Foreign Trade Policy February 2013 Foreign Trade Policy

Foreign Trade Policy February 2013

Foreign Trade Policy, 2009 -14 n Legal Framework n General Provisions regarding Import and Export n Special Focus Initiatives n Promotional Measures n Duty Exemption / Remission Schemes n Export Promotion Capital Goods Scheme n Export Oriented Units (EOUs) etc n Special Economic Zones n Deemed Exports NCA 2

Legal Framework n n n The Foreign Trade Policy (FTP) 2009 -14 operates with effect from 27 th August 2009 till 31 st March 2014 An annual supplement is issued and forms part of the FTP The Central Government can make any amendment in the FTP by issuing a notification in the public interest Authorizations issued before commencement of FTP shall continue to be valid for the purpose and duration for which such authorization was issued In case an export or import which is permitted freely is subsequently subjected to any restriction or regulation, such export or import shall continue to be freely permitted, provided that q q The shipment of export or import is made within original validity with respect to available balance and time period of an irrevocable commercial letter of credit established before the date of imposition of such restriction However, for operationalizing such irrevocable commercial letter of credit, the applicant shall have to register the LC and contract with the concerned RA within 15 days from the date of issue of such restriction or regulation NCA 3

General Provisions n n Exports and Imports free unless regulated Compliance of Imports with Domestic Laws q n Interpretation of Policy q n DGFT may, specify procedure to be followed by an exporter or importer or by any licensing/ regional authority or by any other authority Exemption from Policy / Procedure q n The decision of DGFT shall be final and binding on all matters relating to interpretation of policy Procedure q n The norms applicable to domestically produced goods shall apply, mutatis mutandis, to imports, unless specifically exempted DGFT may exempt any person or class or category of persons from any provision of FTP or any procedure and may, while granting such exemption, impose some conditions Principles of Restriction q q q Protection of public morals Protection of human, animal or plant life or health Protection of patents, trademarks and copyrights, and the prevention of deceptive practices NCA 4

General Provisions q q q n Export/Import of Restricted Goods/Services q n Prevention of use of prison labour Protection of national treasures of artistic, historic or archaeological value Conservation of exhaustible natural resources Protection of trade of fissionable material or material from which they are derived; and Prevention of traffic in arms, ammunition and implements of war ‘Restricted’ goods / services may be exported or imported only in accordance with an Authorization / Permission/ License Terms and Conditions of a license / Certificate / Permission / Authorization Every Authorization shall be valid for prescribed period of validity and shall contain such terms and conditions as may be specified by Regional Authority (RA), which may include: (a) Description, quantity and value of goods; (b) Actual User condition; (c) Export obligation; (d) Minimum value addition to be achieved; and (e) Minimum export / import price n Authorization / Licence / Certificate / Permission not a Right NCA 5

General Provisions n Penalty q n State Trading q n n n Penalty may be imposed if any condition of an Authorization is violated or export obligation is not fulfilled Any goods, import or export of which is governed through exclusive or special privileges granted to State Trading Enterprises (STE(s)), may be imported or exported by STE(s) as per specified conditions. Such goods may be imported or exported by any other person also against an Authorization obtained from DGFT Importer-Exporter Code (IEC) Number is mandatory unless specifically exempted DGFT may issue instructions or frame schemes for Trade with Neighboring Countries Transit Facility shall be regulated in accordance with bilateral treaties between India and those countries NCA 6

General Provisions n Actual User Condition q n Second Hand Goods q n Import of second hand goods, except second hand capital goods, shall be restricted for imports and may be imported only in accordance with the provisions of FTP, ITC (HS), HBP v 1, Public notice or an Authorization in this regard. Import of re-manufactured goods shall be allowed only against a license Removal of Scrap/Waste in SEZ q n Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods, which are importable without any restriction, may be imported by any person. However, if such imports require an Authorization, actual user alone may import such goods unless actual user condition is specifically dispensed with by DGFT Any waste or scrap or remnant generated during manufacturing or processing activities of an SEZ Unit/ Developer/Co-developer shall be allowed to be disposed off in DTA freely subject to payment of applicable Customs Duty Import of Samples NCA 7

General Provisions n n Import of Gifts shall be ‘free’ unless otherwise specified/ restricted Passenger Baggage q n Import on Export basis q n These may be imported as part of passenger baggage without an Authorization- household goods and personal effects, samples of items that are freely importable, exporters coming from abroad are also allowed to import drawings, patterns, labels, price tags, buttons, belts, trimming and embellishments required for export Freely exportable new or second hand capital goods, equipments, components, parts and accessories, containers meant for packing of goods for exports, jigs, fixtures, dies and moulds may be imported for export without an Authorization on execution of LUT / BG with Customs Authorities Re-import of goods repaired abroad q Capital goods, equipments, components, parts and accessories, whether imported or indigenous, except those restricted under ITC (HS) may be sent abroad for repairs, testing, quality improvement or upgradation or standardization of technology and re-imported without an Authorization NCA 8

General Provisions n Import of goods used in projects abroad q n n n Sale on High Seas Import under Lease Financing Clearance of Goods from Customs q n After completion of projects abroad, project contractors may import, without an Authorization goods including capital goods used in the project, provided they have been used for at least one year Goods already imported / shipped / arrived, in advance, but not cleared from Customs may also be cleared against an Authorization issued subsequently Execution of BG / LUT q Whenever goods are imported duty free or otherwise specifically stated, importer shall execute prescribed LUT / BG / Bond with Customs Authority before clearance of goods. In case of indigenous sourcing, Authorization holder shall furnish LUT / BG / Bond to RA concerned before sourcing material from indigenous supplier / nominated agency as prescribed in HBP v 1 NCA 9

