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Foreign Trade Policy


________________________________________________________________
No. TOPIC

Explanation

A.

Foreign Trade Policy [FTP]

1.

What is
Trade
[FTP]

Foreign Foreign Trade Policy is a set of guidelines or instructions issued by the


Policy Central Government in matters related to import and export of goods in
India viz., foreign trade.
The FTP, in general, aims at developing export potential, improving
export performance, boosting foreign trade, earning valuable foreign
exchange and creating favourable balance of payments position.

2.

Which
is
governing
Legislation
FTP

the The main legislation concerning foreign trade is the Foreign Trade
(Development and Regulation) Act, 1992 [ FTDRA ]. Under FTDRA, the
for GOI announces the integrated Foreign Trade Policy (FTP), earlier called as
Export Import Policy (EXIM Policy), in every FIVE years with certain
underlined objectives. This policy is updated every year in April, in
addition to changes that are made throughout the year.

3.

Administration
Of FTP

Which Government Authorities administer FTP in India?


The FTP is formulated, controlled and supervised by the office of the
Director General of Foreign Trade (DGFT) and FTP is administered in
close coordination with other agencies which include CBEC, RBI and
State VAT Departments.

4.

Contents of FTP
The FTP contains of the following documents :
i)

FTP 2009-14

FTP having 9 Chapters gives basic policy. This


is notified by the Central Government after
every 5 years.

ii)

Handbook of
Procedures
Volume I

It covers procedural aspects of policy which is


notified by DGFT.

iii) Handbook of
Procedures
Volume II

It contains Standard Input-Output Norms


(SION) of various products.

iv)

It is Indian Trade Classification Code based on


Harmonized System of Coding which uses 8digit codes.

ITC (HS)
Classification of
Exports and
Imports

Vivek Vishnu Gupta, CFA, CMA, B.Com,

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

Scope of FTP

Enumerate the various matters in respect of which policies and


regulations are framed under FTP.
The FTP covers the policies and regulations with respect to the following
matters :
i)

Policy for regulating import and export of goods and services.

ii)

Export Promotional Measures

iii)

Duty Remission and Duty Exemption Scheme for promotion of


exports.

iv)

Export Promotion Capital Goods (EPCG) Scheme.

v)

EOU/EHTP/STP/BTP Schemes

vi)

SEZ Scheme

vii) Deemed Exports

B.

FEATURES OF FTP

Free Exports and Exports and Imports shall be free, except where regulated by FTP or any
Imports
other law in force. The item-wise export and import policy shall be
specified in ITC(HS) notified by DGFT from time to time.

Compliance
Laws

3.

Role of DGFT

with Every exporter or importer shall comply with the provisions of the FTDRA,
the rules and orders made thereunder, the FTP and terms and conditions
of any authorisation granted to him.
The DGFT performs following functions under FTP :
i)

Issue of IEC

Importer-Exporter Code (IEC) is a unique 10digit Code issued by DGFT to Indian companies.
IEC is mandatory to export any goods out of
India or to import any goods into India unless
specifically exempt. Only One IEC can be
issued against a single PAN.
Application for IEC number has to be made to
DGFT in prescribed form ANF-2A, with fees of
250. IEC number will be declared on Bill of
Entry, Shipping Bill and other documents
relating to customs.

ii)

Interpretation
of Policy

iii) Procedure

If any question or doubt arises in respect of


interpretation of any provision, said question
or doubt shall be referred to DGFT whose
decision shall be final and binding.
DGFT may specify procedure to be followed by
an exporter or importer which shall be
published in Hand Book of Procedures..

iv)

Exemption
from Policy /
Procedure

DGFT may pass such orders or grant such


relaxation or relief or exempt any person in
public interest, from any provision of FTP or
any procedure, subject to conditions.

v)

Principles of
Restriction

DGFT may adopt and enforce any measures


necessary for :
a)
Protection of - public morals; human,
animal or plant life or health; patents,
trademarks and copyrights; national treasures
of artistic, historic or archaeological value,
b)
Prevention of traffic in arms,
ammunition and implements of war and use of
prison labour; and
c)
Conservation of exhaustible natural
resources.

4.

