According to Custom Clearance and Foreign Trade Policy ('FTP'), duty exemption/remission schemes and the 'Make in India' program are critical to the globalization of Indian trade. The government's goal should be to strengthen these schemes further through enticing tax breaks, concessions, and so on, while adhering to WTO standards in order to increase exports and propel India to the world's third-largest economy.
After industry raised concerns, the DGFT stepped in to extend the RoDTEP benefit to Progress Authorization holders, Export Oriented Units, and Special Economic Zone units, as well as relax the mandatory QCO compliance for imports of inputs under Advance Authorization and EOU meant for export.
The Interim Budget 2024, as expected, included no significant changes to Customs clearance law. The finance minister has declared that the current customs clearance charges, including import tariffs, will be maintained in fiscal year 2024-25. As a result, no modifications have been made to the basic rates of customs duty.
The import of various inputs into India is subject to required Quality Control Orders (QCOs) compliance under the BIS. Many QCOs, on the other hand, offer exemptions from its application to commodities or articles intended for export.
It was unclear whether inputs imported for use in the fabrication of final goods exported out of India would be subject to BIS compliance. It is understood that customs at several ports have been admitting inputs without requiring BIS compliance on the basis that such inputs will be used in export products. Thus, such inputs were/are exempt from registration, which would otherwise necessitate BIS mandatory compliance.
The government, through Notification No. 71/2023 dated 11 March 2024,has now provided exemption from the application of QCO to imported inputs used in the manufacture of export products.
Before examining the implication of the notification, we would first look at the following essential observations:
1. The exemption has been provided to holders of Advance Authorization (AA), EOUs, and SEZs.
2. Inputs imported under AA must be used in the manufacture of export products (with normal tolerance for waste) and then exported under the same AA.
3. Exemption from required QCO must be properly endorsed on the AA upon the request of the AA holder.
4. Exemption will only be granted for physical exports, not considered exports.
5. Except for textiles, the EO time shall be determined by paragraph 4.40 of the HBP, which specifies the export obligation period and its extension.
6. Exemption is further subject to paragraph 2.03(c) of the HBP, which lists the Ministries/Departments whose notifications on QCOs are exempted for items used/consumed in the manufacture of export products(Appendix 2Y). Appendix 2Y has been revised to include the Ministry of Steel, the Department of Promotion of Industry and Internal Trade, and the Ministry of Textiles for this reason.
7. No DTA clearance of unutilized inputs/imports or items made from such inputs would be permitted. Unutilized inputs/imports are imports (not in line with obligatory QCO) that have not been accounted for in the product exported under the same AA according to SION/Ad-hoc regulations.
8. EOU must provide an undertaking to Customs clearance agents at the time of importation. A copy of such undertaking must also begiven to the Development Commissioner. Such inputs or anything manufactured from them are not to be moved to the Domestic Tariff Area. The exemption is only available for physical shipments.
9. SEZ is obliged to provide an undertaking to the SEZ unit's Development Commissioner at the time of importing. Such inputs or anything manufactured from them are not to be moved to the Domestic Tariff Area. The exemption is only available for physical shipments
Unutilized inputs will be regulated as follows:
1. Destroyed in presence of jurisdictional/Customs clearance agents who shall certify such destruction, or may be exported
2. Payment of duties/taxes/cesses exempted, together with interest on unutilized exempted import, and composition charge equal to 10% of the CIF value of such unutilized exempted import.
3. Proof of such payment must be given to the RA prior to the grant of EODC.
As a result, the Notification only allows for relaxation in industries whose ministries are listed in Appendix 2Y. In other words, the exemption does not apply to all AA holders.
The attempt to remove the ambiguity by allowing a waiver from the applicability of QCO does not resolve the issue; rather, it may open Pandora's Box for other businesses.
It is unclear what the basis for only covering three Ministries and exempting all other industries is.
The goal of RoDTEP is to refund the currently unrefunded duties/taxes/levies borne on the exported product at the Central, State, and Local levels, including prior stage cumulative indirect taxes on goods and services used in the production of the exported product, as well as suchindirect duties/taxes/levies in respect of the distribution of the exported product.
RoDTEP was deployed in August 2021. RoDTEP rates were announced with an effective date of January 1, 2022. AA holders, EOU, and Special Economic Zoneswere excluded from the scheme. Notification No. 70/2023, issued March 8, 2024,now extends the RoDTEP benefit to AA holders, EOU, and SEZ units.
Key Observations of the recent development: -
1. Ineligible categories listed in Sl. Nos.(viii), (x), (xi), and (xii) of Para 4.55 of FTP 2023 have been removed.
2. The RoDTEP advantage has now been extended to AA holders, EOUs, and SEZs.
3. Appendix 4RE lists the rebate rates and value caps per unit under RoDTEP for exports of products manufactured by Advance Authorization holders (excluding Deemed Exports), EOUs, and SEZs.
4. Benefit is accessible from March 11, 2024 to September 30, 2024.
5. To adhere to the budgetary structure outlined in Para 4.54 of FTP 2023, relevant changes, including revisions or deletions, will be made to Appendix 4R and Appendix 4RE as needed. Thus, Appendix 4Rcontains adjustments to RoDTEP rates for 25 HS Codes.
6. RoDTEP will be extended to SEZ units following IT integration with the Customs Automated System (ICEGATE), which is planned to be operational on April 1, 2024. RoDTEP will be extended from the date of introduction until September 30, 2024.
7. The benefit of RoDTEP, which is now valid until June 30, 2024, has been extended for exports until September 30, 2024.
Clause (x), which excluded AA, DFIA, and Special Advance Authorization holders, has been removed, resulting in the inclusion of the RoDTEP benefit. However, Sl. No. (vii) of Para 4.54 appears to provide benefits to AA/EOU/SEZs. It does not, however, include DFIA / Special Advance Authorization Holders. Thus, we believe that if Para 4.54 is not included, the department may raise a disagreement in giving RoDTEP benefits to DFIA/ Special Advance Authorization holders. As a result, the authors believe that such an anomaly will be resolved by the DGFT shortly, or that industry will make appropriate representations to include these categories as well, avoiding unneeded hassle/dispute at a later date.
As stated in the program, the goal of RoDTEP is to reimbursed duties/taxes/levies imposed on the exported goods at the central, state, and municipal levels. Such duties/taxes, etc., are incurred on an equal footing whether an exporter operates under the AA program or not. Thus, adopting a separate Appendix for AA holders awarding lower RoDTEP rates is preferable, or the identical rate indicated in Appendix-4R should have been awarded to all.
Having stated that, there is another side of awarding RoDTEP to the MOOWR unit. Given the scheme's goal of refunding unrefunded duties/taxes/levies borne on exported products at the central, state, and local levels, the authors believe that the RoDTEP benefit should have been extended to MOOWR units as well, especially since RoDTEP is not considered an incentive scheme based on export performance.
India has inked an important trade agreement with the European Free Trade Association (EFTA), which consists of four countries: Switzerland, Norway, Iceland, and Liechtenstein. The new Free Trade Agreement will facilitate duty-free customs clearance between India and other countries, as well as investments. It will be fascinating to watch how this affects trade with these countries.
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