General Provisions n Private / Public Bonded Warehouses for Imports q n Free Exports q n n Private / Public bonded warehouses may be set up in DTA. Any person may import goods, except prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them in such bonded warehouses. Such goods may be cleared for home consumption whenever required. Customs duty as applicable shall be paid at the time of clearance of such goods. If such goods are not cleared for home consumption within a period of one year or such extended period as the custom authorities may permit, importer of such goods shall re-export the goods All goods may be exported without any restriction except to the extent that such exports are regulated by ITC (HS) or any other provision of FTP or any other law for the time being in force. DGFT may however, specify through a public notice such terms and conditions according to which any goods, not included in ITC(HS), may be exported without an Authorization Export of Samples and Free of Charge Goods Export of Passenger Baggage q Personal baggage may be exported either along with passenger or, if unaccompanied, within one year before or after passenger's departure from India. Samples of such items that are otherwise freely exportable under FTP may also be exported NCA 10

General Provisions n Export of Gifts q n Export of Spares q n n Warranty spares (whether indigenous or imported) of plant, equipment, machinery, automobiles or any other goods, (except those restricted under ITC (HS)) may be exported along with main equipment or subsequently but within contracted warranty period of such goods subject to approval of RBI Third Party Exports Export of Imported Goods q n Goods, including edible items, of value not exceeding Rs. 5, 000/- in a licensing year, may be exported as a gift. However, items mentioned as restricted for exports in ITC (HS) shall not be exported as a gift, without an Authorization Goods imported freely may be exported in same form or substantially same form without an Authorization Export of Imported Goods under Bond Procedures q Goods, including those mentioned as ‘Restricted’ for import (except ‘Prohibited’ items) may be imported under Customs Bond for export in freely convertible currency without an Authorization provided that item is freely exportable without any conditionality/ requirement of Authorization/ License/ permission NCA 11

General Provisions n n n Export of Repaired Goods shall be allowed clearance without an Authorization Private Bonded Warehouses for Exports are entitled to procure goods from domestic manufactures without payment of duty and shall be deemed as physical exports Export of Replacement Goods q n Denomination of Export Contracts q n All export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency Realization of Export Proceeds q n Goods or parts thereof on being exported and found defective/ damaged or otherwise unfit for use may be replaced free of charge by the exporter and such goods shall be allowed clearance by Customs authorities If an exporter fails to realize export proceeds within time specified by RBI, he shall, without prejudice to any liability or penalty under any law in force, be liable to action. Free Movement of Export Goods q Consignments of items meant for exports shall not be withheld / delayed for any reason by any agency of Central / State Government. In case of any doubt, authorities concerned may ask for an undertaking from exporter 12 NCA

General Provisions n n n n n No Seizure of Stock shall be made by any agency so as to disrupt manufacturing activity and delivery schedule of exports Export Promotion Council (EPC) promote and develop exports of particular group of products, projects and services Registration -cum- Membership Certificate (RCMC) is required for import/ export against an Authorization or for availing any other benefit or concession Fiscal Incentives to promote EDI Initiatives adoption Exemption from Service Tax on services received abroad Regularization of EO default and settlement of Customs duty and interest through Settlement Commission Easing of Documentation Requirement Exemption/ Remission of Service Tax in DTA Exemption from Service Tax in SEZ NCA 13

Special Focus Initiatives The Chapter on Special Focus Initiatives is broadly classified into: n Market Diversification n Technological Upgradation n Support to status holders n Agriculture and Village Industry n Handlooms n Handicrafts n Gems & Jewellery n Leather and Footwear NCA 14

Special Focus Initiatives n Marine Sector n Electronics and IT Hardware Manufacturing Industries n Sports Goods and Toys n Green products and technologies n Incentives for Exports from the North Eastern Region NCA 15

Promotional Measures Following Promotional Measures have been taken by way of Foreign Trade Policy 2009 -14: n Assistance to States for Developing Export Infrastructure and Allied Activities (ASIDE) n Market Access Initiative (MAI) q n Financial assistance is provided for export promotion activities on focus country, focus product basis. The Government may provide financial assistance ranging from 25% to 100% of total cost Market Development Assistance (MDA) q Financial assistance is provided for a range of export promotion activities implemented by EPCs and Trade Promotion Organizations by way of participation in Trade Fairs, Buyer Seller meets, Export promotion seminars etc. n Meeting expenses for statutory compliances in buyer country for Trade Related Matters n Towns of Export Excellence (TEE) NCA 16

Promotional Measures n Brand Promotion and Quality q n The primary objective is to promote and create international awareness of the “Made in India” label in markets overseas Test Houses q Central Government will assist in modernization and up gradation of test houses and laboratories to bring them at par with international standards NCA 17

Promotional Measures n Export and Trading Houses: Status Category n Served From India Scheme (SFIS) n Focus Market Scheme (FMS) n Focus Product Scheme (FPS) n Market Linked Focus Products Scrip (MLFPS) n Status Holders Incentive Scrip (SHIS) n Incremental Exports Incentivization Scheme n Vishesh Krishi And Gram Udyog Yojana (VKGUY) NCA 18

Export and Trading Houses n Merchant as well as Manufacturer Exporters, Service Providers, EOUs, Units located in SEZs, AEZs, EHTPs, STPs and BTPs are eligible for recognition as a status holder n Status recognition depends upon export performance counted on the basis of FOB value of export proceeds realized during current plus previous three years n Following privileges are available to a status holder: q q q Authorization and Customs Clearances for both imports and exports on self-declaration basis; Fixation of Input-Output norms on priority within 60 days; Exemption from compulsory negotiation of documents through banks. Remittance / Receipts, however, would be received through banking channels; Exemption from furnishing of BG in Schemes under FTP; SEHs and above shall be permitted to establish Export Warehouses, as per Do. R guidelines. NCA 19

