9.

20 CUSTOMS & FTP

UNIT – II : BASIC CONCEPTS RELATING TO EXPORT

PROMOTION SCHEMES UNDER FTP

Export promotion schemes

Exports of a country play an important role in the economy. Government
always endeavors to encourage exports by introducing various export
promotion schemes. Consequently, there are various promotional measures
under FTP and other schemes operated under Ministry of Commerce through
various Export Promotion Councils.

1 STATUS HOLDERS
Status Holders is under Reward Scheme. Status Holders are business leaders
who have excelled in international trade and have successfully contributed to
country’s foreign trade. All exporters of goods, services and technology
having an import-export code (IEC) number shall be eligible for recognition as
a status holder. Status recognition depends upon export performance**.
An applicant shall be categorized as status holder upon achieving export
performance during current and previous three financial years*, as indicated
below:
*However, for Gems & Jewellery Sector, the performance during the current
and previous two financial years shall be considered for recognition as status
holder.

Export Performance
Status category [FOB/ FOR (as converted) Value ( in US $
million)) ]
One Star Export House 3
Two Star Export House 25
Three Star Export House 100
Four Star Export House 500
Five Star Export House 2,000

**Points which merit consideration while computing export

performance for grant of status:

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 FOREIGN TRADE POLICY 9.21

• Export performance will be counted on the basis of FOB value of export

earnings in free foreign currencies.
• For deemed export, FOR value of exports in Indian Rupees shall be
converted in US$ at the exchange rate notified by CBIC, as applicable on 1st
April of each Financial Year.
• For granting status, export performance is necessary in at least 2 out of 4
years
• Export performance of one IEC holder shall not be permitted to be
transferred to another IEC holder. Hence, calculation of exports performance
based on disclaimer shall not be allowed.
• Exports made on re-export basis shall not be counted for recognition.
• Export of items under authorization, including SCOMET items, would be
included for calculation of export performance.
• Export of items under authorization, including SCOMET items, would be
included for calculation of export performance.
• For calculating export performance for grant of One Star Export House
Status category, exports by IEC holders under the following categories shall
be granted double weightage:
 Micro, Small & Medium Enterprises (MSME) as defined in Micro, Small
& Medium Enterprises Development (MSMED) Act 2006
 Manufacturing units having ISO/BIS
 Units located in North Eastern States including Sikkim and Jammu &
Kashmir
 Units located in Agri Export Zones
Privileges of Status Holders: Status holders are granted certain benefits like:
(a) Authorisation and custom clearances for both imports and exports on self-
declaration basis.
(b) Fixation of Input Output Norms (SION) on priority i.e. within 60 days by
Norms Committee.
(c) Exemption from compulsory negotiation of documents through banks. The
remittance/ receipts, however, would continue to be received through
banking channels.
(d) Exemption from furnishing of Bank Guarantee in Schemes under FTP.

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 9.22 CUSTOMS & FTP

(e) Two Star Export Houses and above are permitted to establish export
warehouses.
(f) Manufacturers who are also status holders (Three Star/Four Star/Five Star)
will be enabled to self-certify their manufactured goods (as per their
IEM/IL/LOI) as originating from India with a view to qualify for preferential
treatment under different preferential trading agreements (PTA), Free Trade
Agreements (FTAs), Comprehensive Economic Cooperation Agreements
(CECA) and Comprehensive Economic Partnership Agreements (CEPA).
(g) Status holders shall be entitled to export freely exportable items (excluding
Gems and Jewellery, Articles of Gold and precious metals) on free of cost
basis for export promotion subject to a certain annual limit specified for
each sector separately.
Illustration 2
Two exporters namely, Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. have achieved
the status of Status Holders (One Star Export House) in the current financial
year. Both the exporters have been regularly exporting goods (other than Gems
and Jewellery) every year. What would have been the minimum export
performance of the two exporters to achieve such status?
Both the exporters want to establish export warehouses in accordance with the
applicable guidelines. What should be their export turnover to enable them to
establish export warehouses?
Answer
Status Holders are business leaders who have excelled in international trade
and have successfully contributed to country’s foreign trade. All exporters of
goods, services and technology having an import-export code (IEC) number
shall be eligible for recognition as a status holder. Status recognition depends
upon export performance**.
In order to be categorized as One Star Export House, an exporter needs to
achieve the export performance of 3 million US $ million [FOB/ FOR (as
converted)] during current and previous three financial years. Thus, export
performance of Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. would have been at
least 3 million US $ million [FOB/ FOR (as converted)] during current and
previous three financial years. For granting status, export performance is
necessary in at least 2 out of 4 years.

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 FOREIGN TRADE POLICY 9.23

Further, Two Star Export Houses and above are permitted to establish export
warehouses. Therefore, Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. can establish
export warehouses in India only if they achieve the status of Two Star Export
House and above. In order to achieve said status, export performance of the
exporters during current and previous three financial years should be as
indicated below:

Status Category Export Performance [FOB/FOR (as

converted value on us$ million

Two Star Export House 25

Three Star Export House 100

Four Star Export House 500

Five Star Export House 2,000

2. DUTY EXEMPTION & REMISSION SCHEMES

The Duty Exemption and Remission Schemes are the most important schemes
in the Foreign Trade Policy, because they are most widely utilized and are
completely compatible with the provisions of the Agreement on Subsidies and
Countervailing Measures (ASCM) of the WTO.

Duty benefits for inputs/raw-

materials

Remission of
Duty exemption Duty remission duties and taxes on
exported products

DFIA (Duty Free

Advance
Imports under Duty drawback
authorisation
Authorisation)

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 9.24 CUSTOMS & FTP

(A) Duty exemption schemes: Duty exemption schemes enable duty free
import of inputs required for export production.
The two duty exemption schemes are as follows: -
1. Advance Authorization Scheme
2. Duty Free Import Authorization Scheme (DFIA)
(B) Duty remission schemes: Duty Remission Scheme enables post export
replenishment / remission of duty on inputs used in export product. Duty
Drawback (DBK) Scheme is designed for this purpose.
(C) Scheme for Remission of duties and taxes on exported products
(RoDTEP)
With effect from 01.01.2021, Government has introduced a new scheme
for Remission of Duties and Taxes on Exported Products (RoDTEP) for
eligible export of goods.

A Duty exemption schemes

1. ADVANCE AUTHORIZATION SCHEME

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 FOREIGN TRADE POLICY 9.25

*12 months from date of issue of advance authorisation, unless otherwise

specifically provided or for deemed exports which may be co-terminus with
the project duration
**18 months from date of issue of advance authorisation, unless otherwise
specifically provided
♦ Under advance authorization scheme, INPUTS which are physically used/
incorporated in the export product can be imported without payment of
customs duty. IGST and GST Compensation Cess have been exempted upto
30.09.2021 on imports under Advance Authorisation for physical exports
(including exports to SEZ units) or deemed exports like supply of goods
against Advance Authorisation, capital goods against EPCG, supply of goods
to EOU/STP/EHTP etc.
♦ the goods imported are exempt from basic customs duty, additional
customs duty, education cess, anti-dumping duty, countervailing duty,
safeguard duty, transition product specific safeguard duty, wherever
applicable, unless otherwise specified. However, specified 2 deemed exports
are not exempted from payment of applicable anti-dumping duty and
safeguard duty. The conditions for duty free imports against physical
exports are provided in notification issued under the Customs law.
♦ Validity period for import of Advance Authorisation shall be 12 months
from the date of issue of Authorisation. Validity of Advance Authorisation
for deemed export supplies (as provided under Unit-5) shall be co-terminus
with contracted duration of project execution or 12 months from the date of
issue of Authorisation, whichever is later.
♦ Period of fulfillment of export obligation under Advance Authorization is 18
months from the date of issue of Authorization or as notified by DGFT.
♦ Exports proceeds shall be realized in freely convertible currency except
otherwise specified. Export to SEZ Units shall be taken into account for
discharge of export obligation provided payment is realised from Foreign
Currency Account of the SEZ unit. Export to SEZ Developers / Co-
developers can also be taken into account for discharge of export obligation
even if payment is realised in Indian Rupees.

2
Deemed exports specified for this purpose are Supply of capital goods against
EPCG authorisation and supply to goods to UN or international organisations for their
official use or supplied to projects financed by them.

