Chapter 16 Foreign Trade Policy (FTP) – CS Professional Advance Tax Law Notes is designed strictly as per the latest syllabus and exam pattern.
Foreign Trade Policy (FTP) – CS Professional Advance Tax Law Study Material
Question 1.
Mr. Hasmukh is eligible for reward under ‘Served From India Scheme’ (SFIS). He has earned foreign exchange (net) of ₹ 16 lakh during the financial year 2020-21. Discuss the limit of his duty credit scrip entitlement. (Nov 2014, 2 marks) [CA Final -II]
Answer:
In the instant case Mr. Hasmukh will be entitled to ‘Duty Credit Scrip’ equivalent to 5% of the net free foreign exchange earned during current financial year, as per “Served From India Scheme (SFIS)”.
By applying the above principle, he will be entitled for a duty credit Scrip of ₹ 80,000 [₹ 16,00,000 × 5%].
Question 2.
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) [CA Final -II]
Answer:
The difference between ‘Duty Exemption Scheme’ and ‘Duty Remission Scheme’ can be summarized as:
| Basis of Diff. | Duty Exemption Scheme | Duty Remission Scheme |
| Scheme | It allow duty free import of inputs, fuel, oil, energy sources, catalyst required for production of export product. Provisions of Advance Authorization scheme applicable. Authorization issued for products for which SION (Norms) have been notified. | It enables post export replacement or remission of duty on inputs used in export product. |
| Types | Duty Exemption Schemes consist of- | Duty remission schemes consists of- |
| (i) Advance Authorization Scheme | (i) Duty Drawback (DBK) Scheme; and | |
| (ii) Duty Free Import Authorization Scheme | (ii) Duty Entitlement Passbook (DEPB) Scheme. |
Question 3.
Briefly explain the salient features of the duty free import authorization scheme under Foreign Trade Policy. (May 2015, 4 marks) [CA Final -II]
Answer:
Following are salient features of duty free import authorization (DFIA) Scheme
(I) Purpose of DFIA:
- DFIA is issued to allow duty free import of inputs, fuel, oil and catalyst which is consumed/ utilised in the process of production of export product.
- Provisions applicable to “Advance Authorisation” are broadly applicable in case of DFIA.
(II) Exemption of BCD and drawback available, where exemption not taken:
- DFIA shall be exempted only from payment of Basic Customs Duty (BCD).
- Drawback, shall be available for duty paid inputs (whether imported or indigenous), used in the export product.
However, in case such drawback is claimed for inputs not specified in SION, the applicant should indicate clearly details of such duty paid inputs also in the application for DFIA
(III) Minimum Value Addition:
Minimum value addition of 20% shall be required to be achieved, unless a higher value addition is prescribed.
(IV) Validity and Transferability of DFIA:
(a) Applicant shall file online application to Regional Authority Concerned before starting export under DFIA.
(b) Export shall be completed within 12 months from the date of online filing of application and generation of file number.
Question 4.
State briefly:
Which reward scheme provided under foreign trade policy aims at compensating high transport cost and offset other disadvantages in the export of specified agriculture products?
Who are eligible exporters under the scheme and what is the rate of entitlement under this scheme?
How can the duty scripts issued under this scheme be utilized? (May 2015, 4 marks) [CA Final -II]
Answer:
The contents of the FTP 2015-2020 are as follows:
(i) FTP 2015-2020: having 9 Chapters giving basic policy. This has been notified by the Central Government on 01.04.2015. The policy is amended normally in April every year and also during the year.
(ii) Handbook of Procedures 2015-2020: (HBP 2015-2020) containing 9 chapters, covering procedural aspects of policy. This has been notified by Director General of Foreign Trade on 01.04.2015. It is amended from time to time as per requirements.
(iii) Appendices and Aayat Niryat Forms (AANF): containing various appendices and forms relating to import and export.
(iv) Standard Input-Output Norms: Standard Input-Output Norms (SION) of various products are notified from time to time. Based on SION, exporters are provided the facility to make duty-free import of inputs required for manufacture of export products under the Duty Exemption Schemes like Advance Authorisation and DFIA.
(v) ITC(HS) Classification of Exports and Import Items: The Export Import Policy regarding import or export of a specific item is given in the Indian Trade Classification Code based on Harmonized System of Coding [ITC(HS)]. ITC-HS Coding was adopted in India for import-export operations. Indian custom uses eight digit ITC-HS Codes to suit the national trade requirements.
ITC-HS codes are divided into two schedules. ITC(HS) Import Schedule I describe the rules and guidelines related to import policies where as Schedule II describe the rules and regulation related to export policies. Presently, most of the goods can be imported without any authorization. Schedule II “contains very few products, where export is prohibited or restricted. Excluding those items, export of all other goods is free. Any changes or formulation or addition of new codes in ITC-HS Codes are carried out by DGFT (Directorate General of Foreign Trade).
Question 5.
What do you mean by “Deemed Exports” under Foreign Trade Policy? (Nov 2015, 2 marks) [CA Final -II]
Answer:
(I) Meaning: “Deemed Exports” mean those transactions in which:
- goods supplied do not leave the country, and
- payment for such supplies are received either in Indian rupees or in free foreign exchange by the recipient of the goods,
- provided goods so supplied are manufactured in India.
(II) Categories of Supplies regarded as ‘Deemed Export’: Following categories of supply of goods shall be treated as deemed export provided these goods are manufactured in India:
(a) Supply of goods against Advance Authorization/ Advance Authorization for Annual Requirement/DFIA under duty Exemption / Remission Scheme;
(b) Supply of goods to EOUs/ BTPs/ EHTPs/ STPs;
(c) Supply of capital goods to EPCG Authorization holders;
(d) Supply of goods *o projects financed by multilateral or bilateral agencies / funds as notified by the Department of Economic Affairs (DEA), MoF under International Competitive Bidding (ICB).
(e) Supply of goods to any project or purpose under International Competitive Bidding (ICB) in respect of which the Ministry of Finance, by a notification, permits, the import of such goods at zero customs duty;
(f) Supply of marine freight containers by 100% EOU (Domestic freight containers – manufacturers) provided the said containers are exported out of India within 6 months or such further period as permitted by customs;
(g) Supply to projects funded by UN Agencies; and
(h) Supply of goods to nuclear power projects through competitive bidding opposed to international competitive bidding.
Question 6.
Define Export Obligation under Export Promotion Capita! Goods Scheme (EPCGS) of Foreign Trade Policy 2015-2020. What will be the specific export obligation if the Capital Goods are indigenously sourced under EPCG Scheme? (May 2015, 4 marks) [CA Final -II]
Answer:
(i) Meaning of export obligation:
- Export obligation means obligation to export product(s) covered by authorisation or permission in terms of quantity or value or both, as may be prescribed/specified by Regional or competent authority.
- Export obligation consists of average export obligation and specific export obligation.
(ii) Specific export obligation (Specific EO): Under EPCG scheme, Specific EO is equivalent to 6 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from authorization issue-date. Specific EO is over and above the Average EO.
(iii) Average export obligation (Average EO): Under EPCG scheme, Average EO is the average level of exports made by the applicant in the preceding 3 licensing years for the same and similar products. It has to be achieved within the overall EO period (including extended period unless otherwise specified).
In case of indigenous sourcing of capital goods, specific EO shall be 25% less than the EO mentioned above, i.e. EO will be 4.5 times (75% of 6 times) of duty saved on such goods procured.
Question 7.
Explain the conditions for redeeming authorization under duty free import authorization scheme as per Foreign Trade Policy 2015-2020. (Nov 2016, 4 marks) [CA Final-II]
Answer:
Condition for redeeming authorization under duty free import authorization scheme:
Duty free import authorization is issued to allow duty free import of inputs. 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. For this purpose export shall be complete within 12 months from the date of filing of online application and generation of file number. Duty free import authorization shall be issued on post export basis for products for which standard input output norms have been notified. Minimum value addition of 20% shall be required to be achieved.
Question 8.