Export and Trading Houses q q NCA For status holders, a decision on conferring of ACP Status shall be communicated by Customs within 30 days from receipt of application with Customs. As an option, for Premier Trading House (PTH), the average level of exports under EPCG Scheme shall be the arithmetic mean of export performance in last 5 years, instead of 3 years. Status Holders of specified sectors shall be eligible for Status Holder Incentive Scrip Status Holders of Agri. Sector shall be eligible for Agri. Infrastructure Incentive Scrip under VKGUY 20

n Served From India Scheme Introduced to accelerate growth of services exported (‘SFIS’) n Service providers exporting listed services and earning threshold forex earnings entitled for the scheme n Registration with concerned EPC/FIEO to be obtained. n Duty credit entitlement certificate ( i. e. scrip) issued is 10% of current year forex earnings valid for 24 months n Application for duty credit entitlement certificate to be made under Aaayat Niryat Form 3 B n Relevant period for filing claim -mthly/qtly/annual/bi-annual claim, option to be exercised for full F. Y. n Claim to be filed within 12 mths of the relevant period. NCA 21

Served From India Scheme (‘SFIS’) Eligible service providers n All service providers of listed services having forex earnings of Rs 10 lacs or more in the current financial year n Individuals having such forex earnings of Rs 5 lacs or more in the current financial year also entitled for SFIS NCA 22

SFIS – Duty credit entitlements Ineligible remittances for entitlements: q Related to Financial Services Sector, foreign currency loans q Export proceeds realization of clients q Labour remittances for employment q Issuance of foreign bonds and equity intruments such as ADRs, GDRs etc and sale of securities or instruments q Other receivables not connected with services provided q Payments received from EEFC account q q q Healthcare Institutions (receipt of donation, equity etc. except receipt for medical treatment, surgery, testing, consultancy and healthcare provided by institution) Educational Institutions (receipt of donation, equity etc. except course fees and consultancy provided by institution) Export turnover of schemes under SEZ, EOU , STP etc. units or Supplies of services to such units q Services rendered by SEZ, EOU, STP units clubbed with DTA service providers q Export of goods NCA 23

SFIS - Duty credit utilization n Procurements entitled for duty credit benefit: q q Import of capital goods, spares, office equipment, professional equipment, office furniture and consumables relating to services provided Local procurement of the above also eligible for payment of excise duty through SFIS scrip n Duty credit not available for payment of duty on import of vehicles except which are professional eqipment for service provider n Hotels/clubs with min 30 rooms facility/golf resorts/restaurants can use SFIS scrip for import of food/alcoholic beverages n Duty entitlement not transferable and is subject to actual user condition q n However duty credit can be transferred to group companies/managed hotels of the service providers Re-export of goods q Defective and unfit procurements may be re-exported q A new scrip for 98% of duty credit issued NCA 24

Focus Market Scheme n Introduced to accelerate growth of exports and export competitiveness to specified countries n Exports to notified countries eligible for this scheme n Duty credit entitlement of 3 % (Additional 1% for specified countries) of the FOB value of exports n Specified proof of landing of export consignment in the foreign country to be submitted n Application for duty credit entitlement certificate to be made under Aaayat Niryat Form 3 C n Credit can be utilised for import of inputs/ capital goods (including goods restricted under the ITC HS subject to conditions) n Additional duty of customs paid in cash or through debit under this scrip shall be adjusted as Cenvat credit NCA 25

Focus Market Scheme n Duty credit certificate valid for a period of 24 months n Duty scrips freely transferable n Ineligible exports for duty credit: q Supplies to SEZ units q Service exports q Export of diamonds, precious stones, gold, silver, platinum, ores etc q Export of ores and concentrates of all types q Export of cereals and sugars of all types q Export of crude/ petroleum oil/ petroleum based products q Export of milk and milk products NCA 26

Focus Market Scheme n n Re-export of goods q Defective and unfit procurements may be re-exported q A new scrip for 98% of duty credit issued Duty credit can also be utilized for payment in case of imports under lease financing NCA 27

Focus Product Scheme n Introduced to accelerate growth of exports of notified products with high export potential n Exports to all countries (including SEZ units) eligible for this scheme n Duty credit entitlement of 2 % of the FOB value of exports for each licensing year with effect from April 1, 2006. Special Focus Products are entitled to 5 % of the FOB value of exports. Additional 2% benefit for notified products n Application for duty credit entitlement certificate to be made under Aaayat Niryat Form 3 C n Credit can be utilized for import of inputs/ capital goods (including goods restricted under the ITC HS subject to conditions) n Additional duty of customs paid in cash or through debit under this scrip shall be adjusted as Cenvat credit NCA 28

Focus Product Scheme n n Ineligible exports for duty credit: q Re-exports/ transshipment of goods q Exports made by SEZ, EOU, STP units q Deemed exports Re-export of goods q Defective and unfit procurements may be re-exported q A new scrip for 98% of duty credit issued n Duty credit certificate valid for a period of 24 months n Duty scrips freely transferable n Duty credit can also be utilized for payment in case of imports under lease financing NCA 29

Market Link Focus Product Scrip (MLFPS) n To promote exports of : Product/Sectors of high export intensity/ employment potential (which are not covered under present FPS List) n Duty Credit Scrip benefits, at 2% of FOB value of exports (in free foreign exchange) n When exported to the Linked Markets (countries), which are not covered in the present FMS list. NCA 30

Status Holders Incentive Scrip To promote investment : (SHIS) Product/Sectors of high export intensity/ employment potential (which are not n covered under present FPS List) n Status Holders of sectors specified below, shall be entitled to a Duty Credit Scrip @1% of FOB value of exports made during 2009 -10 , 2010 -11, 2011 -12 and 2012 -13. q Leather Sector (excluding finished leather); q Textiles and Jute Sector; q Handicrafts q Engineering Sector (excluding Iron & Steel, Nonferrous Metals in primary or intermediate forms, Automobiles & two wheelers, nuclear reactors & parts and Ships, Boats and Floating Structures) q Plastics; and q Basic Chemicals (excluding Pharma Products) NCA 31