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 9.26 CUSTOMS & FTP

(i) Items which can be imported duty free against advance authorization:
♦ Inputs, which are physically incorporated in export product (making
normal allowance for wastage)
♦ Fuel, oil, catalysts which are consumed/utilised to obtain export
product
♦ Mandatory spares which are required to be exported/supplied with
resultant product permitted upto 10% of CIF value of Authorization.
♦ Specified spices only when used for activities like crushing/ grinding
/sterilization/ manufacture of oils or oleoresins and not for simply
cleaning, grading, re-packing etc.
However, items reserved for imports by STEs cannot be imported
against advance authorization.
(ii) Eligibility: Advance Authorization can be issued either to a manufacturer
exporter or merchant exporter tied to supporting manufacturer(s).
Such Authorization can also be issued for:
(1) Physical exports(including export to SEZ) by Authorisation holder
(2) Intermediate supply
(3) Supplies made to specified categories of deemed exports
(4) Supply of ‘stores’ on board of foreign going vessel/aircraft provided
there is specific SION in respect of items supplied.
(iii) Value addition (VA):will be calculated as follows (except for gem and
jewellery sector)–
VA = [(A-B) x 100]/B
A = FOB value of export realised/FOR value of supply received.
B = CIF value of inputs covered by authorisation plus any other imported
materials used on which benefit of duty drawback (DBK) is claimed or
intended to be claimed.
If some items are supplied free of cost by foreign buyer, its notional value
will be added in the CIF value of import and FOB value of export for
purpose of calculating value addition. Exports to SEZ Developers/ Co-
developers, irrespective of currency of realization, would also be covered.

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 FOREIGN TRADE POLICY 9.27

Minimum value addition required to be achieved under Advance

Authorization is15%,except for physical exports for which payments are not
received in freely convertible currency and some other specified export
products. For tea, minimum value addition required shall be 50%.
(iv) Basis of issuance of Advance Authorisation (From quantity & value
perspective):
Advance Authorisation is issued for inputs in relation to resultant product,
on the following basis:
(A) As per Standard Input Output Norms (SION)💡💡 notified (available in
Hand Book of Procedures Vol-II)
or
(B) On the basis of self-declaration where no SION/adhoc norms have
been notified / published
Regional Authority may also issue Advance Authorisation where there
is no SION/valid Ad hoc Norms for an export product or where SION /
Ad hoc norms have been notified / published but exporter intends to
use additional inputs in the manufacturing process, based on self-
declaration by applicant. Wastage so claimed shall be subject to
wastage norms as decided by Norms Committee. The applicant shall
submit an undertaking to abide by decision of Norms Committee.
or
(C) Applicant specific prior fixation of norm by the Norms Committee.
or
(D) On the basis of self-ratification Scheme no SION/valid Adhoc Norms
for an export product
Where there is no SION/valid Adhoc Norms for an export product and
where SION has been notified but exporter intends to use additional
inputs in the manufacturing process, eligible exporter can apply for an
Advance Authorisation under this scheme on self-declaration and self-
ratification basis. RA may issue Advance Authorisations and such cases
need not be referred to Norms Committees for ratification of norms.
An exporter (manufacturer or merchant exporter) who holds AEO
(Authorised Economic Operator) Certificate under Common
Accreditation Programme of CBIC is eligible to opt for the scheme.

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 9.28 CUSTOMS & FTP

(v) Standard Input Output Norms (SION)are standard norms which define the
amount of input(s) required to manufacture unit of output for export
purpose. SION is notified by DGFT on basis of recommendation of Norms
Committee. Actual user condition for Advance Authorisation: Advance
Authorization and/ or materials imported thereunder will be with actual user
condition. It will not be transferable even after completion of export
obligation. However, Authorization holder will have an option to dispose of
product manufactured out of duty free inputs in DTA once export obligation
is completed.
Waste/scrap arising out of manufacturing process, as allowed, can be
disposed off on payment of applicable duty even before fulfilment of export
obligation.
(vi) Domestic sourcing of inputs: Holder of advance authorization has an
option to procure the materials/ inputs from indigenous manufacturer/STE
in lieu of direct import against Advance Release Order (ARO)/Invalidation
letter/ Back to Back Inland Letter of Credit. However, Advance Authorisation
holder may obtain supplies from EOU/EHTP/BTP/STP/SEZ units, without
obtaining ARO or Invalidation letter.
(vii) Maintenance of Proper Accounts for Authorisations :Every Advance
Authorisation holder shall maintain a true and proper account of
consumption and utilization of duty free imported / domestically procured
inputs against each authorisation as per the prescribed formats. Such
records shall be preserved for a period of at least three years from the date
of redemption. While doing export/supply, applicant shall indicate
authorisation number on the export documents.
(viii) Redemption/closure of authorisation: On completion of exports and
imports and other conditions as specified under the advance authorisation,
the Authorisation holder shall submit application in the prescribed form
alongwith supporting documents for redemption of the authorisation.

In such cases, if Export Obligation has been fulfilled, the Regional Authority
(RA)after duly verifying satisfaction of conditions applicable at the time of
issuance of authorisation, may issue EODC / Redemption Certificate to
Authorisation holder and forward a copy to the Customs authority at the
port of registration of Authorisation indicating the same details of proof of
fulfilment of EO.

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 FOREIGN TRADE POLICY 9.29

At the time of discharge of export obligation (issue of EODC) or at the time

of redemption, RA shall name/description of the input in the Authorisation
must match exactly with the name/description endorsed in the Shipping Bill.
Further, quantity of input to be allowed under Advance Authorisation shall
be in proportion to the quantity of input actually used/consumed in
production. If goods are imported against advance authorization but export
obligation is not fulfilled, duty and interest is payable.
Aforesaid provisions will also be applicable for supplies to SEZs and supplies
made under deemed exports.
(ix) Annual Advance authorization: Advance Authorization can be issued for
annual requirement also.
• Exporters having past export performance (in at least preceding two
financial years) shall be entitled for Advance Authorization for Annual
Requirement.
• Entitlement in terms of CIF value of imports shall be upto 300% of the
FOB value of physical export and/ or FOR value of deemed export in
preceding financial year or ` 1 crore, whichever is higher.
• Authorisation for Annual Requirement shall be issued only where
SIONs or valid Ad hoc norms exists on the date of issue of
Authorisation. It is not available on self-declaration basis.
(x) Admissibility of drawback: Drawback as per rate determined and fixed by
Customs authority shall be available for duty paid imported or indigenous
inputs used in the export product.
Description of an Advance Authorisation
An Advance Authorisation shall, inter-alia, specify:
 Names and description of items including specifications, where applicable,
to be imported and exported / supplied;
 Quantity of each item to be imported or wherever quantity cannot be
indicated, value of item shall be indicated. Wherever, quantity and value of
individual inputs is a limiting factor in SION, same shall be applicable;
 Aggregate CIF value of imports; and
 FOB / FOR value and quantity of exports / supplies.

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In addition to above, terms and conditions applicable on import and exportability

shall also be mentioned thereunder.
Illustration 3
Answer the following questions with reference to the provisions of Foreign Trade
Policy:
(i) FIintex Manufacturers manufactures goods by using imported inputs and
supplies the same under Aid Programme of the United Nations. The payment
for such supply is received in free foreign exchange. Can FIintex
Manufacturers seek Advance Authorization for the supplies made by it?
(ii) XYZ Ltd. has imported inputs without payment of duty under Advance
Authorization. The CIF value of such inputs is ` 10,00,000. The inputs are
processed and the final product is exported. The exports made by XYZ Ltd.
are subject to general rate of value addition prescribed under Advance
Authorization Scheme. No other input is being used by XYZ Ltd. in the
processing. What should be the minimum FOB value of the exports made by
the XYZ Ltd. as per the provisions of Advance Authorization?
(iii) ‘A’ has used some duty paid inputs in its export products. However, for the
rest of the inputs, he wants to apply for the Advance Authorization. Can he
do so? Explain.
Answer
(i) Supply to goods to UN or international organisations for their official use or
supplied to projects financed by them are ‘deemed exports’. Advance
Authorization can be issued for supplies made to such ‘deemed exports’.
Therefore, Flintex Manufacturers can seek an Advance Authorization for the
supplies made by it.
(ii) Advance Authorization necessitates exports with a minimum of 15% value
addition (VA).
VA = [(A – B)/B x 100]
A = FOB value of export realized, B = CIF value of inputs covered by
authorization.
Therefore, the minimum FOB value of the exports made by XYZ Ltd. should
be ` 11,50,000 to attain 15% VA.
(iii) Yes, ‘A’ can do so. In case of part duty free and part duty paid imports, both
Advance Authorization and drawback will be available. Drawback can be

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 FOREIGN TRADE POLICY 9.31

obtained for any duty paid material, whether imported or indigenous, used
in goods exported, as per drawback rate fixed by DoR, Ministry of Finance
(Directorate of Drawback). Advance Authorization can be used for
importing duty free material. Details about duty paid material must be
mentioned in the application for Advance Authorization. In such case, All
Industry Brand Rates may not be applicable. The manufacturer has to get
specific brand rate fixed from Commissioner for these exported goods.

