Export Promotion Schemes - CBEC's Customs Manual (OLD) - Customs

Chapter 23 Export Promotion Schemes 1 Introduction: 1.1 The Export Promotion Schemes implemented by CBEC relate to respective Foreign Trade Policies. However, presently the predominant ones are the following broad categories pertaining to FTP 2009- 14 (effective till 31.3.2015) and FTP 2015-20 - (a) Incentive or Reward schemes under which exporters are granted duty credit in a scrip which is permitted to be utilized in an exemption framework, for debiting certain duties/tax, subject to conditions. (b) Duty exemption schemes like Advance Authorisation (AA) and Duty Free Import Authorization (DFIA) which permit duty free import of inputs related to export production. (c) Duty remission schemes like the Post export EPCG duty credit scheme. Export Promotion Capital Goods (EPCG) Scheme which permits duty free import of capital goods against an obligation to export goods in a specific time frame 2. Reward /Incentive Schemes: 2.1 The Served From India Scheme (SFIS), Vishesh Krishi and Gram Udyog Yojana (VKGUY), Agri. Infrastructure Incentive Scrip (AIIS), Focus Market Scheme (FMS), Focus Product Scheme (FPS) and Status Holders Incentive Scrip (SHIS) Schemes of the FTP 2009-14 (effective for exports till 31.3.2015) may be referred at paras 2.1 to 6.3 of the Customs Manual 2014. 2.2 Under the FTP 2015-20, the (a) Merchandise Exports from India Scheme (MEIS) rewards export of notified goods to specified markets listed in Appendix 3B of Appendices ANF @ 2% or 3% or 5% of certain FOB value of exports. It covers reward on export via post or courier of specified items that are transacted using e-commerce platforms, subject to certain conditions. In order to claim reward under MEIS it is mandatory that exporter declare intent to claim reward at time of export on shipping bills / bills of export that are filed on or after 1.6.2015. (b) Service Exports from India Scheme (SEIS) incentivizes export of notified services listed in Appendix 3D of Appendices ANF by service provider located in India who have a specified minimum net free foreign exchange earnings. Only services rendered in the manner as per Para 9.51(i) and Para 9.51(ii) of the Foreign Trade Policy (FTP) 2015-20 may be eligible. The entitlement is either 3% or 5% of net foreign exchange earned (c) Both, MEIS and SEIS scrips are freely transferable and can be used for import of any items except those listed in appendix 3A of Appendices and ANF, or for domestic procurement (without exception for appendix 3A items) or for payment of service tax on procurement of services. The additional customs duty/excise duty/service tax paid in cash or through debit in these scrips may be adjusted as CENVAT Credit or Duty Drawback. Moreover, the basic custom duty paid in cash or through debit in these two scrips may be adjusted as duty drawback. [Refer Notifications Nos. 24 and 25 /2015-Cus, Nos.20 and 21 /2015-C.E. and Nos.10 and 11 /2015-S.T., all dated 8-4-2015] 3. Certain aspects related to usage of reward duty credit scrips: (a) Board's Circular No. 8/2009-Customs and Instruction No. 603/13/2013-DBK dated 27.05.2014 highlighted the difference between freely transferable scrips meant for all types of goods with certain exceptions and scrips with limited transferability/actual user condition and meant for specified goods. These differences in the nature of scrips issued under the various FTPs and the type of duties or tax that may be debited in a particular scrip are aspects to be kept in view by field formations. (b) The scrips being usable only with respect to those goods that are permitted to be imported under the relevant reward scheme pertaining to that scrip, it implies that debit of duty in a scrip, even in the case of discharging duty on already imported goods in cases of export obligation (EO) default, is to be only in respect of goods that are importable under that scrip. Accordingly, scrips like SHIS, AIIS or SFIS which, for example, cannot be used for debiting duty on raw materials, cannot also be used for debiting of duty on raw material in cases of EO default. This was brought to notice of field formations vide Board's letter F.No. 605/32/2013-DBK dated 19.12.2013 in connection with use of duty credit scrip for debiting towards customs duties in case of EO defaults under chapter 4 and 5 of the FTP. Similarly, if a scrip can be used in relation to a capital goods 'CG1' but not 'CG2', then it cannot be used to debit duty related to import of 'CG2' in relation to which there is an EO default. (c) Scrips issued under FTP 2015-20 can be utilized / debited for payment of customs duties in case of EO defaults for authorizations issued under Chapter 4 and 5 of FTP 2015-20 only. Similar position holds for scrips issued in terms of FTP, 2009-14. (d) Scrips cannot be used to discharge penalty or interest which are required to be deposited in cash. (e) Clearance of goods from Custom Bonded warehouses utilizing duty credit scrips of SFIS, VKGUY, FMS, FPS, SFIS is allowed as per the same procedure as is prescribed for DEPB scrips. [Refer Circular No. 50/2011-Cus., dated 9-11-2011 read with No.72/2003-Cus and No.68/2000-Cus]. This would also apply to MEIS and SEIS scrips. 