Status Holders Incentive Scrip Status Holders of additional sectors shall also be eligible for this Status Holders Incentive Scrip on exports made during 2010 -11, 2011 -12 and 2012 -13. (SHIS) n n This shall be over and above any Duty Credit Scrip claimed/availed under this chapter. n Status Holders availing Technology Upgradation Fund Scheme (TUFS) benefits (administered by Ministry of Textiles) during a particular year shall not be eligible for Status Holders Incentive Scrip for exports of that year. n The Status Holders Incentive Scrip will be subject to actual user condition. However transferability will be permitted amongst status holders subject to the condition that the transferee status holder is a manufacturer. Status Holder Incentive Scrip shall be used for import of capital goods relating to specified sectors. Only in respect of CG imported earlier, upto 10% value of the Duty Credit Scrip can be used for import of components, spares/parts of such CG. NCA 32

Incremental Exports Incentivization Scheme n This scheme has been introduced from 28 th December, 2012 to incentivize incremental exports n An IEC holder would be entitled for a duty credit scrip @ 2% on the incremental growth (achieved by the IEC holder) during the period 01. 2013 to 31. 3. 2013 compared to the period from 01. 2012 to 31. 3. 2012 on the FOB value of exports n Specified exports shall not be taken into account for calculation of export performance or for computation of entitlement under the Scheme n The scheme is region specific and will cover exports to USA, Europe and Asian countries only. This benefit will be over and above any benefit being claimed by the exporter under any of the Promotional Measures n The duty credit scrip will be freely transferable. Such scrips shall also be eligible for domestic sourcing NCA 33

n Vishesh Krishi & Gram Udyog Yojana (VKGUY) To promote exports of : q Agricultural Produce and their value added products q Minor Forest Produce and their value added variants q Gram Udyog Products q Forest Based Products q Other Products as notified from time to time n VKGUY benefits are granted with an aim to compensate high transport costs and to offset other disadvantages n Duty Credit Scrip benefits, at 5% of FOB value of exports n Lower rate of 3% when specific DEPB/ Drawback more than 1% /Advance Authorization benefit availed n Additional 2% provided for a few items NCA 34

n Vishesh Krishi & Gram Udyog Yojana (VKGUY) Export of the specified products through all Land Customs Stations of North Eastern Region and Arunachal Pradesh are entitled for additional 1% Duty Credit Scrip NCA 35

Duty Exemption/Remission Schemes The schemes initiated by the Government under this category are as follows: n Export Promotion Capital Goods Scheme (EPCG) n Advance Authorization Scheme n Duty Free Import Authorization Scheme (DFIA) n Duty Entitlement Passbook (DEPB) Scheme n Duty Drawback (DBK) Scheme NCA 36

Export Promotion Capital Goods Scheme (EPCG) This scheme has been discussed in Foreign Trade Policy under following headings: n Zero duty EPCG Scheme n Concessional 3% duty EPCG Scheme n EPCG for projects n EPCG for Retail Sector n EPCG Authorization for Annual Requirement n Export Obligation n Provisions for BIFR Units NCA 37

Export Promotion Capital Goods Scheme (EPCG) n EPCG for agro units n Indigenous Sourcing of capital goods and benefits to domestic supplier n Fixation of Export Obligation n Technological Up gradation of existing EPCG machinery n Incentives for Fast Track Companies n EPCG for Green Technology Products -reduced EO NCA 38

n n EPCG Scheme – 0% Duty concessions Concessional Capital goods procured Custom Export duty rate obligation (‘EO’) Conditions If duty saved is less than Rs 100 Crores 0. 00% 6 times the duty saved EO to be fulfilled over 6 years If duty saved is Rs 100 Crores or more 0. 00% 6 times the duty saved EO to be fulfilled over 12 years SSI units 0. 00% 6 times the duty saved EO to be fulfilled over 6 years CIF value of such imports should not exceed Rs. 50 lacs and the total investment should not exceed the SSI limit The Benefit of Zero Duty EPCG Scheme has been enlarged to those already availing benefit under TUFS and SHIS NCA 39

n n EPCG Scheme – 3% Export Promotion Capital Goods Scheme (‘EPCG’) has been introduced to Concessional promote import of capital goods for production of output which is exported Duty concessions Capital goods procured Custom duty payable Export obligation (‘EO’) Conditions If duty saved is less than Rs 100 Crores 3. 09% 8 times the duty saved EO to be fulfilled over 8 years If duty saved is Rs 100 Crores or more 3. 09% 8 times the duty saved EO to be fulfilled over 12 years SSI units 3. 09% 6 times the duty saved EO to be fulfilled over 8 years NCA CIF value of such imports should not exceed Rs. 50 lacs and the total investment should not exceed the SSI limit 40

EPCG scheme – Eligibility Criteria n Scheme covers manufacturer exporter, merchant exporter and service provider n Manufacturer exporter : A person who exports goods manufactured by him or intends to export such goods n Merchant exporter : A person engaged in trading activity and exporting or intending to export such goods n Service provider : A person providing q Supply of a service from India to other country q Supply of a service from India to the service consumer of any other country in India q q Supply of a service from India through commercial / physical presence in the territory of any other country Supply of a service in India relating to exports paid in free foreign exchange or in Indian Rupees which are otherwise considered as having being paid for in free foreign exchange by RBI. NCA 41