The objective of MEIS scheme is to neutralize the customs duties paid on inputs used in the export goods. Whether the statement is correct? What are the ineligible categories for MEIS scheme? Write a brief note with reference to the Foreign Trade Policy. (May 2017, 4 marks) [CA Final – II]
Answer:
(i) Nature of statement: 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 produced 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: Some exports categories/sectors ineligible for Duty Credit Scrip entitlement under MEIS are listed below:
(a) EOUs/ EHTPs/ BTPs/ STPs who are availing direct tax benefits or exemptions
(b) Supplies made from DTA units to SEZ units;
(c) Exports through trans-shipment, i.e., exports that are originating — in third country but trans-shipped through India;
(d) Deemed Exports;
(e) SEZ/EOU/EHTP/BPT/FTWZ products exported through DTA units;
(f) Export products which are subject to Minimum export price or export duty; –
(g) Ores and concentrates of all types and in all formations;
(h) Cereals of all types;
(i) Sugar of all types and all forms unless specifically notified;
(j) Crude / petroleum oil and crude / primary and base products off all types and all formulations;
(k) Export of milk and milk products and meat and meat products unless specifically notified.
Question 9.
Answer the question below.
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 2016, 2 marks) [CA Final -II]
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.
Question 10.
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) [CA Final -II]
Answer:
The benefits available to Status holders are as under:
(a) Authorization and customs 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 for Schemes under FTP unless otherwise specified.
(e) Two Star Export Houses and above are permitted to establish export warehouses.
(f) Three Star and above Export House shall be entitled to get benefit of accredited Clients Programme (ACP) as per the guidelines of CBIC.
[Note: Any of the above five points may be mentioned.]
Question 11.
Mr. A, manufactured goods in India and got a contract to supply capital goods within India to M/s. Z Export Ltd. (holding license under Export Promotion Capital Goods Scheme). Due to some operational problem, Mr. A sub-contracted supply of capital goods to Mr. M with proper authorization from M/s. Z Export Ltd. and included name of Mr. M in main contract of supply before he started supply of goods. Can Mr. M claim benefit of deemed export for supplies made to Mr. A? Explain with reasons. (Nov 2015, 2 marks) [CA Final -II]
Answer:
The benefits of deemed export is allowed if in certain cases goods are exported by manufacturer and in some cases the goods are exported by main / sub-contractors.
But in given case, the benefits of deemed export will not be available, because it is not covered under categories of supply made by main/ subcontractor.
Question 12.
Mr. Mukul, a Chartered Accountant received US $ 12,000 (net) during the financial year 2021 -22 from M/s. Carter & Company of USA for providing auditing services. Out of this, ₹ 1,20,000 equivalent 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) [CA Final -II]
Answer:
Under SEIS scheme a service provider located in India and providing notified services which include accounting and auditing also is eligible for reward @ 5% on net foreign exchange earned, provided he attains net free foreign exchange earnings, in preceding F.Y. of US$ 10,000 (for individuals).
In the given case, Mr. Mukul is providing audit service and has received US$ 12,000. Assuming that his net foreign exchange earning in the preceding F.Y. was equal to more then 10,000 US$, he will be entitled to reward of 5% of 12,000 US$.
[Note: 2000 $ received in INR is deemed to be received in foreign currency]
Question 13.
Explain the significance of duty credit scripts under Merchandise Exports from India Scheme (MEIS). Vasant exports a consignment of hand crafted 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) [CA Final -II]
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.
OR
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 items through courier, using e-commerce, of FOB value upto ₹ 25,000 per consignment is entitled for rewards under MEIS. Since the FOB value of handicraft consignment exported by Vasant exceeds ₹ 25,000, he is not eligible for the above benefit.
Question 14.
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) [CA Final -II]
Answer:
State holders are entitled to export freely exportable items on free of cost basis for export promotion subject to an annual limit of ₹ 1 crore or 2% of average annual export realization during preceding 3 licensing years, whichever is lower.
All exporters of goods having an import-export code'(IEC) number shall be eligible for recognition 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 recognition as One Star Export House.
Being a unit in Agril 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 pronotion as under:
(i) ₹ 1 crore
or
(ii) 2% of ₹ 1500 lakh [US $ 30 lakh1 × ₹ 50] which is ₹ 30 lakh whichever is lower.
Thus, Payal Company can export goods worth ₹ 25 lakh for export promotion on free of cost basis.
Note 1: 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 export realization during preceding 3 licensing years.
Question 15.
ABC Ltd,, an exporter whose export turnover for the year ended 31s1 March, 2021 is ₹ 20.00 lakhs, approaches you to discuss the conditions to be complied to become a Status Holder and to know about the privileges available to Status Holder, if any. Advise the exporter suitably. (Dec 2019, 5 marks)
Answer:
Status holders:
With regard to the conditions to be complied to become status holder, M/s
ABC Ltd is advised as below:
- Status recognition will depend on export performance.
- An applicant shall be categorized as status holder on achieving export performance during the current and previous three financial years (for Gems & Jewellery Sector the performance during the current and previous two financial years)
- The export performance will be counted on the basis of FOB of export earning in freely convertible foreign currencies
- For granting status, export performance is necessary in at least two out of four years.
Export Performance shall be as per table below:
| Status Category | Export Performance FOB / FOR (as converted) Value (in US $ million) |
| 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 |
Grant of Double Weightage
(a) The exports by IEC holders under the following categories shall be granted double weightage for calculation of export performance for grant of status.
- Micro, SrTlall & Medium Enterprises (MSME) as defined in Micro, Small & Medium Enterprises Development (MSMED) Act 2006.
- Manufacturing units having ISO/BIS.
- Units located In North Eastern States including Sikkim and Jammu & Kashmir.
- Units located in Agri Export Zones.
(b) Double Weightage shall be available for grant of One Star Export House Status category only.
(c) A shipment can get double weightage only once in any one of above categories.
Other conditions for grant of status
(a) Export performance of one lEG holder shall not be permitted to be transferred to another lEG holder. Hence, calculation of exports performance based on disclaimer shall not be allowed.
(b) Exports made on re-export basis shall not be counted for recognition
(c) Export of items under Authorisation, including SCOMET items, would be included for calculation of export performance.
Accordingly, M/ABC Ltd is advised togo through the above stated conditions and determine its eligibility to become status holder.
Question 16.
Short note on the provisions related to trade facilitation and ease of doing business under new FTP 2015-2020.
Answer:
(1) DGFT as a facilitator of exports/imports: DGFT has a commitment to function as a facilitator of exports and imports. Focus is on good governance, which depends on efficient, transparent and accountable delivery systems. In order to facilitate international trade, DGFT consults various Export Promotion Councils as well as trade and industry bodies from time to time.
(2) Niryat Bandhu- Hand Holding Scheme for new export/import entrepreneurs: DGFT is implementing the Niryat Bandhu Scheme for mentoring new and potential exporter on the complexity of foreign trade through counseling, training and outreach programmes.
(3) Citizen’s Charter: DGFT has in place a Citizen’s Charter, giving time schedules for providing various services to clients.
(4) Online Complaint Registration and Monitoring System: An EDI Help Desk is available to assist the exporter in filing online application on the DGFT portal and resolving other EDI related issues. An online complaint registration and monitoring system allows user to register complaint and receive status/reply online.
(5) Issue of Electronic-Importer Exporter Code (e-IEC):
(a) IEC is mandatory for export/import from/ to India. DGFT has recently introduced the facility of issuing Importer Exporter Code in electronic form (e-IEC). For issuance of e-IEC an application can be made online on DGFT website. Applicants can upload the documents and pay the required fee through Net banking.
(b) Processing of such applications Regional Authority (RAs) of DGFT would be done online and a digitally signed e-IEC would normally be issued or e-mailed to the applicant within 2 working days.
(c) In case application is incomplete or otherwise ineligible, the same shall be rejected and a rejection letter/ email with reasons for rejection shall be sent to the applicant.
(d) Application for issue of e- IEC can also be made from e-Biz platform.
Question 17.
Short note on ‘Importer- Exporter Code (IEC) Number. State the manner in which IEC is obtained. Also explain about its suspension and cancellation.