4. Verification related to reward duty credit scrips: 4.1 Verification of genuineness of reward scrips is provided for before allowing registration. Further, random verification of the shipping bills or bills of export of goods based on which the reward scrip was issued is prescribed to ascertain the genuineness of the supporting shipping bills. However, the genuineness of shipping bills or bills of export of goods not on Customs EDI (i.e. Manual shipping bills) should invariably be verified while registering the scrip. While Customs can carry out complete verification of scrip where specific intelligence suggests misuse, Also, instructs that scrips issued by the DGFT should normally be accepted unless there is a reason for detailed verification for which the AC / DC is to record the reasons, in writing in file. [Refer Circulars No. 5/2010-Cus.dated 16-3-2010, No.17/2012-Cus., dated 5-7-2012, No. 14/2015-Cus., dated 20-4-2015 and Instruction No.609/119/2010-DBK., dated 18-1-2011] 5. Advance Authorization Scheme: 5.1 Advance Authorisations (AA) are issued to allow duty free import of inputs that are physically incorporated in the export product (after making normal allowance for wastage) as well as certain items like fuel, oil, catalysts which are consumed in the course of their use to obtain the export product. The raw materials/inputs are allowed in terms of Standard Input-Output Norms (SION) or self-declared norms of exporter. The AA are issued on pre-export or post export basis in accordance with the FTP and procedures in force on the date of issue. 5.2 The holder is required to fulfill export obligation (EO) by exporting specified quantity/value of resultant product. The AA and the materials imported are not transferable even after completion of EO. 5.3 AA usually have a minimum of 15% value addition. However, as per para 4A2.1 and Appendix 11B of HBP 2009-14 (para 4.61 and Appendix 4D of HBP 2015-20) the value addition for gems and jewellery and for specified goods is less than 15%. In case of Tea, the minimum value addition is 50%. As per Appendix 11 in HBP 2009-14 (4C in HBP 2015-20), higher value addition is prescribed for export for which payment are not received in freely convertible currency. 5.4 All Industry Rate (AIR) of Duty Drawback is not admissible with AA. However, Brand Rate of Duty Drawback may be claimed in respect of duty-paid inputs (not specified in the norms) which are used in the export product provided such duty paid inputs have been endorsed by Regional Authority for drawback payment on the AA. This specification ensures value addition norms. 5.5 AA are issued for physical exports as well as deemed exports. These are also issued on the basis of annual requirements of exporter, which enables planning manufacturing / exports on a longer term basis. However, self declared norms are not permitted under annual requirement under FTP 2015-20. Advance Authorisation for Annual Requirement is also not available in respect of SION where any item of input appears in Appendix 4-J of FTP 2015-20. 5.6 AA are issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s) or to sub-contractors in respect of supplies of goods to specified projects provided the name of such sub-contractor appears in the main contract. 5.7 AA holders are to file a bond with 100% Bank Guarantee for the duty difference at the time of importing duty free inputs. Certain categories of exporters are conditionally exempt from filing Bank Guarantee in terms of Circular No. 58/2004-Cus. dated 21-10-2004 as amended last by 15/2014- Customs dated 18.12.2014. 5.8 Normal validity of an AA is 12 months for making imports but there is provision for RA to consider request of original authorization holder and grant one revalidation for six months from expiry date. For fulfillment of EO, normally a period of 18 months from the date of issue is specified, with certain exceptions of shorter or longer periods. 5.9 Under the FTP 2015-20, the import of gold for jewellery sector is only under Advance Authorization on pre import basis with actual user condition. 