Export / Import of Any goods or services, export or import of which is restricted under
Restricted
ITC(HS) may be exported or imported only as per Authorisation.
Goods/Services

Terms
and Every Authorisation shall be valid for prescribed period of validity and
Conditions
of shall contain terms and conditions specified by Regional Authority (RA),
Authorisation
which may include :
a)
b)
c)
d)
e)

Quantity, description and value of goods;


Actual User condition;
Export Obligation;
Value addition to be achieved; and
Minimum export or import price.

State Trading

Any goods, import or export of which is governed through special


privileges granted to State Trading Enterprises (STEs), may be imported
or exported by STEs as per conditions specified in ITC(HS).

7.

SION

What do you mean by SION? Who fixes SION? How is advance


authorisation issued where SION does not exist?
[ CMA June 2014 ]
Standard Input-Output Norms (SION) are fixed and notified by the DGFT
for the purpose of issue of licences under Duty Exemption Scheme. These
have been periodically updated. At present, the SION cover the following
product categories :
(a) Chemical and Allied Products; (b) Engineering, Plastic, Food, Marine,
Textile and Leather Products; and (c) Sports Goods.
The Advance License Committees (ALC) notifies SION where the exporter
had only applied for advance authorisation / license on ad-hoc basis i.e.
where SION did not exist.

Vivek Vishnu Gupta, CFA, CMA, B.Com,

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

7.

Import Regulations
No. Regulation
1

Actual
Condition

Second
Goods

Explanation
User If imports require an Authorization, actual user may import such
goods unless actual user condition is specifically dispensed with by
RA.
Hand Import of second hand (used) goods shall be restricted for imports
and may be imported only as per FTP, ITC(HS), prescribed
procedures or an Authorisation.
Import of second hand capital goods, including refurbished / reconditioned spares shall be allowed freely.
Second hand personal computers/laptops, photocopier machines,
air conditioners, diesel generating sets, remanufactured goods
shall be allowed only against a licence.

Scrap/Waste
SEZ

in 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 shall be allowed
to be disposed in DTA freely subject to payment of applicable
customs duty.

Import of Gifts

Import
Export basis

Re-import
of Capital goods, equipments, components, parts and accessories,
Goods Repaired whether imported or indigenous, except those restricted under
abroad
ITC(HS)
may be sent abroad for repairs, testing, quality
improvement or upgradation or standardization of technology and
re-imported without an Authorisation.

Import of goods After completion of projects abroad, project contractors may


used in Projects import, without an Authorisation, goods including capital goods
Aborad
used in the project provided they have been used for at least one
year.

Import
under Permission of RA is not required for import of capital goods under
Lease Financing
lease financing.

Execution of BG Whenever goods are imported duty free or otherwise specifically


/ LUT
stated, importer shall execute prescribed LUT / BG /Bond with
Customs Authority before clearance of goods.

Import of gifts shall be permitted where such goods are freely


importable under ITC(HS). In other cases, a Customs Clearance
Permit (CCP) shall be required from DGFT. Further, import of
samples shall be governed by the prescribed procedures.
on 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.

Export Regulations
No Regulation

Explanation

Export
Samples

of Export of samples and free of charge goods shall be governed by


prescribed procedures.

Export
Passenger
Baggage

of GOI officials on abroad postings shall be permitted to carry alongwith


their personal baggage, food items (free, restricted or prohibited)
strictly for their personal consumption.

Export of Gifts

Export
Spares

Third
Exports

Exports
of Goods imported under FTP may be exported in same or
Imported Goods substantially the same form without an Authorisation, if not
restricted in ITC(HS). Exports of such goods imported against
payment in freely convertible currency would be permitted against
payment in freely convertible currency.

Export
of If Goods exported are found defective / damaged or otherwise unfit
Replacement
may be replaced free of charge by the exporter, provided that
goods
replacement goods are not restricted items in ITC(HS).

Export
of Goods or parts exported and found defective, damaged or otherwise
Repaired Goods unfit for use may be imported for repair and subsequent re-export.
Such goods shall be allowed clearance without an Authorisation and
in accordance with customs notification.

Export
Promotion
Councils ( EPC)

Goods, including edible items, of value not exceeding 500,000 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.
of Warranty spares, whether indigenous or imported, of plant
equipment, machinery, automobiles or any other goods ( except
restricted ) may be exported along with main equipment or
subsequently (later on) but within contracted warranty period of
such goods subject to approval of RBI.