2. DUTY FREE IMPORT AUTHORIZATION (DFIA) SCHEME

* Export shall be completed within 12 months from the date of online filing of application

♦ Provisions applicable to Advanced Authorisation are broadly applicable in

case of DFIA. However, these Authorizations shall be issued only for
products for which Standard Input and Output Norms (SION) have been
notified. Duty Free Import Authorisation (DFIA) is issued to allow duty free
import of inputs. In addition, import of oil and catalyst which is consumed /
utilised in the process of production of export product, may also be allowed.
♦ Goods imported under DFIA shall be exempted only from payment of Basic
Customs Duty (BCD). IGST will be payable on imports.
♦ DFIA shall be issued on post export basis for products for which SION have
been notified. Separate DFIA shall be issued for each SION and each port.

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 9.32 CUSTOMS & FTP

♦ The applicant shall file an online application to RA concerned before

starting exports under DFIA. Export shall be completed within 12 months
from the date of online filing of application and generation of file number.
While doing export/supply, applicant shall indicate file number on the
export documents.
♦ After completion of exports and realization of export proceeds, request for
issuance of transferable DFIA may be made to concerned RA within a period
of:
(a) 12 months from the date of export
or
(b) 6 months (or additional time allowed by RBI for realization) from the
date of realization of export proceeds,
whichever is later.
♦ RA shall issue transferable DFIA with a validity of 12 months from the
date of issue.
♦ Exports proceeds shall be realized in freely convertible currency except
otherwise specified.
(i) No DFIA for ‘Actual User’ condition inputs: No DFIA shall be issued for
an export product where SION prescribes ‘Actual User’ condition for any
input.
(ii) Domestic sourcing of inputs: Holder of DFIA has an option to procure the
materials/ inputs from indigenous manufacturer/STE in lieu of direct import
against Advance Release Order (ARO)/ Invalidation letter/ Back to Back
Inland Letter of Credit. DFIA holder may obtain supplies from
EOU/EHTP/BTP/STP/SEZ units, without obtaining ARO or Invalidation letter.
(iii) Conditions for redeeming authorisation: It is necessary to establish that
inputs actually used in manufacture of the export product should only be
imported under the authorization and inputs actually imported must be
used in the export product, for redeeming the DFIA. The name/description
of the input in the DFIA must match exactly with the name/description
endorsed in the shipping bill.
Further, quantity of input to be allowed under DFIA shall be in proportion to
the quantity of input actually used/ consumed in production.
If goods are imported against advance authorization but export obligation
is not fulfilled, duty and interest is payable.

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 FOREIGN TRADE POLICY 9.33

Aforesaid provisions will also be applicable for supplies to SEZs and supplies
made under deemed exports.
(iv) Value addition (VA):will be calculated as follows (except for gem and
jewellery sector)–
VA = [(A-B) x 100]/B
A = FOB value of export realised/FOR value of supply received.
B= CIF value of inputs covered by authorisation plus any other imported
materials used on which benefit of duty drawback (DBK) is claimed or
intended to be claimed.
If some items are supplied free of cost by foreign buyer, its notional value
will be added in the CIF value of import and FOB value of export for
purpose of calculating value addition. Exports to SEZ Developers/ Co-
developers, irrespective of currency of realization, would also be covered.
Minimum value addition required to be achieved under DFIA is 20%, except
for physical exports for which payments are not received in freely
convertible currency.
(v) Admissibility of drawback: Drawback as per rate determined and fixed by
Customs authority shall be available for duty paid imported or indigenous
inputs used in the export product.
Illustration 4
Discuss the key similarities and differences between Advance Authorization and
DFIA (Duty Free Import Authorization) schemes.
Answer
In both DFIA and Advance Authorization schemes, import of inputs, oil and
catalyst which are required for export products are permitted without payment
of customs duty.
Key differences between DFIA and Advance Authorisation schemes are as
follows -
(i) ‘Advance Authorisation’ is not transferable. DFIA is transferable after export
obligation is fulfilled.
(ii) Advance Authorisation scheme requires 15% value addition, while in case of
DFIA, minimum 20% value addition is required.

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(iii) Advance Authorisation scheme is available to gem and jewellery sector but
not DFIA.
(iv) DFIA cannot be issued where SION (Standard Input Output Norms)
prescribes actual user condition [as the material is transferable after
fulfilment of export obligation]. Advance Authorisation can be issued even
if SION for that product is not fixed. DFIA can be issued only if SION has
been fixed for that product to be exported.
(v) IGST has been exempted on imports under Advance Authorisation scheme
upto 30.09.2021, but there is no such exemption available if imports are
under DFIA scheme.

B Duty remission schemes

DUTY DRAWBACK (DBK)
 Under the duty drawback scheme, customs duty paid on inputs is given
back to the exporter of finished product by way of ‘duty drawback’. Section
75 of Customs Act, 1962 provide for drawback on materials used in
manufacture or processing of export product.
 It may be noted that duty drawback under section 75 is granted when
imported materials are used in the manufacture of goods which are then
exported, while duty drawback under section 74 is applicable when
imported goods are re-exported as it is, and article is easily identifiable.
 As per rule 2(a) of the Customs and Central Excise Duties Drawback Rules,
2017, “drawback” in relation to any goods manufactured in India and
exported, means the rebate of duty excluding IGST and Compensation Cess,
chargeable on any imported materials or excisable materials used in the
manufacture of such goods.
 It is important to note that the duty drawback is only of customs duty 3.
There is no duty drawback in respect of GST.

C Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP)

With effect from 01.01.2021, Government has introduced a new scheme for
Remission of Duties and Taxes on Exported Products (RoDTEP) for eligible
export of goods. RoDTEP scheme is based on the globally accepted principle
that taxes and duties should not be exported, and taxes and levies borne on
the exported products should be either exempted or remitted to exporters.

3
This scheme has been discussed in detail in Chapter-7: Duty Drawback

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 FOREIGN TRADE POLICY 9.35

This scheme provides for remission of the amount in the form of duty credit
scrip credited in an exporter’s ledger account with customs.
Objective of the Scheme:
The objective of the scheme is to refund, currently unrefunded:
(i) Duties/ taxes/ levies, at the Central, State & local level, borne on the
exported product, including prior stage cumulative indirect taxes on
goods & services used in production of the exported product, and
(ii) Such indirect duties/taxes/levies in respect of distribution of exported
products.
Salient features of the scheme:
 It seeks to refund to exporters the embedded Central, State and local
duties/taxes that were so far not being rebated/refunded.
 Duty credit is issued –
(a) in lieu of remission of any duty/tax/levy chargeable on any
material used in the manufacture/processing of goods or for
carrying out any operation on such goods in India that are
exported, where such duty/tax/levy is not
exempted/remitted/credited under any other Scheme;
(b) against export of notified goods under FTP.
Value of the said goods for calculation of duty credit to be allowed
under the scheme shall be the declared export FOB value of the said
goods or up to 1.5 times the market price of the said goods, whichever
is less.
 The refund in the form duty credits would be credited in the electronic
credit ledger in the customs automated account of the exporter.
 Such duty credit shall be used only to pay basic customs duty on
imported goods.
 The duty credit scrips are freely transferable, i.e. credits can be
transferred to other importers.
 The rebate under the scheme shall not be available in respect of duties
and taxes already exempted or remitted or credited.

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Eligibility for the scheme

All exporters of eligible RoDTEP export items are eligible for the scheme.
Reward under the scheme
Rebate would be granted to eligible exporters at a notified rate as a % of
FOB value with a value cap per unit of the eligible exported product,
wherever required, on export of items. However, for certain export items, a
fixed quantum of rebate amount per unit may also be notified.
Rebate would not be dependent on the realization of export proceeds at the
time of issue of rebate. However, rebate will be deemed never to have been
allowed in case of non-receipt of sale proceeds within time allowed under the
Foreign Exchange Management Act, 1999.
Ineligible supplies/ items/ categories under RoDTEP
Following shall not be taken into account for calculation of entitlement
under the scheme:

Export of imported goods in same or substantially the same form

Exports through trans-shipment, meaning thereby exports that are

originating in third country but trans-shipped through India

Export products which are subject to minimum export price or export duty

Products which are restricted/prohibited under FTP

Supplies of products manufactured by DTA units to SEZ/FTWZ units.

Products manufactured in EHTP and BTP

Goods which have been taken into use after manufacture

Exports for which the electronic documentation in ICEGATE EDI has not
been generated/ exports from non-EDI ports

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 FOREIGN TRADE POLICY 9.37

Products manufactured or exported availing the benefit of Notification

No. 32/1997 Cus. dated 01.04.1997 4

Deemed Exports

Products manufactured partly or wholly in a warehouse under section 65

of the Customs Act

Goods for which claim of duty credit is not filed in a shipping bill or bill of
export in the customs automated system

Products manufactured or exported in discharge of Inclusion of exports

EO against an AA/DFIA/Special AA issued under a made under these
duty exemption scheme of relevant FTP categories in RoDTEP
scheme will be
Products manufactured/exported by a unit licensed decided later.
as 100% EOU in terms of the provisions of FTP or
by any of the units situated in FTZ/EPZ/SEZ

[Notification No. 19/2015-2020 dated 17.08.2021 read with Notification No.