5.10 There are provisions relating to accounting of inputs in the AA schemes. The AA holder is also required to maintain a true and proper account of consumption and utilization of duty free imported/domestically procured goods for a specified minimum period. The AA No./date is to be indicated on the shipping bill/ bill of export or invoice (in case of deemed exports). The imports/exports under AA and their utilization require monitoring. The AA holder is to submit relevant export documents to Regional Authority/DGFT to obtain an Export Obligation Discharge Certificate (EODC). An AA holder is required to deposit Customs duties with interest in case EO is not fulfilled. The Regional Authority informs details of payments to Customs at the port of registration or Commissioner of Central Excise having jurisdiction over the factory of AA holder, as the case may be. The EODC or redemption letter is taken into account by Customs authority at port of registration for purposes of redemption of bond/Bank Guarantee, subject to prescribed checks including intelligence based checks. 5.11 Keeping in view nuances of individual variants of Advance Authorization, individual notifications issued by Revenue have certain variations in conditions, inter alia, related to prevention of dual or unintended benefits. [Refer Notification Nos. 96 and 99/2009-Cus., both dated 11-9-2009 and No.112/2009-Cus., dated 29-9-2009 and Nos.18, 20 and 21/2015-Cus., all dated 1-4-2015] 6. AA for export of certain items that are otherwise prohibited for export: 6.1 Certain items that are otherwise prohibited for export may be exported under AA scheme, with conditions stricter than otherwise imposed including the export being allowed only from specified EDI enabled ports subject to pre-import condition under notified SION/prior fixation of norms by Norms Committee, export obligation period being 90 days from import clearance without extensions and import being subject to non-transfer, including for job work, and actual user condition, and the inapplicability of provisions for regularisation of default, etc. [Refer Notification Nos. 1/2014-Cus., dated 17-1-2014 and No. 22/2015-Cus.,,dated 1-4-2015 and Circular No.4/2014-Cus., dated 10-2-2014] 7. Duty Free Import Authorisation (DFIA): 7.1 DFIA issued under the FTP 2009-14 are similar to AA in many aspects including requirement of monitoring. However, DFIA has a minimum value addition requirement of 20% and once export obligation is completed, transferability of the authorization and / or material imported against it is permitted. Once the transferability is endorsed, the inputs can be imported/domestically sourced only on payment of additional duty of customs/ central excise duty. The DFIA is issued only where SION are notified. After the annual supplement 2013 to the FTP 2009-14, the exemption from anti-dumping duty and safeguard duty is not available when materials are imported against a DFIA made transferable. In case imported materials are transferred the importer is to pay an amount equal to the anti-dumping and safeguard duty leviable on the material, with interest. These aspects apply subject to specified conditions. 7.2 Under the FTP 2015-20, only post-export transferable DFIA with exemption from only the basic customs duty is issued by Regional Authority. Such DFIA is not available for Gems and Jewellery sector or where SION prescribes actual user condition (for example, fuel). The admissibility of brand rate of duty drawback is as per para 4.26 of the FTP. [Refer Circulars No.11/2009-Cus., dated 25-2-2009 and No.6/2011-Cus dated 18-1-2011 and Notification No.98/2009-Cus dated 11-09-2009 and No.19/2015-Customs dated 1-4-2015] 8. EPCG Scheme: 8.1 Under FTP 2015-20, - (a) A Zero duty EPCG scheme applicable to all sectors is available with optional exemption from the additional duty of customs. The EO is equivalent to 6 times of the duty saved amount on the capital goods imported with EO period 6 years (extendable by 2 years) from the date of issue of Authorization. A more favorable dispensation for EO is provided for export of specified green technology products as well as units located in North Eastern States, Sikkim and Jammu and Kashmir. The EO for spares for imported/domestically sourced capital goods is same as that for capital goods. (b) The import of Capital goods has to be made within 18 months, with the Regional Authority of DGFT having certain powers to revalidate the validity of import. (c) EO of 50% is to be fulfilled in two blocks of 4 years and then 2 years. The RA can grant extension of block-wise period or overall period of fulfillment subject to specified conditions. In the case of manufacturer/merchant/service exporters, the EO is required to be fulfilled by exporting goods manufactured or capable of being manufactured or services rendered by the use of capital goods imported under the scheme. The EO is to be over and above the average level of exports achieved in the preceding three licensing years for the same and similar products. Certain sectors are not required to maintain average level of exports. (d) The Authorizations are issued to manufacturer exporters and merchant exporters with or without supporting manufacturer, and service providers and also available to Common Service Provider (CSP). The authorizations specify the value/quantity of the export product to be exported against it. (e) The Authorization holder is