Party Third party exports means exports made by an Exporter /


Manufacturer on behalf of another exporter. The Shipping Bill shall
indicate the names of both the exporter / manufacturer and the third
party exporter. The Bank Realisation Certificate (BRC), GR
declaration, export order and the Invoice shall be in the name of the
third party exporter.

Export Promotion Councils have been set up to promote and develop


export of the country. These EPCs are expected to monitor and
encourage exports and to assist and guide the exporters. Their main
aim is to project India's image abroad as a reliable supplier of high
quality goods and services.
Each Council is responsible for promotion of a particular group or
products like Engineering EPC, Apparel EPC, Gem and Jewellery EPC,

Vivek Vishnu Gupta, CFA, CMA, B.Com,

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

etc. These Councils are non-profit organisations registered as


Companies or registered Societies.
EPCs are non-profit autonomous organisations. EPC for EOU and SEZ
units has also been constituted. Services EPC has also been
established.
Some Agencies like Coffee Board, Tea Board, Tobacco Board etc. are
also considered as Export Promotion Councils. These are
autonomous professional bodies. Government may provide financial
support to these EPCs .
Exporter has to obtain Registration Cum Membership Certificate
(RCMC) from EPC or Commodity Board. Membership of EPC is
compulsory, if an exporter intends to get export incentives.

FTP

Problems

P 1.
With reference to the provisions of FTP 2009-14, discuss giving reasons whether the following
statements are true or false :
i)
be

If any doubt arises in respect of interpretation of any provision of FTP, the said doubt should
forwarded to CBEC, whose decision thereon would be final and binding.

ii)

Authorisation once claimed by an importer cannot be refused by DGFT.

iii)

IEC is a unique 12-digit PAN based alphanumeric code issued by DGFT to Indian companies.

iv)
Waste generated during manufacture in an SEZ Unit can be freely disposed in DTA on
payment
of applicable customs duty, without any authorisation.
v)
of

A Customs Clearance Permit (CCP) is required from DGFT in certain specific cases of import
gifts.

Ans
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 Authorisation as a right and DGFT shall have power to refuse to
grant or renew the same in accordance with provisions of FTDRA, 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
shall be allowed to be disposed in DTA freely subject to payment of applicable customs
duty.

7
v)

True

A 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(HS), a CCP is required.

P 2.
Mr. A wants to import a Laptop from USA which has been used by the seller for sometime there. Mr. A
contends that he can freely import such laptop without any restriction / authorisation. Examine the
correctness of Mr. As claim in the light of the provisions of FTP 2009-14.
Ans
As per FTP 2009-14, import of second had 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 authorisation. Import of remanufactured goods will also be allowed only against an authorisation.
Hence, Mr. As claim is not correct as second had laptops can be imported only against an
authorisation.
P 3
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 Realisation 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.
Ans
It is a case of third-party exports. Third party exports means exports made by an Exporter /
Manufacturer on behalf of another exporter. The Shipping Bill shall indicate the names of both the
exporter / manufacturer and the third party exporter. The Bank Realisation Certificate (BRC), GR
declaration, export order and the Invoice shall be in the name of the third party exporter.
In the above case, 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.
P 4.
Is it correct to say that all Imports are free unless restricted or prohibited under the FTP ?
Ans

[ CMA Dec. 2011 ]

TRUE. FTP states that exports and imports shall be free, except in cases where these are regulated by
provisions of FTP or any other law for the time being in force. All items, except restricted, prohibited
and importable through STEs can be freely imported.
P 5.
What is Importer Exporter Code Number (IEC)? State the manner in which IEC has to be applied
for. In what export / import documents should the same be stated?
Ans
Vivek Vishnu Gupta, CFA, CMA, B.Com,

[ CMA Dec. 2011 ]


# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

P 6.
As per FTP, can warranty spares of plant, machinery, etc. be exported without authorisation?
Ans

[ CMA June 2012 ]

Warranty spares, of plant equipment, machinery, automobiles or any other goods (except restricted
) may be exported along with main equipment or subsequently (later on) but within contracted
warranty period of such goods subject to approval of RBI. But for export of gifts / spares/
replacement goods in excess of ceiling / period, application can be made to DGFT.
P 7.
Write a brief note on Export Promotion Councils in India.