EPCG scheme – Eligibility Criteria n Export Promotion Capital Goods (EPCG) Scheme also covers a service provider who is designated / certified as a Common Service Provider (CSP) by the DGFT n Exports by Users of the common service, to be counted towards fulfillment of EO of the CSP n A 100 % Bank Gaurantee equivalent to the portion of duty foregone by users of CSP apportioned in terms of quantum of export obligation is to be discharged. n As regards details of users, the CSP is required to inform to the concerned Regional Authority prior to exports, and the quantum of Bank Gaurantee shall be equivalent to duty foregone amount and BG can be given by CSP or any one of the users or a combination thereof, at the option of CSP. NCA 42

n EPCG scheme–Procurements Service : It includes all the tradable services covered under General Agreement allowed on Trade in Services and earning free foreign exchange (Refer Appendix 10 ‘List of services’ of FTP) n Imports allowed under the EPCG scheme q q q n Capital goods for pre production, production and post production activities Spares (including refurbished/ reconditioned spares), tools, jigs, fixtures, dies, moulds and components used for assembly or manufacture of capital goods Second hand capital goods also allowed Restricted imports q q Import of motor cars, sports utility vehicles allowed only to hotels, travel agents, tour operators, golf resorts etc Import of restricted items under the ITC-HS allowed only subject to approval from EFC at Headquarters. NCA 43

n EPCG scheme–Procurements Domestic procurements also allowed q n n EPCG license holder required to file a request with the Regional Authority for invalidation of direct imports and allowing domestic procurements q Domestic supplier entitled to ‘deemed exports’ benefit q Deemed exports benefit include refund of terminal excise duty q However, for EO computation, duty saved would be notional customs duty on FOR Option to pay CVD on imports in cash q Duty paid in cash would not be counted towards computation of EO q Duty so paid should not be CENVATed Imports subject to Actual user condition q Goods can be imported only by the actual user NCA 44

n EPCG scheme – Export EO fulfillment through exports of group companies Obligation q q Upto 50% EO may also be fulfilled by exports of other good(s) manufactured or service(s) provided by the same firm/ company, or group company/ managed hotel, which has the EPCG authorization. Group companies means two or more enterprises which are directly or indirectly in a position to§ Exercise 26% or more voting rights in other enterprise or § Appoint more than 51% of members of board of directors in the other enterprise The Group company should have been in existence at least 2 years before applying for the EPCG scheme. Illustration: § If A Co and B Co hold 26% voting rights in C Co, A Co and B Co would qualify as ‘group companies’ and not A Co and C co § However, on practical basis, authorities have been allowing associate companies and subsidiary companies to be treated as ‘group companies’ NCA 45

Post Export EPCG Scheme n Exporters if they choose to, may import Capital Goods on payment of duty in cash and subsequently receive duty credit scrip on completion of export obligation. n Thus there would be no duty remission / duty exemption at the time of import of the Capital Good (CG). n Applicant will have to inform the Regional Office of DGFT (RA) about the import of CG and based on which RA will fix export obligation. n Since the duties have been paid upfront at the time of import of CG, the EO would be 85 % of normal EO. NCA 46

n Export Of Products From North To promote manufacturing activity and employment in the North Eastern Region of East the country, export obligation under the EPCG Scheme shall be 25% of the normal export obligation. n However, export of specified products through notified Land Customs Stations of North Eastern Region shall be provided additional incentive to the extent of 1% of FOB value of exports NCA 47

EPCG scheme – Other Provisions n Extension of Export Obligation period for 2 years q q On payment of composition fee equal to 2 percent of total duty saved o n unfulfilled EO, or enhancement in Export Obligation imposed to the extent of 10 percent of total Export Obligation at the choice of exporter n Clubbing of two or more EPCG licenses is permitted subject to some conditions. n EPCG license holder can opt for technological up gradation of existing capital goods imported under EPCG Authorizations(subject to conditions). n Annual report for Export Obligation fulfilled to be filed electronically with the DGFT n On fulfilling of 75 percent or more of specific Export Obligation and 100 percent of Average Export Obligation till date in half or less than half the original Export Obligation period – remaining Export Obligation can be condoned (Fast track companies) 48

EPCG scheme – Other Provisions n The condition of maintenance of average level of exports is not applicable to some sectors, namely, Handicrafts, Handlooms, Cottage Sector, Tiny Sector, Agriculture, Aquaculture (including fisheries), Horticulture, Pisciculture, Viticulture, Poultry and Sericulture. Three new sectors are being added to this list, namely, Carpet, Coir and Jute to provide substantial relief to these labour intensive industries n Export Obligation shortfall to the extent of 5% may be condoned by the DGFT n EPCG for Projects q n Import of capital goods under Scheme for Project Imports can also avail EPCG Authorization EPCG for Retail Sector q To create modern infrastructure in retail sector, concessional duty benefits under EPCG scheme shall be extended for import of capital goods required by retailers having minimum area of 1000 sq mtrs NCA 49

Advance Authorization Scheme (Erstwhile ‘Advance License Scheme’) n For making available duty free import of inputs and consumables required to manufacture the export product n Duty free import of spares up to 10% of the CIF value of the Authorization which are required to be exported/supplied with resultant product are allowed n Normal allowance for wastage available n Authorizations are issued for inputs and export items given under Standard Input Output Norms. n Advance Authorisation can be issued to either to manufacturer exporter or merchant exporter tied to supporting manufacturer for physical exports (including supplies to SEZ units & SEZ Developers), deemed exports and Intermediate supplies NCA 50

Advance Authorization Scheme n Such Authorization can also be issued for supplies made to United Nations Organisations or under Aid programme of the United Nations or other multilateral agencies and which are paid for in free foreign exchange. n Advance Authorisations are exempted from payment of BCD, ACD, EC, Antidumping duty and safeguard duty n All items except prohibited items are eligible for importation n Authorization is under actual user condition i. e. materials imported cannot be transferred even after completion of export obligation n Option with Authorization holder to dispose off the product manufactured out of the duty free inputs on completion of export obligation n It necessitate exports with minimum 15% value addition however for tea it shall be 50%. Exports to SEZ Units / supplies to Developers / Co-developers, irrespective of currency of realization, would also be covered. NCA 51