76/2021 Cus. (NT) dated 23.09.2021 and Press Release dated 17.08.2021]

3. EXPORT PROMOTION CAPITAL GOODS

SCHEME (EPCG)
 Export Promotion Capital Goods Scheme (EPCG) permits exporters to
import capital goods for pre-production, production and post-
production at zero customs duty or procure them indigenously without
paying duty in the prescribed manner. In return, exporter is under an
obligation to fulfill the export obligation.

4
Goods which are imported for execution of an export order placed on the importer by the
supplier of goods for jobbing are exempt from basic customs duty, IGST and GST
compensation cess subject to conditions specified therein.

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* Authorisation shall be valid for import for 18 months from the date of
issue of authorisation.
 Capital goods imported under EPCG Authorisation for physical exports
are also exempt from IGST and Compensation Cess upto 30.09.2021.
 Import under EPCG scheme shall be subject to an export obligation
equivalent to 6 times of duties, taxes and cess saved on capital goods to
be fulfilled in 6 years reckoned from the date of issue of authorization.
Authorisation shall be valid for 18 months from the date of issue of
Authorisation.
 Import of capital goods shall be subject to ‘Actual User’ condition till
export obligation is completed. After export obligation is completed,
capital goods can be sold or transferred.
 In case integrated tax and compensation cess are paid in cash on imports
under EPCG, incidence of the said integrated tax and compensation cess
would not be taken for computation of net duty saved provided, input
tax credit is not availed.
 Export proceeds shall be realized in freely convertible currency except for
deemed exports supplies under Chapter 7.Export to SEZ Units shall be
taken into account for discharge of export obligation provided payment
is realised from Foreign Currency Account of the SEZ unit. Export to SEZ

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 FOREIGN TRADE POLICY 9.39

Developers / Co-developers can also be taken into account for discharge

of export obligation even if payment is realised in Indian Rupees.
(i) Eligible exporters: Following are eligible for EPCG scheme:
♦ Manufacturer exporters with or without supporting manufacturer(s),
♦ Merchant exporters tied to supporting manufacturer(s), and
♦ Service providers including service providers designated as Common
Service Provider (CSP) subject to prescribed conditions.
(ii) Eligible capital goods:
 Capital Goods including capital goods in CKD/SKD condition
 Computer systems and software which are a part of the Capital Goods
being imported
 Spares, moulds, dies, jigs, fixtures, tools & refractories
 Catalysts for initial charge plus one subsequent charge
 Capital goods for Project Imports notified by CBIC.
(iii) Export Obligation: Export obligation means obligation to export product(s)
covered by Authorisation/permission in terms of quantity or value or both,
as may be prescribed/specified by Regional or competent authority.

Export obligation consists of average export obligation and specific

export obligation
Specific export obligation (Specific EO) under EPCG scheme is equivalent
to 6 times of duty saved on capital goods imported under EPCG scheme, to
be fulfilled in 6 years reckoned from Authorization issue-date. Specific EO is
over and above the Average EO.
Note: In case of direct imports, EO shall be reckoned with reference to
actual duty saved amount. In case of domestic sourcing, EO shall be
reckoned with reference to notional Customs duties saved on FOR value.
Average export obligation(Average EO) under EPCG scheme is the
average level of exports made by the applicant in the preceding 3 licensing
years for the same and similar products. It has to be achieved within the
overall EO period (including extended period unless otherwise specified).

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♦ Block-wise fulfilment of Export Obligation:

The Authorisation holder under the EPCG scheme shall, while
maintaining the average export obligation, fulfill the specific export
obligation over the prescribed block period in the following
proportions:

Period from the date of Minimum Export Obligation to

issue of Authorisation be fulfilled

Block of 1stto 4thyear 50%

Block of 5th& 6th year Balance EO

♦ Conditions applicable to the fulfilment of the Export

Obligation (EO):

EO shall be fulfilled by the authorisation holder through export of

goods which are manufactured by him or his supporting
manufacturer / services rendered by him, for which the EPCG
authorisation has been granted.

In case of indigenous sourcing of capital goods, specific EO shall be

25% less than the EO mentioned above, i.e. EO will be 4.5 times (75%
of 6 times) of duty saved on such goods procured.

Shipments under Advance Authorisation, DFIA, Drawback scheme, or

reward schemes; would also be counted for fulfilment of EO under
EPCG Scheme.

EO can also be fulfilled by the supply of Information Technology

Agreement (ITA-1) items to DTA, provided realization is in free
foreign exchange.

Both physical exports as well as specified deemed exports shall also

be counted towards fulfilment of export obligation.
(iv) Incentives for early fulfillment of export obligation
In cases where Authorization holder has fulfilled 75% or more of specific
export obligation and 100% of Average Export Obligation till date, if any, in
half or less than half the original export obligation period specified,

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remaining export obligation shall be condoned and the Authorization

redeemed.
(v) Monitoring of Export Obligation & Maintenance of Records
EPCG Authorisation holder shall submit to RA concerned by 30thApril of
every year, report on fulfilment of export obligation. Every EPCG
authorisation holder shall maintain, for a period of 2 years from date of
redemption, a true and proper account of exports/ supplies made and
services rendered towards fulfilment of export obligation.
While doing export/supply, applicant shall indicate authorisation number on
the export documents.
(vi) Redemption/closure of Authorisation
On completion of exports and imports and other conditions as specified
under the EPCG authorisation, the Authorisation holder shall submit
application in the prescribed form alongwith supporting documents for
redemption of the authorisation under the prescribed format.
On being satisfied, RA concerned shall issue a EODC / Redemption
Certificate to the EPCG authorisation holder and forward a copy to Customs
Authorities indicating the same details of proof of fulfilment of EO.
Aforesaid provisions will also be applicable for supplies to SEZs and supplies
made under deemed exports.
(vii) Post Export EPCG Duty Credit Scrip(s)
Under this scheme, capital goods are imported on full payment of
applicable duties in cash. Later, basic customs duty paid on Capital Goods is
remitted in the form of freely transferable duty credit scrip(s) [similar to the
Reward schemes discussed earlier].
Salient features of the schemes are as follows:-
♦ Specific EO shall be 85% of the applicable specific EO stipulated under
EPCG scheme. Average EO remains unchanged.
♦ Duty remission shall be in proportion to the EO fulfilled.
♦ These Duty Credit Scrip(s) can be utilized in the similar manner as the
scrips issued under reward schemes can be utilised.

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The computation of freely transferable Duty Credit Scrip(s) will be based on

basic Customs duty amount paid. All provisions of the existing EPCG
Scheme shall apply insofar as they are not inconsistent with this scheme.
(viii) Indigenous Sourcing of Capital Goods and benefits to Domestic
Supplier
A person holding an EPCG authorisation may source capital goods from a
domestic manufacturer. Such domestic manufacturer shall be eligible for
deemed export benefits under FTP and as may be provided under GST Rules
under the category of deemed exports. Such domestic sourcing shall also be
permitted from EOUs and these supplies shall be counted for purpose of
fulfilment of positive NFE by said EOU.
Description of an EPCG Authorisation
An EPCG Authorisation shall, inter-alia, specify:
 Names and description of items including specifications, where applicable,
to be imported and exported / supplied;
 Quantity of each item to be imported or value of the same
 Aggregate CIF value of imports; and
 FOB / FOR value and quantity of exports / supplies.
In addition to above, terms and conditions applicable on import and exportability
shall also be mentioned thereunder.
Illustration 5
XP Pvt. Ltd., a manufacturer, wants to import capital goods in CKD condition
from a foreign country and assemble the same in India. The import of the
capital goods will be under notified Project Imports. The capital goods will be
used for pre-production processes. The final products of XP Pvt. Ltd. would be
supplied in SEZ unit. XP Pvt. Ltd. wishes to sell the capital goods imported by it
as soon as the production process starts.
XP Pvt. Ltd. seeks your advice whether it can avail the benefit of EPCG Scheme
for importing the intended capital goods.
Note – Base your opinion on the facts given above assuming that all other
conditions required for being eligible to the EPCG Scheme are fulfilled in the
above case.