[ CMA June 2014 ]

Export Promotion Schemes


________________________________________________________________

No. TOPIC

A.

Explanation

Export Promotion Schemes / Export Incentives


Explain Export
Incentives given to
manufacturers
under the EXIM
Policy

Export Promotion schemes refer to Export Incentives provided to


exporters in different forms so as to boost foreign trade. Export
Promotion Schemes include
Duty Exemption and Remission
schemes, Reward schemes, EOU / SEZ schemes, Export Promotion
Capital Goods (EPCG) scheme and Schemes for Deemed Exports.

[CMA June 2013 ]

As per stipulation of WTO, no country can give export incentives


directly, the reason is that WTO intends to encourage free
competition among nations. If incentives are given for exports, there
will not be free competition. But exported goods can be made taxfree for export purposes, which is permissible under WTO
stipulations. Hence, all export promotion schemes are directed
towards ensuring that inputs as well as final products are made taxfree to boost foreign trade.
The following are different export promotion schemes / export
incentives for manufacturers :

Relief from Excise Indigenous Inputs are obtained without payment of excise duty or
Duty
Rebate if duty paid. No excise is charged on final product or Rebate if
duty paid.

Relief
from Imported inputs are allowed without payment of customs duty, or
Customs Duty
rebate if duty paid. No export duty on export of final product.

Bank Finance

Bank finance available on priority basis and at concessional rate of


interest.

EPCG scheme

Import of capital goods allowed at concessional rate of duty.

Relief from Sales Exemption from sales tax on final product, Refund of CST paid on
Tax
inputs in case of EOU and not CST for supply to SEZ and SEZ units.

Relief from Stamp Usance bills of exchange executed by an exporter in relation to export
Duty
transaction are fully exempt from stamp duty.

B.

Advance Authorisation Scheme [ AAS ]


What is AAS

DGFT issues authorisation (earlier called as licence) for import and


export. Authorization means a permission in terms of the FTDRA
to import or export.
Under Advance Authorization Scheme, inputs used in export product
can be imported without payment of customs duty. The goods
imported are exempt from basic customs duty, additional customs
duty, education cess, anti-dumping duty and safeguard duty.

What Items can be The following items can be imported duty against advance
imported duty free authorisation :
against AAS
Vivek Vishnu Gupta, CFA, CMA, B.Com,

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

i)

Inputs which are physically incorporated in export product,


making normal allowance for wastage.

ii)

Fuel, oil, energy, catalysts which are consumed or utilised to


obtain export product.

iii)

Duty free import of Mandatory spares upto 10% of CIF value


of Authorisation which are required to be exported with
resultant products is allowed.

What Items cannot The following items cannot be imported against AAS :
be
imported
against AAS
i)
Prohibited items mentioned in ITC(HS)
ii)

Items reserved for imports by STEs.

Features of AAS
1 Advance Authorisation will be with actual user condition. It
will not be transferable even after completion of export
obligation. However, authorisation holder will have an option
to dispose off product manufactured out of duty free inputs
once export obligation is completed.
2 In case where CENVAT credit facility on inputs has been availed
for the exported goods, even after completion of export
obligation, the goods imported against Advance Authorisation
shall be utilised only in the manufacture of dutiable goods
within same factory or outside by a supporting manufacturer.
3 The exports should be with a minimum Value Addition of 15%
but for tea it shall be 50%. Value Addition = Sales Value Cost
of Inputs.
If some inputs are supplied free of cost by foreign buyer, its
notional value (FMV) will be considered for value addition.
Exports to SEZ units / Supplies to Developers, irrespective of
currency of realisation, would also be covered.
Persons eligible for Advance authorisation can be issued either to a manufacturer
AAS
exporter or merchant exporter tied to supporting manufacturer to
import inputs.
Purposes for which Advance Authorisation can be issued for the purpose of :
Advance
Authorisation can i)
Physical export;
be issued
ii)
Intermediate supplies;
iii)
Supply of Stores on board of foreign going vessel/aircraft,;
iv)
Supplies to UNO or under an Aid Programme of UNO but
such supplies need to be paid for in Free Foreign Exchange;
and
v)
Main contractor for supply of goods under deemed export
(except for export under advance authorisation and marine
freight containers).