required to file bond with 100% Bank Guarantee with the Customs prior to commencement of import of capital goods. Certain categories of exporters get benefit of exemptions from Bank Guarantee in terms of the Circular No. 58/2004-Cus dated 21-10-2004 as amended last by 15/2014-Customs dated 18.12.2014. Normally, the CG imported are subject to actual user condition and the goods imported cannot be transferred or sold, etc till the fulfillment of EO. (f) Third party exports are permitted with respect to exported goods manufactured by the authorisation holder and conditions (para 5.04 of FTP 2015-20 read with 5.10 of HBP 2015-20) have been specified to better ensure this aspect. (g) Installation Certificates (ICs) for capital goods are permitted to be obtained from jurisdictional Central Excise or independent Chartered Engineer. In the latter case, a registered unit would send copy of IC to the jurisdictional Central Excise office. Capital goods may be installed at supporting manufacturer's premises if prior to such installation the latter's details are endorsed on the authorization by Regional Authority, who would intimate the change to jurisdictional Central Excise offices and the Customs where authorisation is registered in terms of para 5.02 of FTP 2015-20. (h) The EPCG Authorization holder is required to indicate the EPCG Authorization No./date on the shipping bill/invoice (in case of deemed exports). After fulfillment of specified EO, relevant documents are to be submitted to Regional Authority for obtaining EODC. This is taken into account by Customs authority at port of registration for purposes of redemption of bond/Bank Guarantee, subject to prescribed checks including intelligence based checks. (i) The export obligation is lower by 25% when capital goods are sourced indigenously. This is implemented by Regional Authorities. (j) The zero duty EPCG scheme under FTP 2015-20 is not available to exporters, who avail in that year, the benefit of SHIS; the provision is not available that up to 50% of the EO may be fulfilled by export of other goods manufactured or service(s) provided by the importer or his group company or managed hotel; the import of cars, etc. as commercially registered tourist vehicles is not permitted under Zero duty EPCG scheme. (k) The EPCG authorisation for annual requirement, the provisions for technological up-gradation and for transfer of EPCG capital goods to group companies in certain cases/sectors are discontinued in FTP 2015-20. [Refer Notification No.16/2015- Cus., dated 1-4-2015] 9. Post Export EPCG Duty Credit Scrip Scheme: 9.1 Under the FTP 2015-20, there is one Post Export EPCG Duty Credit Scrip Scheme. The duty credit in these scrips is a duty remission computed based on the basic customs duty paid on capital goods which had been imported on payment in cash of all applicable duties of customs in cash. Subject to installation and use of the imported capital goods, and other conditions including non-disposal of the capital goods till the date of last export, the duty remission may be granted by the Regional Authority in proportion to export obligation fulfilled within a fixed export obligation period. For this purpose, the export obligation is fixed (over and above average export obligation) at 85% of applicable specific export obligation, computed as if the duty paid imports had taken benefit of duty exemption (i.e. like the EPCG duty exemption scheme). As in the EPCG duty exemption scheme, if it is opted to not take the Cenvat credit of additional duty of customs paid, a lower export obligation would be fixed. There is no provision for extension of export obligation period in this scheme. 9.2 The duty remission is envisaged in proportion to export obligation fulfilled within a fixed export obligation period. Unlike the EPCG duty exemption scheme, the block obligation periods or their related proportions of export obligation fulfilment are not pre-defined. More than one duty credit scrip may issue (against the duty paid import of capital goods) based on the progressive fulfilment, during the specified export obligation period, of larger extents of the total export obligation. The meaning of 'export obligation' would apply individually to each duty credit scrip. Further, scrip issuance is akin to a discharge (or partial discharge) of the export obligation and is a remission by the DGFT of duty collected by the CBEC. Therefore, it is necessary that the Deputy/Assistant Commissioner of Customs satisfies himself of the compliance of the conditions of the notification (including fulfilment of export obligation, the quantum of duty remission in the duty credit scrip, the cumulative duty credits issued against imported duty paid capital goods) before allowing a duty credit scrip, issued under the Scheme, to be registered. 