Answer:
(i) Meaning: IEC number is a 10 digit PAN based code issued by Director General of Foreign Trade (DGFT).
(ii) Mandatory: Import and export of goods without IEC number is not permitted. However, IEC is not required under the following circumstances:
- Import/ export of goods for personal use, which is not connected with trade, manufacture or agriculture.
- Import/ export by government ministries and departments and certain notified charitable organizations.
(iii) Procedure for obtaining IEC:
(a) Application: Apply to Regional Authority (RA) of DGFT in prescribed form ANF 2A, with fees of ₹ 500.
(b) Documents: The application form should be accompanied by
- Copies of PAN,
- Address proof of the applicant entity,
- Constitution documents like MOA & AOA in case of Company and Partnership Deed in case of partnership,
- Details of bank account.
(iv) Suspension and cancellation of IEC No.: IEC No. may be suspended for a specified period or cancelled by DGFT or authorized officer, if
(a) Any person has contravened provisions of FT (D&R) Act, Rules, FTP etc.
(b) DGFT or authorized officer has reason to believe that any person
- has made an export or import in a manner prejudicial to the trade relations of India with any other foreign country or the interests of other persons engaged in imports or exports; or
- has brought disrepute to the credit or the goods of, or services or technology provided from, the country.
However the DGFT or authorized officer shall give an opportunity to make a representation to the IEC No. holder.
Question 18.
Short notes on ‘Export Promotion Capital Goods (EPCG) Scheme’.
Answer:
(i) Objective: The objective of the EPCG Scheme is-
- To facilitate import of capital goods
- For producing quality goods and services to enhance India’s export competitiveness.
However the duty free purchase of capital goods is subject to fulfillment of Export Obligation (EO).
(ii) Eligible Capital goods:
(a) Imports free of duty: EPCG scheme allows import of specified capital goods for pre-production, production and post-production at zero custom duty.
(b) Domestic purchases free of duty: Alternatively, the “Authorization Holder” may also procure specified capital goods from indigenous sources.
(c) List of Specified Capital goods: Following goods are included in the scheme of EPCG:
- Capital goods, including in CKD/ SKD condition thereof;
- Computer software system;
- Spares, moulds, dies, jigs, fixtures, tools & refractories for initial lining and spare refractories; and
- Catalysts for initial charge an one subsequent charge.
(d) Capital goods for Project Imports-also eligible: Imports of capital goods for projects imports notified by CBIC is also permitted under EPCG Scheme.
(e) Second hand not permitted: Second hand capital goods shall not be permitted to be imported under EPCG scheme.
(iii) Validity of Authorization: Authorization shall be valid for import for 18 months from the date of issue of authorization. Revalidation of EPCG authorization is not permitted.
(iv) EO equivalent to 6 times of duty saved: Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times of duty saved on capital goods, to be fulfilled in 6 years reckoned from date of issue of authorization. EO shall be fulfilled by the authorization holder through export of goods or services.
Question 19.
Short note on leasing of capital goods by EOU/ EHTP/ STP/ BTP.
Answer:
(i) Requirement for Lease: An EOU/EHTP/STP/BTP unit may on the basis of a firm contract between parties, source capital goods from a domestic/ foreign leasing company without payments of customs/excise duty. In this case the unit and domestic/ foreign leasing company shall jointly file documents to enable import/ procurement of capital goods without payment of duty.
(ii) Requirement for Sale & Lease Back: An EOU/EHTP/STP/BTP unit may sell capital goods and lease back the same from a NBFC(i.e. Non Banking Finance Company) subject to following conditions:
(a) The Unit should obtain permission from the jurisdictional Deputy/ Assistant Commissioner of Customs or Central Excise, for entering into transaction of ‘Sale and Lease Back of Assets’, and submit full details of the goods sold and leased back and details cf NBFC.
(b) The goods sold and leased back shall not be removed from the unit’s premises.
(c) The unit should be NFE positive at the time when it enters into sale and lease back transaction with NBFC.
(d) A joint undertaking by the unit and NBFC should be given to pay duty on goods in case of violation of any provision of the notification under which these goods are imported or procured.
Question 20.
What do you understand by the term ‘Foreign Trade Policy’ (FTP)?
Answer:
(i) Foreign Trade Policy (FTP)- Meaning: Foreign Trade Policy is a set of guidelines or instruction
- issued by the Central Government
- in matters related to import and export of goods in India viz., foreign trade.
(ii) Objects of Foreign Trade Policy (FTP): Following are the objects of FTP:
(a) Facilitate imports of goods and services
(b) Developing export potential,
(c) improving export performance,
(d) Encouraging foreign trade and creating favorable balance of payments position.
Question 21.
Which is the governing legislation (law or rules) for FTP? Which Government authorities administer FTP in India?
Answer:
(i) Ministry-in-Charge: In India, Ministry of Commerce and Industry governs the affairs relating to the promotion and regulation of foreign trade.
(ii) Legislation:
(a) The main legislation concerning foreign trade is the Foreign- Trade (Development and Regulation) Act, 1992 [FT (D&R) Act].
(b) In exercise of the powers conferred by the FT(D&R)Act, the Union Ministry of Commerce and Industry, Government of India announces the integrated Foreign Trade Policy (FTP) in every five years with certain underlined objectives.
(c) This policy is updated every year in April, in addition to changes that are made throughout the year.
(iii) Formulation, control etc by DGFT: The FTP is formulated, controlled and supervised by the office of the Director General of Foreign trade (DGFT), an attached office of the Ministry of Commerce & Industry Government of India. DGFT has several offices in various parts of the country which work on the basis of the policy formed by the headquarters at Delhi.
(iv) Other Agencies related to FTP: Thought the FTP is formulated by DGFT, it is administered in close coordination with other agencies. Other important authorities dealing with FTP are:
(a) Central Board of Excise and Customs (CBIC)
(b) Reserve Bank of India (RBI)
(c) State GST Departments.
Question 22.
Briefly explain as to how FTP is linked with GST and customs laws.
Answer:
The Foreign Trade Policy is closely knit with the Customs and GST laws of India. However, the policy provisions pre-se do not override tax laws. The exemptions extended by FTP are given effect to by issue of notifications under respective tax laws (e.g. Customs Tariff Act). Thus, Actual benefit of the exemption depends on the language of exemption notification issued by the CBIC. In most of the cases the exemption notifications refer to policy provisions for detailed condition. Ministry of Finance/Tax Authorities cannot question the decision of authorities under the Ministry of Commerce (so far as the issue of authorities etc. is concerned).
Question 23.
Enumerate the various matters in respect of which policies and regulations are framed under FTP.
Answer:
The FTP covers the policies and regulations with respect to the following matters:
- Policy for regulating import and export of goods and services
- Export Promotional Measures
- Duty Remission and Duty Exemption Scheme for promotion of exports
- Export Promotion Capital Goods (EPCG) Scheme
- Export Oriented Undertakings (EOU)/ Electronic Hardware Technology Park (EHTP)/ Software Technology Park (STP) and Bio Technology Parks (BTP) Scheme
- Special Economic Zones
- Deemed Exports.
Question 24.
What are the contents of FTP 2015-2020?
Answer:
The contents of the FTP 2015-2020 are as follows:
(i) Chapters: FTP 2015-2020 having 9 Chapters giving basic policy. This has been notified by the Central Government on 01.04.2015. The policy is amended normally in April every year and also during the year.
(ii) Handbook of Procedures 2015-2020: (HBP 2015-2020) containing 9 chapters, covering procedural aspects of policy. This has been notified by Director General of Foreign Trade on 01.04.2015. It is amended from time to time as per requirements.
(iii) Appendices and Aayat Niryat Forms (AANF): containing various appendices and forms relating to import and export.
(iv) Standard Input-Output Norms: Standard Input-Output Norms (SION) of various products are notified from time to time. Based on SION, exporters are provided the facility to make duty-free import of inputs required for manufacture of export products under the Duty Exemption Schemes like Advance Authorisation and DFIA.