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 FOREIGN TRADE POLICY 9.43

Answer
Export Promotion Capital Goods Scheme (EPCG) permits exporters to import
capital goods at zero customs duty or procure them indigenously without
paying duty in prescribed manner.
In return, exporter is under an obligation to fulfill the export obligation.
Export obligation means obligation to export product(s) covered by
Authorisation/permission in terms of quantity or value or both, as may be
prescribed/specified by Regional or competent authority. Exports to SEZ unit
will be considered for discharge of export obligation of EPCG Authorization,
irrespective of currency, however, payment must be received from the Foreign
Currency Account.
The authorisation 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 Authorization can also be issued for import of capital goods under
Scheme for Project Imports notified by CBIC. Export obligation for such EPCG
Authorizations would be 6 times of duty saved to be fulfilled in 6 years.
However, import of capital goods is subject to ‘Actual User’ condition till
export obligation is completed. Only after completion of export obligation,
capital goods can be sold or transferred.
Therefore, based on the above discussion, XP Pvt. Ltd. can import the capital
goods under EPCG Scheme. However, it has to make sure that it does not sell
the capital goods till the export obligation is completed.

4. EOU, EHTP, STP & BTP SCHEMES

Units under Export Oriented Unit (EOU) Scheme, Electronics Hardware
Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or
Bio-Technology Park (BTP) Scheme:
 export their entire production of goods and services (except
permissible sales in DTA), and
 can import inputs and capital goods without payment of customs
duty.

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STP/EHTP/BTP schemes are similar to EOU schemes and provisions are more/
less identical. EOU scheme is administered by Ministry of Commerce and
Industry, while STP/EHTP/BTP schemes are administered by their respective
administrative ministries.
Software Technology Park (STP) is set up for development of software exports.
Electronic Hardware Technology Park (EHTP) are for export of electronics
hardware and software. STP/EHTP Scheme is administered by Ministry of
Information Technology. Bio Technology Park (BTP) is established on the
recommendation of Department of Biotechnology.

(I) ELIGIBILITY
 Such units may be set up for manufacture of goods, including repair,
re-making, reconditioning, re-engineering, rendering of services,
development of software, agriculture.
 Trading units are not covered under these schemes.
 Only projects having a minimum investment of ` 1 crore in plant &
machinery shall be considered for establishment as EOUs. However,
this shall not apply to units in EHTP/ STP/ BTP, EOUs in Handicrafts/
Agriculture/ Floriculture/ Aquaculture/ Animal Husbandry/ Information
Technology Services, Brass Hardware and Handmade jewellery sectors.
Board of Approvals (BoA) may also allow establishment of EOUs with a
lower investment criteria.
(II) NET FOREIGN EXCHANGE EARNINGS
 EOU/ EHTP/ STP/ BTP unit must be a positive net foreign exchange
earner. However, a higher value addition is specified for some sectors.
 How to compute NFE earnings?: NFE Earnings shall be calculated
cumulatively in blocks of 5 years, starting from commencement of
production.
In case unit is not able to achieve NFE due to:
(i) prohibition/ restriction imposed on export of any product, 5 years
block period may be extended suitably by BoA.
(ii) adverse market condition or any grounds of genuine hardship having
adverse impact on functioning of the unit, 5 year block is extendable
upto 1 year.

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Who monitors NFE?: Performance of EOU/ EHTP/ STP/ BTP units shall be
monitored by Units Approval Committee as per prescribed guidelines.
Which supplies to DTA can be counted for positive NFE?: Following
supplies effected from EOU/ EHTP/ STP/ BTP units to DTA (Domestic Tariff
Area) will be counted for fulfillment of positive NFE:
(a) Supplies in DTA to holders of Advance Authorisation/ Advance
Authorisation for annual requirement/ DFIA / EPCG Authorisation
subject to certain exceptions.
(b) Supplies affected in DTA against foreign exchange remittance received
from overseas.
(c) Supplies to other EOU/ EHTP/ STP/ BTP/ SEZ units, provided that such goods
are permissible for procurement in terms of relevant provisions of FTP.
(d) Supplies made to bonded warehouses set up under FTP and/ or under
section 65 of Customs Act and free trade and warehousing zones,
where payment is received in foreign exchange.
(e) Supplies 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 MoF.
(f) Supplies of Information Technology Agreement (ITA-1) items and
notified zero duty telecom/ electronics items.
(g) Supplies of items like tags, labels, printed bags, stickers, belts, buttons
or hangers to DTA unit for export.
(h) Supply of LPG produced in an EOU refinery to Public Sector domestic
oil companies for being supplied to household domestic consumers at
subsidized prices under the Public Distribution System (PDS) Kerosene
and Domestic LPG Subsidy Scheme, 2002, subject to specified
conditions.
(III) ENTITLEMENTS TO UNITS UNDER EOU, EHTP, STP AND BTP SCHEMES
(a) Entitlements for supplies from DTA
• Supplies from DTA to EOU/ EHTP/ STP/ BTP units will be
regarded as “deemed exports” and DTA supplier shall be
eligible for relevant entitlements for deemed exports, besides
discharge of export obligation, if any, on the supplier. The
refund of GST paid on such supply would be available to the

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supplier subject to specified conditions and documentations

under GST law.
• In addition, EOU / EHTP / STP / BTP units shall be entitled to
following:-
 Imported goods are exempt from basic customs duty.
Further, IGST and GST compensation cess is exempt upto
30.09.2021.
 Input Tax Credit of GST paid on inputs and capital goods.
(b) Other Entitlements
• Units will be allowed to retain 100% of its export earnings in the
EEFC account.
• Unit will not be required to furnish bank guarantee at the time
of import or going for job work in DTA, subject to fulfillment of
required conditions.
• 100% FDI investment permitted through automatic route similar
to SEZ units.
Under the GST law, IGST or CGST plus SGST will be payable by the
suppliers who make supplies to the EOU. The EOU will be eligible
to take Input Tax Credit of the said GST paid by its suppliers.
(IV) EXPORT AND IMPORT OF GOODS
Export : Following exports are permitted:
 all kinds of goods and services except items that are prohibited in
ITC(HS),
 Special Chemicals, Organisms, Materials, Equipment and Technologies
(SCOMET) subject to fulfillment of the conditions indicated in ITC (HS).
Import : Following imports are permitted:
1. Export promotion material upto a maximum value limit of 1.5% of FOB
value of previous years exports.
2. All types of goods, including capital goods, required for its activities,
from (i) DTA, (ii) bonded warehouses in DTA/ International
exhibition held in India, subject to ‘Actual User’ condition, provided
such goods are not prohibited items of import in the ITC (HS) subject
following conditions:

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(a) The imports and/ or procurement from bonded warehouse in

DTA/International exhibition held in India shall be without
payment of basic customs duty. Such imports and/ or
procurements shall be made without payment of integrated tax
and GST compensation cess upto 30.09.2021.
(b) The procurement of goods covered under GST from DTA would
be on payment of applicable GST and compensation cess. The
refund of GST paid on such supply from DTA to EOU would be
available to the supplier subject to such conditions and
documentations as specified under GST law.
Goods including capital goods (on a self-certification basis) required
for approved activity, free of cost or on loan/ lease from clients,
subject to ‘Actual User’ condition are permitted to be imported.
3. Certain specified goods from DTA for creating a central facility,
with/without payment of duty/ taxes as provided in point 2(a) and 2(b)
above.
4. Second hand capital goods, without any age limit, with/without
payment of duty/ taxes as provided in point 2(a) above.
Procurement and export of spares/ components, upto 5% of FOB value of
exports, may be allowed to same consignee/ buyer of the export article,
subject to the condition that it shall not count for NFE and direct tax
benefits.
(V) LEASING OF CAPITAL GOODS
 An EOU/EHTP/STP/BTP unit may, on the basis of a firm contract
between parties, source capital goods from a domestic/ foreign
leasing company with/without payment of duty/ taxes as provided in
point 2(a) and 2(b) of heading (IV) above. In such a case, EOU/EHTP
/STP / BTP unit and domestic/ foreign leasing company shall jointly
file documents to enable import/ procurement of capital goods.
 An EOU/ EHTP/ STP/ BTP unit may sell capital goods and lease back
the same from a Non Banking Financial Company (NBFC) subject to
fulfillment of specified conditions.

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(VI) INTER UNIT TRANSFER

 Transfer of manufactured goods from one EOU / EHTP / STP / BTP unit
to another EOU / EHTP / STP / BTP unit is allowed on payment of
applicable GST and compensation cess with prior intimation to
concerned Development Commissioners of the transferor and
transferee units as well as concerned Customs authorities, following
the prescribed procedure.
 Capital goods may be transferred or given on loan to other EOU/
EHTP/ STP/ BTP/ SEZ units, with prior intimation to concerned DC and
Customs authorities on payment of applicable GST and compensation
cess. Such transferred goods may also be returned by the second unit
to the original unit in case of rejection or for any reason on payment
of applicable GST and compensation cess.

