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DUTY EXEMPTION & REMISSION SCHEMES

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 largely compatible with the provisions of the Agreement on Subsidies and Countervailing Measures (ASCM) of the WTO.

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(A) Duty exemption schemes: Under duty exemption schemes, exporter can import the inputs duty free 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: Under duty remission scheme, duty on inputs and input services used in the export product is either replenished or remitted. Duty Drawback (DBK) Scheme is designed for this purpose. Duty remission is also granted under central excise law, through CENVAT credit scheme and rules 18 and 19 of Central Excise Rules, 2002.

Duty exemption schemes :

1. ADVANCE AUTHORIZATION SCHEME

  •  Under advance authorization scheme, INPUTS which are used in the export product can be imported without payment of customs duty.
  •  The goods imported are exempt from basic customs duty, additional customs duty, education cess, anti-dumping duty and safeguard duty, unless otherwise specified. The conditions for duty free imports against physical exports are provided in notification issued under the Customs law.
  •  Advance Authorisation shall be valid for 12 months from the date of issue of such Authorisation. Advance Authorisation for Deemed Export shall be co-terminus with contracted duration of project execution or 12 months from the date of issue of Authorisation, whichever is more.
  •  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.

(i) Advance Authorisation on basis of SION: Advance Authorization is issued for inputs in relation to the resultant product on the basis of SION. If SION for a particular item is not fixed, Advance Authorisation can be issued by RA based on self declaration by applicant, except certain specified products.

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.

(ii) 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.

(iii) 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 off product manufactured out of duty free inputs once export obligation is completed.

In case where CENVAT credit facility on inputs has been availed for the exported goods, even after completion of export obligation, the goods imported against Advance Authorization shall be utilized only in the manufacture of dutiable goods whether within the same factory or outside (by a supporting manufacturer).

Waste/scrap arising out of manufacturing process, as allowed, can be disposed off on payment of applicable duty even before fulfillment of export obligation.

(iv) Who are eligible for advance authorization: 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

(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.

(v) 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.

(vi) 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 Authorisation. The 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.

(vii) Annual Advance authorization: Advance Authorization can be issued for annual requirement also. Such authorization shall be issued for items specified in SION and is not available on self-declaration basis.

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.

(viii) 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 Units/ supplies to Developers/ Co-developers, irrespective of currency of realization, would also be covered.

Minimum value addition required to be achieved under Advance Authorization is 15%, 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%.

(ix) Admissibility of drawback: Drawback as per rate determined and fixed by Central Excise authority shall be available for duty paid inputs (both imported and indigenous) used in the export product.

2. DUTY FREE IMPORT AUTHORIZATION (DFIA) SCHEME

  •  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.
  •  The goods imported are exempt ONLY from basic customs duty. Additional customs duty/excise duty, being not exempt, shall be adjusted as CENVAT credit as per DoR rules.
  •  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.
  •  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 Úser’ 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. However, 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.

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 Units/ supplies to 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 Central Excise authority shall be available for duty paid inputs, whether imported or indigenous, used in the export product.

Duty remission schemes :

1. DUTY DRAWBACK (DBK) SCHEME

At present, this scheme is used to allow rebate of duties (central excise, customs and service tax) paid on inputs and input services used for exported final product. This scheme has been discussed in detail in Chapter-11-Duty Drawback.

2. DUTY REMISSION SCHEMES IN CENTRAL EXCISE LAW

Duty remission/exemption is also granted under central excise law, through CENVAT credit scheme and rules 18 and 19 of Central Excise Rules, 2002. These schemes are discussed in Section A: Central Excise.

Mohit Sharma
Mohit Sharma

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