(v) ITC(HS) Classification of Exports and Import Items: The Export Import Policy regarding import or export of a specific item is given in the Indian Trade Classification Code based on Harmonized System of Coding [ITC(HS)]. ITC-HS Coding was adopted in India for import-export operations. Indian custom uses eight digit ITC-HS Codes to suit the national trade requirements.
ITC-HS codes are divided into two schedules. ITC(HS) Import Schedule I describe the rules and guidelines related to import policies where as Schedule II describe the rules and regulation related to export policies. Presently, most of the goods can be imported without any authorization. Schedule II contains very few products, where export is prohibited or restricted. Excluding those items, export of all other goods is free. Any changes or formulation or addition of new codes in ITC-HS Codes are carried out by DGFT (Directorate General of Foreign Trade).
Question 25.
What is “Registration-Cum-Membership Certificate”(RCMC)? What are its advantages?
Answer:
(i) Meaning of RCMC: It is a certificate issued by Export Promotion Councils or Commodity Board or Development Authority or other competent authority.
Question 26.
With reference to the provisions of FTP 2015 – 20, discuss giving reasons whether the following statements are true or false:
(i) If any doubt arises in respect of interpretation of any provision of FTP, the said doubt should be forwarded to CBIC, whose decision thereon would be final and binding.
(ii) Authorization once claimed by an importer cannot be refused by DGFT.
(iii) I EC is a unique 12 digit PAN based alphanumeric code issued by DGFT to India companies.
(iv) Waste generated during manufacture in an SEZ Unit can be freely disposed in DA on payment of applicable customs duty, without any authorization.
(v) A Customs Clearance Permit (CCP) is required from DGFT in certain specific cases of import of gifts.
Answer:
(i) False. If any question or doubt arises in respect of interpretation of any provision of the FTP, said question or doubt ought to be referred to DGFT whose decision thereon would be final and binding.
(ii) False. No person may claim an Authorization as a right and DGFT shall have power to refuse to grant or renew the same in accordance with provisions of F(D&R) Act, rules made thereunder and FTP.
(iii) False. IEC is a unique 10 digit code issued by DGFT to Indian companies.
(iv) True. Any waste or scrap or remnant including any form of metallic waste & scrap generated during manufacturing or processing activities of an SEZ Unit/ Developer/ Co-Developer are allowed to be disposed in DTA freely, without any authorization, subject to payment of applicable customs duty.
(v) True. A Customs Clearance Permit (CCP) for import of gifts is not required from DGFT if such goods are otherwise freely importable under ITC(HS). Thus, only when the goods imported as gifts are not freely importable under ITC(HC), a CCP is required.
Question 27.
What are different export promotion schemes?
Answer:
In order to encourage export various promotions schemes are provided in FTP. Some of these schemes are as:
- Merchandise Exports From India Scheme (MEIS)
- Service Exports From India Scheme (SEIS)
- Advance Authorization Scheme
- Duty Free Import Authorisation Scheme (DFIA Scheme)
- EPCG Schemes
- EOU/SEZ Schemes and
- Deemed exports.
Question 28.
What are the provisions of FTP for “Merchandise Exports From India Scheme” (MEIS)?
Answer:
(1) Objective: The objective of MEIS scheme 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.
(2) Reward under the scheme: Under MEIS, exports of notified goods/products to notified markets shall be eligible for reward at the specified rate(s). Unless otherwise specified, the basis of calculation of reward would be:
- on realized FOB value in free foreign exchange, or
- on FOB value of exports as given in the Shipping Bills in free foreign exchange whichever is less.
(3) Export of goods through courier or foreign post offices using e-commerce:
(a) Exports of goods through courier or foreign post office using e-commerce, of FOB value upto ₹ 25,000 per consignment shall be entitled for rewards under MEIS.
(b) If the value of exports using e-commerce platform is more than ₹ 25,000 per consignment then MEIS reward will be limited to FOB value of ₹ 25,000 only.
(4) Exports ineligible for MEIS: Some exports categories/sectors ineligible for Duty Credit Scrip entitlement under MEIS are listed below:
(a) EOUs/ EHTPs/ BTPs/ STPs who are availing direct tax benefits or exemptions
(b) Supplies made from DTA units to SEZ units
(c) Exports through trans-shipment, i.e., exports that are originating in third country but trans-shipped through India
(d) Deemed Exports
(e) SEZ/EOU/EHTP/BPT/FTWZ products exported through DTA units
(f) Export products which are subject to Minimum export price or export duty
(g) Ores and concentrates of all types and in ail formations
(h) Cereals of all types
(i) Sugar of all types and all forms unless specifically notified.
(j) Crude / petroleum oil and crude / primary and base products of all types and all formulations
(k) Export of milk and milk products and meat and meat products unless specifically notified.
Question 29.
What are the salient features of Duty- Free Import and supplies Authorization Scheme (DFIA)? Which duties are exempted under this scheme?
Answer:
DFIA is issued to allow duty free import of inputs, fuel, oil energy sources, catalyst which are required for production of export product. DFIA is of two types:
- Pre export Authorization and
- Post export Authorization
Pre-export DFIA is issued with actual user condition. In case of actual user DFIA and where CENVAT credit facility on inputs have been availed for the exported goods, even after completion of export obligation, the goods imported against such DFIA should be utilized in the manufacture of dutiable goods whether within the same factory or outside (by a supporting manufacture). In case of Post-export DFIA, a merchant exporter is required to mention only name(s) and address(es) of manufacturer(s) of the export product(s).
DFIA or the inputs imported against it can be transferred after the fulfillment of the export obligation. Inputs imported against DFIA are exempt from payment of basic customs duty, additional customs duty/ excise duty, education cess, anti-dumping duty and safeguard duty.
Question 30.
What are the provisions of FTP for “Served From India Scheme” (SFIS)?
Answer:
The provisions of SFIS are as under-
1. Objective: Objective of SFIS is to accelerate growth in export of services so as to create a powerful and unique ‘Served from India’ brand, instantly recognized and respected world over.
2. Eligibility: A service provider (with active IEC at the time of rendering services located in India, providing notified services rendered in the specified manner shall be eligible for reward at the notified rate((s) on net foreign exchange [NFE] earned provided the minimum net free foreign exchange earnings of such service provider in preceding financial year-
(a) For Individual service providers and sole proprietorship: US $ 10,000
(b) Any other case i.e. partnership firm, LLP, Company etc.: US $ 15,000.
3. Entitlement: Eligible service providers will be entitled to Duty Credit Scrip at notified rates (generally 5% or 3%) of the net free foreign exchange earned during current financial year.
4. Ineligible categories under SEIS:
(a) Foreign exchange remittances other than those earned for rendering of notified services would not be counted for entitlement. Thus, other sources of foreign exchange earnings such as equity or debt participation, donations, receipts of repayment of loans etc. and any other inflow of foreign exchange, unrelated to rendering of service, would be ineligible.
(b) Payment for services received from EEFC Account;
(c) Foreign exchange turnover by Healthcare Institutions like equity participation, donations etc;
(d) Foreign exchange turnover by Educational Institutions like equity participation, donations etc;
(e) Export turnover related to services rendered by SEZ/ EOU/ EHTP/ STP/ BTP units with turnover of DTA Service Providers;
(f) Exports of Goods
(g) Foreign exchange earnings for services provided by Airlines, Shipping lines service providers plying from any foreign country X to any foreign country Y routes not touching India at all.
(h) Service providers in telecom Sector.
Question 31.
Answer the following questions with reference to the provisions of SFIS Scheme.
(i) Rishita provides services eligible for SFIS Scheme. She wants to sell SFIS scripts earned by her. Can she do so?
(ii) Can a service provider, instead of importing the inputs, source the same indigenously with payment of excise duty?
(iii) What is the rate of entitlement under the Scheme?
(iv) An upcoming Hotel Chain wants to use SFIS scrip for import of cement to be used in the construction of a new Hotel. Is it possible?
Answer:
(i) No. Entitlement/ goods (immortal/ procured) are non-transferable and subject to actual user condition. However, the scrip earned by a company can be utilized by other companies of the same group. Similar is the case of managed hotels also.