Note: Goods supplied by one unit of EOU/ EHTP/ STP/ BTP to another
unit shall be on payment of applicable GST and compensation cess
following the prescribed procedure.

(VII) SALE OF UNUTILIZED MATERIAL

 In case an EOU/ EHTP/ STP/ BTP unit is unable to utilize goods
(including capital goods and spares that have become
obsolete/surplus) and services, imported or procured from DTA, it may
be
 transferred to another EOU/ EHTP/ STP/ BTP/ SEZ unit; or
 disposed off in DTA with intimation to Customs authorities on
payment of applicable duties and/ or taxes and compensation
cess. Further, exemption of basic customs duties availed, if any,
on the goods, at the time of import will also be payable and
submission of import Authorisation; or
 exported.
Such transfer from EOU/ EHTP/ STP/ BTP unit to another such unit
would be treated as import for receiving unit.
 In case of capital goods, benefit of depreciation, as applicable, will be
available in case of disposal in DTA only when the unit has achieved
positive NFE taking into consideration the depreciation allowed.

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 No duty shall be payable other than the applicable taxes under GST
laws in case capital goods, raw material, consumables, spares, goods
manufactured, processed or packaged, and scrap/ waste/ remnants/
rejects are destroyed within unit after intimation to Customs
authorities or destroyed outside unit with permission of Customs
authorities.
 Disposal of used packing material will be allowed on payment of duty
on transaction value.
(VIII) DTA SALE OF FINISHED PRODUCTS/ REJECTS/ WASTE/ SCRAP/
REMNANTS AND BY-PRODUCTS
Entire production of EOU/ EHTP/ STP/ BTP units must be exported.
However, the following are allowed as exceptions subject to the conditions
specified:
(1) Sale of goods in DTA:
 Units (other than gem and jewellery units) will be permitted to
sell finished goods manufactured by them which are freely
importable under FTP in DTA, subject to fulfilment of positive
NFE, on payment of applicable GST and compensation cess
along with reversal** of basic customs duty availed as
exemption, if any on the inputs utilized for the purpose of
manufacturing of such finished goods.
**on the basis of SION published by DGFT or norms approved by Norms
Committee of DGFT (when no SION is fixed)

 No DTA sale shall be permissible in respect of, pepper & pepper

products, marble and such other notified items as also to units
engaged in only packaging. Labelling, refrigeration,
pulverilasiton etc.
 Such DTA sale shall also be subject to refund of deemed export
benefits availed by the EOU/supplier as per FTP, on the goods
used for manufacture of the goods cleared into the DTA.
 An amount equal to Anti-Dumping duty under section 9A of the
Customs Tariff Act, 1975 leviable at the time of import, shall be
payable on the goods used for the purpose of manufacture or
processing of the goods cleared into DTA from the unit.

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(2) Services provided in DTA: For services(including software units), sale

in DTA shall also be permissible up to 50% of FOB value of exports
and/ or 50% of foreign exchange earned, where payment of such
services is received in foreign exchange.
(3) Sale of rejects in DTA: Rejects may be sold in DTA on payment of
applicable GST and compensation cess along with reversal of basic
customs duty availed as exemption on inputs on prior intimation to
Customs authorities. Sale of rejects upto 5% of FOB value of exports
shall not be subject to achievement of NFE.
(4) Sale of scrap/ waste/ remnants, arising out of production, in DTA:
Scrap/ waste/ remnants arising out of production process or in
connection therewith may be sold in DTA, as per SION notified under
Duty Exemption Scheme, on payment of applicable duties and/ or
taxes and compensation cess. Such sales of scrap/ waste/ remnants
shall not be subject to achievement of positive NFE.
Scrap/waste/remnants may also be exported.
In case scrap/ waste/ remnants are destroyed with permission of
Customs authorities, no duties/ taxes payable on same. However, the
expression “no duties/ taxes” shall not include applicable taxes and
cess under the GST laws.
(5) Sale of by-products in DTA: By-products may also be sold in DTA
subject to achievement of positive NFE, on payment of applicable GST
and compensation cess along with reversal of basic customs duty
availed as exemption on inputs.
(6) Procurement of spares / components, up to 2% of the value of
manufactured articles, cleared into DTA, during the preceding year,
may be allowed for supply to the same consignee / buyer for the
purpose of after-sale-service. The same can be cleared in DTA on
payment of applicable GST and compensation cess along with reversal
of basic customs duty availed as exemption on inputs.
(IX) EXPORT THROUGH OTHER EXPORTERS
An EOU/ EHTP/ STP/ BTP unit may export goods manufactured/ software
developed by it through another exporter or any other EOU/ EHTP/ STP/
SEZ unit subject to specified conditions.

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(X) EXIT FROM EOU SCHEME

With approval of DC, an EOU may opt out of scheme. Such exit shall be
subject to payment of applicable IGST/ CGST/ SGST/ UTGST and
compensation cess, if any, and industrial policy in force. If unit has not
achieved obligations, it shall also be liable to penalty at the time of exit.
(XI) CONVERSION
Existing DTA units may also apply for conversion into an EOU/ EHTP/ STP/
BTP unit. Existing EHTP / STP units, who have applied for conversion /
merger to EOU unit and vice-versa, can avail exemptions in duties and taxes
as applicable. Applications for conversion into an EOU / EHTP / STP / BTP
unit from existing DTA units, having an investment of ` 50 crores and above
in plant and machinery or exporting ` 50 crores and above annually, shall be
placed before BOA for a decision.

5. DEEMED EXPORTS
The objective of deemed exports is to ensure that the domestic suppliers are
not in disadvantageous position vis-à-vis foreign suppliers in terms of the
fiscal concessions. The underlying theory is that foreign exchange saved must
be treated at par with foreign exchange earned by placing Indian
manufacturers at par with foreign suppliers.
Deemed Exports for the purpose of this FTP
It refers to those transactions in which goods supplied do not leave country,
and payment for such supplies is received either in Indian rupees or in free
foreign exchange. Supply of goods as specified in FTP shall be regarded as
“Deemed Exports” provided goods are manufactured in India.
Deemed Exports for the purpose of GST
It would include only the supplies notified under section 147 of the CGST/SGST
Act, on the recommendations of the GST Council. The benefits of GST and
conditions applicable for such benefits would be as specified by the GST
Council and as per relevant rules and notification.
We will restrict our discussion to ‘Deemed exports for the purpose for FTP’ in
this chapter.
Deemed exports broadly cover three areas.
a. Supplies to domestic entities who can import their requirements duty free
or at reduced rates of duty.

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b. Supplies to projects/ purposes that involve international competitive

bidding.
c. Supplies to infrastructure projects of national importance.
(I) CATEGORIES OF SUPPLIES CONSIDERED AS ‘DEEMED EXPORT’

Supply by Supply by main/sub-contractors(s)

manufacturer

Supply of goods against Supply of goods to projects or turnkey contracts

Advance financed by multilateral or bilateral
Authorisation/Advance agencies/Funds notified by Department of
Authorisation for Annual Economic Affairs (DEA), under International
Requirement/ DFIA Competitive Bidding.

Supply of goods to units Supply of goods to any project where import is

located in EOU/ permitted at zero customs duty as per customs
STP/BTP/EHTP Notification No. 50/2017-Customs dated
30.6.2017, provided supply is made against
International Competitive Bidding.

Supply of capital goods Supply of goods to mega power projects against

against EPCG International Competitive Bidding (even if
authorisation customs duty on imports made by such project is
not zero). The ICB procedures should be
followed. Supplier is eligible for benefits as
specified. International Competitive Bidding (ICB)
is not mandatory for mega power projects if
requisite quantum of power has been tied up
through tariff based competitive bidding or if
project has been awarded through tariff based
competitive bidding.

Supply to goods to UN or international

organisations for their official use or supplied to
projects financed by them.

Supply of goods to nuclear projects through

competitive bidding (need not be international
competitive bidding).