11
SION

Advance Authorisations are issued for inputs and export items given
under SION i.e. the import of raw materials is on the basis of
Standard Input Output Norms. The SION is finalised and quantity
allowed to importer will be based on quantity exported.

Basis of
Annual Annual Advance Authorisation would be issued to exporters having
Advance
past export performance ( in preceding 2 years ) to enable them to
Authorisation
import their requirement of input on annual basis.
Maximum value of Annual Advance Authorisation will be granted up to 300% of FOB
Annual
Advance value of exports in preceding financial year or 1 crore, whichever
Authorisation
is higher.
C.

Duty Free Import Authorisation (DFIA) Scheme


Features of
Scheme

DFIA 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 :
i)

Pre-export
Authorisation

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 should be utilised in the
manufacture of dutiable goods whether
within the same factory or outside by a
supporting manufacturer.

ii) Post-export
Authorisation

A merchant exporter is required to mention


only name and address of manufacturer of
the export product.

DFIA shall be issued only for products for which SION have been
notified.
Exempted Duties

Inputs imported against DFIA are exempt from payment of basic


customs duty, additional customs duty (excise duty), EC, antidumping duty and safeguard duty.

Transferability

DFIA or the Inputs imported against it can be transferred after the


fulfilment of the export obligation.

Value Addition

A minimum 20% value addition shall be required for issuance of


such Authorisation except for items in Gems and Jewellery sector.

Problems
P 1.
What are the purposes for which Advance Authorisation can be issued?
Vivek Vishnu Gupta, CFA, CMA, B.Com,

[ CMA Dec. 2011 ]

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

P 2.
Explain in brief :
i)

What are the purposes for which Advance Authorisation can be issued?

ii)

What is the maximum limit of duty free import of mandatory spares under Advance
Authorisation ?

iii)
of

What is the basis of determination of Annual Advance Authorisation for annual requirements
any exporter?

iv)

What is the maximum value of Annual Advance Authorisation can be issued ?


[ CMA June 2012 ]

P 3.
Discuss whether DFIA is transferrable.

No. TOPIC
D.

Export
Reward
Schemes
OR

[ CMA June 2013 ]

Explanation
Reward Schemes or Duty Credit Schemes are the schemes which entitle the
exporters to duty credit scrips. Duty Credit Scrips can be used to pay the
duty against imports, fee under FTP but not penalty. The following are
different export reward schemes :

13
Duty Credit
Schemes
1.
2.
3.
4.
1.

Status
Holder
Reward
Scheme

Status Holder
Served From India Scheme ( SFIS)
VKGUY, FMS, FPS and MLFPS an exporter can claim only one of the
four benefits of his choice.
Incremental Exports Incentive Scheme

Status Holders are exporters who achieve certain export performance during
past few years. The export performance is counted on the basis of FOB value
of export proceeds ( FOR value in case of deemed exports ) realised during
Current plus Previous Three years taken together.
There are FIVE categories of Status Holders depending on their Export
Performance, as follows :
Status Holder
EH
SEH
TH
STH
PTH

Export Performance
[ FOB / FOR value ( in crores )]

Export House
Star Export House
Trading House
Star Trading House
Premier Trading House

20
100
500
2500
10,000

For Export House (EH) status, export performance is necessary in at least 2


out of 4 years.
Who
are Merchant exporters, Manufacturer exporters, Service Providers, EOUs, Units
eligible as
in SEZ / EHTP / STP are eligible for recognition as Status Holder.
Status
Holders
2

Served
From India
Scheme
( SFIS )

The objective of SFIS scheme is to accelerate growth in export of services so


as to create a powerful and unique Served from India brand, instantly
recognised and respected world over.
Eligible Service Providers : All Indian Service Providers who have Free
Foreign Exchange Earning of at least 10 lakhs ( 5 lakhs for Individuals) in
current financial year shall qualify for Duty Credit Scrip.
Free Foreign Exchange will also include earnings through International Credit
Cards and other Instruments permitted by RBI.