(ii) Yes. Utilization of duty credit scrip is permitted for payment of excise duty for procurement from domestic sources, of items permitted for imports under SFIS duty Credit Scrip.
(iii) Eligible service providers are entitled for duty credit of 5% [3% in some cases] of the net free foreign exchange earned during current financial year.
(iv) No. Following items can be imported under the SFIS Scheme.
(a) Import must relate to service sector business of the applicant, should be freely importable and/ or restricted under ITC(HS) and must belong to following categories:
- Any capital goods including spares
- Office equipment
- Professional equipment
- Office furniture
- Consumables.
(b) Only such vehicles, which are in the nature of professional equipment to the service provider can be imported using the scrip. Motor cars, SUV’s and all purpose vehicles can be imported/sourced domestically as professional equipment by Hotels, Trqvel agents, Tour operators or Tour Transport operators and companies owing/ operating golf resorts. Such Vehicles (operating on read and requiring registration) will have to be registered for tourist purpose only.
(c) Hotels; clubs having residential facility of minimum 30 rooms; golf resorts and stand-alone restaurants having catering facilities can also. Import consumables including food items and alcoholic beverages.
(d) Service providers who are also engaged in manufacturing activity can use their SFIS scrip for importing / domestic sourcing of capital goods including spares related to the manufacturing sector business of the service provider.
Question 32.
Explain the meaning, eligibility and investment criteria for EOU/ EHTP/ STP/ BTP.
Answer:
(i) Meaning:
(a) EOU:“EOU” means Export Oriented Unit for which a Letter of Permit (LoP) has been issued by Development Commissioner.
(b) EHTP: Electronic Hardware Technology Park.
(c) STP: Software Technology Park.
(d) BTP: Bio-Technology Park as notified by DGFT on recommendation of Department of Biotechnology.
(ii) Eligibility: Units-
(a) undertaking to export their entire production of goods and services(except permissible sales in DTA),
(b) may be set up under the EOU scheme, EHTP scheme, STP scheme or BTP scheme,
(c) for
- manufacture of goods, including repair, re-making, reconditioning, re-engineering, and
- rendering of services.
(iii) Reconditioning/repair and re-engineering: EOU/EHTP/STP/BTP units may be set up with approval of BOA to carry out reconditioning, repair, remaking, testing, calibration, quality improvement etc. for export in foreign currency.
(iv) Investment Criteria:
(a) Only projects having a minimum investment of ₹ 1 Crore in plant and machinery shall be considered for establishment as EOU.
(b) However, this investment criteria will not apply to existing units and units in EHTP/ STP/ BTP/ handicrafts Agriculture/ Floriculture /IT/ Services/ Brass Hardware and Handmade jewellery sectors.
(c) BoA may also allow establishment of EOUs with a lower investment criteria.
Question 33.
What are the provisions for application, approval and letter of permission for EoU /EHTP/ STP/ BTP unit?
Answer:
(I) Applications and Approvals:
(a) Applications to Units Approval Committee:
- Applications for setting up of units under EOU scheme, other than proposals for setting up of units in service sector(except R&D, software and IT enabled services, or any other service activity as delegated by BoA),
- Shall be made to Units Approval Committee.
- This Committee shall either approve or reject the application within 15 days as per criteria indicated in HBP.
(b) Applications to BoA: In other cases approval may be granted by BoA set up for this purpose as indicated in HBP.
(c) EOU requiring industrial licence: When an EOU requires industrial licence, then approval may be granted by DC i.e. Development Commissioner after clearance of proposal by BoA and DIPP(Department of Industrial Policy & Promotion) within 45 days.
(d) Application for Conversion-BoA: Applications for conversion of existing DTA units into an EOU/ EHTP/ STP/BTP unit, having an investment of ₹ 50 crores and above in plant and machinery or expanding ₹ 50 crores and above annually, shall be made to BoA.
(II) Letter of Permission (LoP) or Letter of Intent(Lol):
(a) Issue of LoP/ Lol: On approval, a Letter of Permission or Letter of Intent shall be issued by DC or designated officer to EOU/EHTP/ STP/ BTP unit. The LoP or Lol issued shall be treated as authorization for all purposes.
(b) Validity:
(i) LoP or Lol shall have an initial validity of 3 years, by which time unit should have commenced production. Its validity may be extended further upto 3 years by competent authority. However, proposals for extension beyond 6 years shall be considered in exceptional cases, on a case to case basis by BoA.
(ii) Once units commences production, LoP/ Lol issued shall be valid for a period of 5 years for its activities. This period may be extended further by DC for a period of 5 years at a time.
(c) Letter of Undertaking(LUT): The Unit shall execute an LUT with DC concerned.
(d) Penal Action: If an Unit fails to ensure positive NFE or to abide by any of the terms and conditions of LoP or Lol or Industrial Licence or LUT shall be liable to penal action and cancellation of LoP or Lol etc.
Question 34.
Discuss the provisions relating to Exports by the EOU/EHTP/ STP/BTP.
Answer:
The brief provisions about export by the EOU/ EHTP can be discussed as:
(a) Export allowed except prohibited exports: An EOU/EHTP/ STP/BTP unit can export all kind of goods and services other than prohibited goods in ITC (HS).
(b) Export of SCOMET: Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) shall be subject to fulfillment of conditions indicated in ITC(HS).
(c) Export of prohibited items- BoA may permit: In case of an EOU, permission to export a prohibited item may be considered, by BoA i.e. Board of Approval, provided –
- such raw materials are imported, and
- there is no procurement of such raw material from DTA.
(d) Limit on Export promotion material: Procurement and supply of export promotion material up to a maximum value limit of 1.5% of FOB value of previous years exports, shall also be allowed.
(e) Export to Russian Federation: An EOU/EHTP etc., other than service unit, may export to Russia Federation in Indian Rupees against repayment of State Credit or Escrow Rupees Account of buyer subject to RBI.
(f) Limit on Export of Spares and Components: Procurement and export of spares or components, upto 5% FOB value of exports be allowed to same consignee/ buyer of the export article, subject to condition that it shall not to be counted for NFE and direct tax benefits.
(g) Export through other exporters: An EOU/EHTP etc. unit may export goods manufactured /software developed by it through another exporter or any other EOU/EHTP/STP/SEZ unit subject to specified conditions.
Question 35.
Discuss the provisions relating to Imports and domestic procurements by the EOU/EHTP/ STP/BTP.
Answer:
The brief provisions about import and domestic procurement by the EOU/EHTP can be discussed as:
(a) Duty free import or procurement: An EOU/ EHTP etc. unit may import and /or procure, from DTA or bonded warehouses in DTA/international exhibition held in India, without payment of duty all types of goods (excluding prohibited goods) including capital goods, required for its activities.
(b) No relaxation from permission and self-certification: Duty free import doesn’t mean freedom from import permission and other conditions. Following points are noteworthy here:
- The units have to obtain any permission required for import under any other law.
- The units shall also be permitted to import goods including capital goods required for approved activity, free of cost or on loan/lease from clients.
- Import of capital goods will be on a self certification basis.
- Goods imported by a unit shall be with actual user condition and shall be utilized for export production.
(c) Import of goods for creating a central facility: The EOU/EHTP/STP/ BTP units can import/procure certain specified goods for creating a central facility without payment of duty.
(d) Gem and Jewellery Units: Gems and jewellery EOUs may source gold or silver or platinum through nominated agencies on loan or outright purchase basis and shall make export within 90 days from date of release.
(e) Import of second hand Capital goods: An EOU/EHTP etc. can import second hand capital goods without any age limit, without payment of any import duty.
Question 36.
What is the net foreign exchange earning requirement of units under EOU/EHTP/STP/BTP?
Answer:
(I) Positive NFE: The units of EOU/EHTP/STP /BTP to be positive NFE earner except for sector where a higher value addition is required.
(II) Calculation of NFE:
(a) NFE earnings shall be calculated cumulatively in block of 5 years, starting from commencement of production.
(b) If a unit is unable to export due to prohibition or restriction imposed on export of any product mentioned in LoP, the 5 year block period for calculation of NFE earnings may be suitably extended by BoA.