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(II) BENEFITS FOR DEEMED EXPORTS

Deemed exports shall be eligible for any/ all of following benefits in respect of
manufacture and supply of goods, qualifying as deemed exports, subject to
specified terms and conditions:
a. Advance Authorisation/ Advance Authorisation for Annual requirement/
DFIA
b. Deemed Export Drawback
c. Refund of terminal excise duty for excisable goods mentioned in Schedule 4
of Central Excise Act 1944 provided the supply is eligible under that
category of deemed exports and there is no exemption
The refund of drawback in the form of basic customs duty of the inputs
used in manufacture and supply under the said category shall be given on
brand rate basis upon submission of documents evidencing actual payment
of basic custom duties. Refund of drawback on the inputs used in
manufacture and supply under the deemed exports category can be claimed
on 'All Industry Rate' of Duty Drawback Schedule notified by Department
of Revenue from time to time provided no CENVAT credit has been availed
by supplier of goods on excisable inputs or on ‘Brand rate basis’ upon
submission of documents evidencing actual payment of basic custom
duties.
Thus, now the refund of drawback of duty paid on inputs is also allowed on
All Industry Rate basis.
(III) COMMON CONDITIONS FOR DEEMED EXPORT BENEFITS
(i) Supplies shall be made directly to entities listed in the point (I) above. Third
party supply shall not be eligible for benefits/exemption.
(ii) In all cases, supplies shall be made directly to the designated
Projects/Agencies/Units/ Advance Authorisation/ EPCG Authorisation
holder. Sub-contractors may, however, make supplies to main contractor
instead of supplying directly to designated Projects/ Agencies. Payments in
such cases shall be made to sub-contractor by main-contractor and not by
project Authority.
(iii) Supply of domestically manufactured goods by an Indian Sub-contractor to
any Indian or foreign main contractor, directly at the designated project’s/
Agency’s site, shall also be eligible for deemed export benefit provided
name of sub-contractor is indicated either originally or subsequently (but

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before the date of supply of such goods) in the main contract. In such cases
payment shall be made directly to sub-contractor by the Project Authority.

6. PENALTIES
In case any exporter or importer in the country violates any provision of the
Foreign Trade Policy or for that matter any other law in force, like GST, Central
Excise or Customs or Foreign Exchange, his IEC number can be cancelled by
the office of DGFT and thereupon, that exporter or importer would not be able
to transact any business in export or import. The premises where any violation
of the provisions of FTP has taken place or is expected to take place can be
searched and the suspicious material seized.
Violations would cover situations when import or export has been made by
unauthorized persons who are not legally allowed to carry out import or
export or when any person carries out or admits to carry out any import or
export in contravention of the basic FTP.

GLOSSARY (ACRONYMS)
Acronym Explanation
AA Advance Authorisation
ACC Assistant Commissioner of Customs
ANF Aayaat Niryaat Form
BG Bank Guarantee
BIFR Board of Industrial and Financial Reconstruction
BoA Board of Approval
BRC Bank Realisation Certificate
BTP Biotechnology Park
CBIC Central Board of Indirect Taxes and Customs
CCP Customs Clearance Permit
CEA Central Excise Authority
CEC Chartered Engineer Certificate
CIF Cost, Insurance & Freight
CVD Countervailing Duty

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 FOREIGN TRADE POLICY 9.55

DC Development Commissioner
DFIA Duty Free Import Authorisation
DGCI&S Director General, Commercial Intelligence & Statistics.
DGFT Director General of Foreign Trade
DoR Department of Revenue
DTA Domestic Tariff Area
EDI Electronic Data Interchange
EEFC Exchange Earners’ Foreign Currency
EFC Exim Facilitation Committee
EFT Electronic Fund Transfer
EH Export House
EHTP Electronic Hardware Technology Park
EIC Export Inspection Council
EO Export Obligation
EOP Export Obligation Period
EOU Export Oriented Unit
EPC Export Promotion Council
EPCG Export Promotion Capital Goods
FDI Foreign Direct Investment
FIEO Federation of Indian Export Organisation
FOB Free On Board
FT (D&R) Act Foreign Trade (Development & Regulation) Act, 1992
FTP Foreign Trade Policy
GATS General Agreement on Trade in Services
ICD Inland Container Depot
IEC Importer Exporter Code
ISO International Standards Organisation
ITC(HS) Indian Trade Classification (Harmonised System)

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 9.56 CUSTOMS & FTP

Classification for Export & Import Items

ITPO India Trade Promotion Organisation
LoC Line of Credit
LoI Letter of Intent
LoP Letter of Permit
LUT Legal Undertaking
MEA Ministry of External Affairs
MoD Ministry of Defence
MoF Ministry of Finance
NC Norms Committee
NFE Net Foreign Exchange
NOC No Objection Certificate
PSU Public Sector Undertaking
R&D Research and Development
RA Regional Authority
RBI Reserve Bank of India
RCMC Registration-cum-Membership Certificate
RoSCTL Rebate of Centre & State Levies
RoDTEP Remission of Duties & Taxes on Export Product
S/B Shipping Bill
SEZ Special Economic Zone
SION Standard Input Output Norms
SSI Small Scale Industry
STE State Trading Enterprise
STP Software Technology Park
TEE Towns of Export Excellence
VA Value Addition

LIST OF WEBSITES TO BE REFERRED

1 www.dgft.gov.in
2 www.icegate.gov.in
3 www.cbic.gov.in

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 FOREIGN TRADE POLICY 9.57

TEST YOUR KNOWLEDGE

1. Monotype traders wants to enter into export contracts with various customers.
It intends to understand the currency denomination while entering into
contract with them and seeks your advice as to how it should ensure
compliance.
2. Jigsaw Puzzle has imported inputs, having CIF value of ` 25,00,000 without
payment of duty under Advance Authorisation. Inputs are supplied free of cost
valued at ` 5,00,000 to meet eventualities of quality issues arising during
manufacture. On manufacturing, the products are supplied to SEZ units and
realisation is in Indian currency through regular current account.
Jigsaw Puzzle wants to know whether it is entitled to Advance Authorisation
scheme and what should be the minimum value addition. And you are
required to compute FOR value of supplies to SEZ.
Jigsaw Puzzle has manufactured and supplied goods against EPCG
authorisation to their customer. Jigsaw Corporation who are setting up a new
unit for exports. The payment for such supply is received in Indian currency.
Can Advance Authorization be denied as payment has not been received in
free foreign exchange?
3. What do you understand by the term ‘Foreign Trade Policy’ (FTP)? Which is
the governing legislation for FTP? Which Government authorities administer
FTP in India?
4. Briefly explain as to how FTP is linked with customs laws.
5. Enumerate the various matters in respect of which policies and regulations
are framed under FTP.
6. With reference to the provisions of FTP 2015-2020, discuss giving reasons
whether the following statements are true or false:
(i) If any doubt arises in respect of interpretation of any provision of FTP,
the said doubt should be forwarded to CBIC, whose decision thereon
would be final and binding.
(ii) Authorization once claimed by an importer cannot be refused by DGFT.
(iii) IEC is a unique 12 digit PAN based alphanumeric code allotted to a
person for undertaking any export/ import activities.

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(iv) Waste generated during manufacture in an SEZ Unit can be freely disposed
in DTA on payment of applicable customs duty, without any authorization.
7. Mr. A has brought a laptop from USA with him. Such laptop has been used by
Mr. B - the seller for few months there. Mr. A contends that he can freely import
such laptop as baggage without any restriction/ authorization. Examine the
correctness of Mr. A’s claim in the light of the provisions of FTP 2015-2020.
8. State in brief policy for import of samples.
9. State salient aspects of Advance authorisation for annual requirements to exporters.
10. Explain salient features of post export EPCG scheme.
11. With reference to the provisions relating to EOU, EHTP, STP, BTP & SEZ
Schemes as contained in FTP, answer the following questions:
(i) A unit intending to trade in handicrafts wants to set up an EOU. Is it
allowed?
(ii) An EOU has started production after 4 years 10 months from the date of
grant of Letter of Permission (LoP)/ Letter of Intent (LoI). Is it correct?
(iii) A EOU wants to import a second hand capital goods which is prohibited
under ITC (HS). Can it do so?
12. List some supplies which are ‘deemed exports’ for purpose of benefits under
Foreign Trade Policy 2015-2020.
13 What are the key features of Advance Authorization Scheme? Enlist the items
which can be and which cannot be imported against Advance Authorization.
14. Discuss the benefits granted under FTP to Status Holders.
15. Explain the significant features of EPCG Scheme. Which type of capital goods
cannot be imported under such Scheme?
16. Write short notes on the following with reference to the provisions relating to
EOU/EHTP/STP/BTP as contained in the FTP:
(i) Entitlement for supplies from DTA
(ii) Inter-unit transfer
(iii) Sale of unutilized material
(iv) Replacement/repair of imported/indigenous goods
(v) Exit from EOU Scheme

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 FOREIGN TRADE POLICY 9.59

17. What is ‘deemed exports’? Which type of supplies are regarded as deemed
exports?

ANSWERS/ HINTS
1. Monotype Traders can denominate all export contracts and invoices either
in freely convertible currency or Indian rupees but export proceeds sh1.ould
be realised in freely convertible currency.
However, export proceeds against specific exports may also be realized in
rupees, provided it is through a freely convertible Vostro account of a non-
resident bank situated in any country other than a member country of Asian
Clearing Union (ACU) or Nepal or Bhutan.
Additionally, rupee payment through Vostro account must be against
payment in free foreign currency by buyer in his non-resident bank account.
Contracts for which payments are received through ACU shall be
denominated in ACU Dollar. Export contracts and invoices can be
denominated in Indian rupees against EXIM Bank/ Government of India line
of credit.
2. Advance authorisation (AA) can be issued for supplies made to SEZ units (as
supplies made to SEZ units are considered as equivalent to physical
exports). The minimum value addition required to be achieved under AA is
15%. The FOR value of supplies made to SEZ units is computed as under:
Value addition = (FOR value of supply received – CIF value of inputs/CIF
value of inputs) x 100
Notional value of free of cost inputs supplied by foreign buyer needs to be
added to the CIF value of imported inputs to compute FOR value of the
supplies made to SEZ units.
FOR value of supplies made to SEZ units (after adding minimum 15% value
addition) = 30,00,000 x 115% = ` 34,50,000
Jigsaw Puzzles will, however, be not eligible for AA as the payment from SEZ
unit is not realised from its Foreign Currency Account.