Advance Authorization Scheme n Where inputs are supplied free of cost by foreign buyer, then for calculation of value addition notional value shall be taken. n Authorization can also be applied for annual requirement for a particular product group by Status holders and by the other exporters having at least past two years export performance n Drawback is available for duty paid material, whether imported or indigenous, used in goods exported n Advance authorisation holder shall maintain proper account of consumption and utilization of duty free imported/domestically procured goods against each authorisation n Import under Advance Authorization (AA) shall be permitted at any of the EDI ports, irrespective of EDI port in which the AA has been registered. There would be no requirement of Transfer Release Advice (TRA). This would facilitate imports under AA and would significantly bring down transaction costs of the exporters. NCA 52

Duty Free Import Authorization (DFIA)Scheme n Combined features of Advance Authorization Scheme and Erstwhile Duty Free Replenishment Certificate Scheme n Duty free import of inputs which are used in manufacture of export product as per notified SION n Pre-export Authorization shall be issued with actual user condition and shall be exempted from payment of basic customs duty, additional customs duty/ Excise duty, education cess, anti- dumping duty and safeguard duty, if any. n In case of post export DFIA, a merchant exporter is required to mention only name and address of manufacturer of the export product. Applicant is required to file application to concerned RA before effecting exports under DFIA n Minimum 20% value addition required for issuance of such authorisation n Once export obligation is fulfilled, request for transferability of Authorization or inputs imported against it may be made before concerned RA. NCA 53

Duty Free Import Authorization (DFIA) Scheme n Once, transferability is endorsed, Authorization holder may transfer DFIA or duty free inputs, except fuel and any other item(s) notified by DGFT n Cenvat credit facility available for inputs either imported or procured indigenously against the Authorization NCA 54

n n Duty Entitlement Passbook To neutralize the incidence of Customs duty on import content of the export Scheme product Neutralisation is provided by way of grant of duty credit against export product n Duty credit on the basis of pre-notified entitlement rates n In respect of products, if the rate of credit entitlement is 10% or more, amount of credit against each such export product shall not exceed 50% of Present Market Value(PMV) of export product. n Such credit can be utilized to import goods without payment of duty n DEPB or Products imported against it are freely transferable. Transfer of DEPB shall however be for import at specified port, which shall be the port from where exports have been made. n No actual user condition. NCA 55

n Duty Entitlement Passbook Additional Customs duty / Excise duty and Special Additional duty paid in Scheme cash or through debit may be adjusted as Cenvat Credit or Duty Drawback. NCA 56

Duty Drawback n Definition q n Admissibility of Drawback q n "Drawback” in relation to any goods manufactured in India and exported, means rebate of duty chargeable on any imported material or excisable material used in manufacture of such goods in India. Goods include imported spares, if supplied with capital goods manufactured in India. Drawback shall be available for any duty paid material, whether imported or indigenous, used in goods exported, as per drawback rate fixed by Do. R, Ministry of Finance (Directorate of Drawback). Applicability of Drawback q Additional customs duty / Excise Duty and Special Additional Duty paid in cash or through debit under DEPB may also be adjusted as CENVAT Credit or Duty Drawback as per Do. R rules. NCA 57

Duty Drawback n Export of cut & polished precious and semi-precious stones for treatment and re-import q n Gems and Jewellery exporters shall be allowed to export cut and polished precious and semi-precious stones for the treatment and re-import as per customs rules and regulations. In case of re-export, the exporter shall be entitled for duty drawback as per rules. Eligibility for refund of terminal excise duty / drawback q q NCA Supply of goods will be eligible for refund of terminal excise duty, provided recipient of goods does not avail CENVAT credit/rebate on such goods. Simple interest @ 6% per annum will be payable on delay in refund of duty drawback 58

Other Major Export Incentives n EOU Scheme n SEZ Scheme n Deemed Exports NCA 59

Export Oriented Units (EOUs) Etc. This Chapter covers the following headings: n Eligibility n Net Foreign Exchange Earnings n DTA Sale of Finished Products / Rejects / Waste / Scrap / Remnants and By- products n Other Supplies in DTA n Entitlement for supplies from the DTA n Other Entitlements n Inter Unit Transfer n Sub-Contracting NCA 60

Export Oriented Units (EOUs) Etc. n Sale of Unutilized Material n Reconditioning / Repair and Re-engineering n Replacement / Repair of imported / Indigenous Goods n Exit from EOU Scheme n Conversion n Export through Exhibitions / Export Promotion Tours / showrooms abroad / Duty Free Shops n Personal Carriage of Import / Export Parcels including through Foreign bound Passengers n Export / Import by Post / Courier n Revival of Sick Units NCA 61

n Export Oriented Unit (‘EOU’) Exemption from customs duty on import of capital goods and raw materials for scheme the purpose of manufacture of final goods n Goods manufactured by EOU is exempted from excise duty vide notification 24/2003 Excise dated March 31, 2003 n Notification 22/2003 provides for duty free procurement of goods from indigenous sources n An EOU may import from DTA or bonded warehouses in DTA / international exhibitions held in India, without payment of duty, all types of goods for its activities, provided they are not prohibited items of import n An EOU can source capital goods from a domestic / foreign leasing company on lease without payment of customs / excise duty provided the EOU and leasing unit shall jointly file the necessary documents NCA 62

n Export Oriented Unit (‘EOU’) Procurement of capital goods and raw materials made by a EOU from a scheme supplier located outside the EOU in India are eligible for : q q Excise duty exemption on goods purchased from the Domestic Tariff Area (‘DTA’) Refund of Central Sales Tax on interstate purchases of capital goods and interest on delay in refund of CST subject to issue of form C q Cenvat credit on service tax paid if EOU has output liability q Cenvat credit of excise duty paid on inputs, if any NCA 63

EOU scheme – Eligibility Criteria n Units which export their entire production of goods and services (including repair, re- making, reconditioning, reengineering and rendering of services (except permissible sales in DTA) may be set up under EOU. n Service : It includes all the tradable services covered under General Agreement on Trade in Services and earning free foreign exchange n Meaning of term service is similar for EOU and EPCG n Export of goods and services except items that are prohibited in ITC (HS) is allowed. Export of Special chemical, organisms, materials, equipment and technologies are subject to conditions indicated in ITC (HS)}. For export promotional material up to 1. 5% of FOB value of previous years exports is allowed n Duty free imports of all goods including capital goods. n Trading units are not covered by EOU NCA 64