Utilisation
Duty Credit Scrip can be utilised for payment of duty for import of any
of
Duty capital goods including spares, office equipment and professional equipment,
Credit Scrip office furniture and consumables, and vehicles used as professional
equipment; which are freely importable or restricted under ITC (HS).
Duty Credit Scrip may also be used for import of consumables including food
items and alcoholic beverages in case of Hotels, Clubs having residential
facility of minimum 30 rooms golf resorts and stand-alone restaurants
having catering facilities.
Nontransfer

The imported goods shall be non-transferable ( except within group


companies and managed hotels ) and be subject to Actual User condition.

Vivek Vishnu Gupta, CFA, CMA, B.Com,

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

VKGUY

VKGUY
and

Vishesh Krishi and Gram Udyog Yojana ( Special Agriculture


Village Industry Scheme )

The objective of VKGUY scheme is to compensate high transport costs and


offset other disadvantages in the exports of specified agricultural products.
Eligible Exporters : Exporters of fruits, vegetables, flowers, minor forest
produce, dairy, poultry and their value added products, Gram Udyog products
and forest based products are entitled for Duty Credit Scrip equivalent to 5%
of FOB value of exports realised in free foreign exchange.
Exporters of some flowers, fruits, vegetable and other listed products are
entitled to an additional duty credit scrip equal to 2% of FOB value of exports.
Utilisation
The Scrip can be utilised for payment of customs duties of all freely
of
Duty importable items as well as for procurement of domestic items without
credit scrip payment of excise and service tax. Scrip can also be utilised for payment of
Application Fee to DGFT for obtaining any authorisation.
This facility is available only to Original Holder of Scrip.
4.

Agri-Infrastructure
Incentive
Scrip

All Status Holders exporting vegetable and animal products shall be eligible
for additional benefit of duty credit scrip equal to 10% of FOB value of
agricultural exports ( including benefits under VKGUY ) provided that total
benefits of all status holders put together do not exceed 100 crores ( 50
crores for each half year).
Actual User Condition : The benefit shall be subject to actual user condition
and hence non-transferable. However, for import of Cold Chain Equipment,
this Incentive Scrip shall be freely transferable amongst Status Holders as
well as to Units (except Developers) in the Food Parks.

5.

Focus
Market
Scheme
[ FMS ]

Focus Market Scheme has been introduced with objective to penetrate those
markets mainly Latin America, Africa, Eastern Europe, which Indian
exporters have been neglecting owing to high freight costs and other
externalities.
Eligible Exporters : Exporters of all products to notified countries shall be
entitled for Duty Credit Scrip equivalent to 3% of FOB value of exports in free
foreign exchange for exports.
Export of products to some of the notified countries will be entitled for
additional duty credit scrip @ 1% of FOB value of exports in free foreign
exchange.

6.

Utilisation
of Scrip

This Scrip can be utilised for payment of customs duties of all freely
importable items and for excise duty for domestic items.

Focus
Product
Scheme
[ FPS ]

Focus Product Scheme has been introduced to promote export of those


products which have high export intensity or employment potential.
Eligible Exports : Exports of notified products mainly leather products,
fireworks and stationery items, value added coir products and other notified
focus products to all countries including SEZ units shall be entitled for Duty

15
Credit Scrip equivalent to 2% of FOB value of exports in free foreign
exchange.
Bonus Credit Scrip from 1% to 5% is available for special notified Focus
Products or Sectors.
Utilisation
of Scrip

This Scrip can be utilised for payment of Customs duties of all freely
importable items and for excise duty of domestic items.

7.

Market
Linked
Focus
Product
Scrip
[ MLFPS ]

Specified Products exported to specified countries are entitled to 2% of FOB


value as Duty Credit Scrip. This Scrip can be utilised for payment of customs
duties of all freely importable items and for excise duty of domestic items.

Incremental
Exports
Incentive
Scheme

Under this scheme, an exporter (IEC holder) would be entitled for Duty Credit
Scrip @ 2% on the incremental growth achieved by the IEC holder during
Current year compared to Previous year on the FOB value of exports on
annual basis.
This benefit will be additional benefit w.r.t. other schemes. The duty credit
scrip will be freely transferable. Such scrips shall also be eligible for domestic
sourcing and for payment of service tax.

Problems
P 1
Name any four Duty Credit Schemes which are being used as export promotional measures.
[ CMA Dec. 2011 ]
P 2.
Explain with reference to Foreign Trade Policy :
i)

What do you mean by Status Holder? Who are eligible for recognition as Status Holder?

ii)

What is the average export value to be achieved to become the Status Holder?
[ CMA June 2013 ]

No. TOPIC
E.