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Supply of goods to against EPCG Authorisation is a deemed export eligible

for grant of AA. However in this case, AA can also be issued when the
payment for such deemed exports is realised in free foreign exchange.
3. Foreign Trade Policy is a set of guidelines or instructions issued by the
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, encouraging foreign trade and
creating favorable balance of payments position.

In India, Ministry of Commerce and Industry governs the affairs relating to

the promotion and regulation of foreign trade. The main legislation
concerning foreign trade is the Foreign Trade (Development and
Regulation) Act, 1992 FT (D&R) Act.
In exercise of the powers conferred by the FT (D&R) Act, the Union Ministry
of Commerce and Industry, Government of India announces the integrated
Foreign Trade Policy (FTP) in every five years with certain underlined
objectives. This policy is generally updated every year in April, in addition
to changes that are made throughout the year.
The FTP is formulated, controlled and supervised by the office of the
Director General of Foreign Trade (DGFT), an attached office of the Ministry
of Commerce & Industry, Government of India. DGFT has several offices in
various parts of the country which work on the basis of the policy formed by
the headquarters at Delhi.
Though the FTP is formulated by DGFT, it is administered in close
coordination with other agencies. Other important authorities dealing with
FTP are:
(i) Central Board of Indirect Taxes and Customs (CBIC)
(ii) Reserve Bank of India (RBI)
(iii) State VAT Departments
4. The Foreign Trade Policy is closely knit with the Customs laws of India.
However, the policy provisions per-se do not override tax laws. The
exemptions extended by FTP are given effect to by issue of notifications
under respective tax laws (e.g., IGST Act, CGST Act, SGST/UTGST Act,

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 FOREIGN TRADE POLICY 9.61

Customs Tariff Act, 1975, Central Excise Act, 1944, Customs Act, 1962 etc.).
Thus, actual benefit of the exemption depends on the language of
exemption notifications issued by the CBIC.
In most of the cases the exemption notifications refer to policy provisions
for detailed conditions. Ministry of Finance/ Tax Authorities cannot
question the decision of authorities under the Ministry of Commerce (so far
as the issue of authorization etc. is concerned).
Decision of Director General of Foreign Trade (DGFT) is final and binding in
respect of (a) Interpretation of any provision of foreign trade policy or
provision of Handbook of Procedures, Appendices, AayatNiryat Forms (b)
Classification of any item in ITC(HS).
5. Following issues are covered under FTP 2015-2020 -
♦ General provisions regarding import and export of goods – Chapter 2
of FTP 2015-2020.

♦ Duty Exemption and Remission Schemes [Advance Authorisation, DFIA

and Duty Drawback Scheme and duty remissions schemes under GST
law] to enable exporters to import inputs without payment of customs
duty – Chapter 4 of FTP 2015-2020.
♦ Export Promotion Capital Goods (EPCG) scheme [to obtain capital
goods without payment of customs duty] – Chapter 5 of FTP 2015-
2020.
♦ EOU/EHTP/STP and BTP schemes – Chapter 6 of FTP 2015-2020.
♦ Deemed Exports – Chapter 7 of FTP 2015-2020.

♦ Quality Complaints and Trade Disputes – Chapter 8 of FTP 2015-2020.

Policy in respect of Special Economic Zones [SEZ] is contained in SEZ Act,
2005 and Rules.
6. (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.

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(ii) False. No person may claim an Authorization as a right and DGFT shall
have power to refuse to grant or renew the same in accordance with
provisions of FT(D&R) Act, rules made thereunder and FTP.
(iii) False. IEC is a unique 10-digit code allotted to a person for
undertaking export/ import activities.

(iv) True. Any waste or scrap or remnant including any form of metallic
waste & scrap generated during manufacturing or processing
activities of an SEZ Unit/ Developer/ Co-developer are allowed to be
disposed in DTA freely, without any authorization, subject to payment
of applicable customs duty.
7. Import of one laptop computer (notebook computer) as baggage is exempt
from whole of the customs duty. Further, Foreign Trade Policy 2015-2020
provides that import of second hand laptop requires authorization.
In view of above, Mr. A’s claim is not correct as second hand laptops can be
imported only against an authorization.
8. No authorisation is required for import of bona fide technical and trade
samples. These are importable freely. Samples upto ` 3,00,000 can be
imported by all exporters without duty.
Authorisation for import of samples is required only in case of vegetable
seeds, bees and new drugs. Samples of tea upto ` 2,000 (CIF) per
consignment will be allowed without authorization.
9. Annual Advance authorisation would be issued to exporters having past
export performance for at least two financial years, to enable them to
import the inputs required by them on annual basis.
Advance authorization for Annual Basis can be only on basis of prescribed
manner and not on basis of ad hoc norms.

Annual Advance Authorisation in terms of CIF value of imports will be

granted upto 300% of FOB value of physical exports in preceding financial
year and/or FOR value of deemed exports in preceding year or ` 1 crore,
whichever is higher.
10. In EPCG scheme, first capital goods are imported without payment of
customs duty and then export obligation is fulfilled.

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In case of post export EPCG scheme, the capital goods are imported on
full payment of applicable duties in cash. Later, basic customs duty paid
on Capital Goods shall be remitted in the form of freely transferable duty
credit scrips. Capital goods imported under EPCG Authorisation for
physical exports are also exempt from IGST and Compensation Cess
upto 30.09.2021.
In case integrated tax and compensation cess are paid in cash on imports
under EPCG, incidence of the said integrated tax and compensation cess
would not be taken for computation of net duty saved provided input tax
credit is not availed.
These Duty Credit Scrips can be used for payment of applicable custom
duties for imports. All other provisions of EPCG Scheme apply to post
export EPCG scheme also.
Specific Export Obligation under this Scheme shall be 85% of the applicable
specific EO [6 times of duties, taxes and cess saved on capital goods
imported under EPCG scheme to be fulfilled in 6 years reckoned from
authorization issue date]. Average EO remains unchanged.
Duty remission shall be in proportion to the Export Obligation fulfilled.
The advantage of the scheme is that the exporter does not have any specific
export obligation when he imports capital goods on payment of full
customs duty. Later, he gets remission on the basis of exports made by him.
11. (i) No. Units undertaking to export their entire production of goods and
services (except permissible sales in DTA), may be set up under the
Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology
Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-
Technology Park (BTP) Scheme for manufacture of goods, including
repair, re- making, reconditioning, re-engineering and rendering of
services. Trading units are not covered under these schemes.
(ii) No. EOU/ BTP/ EHTP/ STPs should start production within 2 years
from the date of grant of Letter of Permission (LoP)/ Letter of Intent
(LoI). In other words, LoP/ LoI have an initial validity of 2 years, by
which time unit should have commenced production. Its validity may
be extended further up to 2 years by competent authority. However,

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 9.64 CUSTOMS & FTP

proposals for extension beyond four years shall be considered in

exceptional circumstances, on a case to case basis by BoA.

(iii) No. Though an EOU is permitted to import duty free second hand
capital goods, without any age limit, it cannot import capital goods
that are prohibited items of import in the ITC(HS).

12. As per FTP 2015-2020, following are treated as deemed exports:

♦ Supplies against Advance Authorisation/DFIA
♦ Supplies to EOU/STP/EHTP/BTP

♦ Supplies against EPCG authorization

♦ Supply of marine freight containers by 100% EOU
♦ Supplies to projects against International Competitive Bidding
♦ Supplies to projects where imports permitted at zero customs duty
♦ Supply to mega power projects
♦ Supplies to UN or International Organizations for their official use.

♦ Supplies to nuclear projects

13. Refer para 2 of Unit II
14. Refer para 1 of Unit II
15. Refer para 3 of Unit II
16. Refer para 4 of Unit II
17. Refer para 5 of Unit II

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