(III) Certain supplies to be reckoned for positive NFE: Supplies of goods in DTA by EOU/EHTP/STP/BTP units counted for fulfillment of positive NFE:
(a) Supplies affected in DTA to holders of Advance Authorization/ Advance Authorisation for annual requirement/ DFIA under duty exemption/ remission scheme/ EPCG scheme.
(b) Supplies affected in DTA against foreign exchange remittance received from overseas.
(c) Supplies to other EOU/EHTP/STP/BTP/SEZ unit where goods permissible for procurement as per FTP.
(d) Supplies made to bonded warehouses set up under FTP and / or under section 65 of Customs Act and free trade and warehousing zones, where payment is received in foreign exchange.
(e) Supplies to organization entitled duty free import as per general exemption notification issued by MoF.
(f) Supplies of Information Technology Agreement (ITA-1) items and notified zero duty telecom / electronics items.
(g) Supplies of items like tags, labels, printed bags, stickers, belts, buttons or hangers to DTA unit for export.
(h) Supply of LPG produced in an EOU refinery to Public Sector domestic oil companies for being supplied to household domestic consumers at subsidized prices under the Public Distribution System (PDS) Kerosene and Domestic LPG Subsidy Scheme, 2002, (hereinafter referred to as PDS Scheme) subject to prescribed conditions:
- Quantity of LPG as eligible for which Ministry of Petroleum and Natural Gas declines permission for export and requires the LPG to be cleared in DTA; and
- The Ministry of Finance by a notification has permitted duty free imports of LPG for supply under the aforesaid PDS Scheme.
Question 37.
What are the provisions relating to DTA sale of finished products/rejects/ waste/scrap and by-products by EOU/ EHTP/ STP/ BTP?
Answer:
An EOU/’EHTP/ STP etc. unit is required to export its 100% production, subject to following provisions where DTA sale (i.e. Domestic- Tariff Area Sale) is allowed. The provisions relating to DTA sale are as:
(1) DTA sales-General Conditions:
(a) OTA sales limited upto 50% of FOB value of Exports: Units, other than germs and jewellery units may sell goods upto 50% of FOB value of exports, subject to fulfillments of positive NFE, on payment of concessional duties.
(b) DTA sale of similar goods: Within entitlement of DTA sale, unit may sell in DTA, its products similar to goods which are exported or expected to be exported from units.
(c) Sales made to SEZ regarded as FOB exports: Sales made to a unit in SEZ treated as export if payment received from Foreign Exchange Account of SEZ unit and shall be taken into account for purpose of arriving at FOB value of export by EOU.
(d) DTA sale of single product can’t exceed 90%: Units manufacturing and exporting more than one product can
- sell any of these products into DTA, upto 90% of FOB value of export of the specific products
- subject to the condition that total DTA sales does not exceed 50% of FOB value of export for the unit as mentioned above.
(e) No Concessional duty DTA sales of certain goods: No DTA sales at concessional duty shall be permissible in respect of motor cars, alcoholic liquors, books, tea (except instant tea), pepper & pepper products, marble and such other items as may be notified from time to time.
(f) Anti Dumping duty payable: An amount equal to Anti-Dumping duty under section 9A of the Customs Tariff Act, 1975 leviable at the time of import, shall be payable on the goods used for the purpose of manufacture or processing of the goods cleared into DTA.
(2) Provision of services in DTA : For services, including software units, Sale in DTA in any mode, including on line data communication, shall also be permissible up to 50% of FOB value of exports and / or 50% of foreign exchange earned, where payment of such services is received in foreign exchange.
(3) DTA sale by Gems and jewellery units: Gems and jewellery units may sell upto 10% of FOB value of exports of the preceding year in DTA, subject to fulfillment of positive NFE.
(4) DTA sale of Rejects: Rejects within an overall limit of 50% may be sold in DTA on payment of duties as applicable, on prior intimation to Customs authorities. Such sales shall be counted against DTA sale entitlement. Sale of rejects upto 5% of FOB value of exports shall not be subject to achievement of NFE.
(5) Sale of Scrap/ waste/ remnants in DTA: Following are important points here:
(a) Scrap/ waste / remnants arising out of production process or in connection therewith may be sold in DTA as per SION (i.e. Standard Input-Output Norms) notified under Duty Exemption Scheme, on payment of concessional duties as applicable, within the overall limit of 50% of FOB value of exports. Such sales of scrap/ waste remnants shall not be subject to achievement of NFE.
(b) In respect of items not covered by norms, DC may fix ad – hoc norms for a period of 6 months and within these period, norms should be fixed by Norms Committee. Ad-hoc norms will continue till such time norms are fixed by Norms Committee.
(c) Sale of waste /scrap/ remnants by units not entitled to DTA sale, or sales are made beyond DTA sale entitlement, shall be payment on full duties.
(d) No duty leviable in case of destruction: If scrap/ remnants / waste are destroyed with permission of Customs authorities, then there is no need to pay duties or taxes on scrap.
(6) DTA sale of By-Products: By-products included in LoP may also be sold in DTA subject to achievement of positive NFE, on payment of applicable duties, within the overall entitlement. Sale of by-products by units not entitled to DTA sales, or beyond entitlements shall also be permissible on payment of full duties.
(7) DTA sale of finished products by units which have achieved positive NFE:
(a) EOU/EHTP/STP /BTP units may sell finished products, except pepper and pepper products and marble, which are freely importable under FTP, under intimation to DC, against payment of full duties, provided have achieved positive NFE.
(b) An amount equal to Anti-Dumping Dufy under Section 9A of the Customs Tariff Act, 1975 leviable at the time of import, shall be payable on the goods used for the purpose of manufacture or processing of the goods cleared into DTA.
(8) DTA sale by newly established unit: In case of new EOUs, advance DTA sale will be allowed not exceeding 50% of its estimated exports for first year. However in case of pharmaceutical units DTA sale will be based on its estimated exports for first 2 years.
Question 38.
Briefly explain the salient features of the Customs Act, 1962 relating to Special Economic Zones.
Answer:
(i) SEZ is deemed as a separate island outside where Inputs, Capital Goods and Input Services can be obtained without payment of duties and taxes such as Customs Duty, Central Sales Tax, State VAT and Service Tax.
(ii) For the sheer objective of ensuring consistent development of SEZ, an exclusive Act namely Special Economic Zone Act 2005 (hereinafter abbreviated as SEZ Act 2005) was passed. The win prime purposes of foregoing Act are to ensure smooth operations in SEZ as well as Single Window Clearance with a view to set up either an SEZ or a Unit in SEZ.
(iii) SEZ may be set up in the public, private or joint sector OR by the Central Government or State Government, Jointly or severally [section 3(1) of SEZ Act 2005]
(iv) Any goods imported directly from outside India or procured from within India shall be authorized for admission to the SEZ. Goods admitted to SEZ are exempt from duties of customs subject to certain conditions.
(v) Any goods admitted to SEZ from DTA shall be chargeable to export duties at such rates as are leviable on such goods when exported, subject to any rules made in this behalf. Any goods removed from the SEZ to DTA shall be chargeable to the duties of customs including antidumping, countervailing and safeguard duties as leviable on such goods when imported.
(vi) SEZ could be set up for manufacturing goods, rending of services, production, processing, assembling, trading, repair, re-making, re-conditioning and re-engineering, making of gold, silver and other articles of precious metals and jewellery.
(vii) It shall be under the administrative control of the Development Commissioner. All activities in the SEZ, unless otherwise specified, shall be carried out through self-certification procedure.
(viii) Goods going into SEZ from DTA shall be treated as deemed exports. At the same time, goods coming from SEZ to DTA shall be treated as import of goods.
Question 39.
Define Deemed Export as per FTP . What categories of supplies are covered under ‘Deemed Export’?
Answer:
(I) Meaning: “Deemed Exports” mean those transactions in which-
- goods supplied do not leave the country, and
- payment for such supplies are received either in Indian rupees or in free foreign exchange by the recipient of the goods,
- provided goods so supplied are manufactured in India.