9.3 A sequential monitoring is required to be followed. This begins from registration of authorization (for importing capital goods) at the port of registration and is followed by import on payment of full applicable duties of customs in cash, endorsement of import particulars on authorization at time of clearance, making specified endorsements on bill(s) of entry at time of import, ensuring registration or installation/use of all imports under authorization before any scrip issues, registration of scrip at the same port, keeping cumulative record of duty credit scrips issued against an authorization, and making the indicated endorsements on documents at the time of registration. Moreover, the assessment Group which handles the authorization to import capital goods on payment of duty under this variant of the EPCG scheme would need to allow the registration of this duty credit scrip. The genuineness of the post export EPCG duty credit scrip should be verified. 9.5 Safeguards are provided in the Revenue notification relating to making endorsements on the documents. The option for not availing Cenvat Credit on capital goods imported under authorization and thereby enjoying a lower export obligation is to be backed by a certification. Jurisdictional Central Excise authority should ensure that certificate on non-availment of Cenvat Credit is issued expeditiously and normally within two weeks but not later than four weeks under all circumstances. Where the goods imported against an authorization are found defective or unfit for use and are re-exported back to the foreign supplier, if claim of duty drawback is made, no duty remission for the duty paid at the time of import on the re-exported goods is to be allowed. Further, after any duty remission in the form of duty credit scrip has been claimed in respect of the duty paid on the goods imported against an authorization, no duty drawback shall be allowed when the goods are re-exported and the export obligation is also not to be re-fixed. Indigenous sourcing of capital goods (referred to as invalidation procedure of import authorization) on payment of duty is not permitted in this scheme. 9.6 The post export EPCG duty credit scrip cannot be issued as a refund on the premise that duty was paid but a situation arose where there was no export obligation to be fulfilled. The Commissioners of Customs are also to exercise special checks so as to ensure that there is no misuse of the scheme and a proper record of all such checks is maintained. These shall include random verifications of the address shown on the authorizations (for import of capital goods) during their validity period in at least 10% of authorizations, random verifications of the certificates produced (not issued by central excise authorities) and of the declarations submitted with respect to Condition No. 14(e)(i) of the notification No.17/2015-Customs in at least 10% cases. These verifications should be made through the Commissioners of Central Excise. The central excise authorities should include, in their verification, a check of the periodical utility bills (containing the address) as one of the means enabling verification of installation/ operation/ authorization holder premises. The Commissioners are expected to exercise due diligence to prevent misuse. [Refer Circular No.10/2013-Cus., dated 6-3-2013] 9.7 The notification No.17/2015-Customs dated 1-4-2015 permits imports through debit of the customs duties in the Post Export EPCG Duty Credit Scrip. The Notification No.18/2015-Central Excise dated 1-4-2015 permits domestic procurement through debit of central excise duties. Apart from Drawback or CENVAT Credit of Additional Duty leviable under Section 3 of the CTA, 1975 or excise duty, the importer shall be entitled to avail of the drawback of the duty of Customs leviable under the first schedule to the Customs Tariff Act, 1975 against the amount debited in the Post EPCG Duty Credit scrip. 10. Certain general provisions relating to export promotion schemes: 10.1 Imports and exports under the Export Promotion schemes are restricted to the ports, airports, ICDs and LCSs, as specified in the respective Customs duty exemption notifications. However, these notifications empower the Commissioners of Customs to permit export/import under these schemes from any other place which has not been notified, on case to case basis by making suitable arrangements at such places. In addition, certain Foreign Post Offices or Courier Terminals are included as port of export for rewards on exports of goods. 10.2 Facility to execute a common bond for specified export promotion schemes like Advance Authorization/Duty Free Import Authorization and EPCG is permitted to authorization holders, subject to certain conditions. [Refer Circular No.11(A)/ 2011-Cus., dated 25-2-2011] 10.3 Facility for suo moto payment of customs duty in case of bona fide default in export obligation under the Advance/ EPCG authorisations is provided in procedure prescribed vide Circular No. 11/2015- Customs dated 01.04.2015. The para 4.50 and para 5.23 of HBP 2015-2020 refer to this facility. 