Export

Explanation
EPCG scheme permits exporters to procure capital goods at concessional

Vivek Vishnu Gupta, CFA, CMA, B.Com,

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

Promotion
Capital Goods
Scheme
[ EPCG ]

rate of customs duty / zero customs duty. In return, exporter is under an


obligation to fulfil the export obligation. Export Obligation (EO) means
obligation to export products covered by Authorisation / permission in
terms of quantity or value or both, as specified by Regional Authority
(RA).
The licence holder can either 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 authorisation can also be issued for import of capital goods
under scheme for Project Imports. Export Obligation for such EPCG
authorisations 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
EO is completed.

F.

EOU vs. SEZ Export Promotion Schemes

EOU and SEZ units can import capital goods, raw materials, consumables, packing material, spares,
etc. without payment of customs duty. Similarly, these can be procured indigenously without payment
of excise duty. Second hand capital goods can also be imported. But they should have positive Net
Foreign-exchange Earnings ( NFE ) .
The units of STP / EHTP / BTP are similar to EOUs. However, EOUs are getting step-motherly
treatment from Government, while SEZ is favoured baby.
The following are distinctive features of EOU scheme and SEZ scheme :
No. Feature

SEZ scheme

EOU scheme

1.

Supplies
DTA

from Supplies to SEZ from DTA are Supplies to EOUs from DTA are
Exports.
Deemed Exports.

Limit on Sale to There is no restriction on sales from EOU units can sale in DTA up to
DTA
SEZ units to DTA, but SEZ have to 50% of the FOB value of sales of
attain positive NFE.
preceding year, subject to fulfilment
of positive NFE, on payment of
concessional rate of duty.

Duty
on The supplies from SEZ to DTA, The sale from EOU within India
Supplies to DTA normal customs duty as payable on should be on payment of excise duty.
import of similar goods is payable.
In certain cases, excise duty payable
will be only 30% to 50% of normal
customs duty payable on such goods
if imported into India.

4.

Location

SEZ unit has to be located within the EOU unit can be set up at any place
specified zones developed.
all over India. However, STP / EHTP
/ BTP units can be situated within

17
the zone specifically developed or at
any place where EOU can be set up.
5

Physical Control

There is physical control


movement of goods in SEZ.

over There is no such physical control


over goods to individual EOU.

Investment

There is no limit on minimum Minimum investment in plant and


Investment for SEZ.
machinery and building is 100
lakhs for EOU, which should be
before
commencement
of
commercial production.

Exit

The SEZ unit has to physically go The EOU unit can exit (de-bond)
out of SEZ.
with permission of Development
Commissioner, on payment of
applicable duties.

CST

SEZ supplier does not have to pay In case of EOU, CST paid on
CST.
purchases is refundable but not
local tax, if goods are used for
production and not for services.

Service Tax

Service tax is exempted in case of In case of EOU,


service tax
services provided within SEZ.
exemption is not available but they
can claim refund.

10

FDI

100% foreign equity is permissible In case of EOU, restrictions of FDI


in SEZ.
are slightly more.

11

Benefits

All export benefits like


drawback are available.

12

Area
Requirements

Maximum area of SEZ can be 5000 No such requirement.


hectares. Minimum processing area
shall be 50%. The following are area
requirements for different types of
SEZs :

duty All benefits of deemed export like


refund of excise duty are available.

a)

Multiproduct SEZ

Multi-product SEZs should have an area


of at least 1000 hectares. Minimum
35% shall be available for processing (
can be relaxed to 25% by CG) and
balance shall be available for
developing residential and commercial
areas.

b)

Service
sector SEZ
or SEZ in
port
or
airport

They should have an area of at least


100 hectares. Minimum 35% shall be
available for processing ( can be
relaxed to 25% by CG) and balance
shall be available for developing
residential and commercial areas.

c)

Sector
specific SEZ

In some sectors where India has a


competitive advantage, such as Gems
and jewellery, IT, Electronic Hardware

Vivek Vishnu Gupta, CFA, CMA, B.Com,

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

and Software, Bio-technology, nonconventional energy, solar energy, SEZs


can be set up with area of at least 10
hectares.
Minimum 50% shall be available for
processing and balance shall be
available for developing residential and
commercial areas.