(II) Categories of Supplies regarded as ‘Demand Export’: Following categories of supply of goods shall be treated as deemed export provided these goods are manufactured in India;
(a) Supply of goods against Advance Authorization/ Advance Authorization for Annual Requirement /DFIA under duty Exemption/ Remission Scheme;
(b) Supply of goods to EOUs/ BTPs/ EHTPs/ STPs;
(c) Supply of capital goods to EPCG Authorization holders;
(d) Supply of goods to projects financed by multilateral or bilateral agencies / funds as notified by the Department of Economic Affairs (DEA), MoF under International Competitive Bidding (ICB). Supply of goods to any project or purpose under International competitive bidding(ICB).
(e) Supply of goods to any project or purpose under International competitive bidding(ICB) in respect of which the Ministry of Finance, by a notification, permits, the import of such goods at zero customs duty;
(f) Supply of marine freight containers by 100% EOU (Domestic freight containers – manufacturers) provided the said containers are exported out of India within 6 months or such further period as permitted by customs;
(g) Supply to projects funded by UN Agencies; and
(h) Supply of goods to nuclear power projects through competitive bidding opposed to international competitive bidding.
Question 40.
What benefits are available for deemed exports?
Answer:
Deemed exports shall be any or all of the following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as given in HBP and ANF-7A:-
(a) Advance Authorization/ Advance Authorization for Annual requirement/ DFIA.
(b) Deemed Export Drawback;
(c) Refund of terminal excise duty (TED) will be given if exemption is not available- Exemption from TED is available to the following categories of supplies:
- Supplies against ICB;
- Supplies of intermediate goods, against invalidation letter, made by an Advance Authorization holder to another Advance Authorisation holder;
- Supplies of goods by DTA unit to EOU/ EHTP/STP/BTP unit and
- Supply of goods to UN/ International organization for project funded by it.
Question 41.
Are supplies made by the sub-contractors eligible for deemed export benefits under FTP? Discuss.
Answer:
Yes, the supplies made by the by the sub-contractor are eligible for deemed export benefit. Normally, in order to be eligible for deemed benefits, supplies are to be made directly to designated Projects/ Agencies/ Units Advances Authorization/EPCG Authorization holders. However, FTP Allows a sub-contractor to make supplies to main contractor, instead of supplying directly to deigned Projects/Agencies.
Such supplies are eligible for deemed export benefits if the main contractor makes payment to sub-contractor and issues payment certificate. Supplies made by an Indian sub-contractor of an Indian or foreign main contractor directly to the designated Projects/Agencies are also eligible for deemed export benefits provided the name of the sub-contractor is indicated either originally or subsequently in the main contract (but before the date of supply of such goods) and payment certificate is issued by Project Authority in the name of sub-contractor.
Question 42.
Mr. A wants to import a laptop from the USA which has been used by the seller for some time there. Mr. A contends that he can freely import such laptop without any restriction/ authorization. Examine the correctness of Mr. A’s claim in the light of the provisions of FTP 2015-20.
Answer:
As per FTP 2015-20, second hand (used) goods, except second hand capital goods, are restricted for imports and can be imported only in accordance with the provisions of FTP, ITC(HS), prescribed procedures, public notice or an Authorization in this regard.
Import of second hand capital goods, including refurbished/ re-conditioned spares is allowed freely. However, second hand personal computers/laptops, – photocopier machines, air conditioners, diesel generating sets will only be allowed against an authorization.
In view of the afore-mentioned provisions, Mr. A’s claim is not correct as second hand laptops can be imported only against an authorization.
Question 43.
AB Corporation, a manufacturer- exporter, has approached CD Corporation, a merchant exporter, to export one of its consignments as owing to some technical difficulties, AB Corporation could not export the consignment itself. The shipping bills relating to the consignment bear the name of CD Corporation. Bank Realization Certificate, GR declaration, export order and invoice are also in the name of CD Corporation. Comment whether AB Corporation would be deemed as the exporter under FTP.
Answer:
The above scenario is a case of third-party exports.
Third-party means exports made by an exporter or manufacturer on behalf of another exporter(s). The conditions for being allowed as third-party exports under FTP are:
- Export documents such as shipping bills shall indicate name of both manufacturing exporter/ manufacturer and third party exporter(s).
- BRC, GR declaration, export order and invoice should be in the name of third party exporter.
In the above case, though BRC, GR declaration, export order and invoice are in the name of CD Corporation (third party exporter), the shipping bill does not have the name of AB Corporation (manufacturing exporter). Therefore, AB Corporation will not be treated as the exporter in this case.
Question 44.
Answer the following questions with reference to the provisions of Foreign Trade Policy.
(i) Flintex Manufacturers manufactures goods by using imported inputs and supplies the same under Aid Programme of the United Nations. The payment for such supply us received in free foreign exchange. Can Flintex Manufacturers seek Advance Authorization for the supplies made by it?
(ii) XYZ Ltd. has imported inputs without payment of duty under Advance Authorization. The CIF value of such inputs is ₹ 10,00,000. The inputs are processed and the finai product is exported. The exports made by XYZ Ltd. are subject to general rate of value addition prescribed under advance authorization Scheme. No other input is being used by XYZ Ltd. as per the provisions of Advance Authorization.
(iii) ‘A’ has used some duty paid inputs in its export products. However, for the rest of the inputs, he wants to apply for the Advance Authorization. Can he do so? Explain.
Answer:
(i) Advance Authorization can be issued for supplies made to United – Nations Organization’s or under Aid Programme of the United Nations or other multilateral agencies and such supplies need to be paid for in free foreign exchange. Therefore, Flintex Manufacturers can seek an Advance Authorization for the supplies made by it.
(ii) Advance Authorization necessitates exports with a minimum value addition of 15% value addition (VA).
VA = [(A-B)/B × 100]
A = FOB value of export realized,
B = CIF value of inputs covered by authorization.
Therefore, the minimum FOB of the exports made by XYZ Ltd. should be ₹ 11,50,000.
(iii) Yes, ‘A’ can do so. In case of part duty free and part duty paid imports, both Advance Authorization and drawback will be available. Drawback can be obtained for any duty paid material, whether imported or indigenous, used in goods exported, as per drawback rate fixed by DoR, Ministry of Finance (Directorate of Drawback). Advance Authorization can be usedfor importing duty free material. Drawback allowed must be mentioned in the application for Advance Authorization.
Question 45.
Two exporters namely, Red Sky Pvt. Ltd. and Black Night Pvt. Ltd have achieved the status of Two Star Export House and Three Star Export House respectively in the financial year 2019-20. Both the exporters have been regularly exporting goods every year. What would have been the minimum export performance of the two exporters to achieve such status? Both the exporters want to establish export warehouse in accordance with the applicable guidelines. Can they do so ?
Answer:
Status recognition depends upon export performance. An applicant is categorized as status holder upon achieving export performance indicated in table below. The export performance is counted on the basis of FOB value of export proceeds realized during current and previous two financial years. (In case of Gens & Jewellery sector), in any other case during current and previous 3 financial years.
| Status Category | Export Performance FOB/FOR (as converted) Value (in US $ million) |
| 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 |
In view of the above discussion, minimum FOB value of the exports made by Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. (TH) during tho year 201920 and the preceding three years would have been US $ 25 million and US $100
million respectively.
As per FTP 2015-2020 two star and above export houses are permitted to establish export warehouse as per Department of Revenue guidelines. Therefore, Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. both are entitled to establish export warehouse.
Question 46.
Examine whether benefit of Served From India Scheme (SFIS) can be availed in the following cases:
(i) Foreign exchange earned by Mr. Aniket, a service provider, in the current year is US $ 3,000.
(ii) Foreign exchange earned by Mr. Samrat, a manufacturer, in the current year is US $ 11,000.
(iii) X and Y Brothers, a firm of service providers, has earned foreign exchange to the tune of US $ 16,000 in the current year.
(iv) Mr. Ishaan, a service provider, has earned foreign exchange of US $ 12,000 in the current year. Out of such US $ 12,000, US $ 4,000 has been paid to Mr. Ishaan through the credit card of the foreign client.
