already eligible for grant of One Star Export House on the basis of its export performance without taking the benefit of double weightage.

Therefore, being a Status Holder, Payal Company is entitled to export freely exportable items on free of cost basis for export promotion as under:
2% of 1500 lakh [US $ 30 lakh [Note] × 50] which is 30 lakhs
Thus, Payal Company can export goods worth 25 lakh for export promotion on free of cost basis.

Note: In the above answer, average annual export realization of US$ 30 lakh per annum during preceding 4 years has been assumed to be the average annual realization during preceding 3 licensing years.

Question 19.
Answer the question below.
(i) A star export house wishes to import goods which are exempt under Foreign Trade Policy (FTP) subject to fulfilment of export obligation. However, Customs Notification giving effect to the FTP is yet to be issued. Can the export house import the goods claiming exemption under FTP in the absence of Customs Notification? [Nov. 2017, 2 Marks]
Answer:
No. The exemptions extended by FTP can be taken only when the exemption notification is issued under the relevant tax laws. The provisions of Foreign Trade Policy cannot override tax laws.