Problems
P 1.
Service sector SEZs should have an area of 1000 hectares or more in order to be eligible for exemption.
Explain
Ans

[ CMA June 2012 ]

False. Service Sector SEZs should have an area of 100 hectares or more in order to be eligible for
exemption.
P 2.
Under the EXIM policy, various Input Duty Relief schemes have been devised to obtain inputs free
from duty or to grant refund of the same. Briefly discuss about five schemes.
Ans

[ CMA Dec. 2013 ]

Input Duty Relief Schemes


Various schemes have been devised to obtain inputs free from duty or to grant refund of the same. In
some schemes, the unit has to be isolated from domestic production units, while in some schemes, the
units producing goods for domestic production are also entitled to get inputs free of cost,
A.
Schemes where export production unit has to be isolated from domestic production
units - There are schemes where units producing goods for export purposes have to be isolated from
domestic units. The schemes are - EOU, STP, EHTP, BTP and SEZ.
B.

Schemes where domestic production unit can get inputs free from taxes The schemes of
EOU, SEZ, STP, BTP and EHTP are suitable where the unit is exclusively or at least
predominantly
for export purposes. There are other schemes where a unit producing goods for
domestic
purposes is also entitled to get inputs / capital goods without payment of customs duty
/ excise
duty. These can be broadly classified as follows:
(i)

Relief of excise duty on inputs


(a)

this

(b)

Cenvat credit of duty paid on inputs can be utilized for payment of excise duty on other
final products. Alternatively, refund of duty paid on inputs can be obtained
Same result can be achieved by paying duty on final product and claiming rebate. In
case, additional benefit is that duty paid on capital goods will also get refunded
indirectly. In first case, only duty paid on inputs is refundable

19

(c)

Obtaining inputs without payment of excise duty. This is advisable when there are one
or two major identifiable inputs

(d)

Rebate of duty paid on inputs.

(e)

Excise portion of Duty drawback.

(ii)

Relief of customs duty on inputs - (a) Advance Authorisation (b) DFIA (c) customs portion of
duty drawback.

(iii)
of

Capital goods at concessional rate - Capital goods can also be obtained at concessional rate
customs duty under EPCG scheme.

P 3.
Are the clearances of goods from DTA to SEZ chargeable to export duty under SEZ Act, 2005 or the
Customs Act, 1962?
Ans

[ CMA June 2014 ]

SEZ Act does not contain any provision for levy and collection of export duty for goods supplied by a
DTA unit to a Unit in a SEZ for its authorised operations, so export duty cannot be levied on the DTA
supplier by implication.
As per section 12(1) of Customs Act, the customs duty can be levied only on goods imported into or
exported beyond the territorial waters of India. Since both the SEZ unit and the DTA unit are located
within the territorial waters of India, customs duty is not chargeable for supplies made by a DTA unit
to a unit located within the SEZ.
Hence, the clearance of goods from DTA to SEZ is not liable to export duty either under the SEZ Act
or under the Customs Act.

Project Imports
_______________________________________________________________________
Vivek Vishnu Gupta, CFA, CMA, B.Com,

# 2844, FF, Sector-22 C, CHD. 94173 15972, 97800 80102

No. TOPIC

Explanation

1.

What do you
mean by
Project Import
under Customs
Act

Project import means, import of machineries required for initial set up of


project and also includes raw materials, consumables and spare parts,
(10% value of machinery) is allowed to import at concessional or nil rate
of duty. Heavy customs duty on imported machinery for project makes
project cost very high and may become unviable.

2.

Which Projects
are eligible for
benefit of
customs duty

Project eligible are :

What to do to
get such
benefits

To get benefit under Project Import, the Contract for import has to be
registered with Customs. Application is required to be made before
importation and contract must be registered before order for clearance of
goods is made from Customs. The contract can be amended if required.
After completion of Project and submission of documents assessment
shall be finalized within 60 days.

3.

(a)
(b)
(c)
(d)
(e)
(f)

Industrial plant
lrrigation Project
Power Project
Mining Project
Project for Oil and Mineral Exploration
Other Project specified by the Central Govt.