The services provided by all the above service providers are eligible for the Scheme.
Answer:
A service provider (with active I EC at the time of rendering services located in India, providing notified services rendered in the specified manner shall be eligible for reward at the notified rate(s) on net foreign exchange [NFE] earned provided the minimum net free foreign exchange earnings of such service provider in preceding financial year-
(a) For Individual service providers and sole proprietorship: US $ 10,000
(b) Any other case i.e. partnership firm, LLP, Company etc.: US $ 15,000. Free foreign exchange earned through International Credit Cards and other instruments as permitted by RBI for rendering of service are also be taken into account for computation of duty Credit Script.
In the light of the above provisions, the cases are examined as under:
- Mr. Aniket is not eligible for SFIS Scheme as his foreign exchange earnings are less than US $ 10,000 (minimum limit for individuals).
- The Scheme is available only for service providers. Manufacturers are not entitled for this Scheme. Thus, Samrat cannot avail the benefit of SFIS Scheme, but can avail benefits of MEIS.
- X and Y Brothers eligible for the Scheme as their exchange earning exceed the limit of US $ 15,000 (minimum limit for firms).
- Foreign exchange earned though credit card is counted for the purpose of computing the limit of minimum foreign exchange required for being eligible to SFIS Scheme. Thus, Mr. Ishaan is eligible for SFIS Scheme.
Question 47.
Mention the reward scheme provided under FTP 2015-2020 which aims to compensate high transport costs and offset other disadvantages in the export of goods/products which are produced or manufactured in India. What is the general rate of entitlement under the Scheme? How can duty scrip issued under the Scheme be utilized?
Answer:
In order 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, FTP 2015-2020 provides for a scheme which is known as “Merchandise Exports From India Scheme (MEIS).
Eligible exporters are entitled for duty credit scrip equivalent to 3% of FOB value of exports realized in free foreign exchange. The scrip can be utilized for payment of customs duties of all freely importable items as well as for procurement of domestic items without payment of GST. Further, it can also be utilized for payment of application fee to DGFT for obtaining any Authorisation.
Question 48.
XP Pvt. Ltd., a manufacturer, wants to import capital goods in CKD condition from a foreign country and assemble the same in India. The import of the capital goods will be under Project Imports. The capital goods will be
used for pre-production processes. The final products of XP Pvt. Ltd. would be supplied in SEZ. XP Pvt. Ltd. wishes to sell the capital goods imported by it as soon as the production process starts.
Note: Base you opinion on the facts given above assuming that all other conditions required for being eligible to the EPCG Scheme are fulfilled in the above case.
Answer:
Export Promotion Capital Goods Scheme (EPCG) permits exporters to procure capital goods at concessional rate of customs duty/zero customs duty. In return, exporter is under an obligation to fulfill the 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.
The license holder can neither procure the capital goods (whether used for pre-production, production or post-production) from global market or domestic market. The capital goods can also be imported in CKD/ SKD to be assembled in India.
An EPCG Authorization can also be issued for import of capital goods under Scheme for Project Imports- Export obligation for such EPCG Authorizations would be 6 times of duty saved. Duty saved would be difference between the effective duty under Project Imports and concessional duty under the EPCG scheme.
However, import of capital goods is subject to ‘Actual User’ condition till export obligation is completed. Therefore, based on the above discussion, XP Pvt. Ltd can import the capital goods under EPCG scheme. However, It has to make sure that it does not sell the capital goods till the export obligation is completed.
Question 49.
With reference to the provisions relating to EOU, EHTP, STP, BTP & SEZ schemes as contained in FTP, answer the following questions.
(i) A unit intending to trade in handicrafts wants to set up an EOU. Is it allowed?
(ii) An EOU has started production after 3 years 10 months from the date of grant of Letter of Permission (LoP)/ Letter of Intent (Lol). Is it correct?
(iii) An EOU wants to import a second hand capital goods which is prohibited under ITC (HS). Can it do so?
(iv) An existing DTA Unit wants to convert into an EOU. It has invested ₹ 68 lakh in plant and machinery. It exports goods valuing ₹ 52 crores annually. Which authority has the power to approved the application for conversion of such unit?
(v) An EOU wants to sell 45% of its rejects in DTA on payment of applicable duties on prior intimation to Customs authorities. Can it do so?
Answer:
(i) No. Units undertaking to export their entire production of goods and services (except permissible sales in DTA), may be set up under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park EHTP scheme. Scheme, Software Technology Park (STP) Scheme (BTP) Scheme for manufacture of goods, including repair, re-making reconditioning, re-engineering and rendering of services. Trading units are not covered under these schemes.
(ii) No. EOU/BTP/ EHTP/ STPs should start production within 3-years from the date of grant of Letter of Permission (LoP)/ Letter of Intent (Lol). In other words, LoP/ Lol have an initial validity of 3 years, by which time unit should have commenced production. Its validity may be extended further up to 3 years by competent authority. However, proposals for extension beyond six years shall be considered in exceptional circumstances, on a case to case basis by BoA.
(iii) No. Though an EOU is permitted to import duty free second hand capital goods, without any age limit, it cannot import capital goods that are prohibited items of import in the ITC(HS).
(iv) The application for conversion into an EOU from existing DTA unit having an investment of ₹ 50 cores and above in plant and machinery or exporting ₹ 50 crores and above is placed before Board of Approval for a decision.
(v) Yes. Rejects within an overall limit of 50% may be sold in DTA on payment of duties as applicable, on prior intimation to Customs authorities. Such sales are counted against DTA sale entitlement. Sale or rejects upto 5% of FOB value of exports are not subject to achievement of NFE.
Foreign Trade Policy (FTP) Notes
Foreign Trade Policy
It is a set of guidelines and instructions on matters relating to imports into and exports from India. It contains various policy decisions affecting foreign trade. Especially, it contains export promotion measures and procedures involved in foreign trade.
It is prepared and announced by Ministry of Commerce & Industry under Section 5 of Foreign Trade (Development & Regulation) Act, 1992. The objective of FT (D&R) Act, 1992 is to facilitate imports and augment exports. This Act replaced Imports and Exports (Control) Act, 1947. DGFT is the main governing body under the Act of 1992.
Administration of FTP
- The Act authorises the Ministry to declare the Policy on foreign trade
- The MCC & I announces the policy
- The DGFT assists in formulating the policy and also implements the policy
Importer Exporter Code No
An IEC is a 10-character alpha-numeric number allotted to a person that is mandatory for undertaking any export/import activities. With a view to maintain the unique identity of an entity (firm/company/LLP etc.),
consequent upon introduction / implementation of GST, IEC will be equal to PAN and will be separately issued by DGFT based on an application.
Registration-cum-Membership Certificate (RCMC)
Any person, applying for:
- An Authonsation to import/export (except items) listed as ‘Restricted’ items in ITC (HS) or
- Any other benefit or concession under FTP shall be required to furnish or upload on DGFT’s website ¡n the Importer Exporter Profile, the RCMC granted by competent authority in accordance with Procedures specified in Handbook of Procedures unless specifically exempted under FTP.
Committees
Various committees are constituted under FTP to fulfill the objectives of the policy. These committees will function under the supervision and control of DG FT. Prominent among them are:
- Norms Committee
- EPCG Committee
- Policy Relaxation Committee ‘
- Standing Grievance Committee
ITC (H.S) classification
ITC stands for India Trade Classification and H.S stands foc harmonized system. In other words, it is India Trade Classification (based on) harmonized system of coding adopted wi india for goods imported or exported through customs.
Duty Free Import Authorisation (DRA)
The Duty Free Import Authorisation (DFIA) scheme introduced in 2006 is similar to Advance Authorisation scheme in most aspects with minimum value addition requirement of 20%. Once export obligation is completed, transferability of authorisation/ material imported against the authorisation is permitted. However, once the transferability has been endorsed, the inputs can be imported/domestically sourced only on payment of Additional Customs duty/Central Excise duty. The DFIA Authorisations are issued only for products for which SION have been notified.