11. Verification and Monitoring related to AA, DFIA and EPCG scheme: 11.1 The jurisdictional Commissioners of Customs are required to take action to monitor fulfillment of export obligation. Field formations are now also enabled to view in EDI the authorization-wise all India export details which would assist in identifying actionable cases under Advance Authorization and EPCG scheme. Commissioners are to put in place an institutional mechanism for periodical meetings with Regional Authorities to exchange intelligence, check misuse and pursue issues such as EO fulfillment status in cases where EO period has expired in that quarter/ previous quarter so that concerted action can be taken against the defaulters. Further, timely action in all cases of default is required to be initiated to safeguard revenue. The emphasis on timely action to safeguard revenue is evident from CBEC's Comprehensive MIS formats DGI - Cus 11 11A. 11.2 Apart from the prescribed checks in Board's extant instructions, the jurisdictional Commissioners of Customs are also to cause random verification for some of the authorizations issued under EPCG / DFIA / Advance Authorization schemes to check correctness of address on the Authorizations. Such verification is to be preferably through the Central Excise divisions. Similarly, the correctness of installation certificates issued by the Chartered Engineers is required to be verified on a random basis through Central Excise divisions. When address verifications or Installation Certificate verifications are requested by the Customs authorities in respect of EPCG authorizations, the Central Excise authorities should include, in their verification, a check of the periodical utility bills (containing the address) as one of the means enabling verification of installation/operation/ licensee premises. 11.3 To rule out fabricated export documents being used to show fulfillment of EO, the genuineness of shipping bills or bills of export not on Customs EDI (i.e. Manual) is to be expeditiously verified while registering a duty credit scrip orpost export EPCG duty remission scrip or processing EODC/redemption letters based on document purported to be of Customs non-EDI ports [Refer Circulars No.5/2010-Cus., dated 16-3-2010, No.25/2012 Cus., dated 6-9-2012, Instruction No.609/119/2010-DBK, dated 18-1-2011 and Circular No.14/2015-Cus., dated 20-4-2015] 12. Older valid export promotion schemes: 12.1 Duty Free Credit Entitlement (DFCE) Scheme was for status holders having incremental growth of more than 25% in FOB value of exports subject to a minimum export turnover of ₹ 25 Cr, which provided entitlement to duty credit @10% of the incremental growth in exports. The scrip and goods imported were subject to actual user condition. The scheme was implemented by Customs notification No.53/2003-Cus., dated 1-4-2003 and since replaced by Target Plus Scheme. 12.2 Target Plus Scheme (TPS) was introduced for the Star Export Houses w.e.f. 1-9-2004 and provided rewards in the form of duty free credit based on incremental export performance. Initially, the entitlement was5% to 15% of the incremental growth in exports, but later w.e.f. 1-4-2005, it was reduced to 5%. The scrip and goods imported are subject to actual user condition. Imports allowed were inputs, capital goods including spares, office equipment, professional equipment and office furniture. The scheme ended on1-4-2006. The Customs notification was No.32/2005-Cus., dated 8- 4-2005. 12.3 The Duty Free Replenishment Certificate (DFRC) scheme permitted duty free import (exemption from only basic customs duty) of inputs which were used in the manufacture of export product on post-export basis as replenishment. The DFRC authorisation were issued with a minimum value addition of 25% and only in respect of export products covered under the SION notified by DGFT. The DFRC authorization and /or material(s) imported against it were freely transferable. The scheme ended on 1-5-2006. The Customs notifications were No.90/2004-Cus., dated 10-9-2004 andNo.48/2000-Cus., dated 25-4-2000. 12.4 Duty Entitlement Pass Book (DEPB) scheme was a duty remission scheme in operation from 1-4-1997 to 30-9-2011 which provided credit entitlement against exports on the basis of DEPB rates notified by DGFT. The scrip and/or items imported against it were freely transferable. Duty Drawback is not allowed on exports under DEPB scheme. However, if CVD is paid in cash on imported inputs, or where indigenous duty paid inputs, not specified in SION, are used in the manufacture of export product, the brand rate of duty drawback is admissible provided CENVAT credit in respect of such duty incidence is not availed. The scheme was implemented vide Notification No.97/2009-Cus., dated 11-9-2009. [Refer Circular No.39/2001-Cus., dated 6-7-2001]