EOU scheme – Eligibility Criteria n n It should start production within 3 years (extension for further 3 years) from the date of grant of LOP/LOI. Once unit commences the production, LOP/LOI so issued shall be valid for 5 years for its activities (extension for further 5 years) Minimum investment in plant & machinery is Rs. 1 crore [except for existing units and units in EHTP/ STP/ BTP, Handicrafts/ Agriculture/ Floriculture/ Aquaculture/ Animal Husbandry/ Information Technology, Services, Brass Hardware and Handmade jewellery sectors] Applications for setting up of EOU units, other than proposals for setting up of units in services sector {except R&D, software and IT enabled services, or any other service activity as may be delegated by Bo. A}, shall be approved by Units Approval Committee. In other cases Bo. A approval is required For conversion into EOU/ EHTP/ STP/ BTP unit from existing DTA units, having an investment of Rs 50 crores and above in plant & machinery or exporting Rs 50 crores and above annually, application will be approved by Bo. A NCA 65

Net Foreign Exchange Earnings Net Foreign Exchange earnings (NFE) n EOU unit is required to achieve positive NFE cumulatively for a period of 5 years from commencement of production n NFE is computed as : (Positive NFE = A - B > 0), where A = FOB value of exports and other specified supplies; B = Sum total of the CIF Value of all imported capital goods/ inputs and value of all payments in foreign exchange by way of commission, royalties, fees, dividends and any other charges, goods obtained from EOU and Bonded warehouse, other specified expenditures n Import of capital goods and lump sum for technical knowhow from outside India would be amortized over a period of ten years for the calculation of NFE. n Export proceeds should be realized within 12 months NCA 66

DTA sale n Sale of goods or provision of services to customers in India would need a prior approval from the EOU authorities n An EOU unit (except gems and jewellery unit) is allowed to sell similar goods/services up to 50 percent of FOB value of exports (with condition of positive NFE) or 50 percent of foreign exchange earned from services, where payment of such service is received in foreign exchange n EOUs which are manufacturing and exporting more than one product can sell any of these products in DTA, up to 90% of FOB value of export of the specified products within the overall entitlement of 50% of FOB value of exports for the unit n Specific products/specific units not allowed DTA sales n DTA sales to attract excise duty equal to custom duties on like goods including basic customs duty and additional custom duties – 50% of applicable basic customs duty exempt n In case of DTA sale of goods manufactured by EOU where basic duty and CVD is nil, such goods may be considered as non- excisable goods for the payment of duty. NCA 67

DTA sale Other supplies in DTA: Following supplies effected from EOU/EHTP/STP/BTP units to DTA will be counted for fulfillment of positive NFE: n Supplies effected in DTA to holders of Advance Authorisation/ Advance Authorisation for annual requirement/ DFIA under duty exemption/ remission scheme/EPCG scheme. n Supplies effected in DTA against foreign exchange remittance received from overseas. n Supplies to other EOU / EHTP / STP / BTP / SEZ units, provided that such goods are permissible for procurement n 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 NCA 68

DTA sale n Supplies of goods and services to such organizations which are entitled for duty free import of such items in terms of general exemption notification issued by Mo. F n Supplies of Information Technology Agreement (ITA -1) items and notified zero duty telecom / electronics items n Supplies of items like tags, labels, printed bags, stickers, belts, buttons or hangers to DTA unit for export n 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, as notified by the Ministry of Petroleum and Natural Gas vide notification No. E-20029/18/2001 -PP dated 28. 01. 2003 NCA 69

Entitlement for supplies from DTA n Supply from DTA to EOU will be treated as deemed export. DTA supplier can discharge his export obligations on such supplies n DTA supplier is entitled to export duty drawback n EOU shall be entitled for : q Reimbursement of CST q Exemption from payment of Central Excise duty on all goods Reimbursement of duty paid on fuel procured from domestic oil companies/ depots of domestic oil public sector undertakings q Cenvat Credit on service tax paid q NCA 70

Other Entitlements n Exemption from Income Tax as per Section 10 A and 10 B of Income Tax Act. n Exemption from industrial licensing for manufacture of items reserved for SSI sector n Exports proceeds to be realized within 12 months n Facility to retain 100% foreign exchange proceeds in EEFC account n 100% FDI permissible through automatic route n No bank guarantee required at the time of import or for job work in DTA subject to certain conditions. n Units shall pay duty on the goods produced or manufactured and cleared into DTA on monthly basis in the manner prescribed in the Central Excise Rules NCA 71

Other salient features n Existing DTA units may convert into EOU and existing EHTP/ STP units may also apply for conversion to EOU. n Transfer of manufactured goods/ capital goods following procedure of in-bond movement of goods from one EOU/ EHTP/STP/BTP unit to other EOU/ EHTP / STP / BTP unit is allowed with prior intimation to custom authorities. n Goods supplied by one unit of EOU to another unit shall be treated as imported goods for second unit for payment of duty, on DTA sale by second unit. n EOU may subcontract production process to DTA through job work up to 50% of overall production of previous year in value terms in DTA and Job work on behalf of domestic exporters for direct export is also allowed NCA 72

Other salient features n If EOU/ EHTP/ STP/ BTP units is unable to utilize goods and services, procured from DTA, it may be transferred to other EOU/ EHTP/ STP/BTP/ SEZ unit or disposed of in DTA or exported. As regards capital goods benefit of depreciation will be available in case of disposal in DTA only when the unit has achieved positive NFE taking into account the depreciation allowed n EOU is permitted to export through exhibitions/ export permission tours/ showrooms abroad/ duty free shops n EOU shall maintain proper accounts for goods imported/ procured duty free, sale in DTA or transfer to SEZ/ EOU and balance in stock and shall file digitally signed quarterly and annual reports. n If an industrial enterprise is operating both as a domestic unit and EOU/ EHTP/ STP/ BTP unit, it shall have two distinct identities with separate accounts, including separate bank accounts. NCA 73

Fast Track Clearance Procedure n EOUs having status holder certificate under FTP is eligible for Fast Track Clearance Procedure. n Status holder units shall be exempted from examination of import cargo at port of import. n Units having physical export turnover of Rs 15 crores and above in preceding financial year shall be allowed to import goods without payment of duty on basis of pre-authenticated procurement certificate n Eligible EOU may remove their capital goods or parts thereof for repairs with the prior intimation to jurisdictional Asstt. / Deputy Commissioner of Customs or Central Excise. NCA 74

Fast Track Clearance Procedure n Following activities of a status holder do not require permission from custom authorities: q DTA sale of finished products within limits allowed q Participation in exhibition and personal carriage of Gems & jewellery for export promotion tours NCA 75

Exit from EOU scheme n Exit shall be subject to payment of Excise and Custom duty and industrial policy in force. If the units has not achieved obligations, it shall be liable to penalty at the time of exit. n Unit shall intimate DC and custom & central excise authorities in writing and shall assess duty liability arising out of debonding and after the payment of duty so assessed it shall obtain “ No dues certificate” from the customs and central excise authorities. n An EOU / EHTP / STP / BTP unit may also be permitted by DC to exit from the scheme at any time on payment of duty on capital goods under the prevailing EPCG Scheme for DTA Units, subject to fulfillment of positive NFE criteria NCA 76

Exit from EOU scheme n Where a unit is initially established as DTA unit with machines procured from abroad after payment of applicable import duty, or from domestic market after payment of excise duty, and unit is subsequently converted to EOU, in such cases removal of such capital goods to DTA after debonding would be without payment of duty. n Where a DTA unit imported capital goods under EPCG Scheme and after completely fulfilling export obligation gets converted into EOU, unit would not be charged customs duty on capital goods at the time of removal of such capital goods in DTA when debonding n EOU / EHTP / STP / BTP unit may also be permitted by DC to exit under Advance Authorization as a onetime option. This will be subject to fulfillment of positive NFE criteria. NCA 77

n E-BRC – A Significant EDI E-BRC would herald electronic transmission of Foreign Exchange Realization Initiative from the respective Banks to the DGFT’s server on a daily basis. n Exporter will not be required to make any request to bank for issuance of Bank Export and Realization Certificate (BRC). n This will establish a seamless EDI connectivity amongst DGFT, Banks and Exporters and will facilitate early settlement and release of FTP incentives. n This is a significant step to reduce transaction cost to the exporters. NCA 78

Special Economic Zones (SEZ) This Chapter is governed by the Special Economic Zone Act, 2005. n n The main objectives of the SEZ Act are: q Generation of additional economic activity q Promotion of exports of goods and services q Promotion of investment from domestic and foreign sources q Creation of employment opportunities q Development of infrastructure facilities The SEZ Rules provide for: q q Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting business in SEZs Single window clearance for setting up a unit in a Special Economic Zone NCA 79

Special Economic Zones (SEZ) q n Single Window clearance on matters relating to Central as well as State Governments The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment are: q q Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units 100% Income Tax exemption on export income for SEZ units under Section 10 AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels Exemption from Central Sales Tax NCA 80

Special Economic Zones (SEZ) q Exemption from Service Tax q Single window clearance for Central and State level approvals q Exemption from State sales tax and other levies as extended by the respective State Governments NCA 81

Deemed Exports n Deemed exports broadly cover three areas: q n Supplies to domestic entities who can import their requirements duty free or at reduced rates of duty q Supplies to projects/purposes that involve international competitive bidding q Supplies to infrastructure projects of national importance Specified categories of supplies eligible for Deemed Exports include: q q q Supply of goods against Advance Authorization/Advance Authorization for Annual Requirement / DFIA under Duty Exemption / Remission Scheme Supply of goods to Export Oriented Units (EOUs) etc. Supply of capital goods to holders of licences under the Export Promotion Capital Goods (EPCG) Scheme NCA 82

Deemed Exports q q Supply of goods to projects financed by multilateral or bilateral agencies/ funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding in accordance with the procedures of those agencies/ funds, where the legal agreements provide for tender evaluation without including the customs duty Supply and installation of goods and equipment (single responsibility of turnkey contracts) to projects financed by multilateral or bilateral Agencies / Funds as notified by DEA, Mo. F under ICB, in accordance with procedures of those Agencies / Funds, which bids may have been invited and evaluated on the basis of Delivered Duty Paid (DDP) prices for goods manufactured abroad. Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty 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 period as permitted by the customs NCA 83

Deemed Exports q q n n Supply to projects funded by UN Agencies Supply of goods to nuclear projects through competitive bidding as opposed to international competitive bidding Benefits for Deemed Exports q Advance Authorization/Advance Authorization for Annual requirement /DFIA q Deemed Export Drawback q Exemption/ Refund of Terminal Excise duty Eligibility for refund of terminal excise duty / drawback q `Refund of Terminal Excise duty or Central Excise duty paid on inputs/components is available only when Cenvat credit/ rebate of the same has not been availed by the recipient of such goods. Similarly, supplies will be eligible for deemed export drawback on Central Excise paid on inputs, provided Cenvat credit facility/rebate has not been availed by the applicant. NCA 84

Deemed Exports q q In all the cases goods shall be supplied directly to concerned agency/ person. However, goods supplied by sub-contractor to contractor shall also be eligible for deemed exports benefits as per the procedure laid down in this regard. Supplies made by an Indian sub-contractor of an Indian or foreign main contractor directly to the designated projects / Agencies, shall also be eligible for deemed export benefits provided name of 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. NCA 85

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