BACKGROUND
In October 2019, based on a complaint filed by the US, the World Trade Organization (WTO) panel report ruled that India’s export subsidy schemes flouted its guidelines as the country’s Gross National Income (GNI) had exceeded the per capita USD 1000 annual threshold above which members were banned from subsidizing its exports. The ruling held that India should do away with benefits granted under the contentious schemes such as Merchandise Export from India Scheme (MEIS), Export Oriented Unit (EOU) /Electronics and Hardware Technology Park (EHTP), Export Promotion of Capital Goods (EPCG), Duty-Free Import Scheme (DFIS) and Special Economic Zone (SEZ).
The MEIS and the SEIS scheme benefits as opposed to the other benefits referred supra needs to be seen in the context that the two benefits are offered as an incentive over and above or in fact leveraging the competitiveness of the exporters, be it goods or services. It is also pertinent to note here that the MEIS Scheme is practically obsolete at this point of time.
REMISSION OF DUTIES AND TAXES ON EXPORT PRODUCTS (RoDTEP)
Given the above background, in order to ensure that the Indian Exporter of goods can compete in the international market, Remission of Duties and Taxes on Export Products (hereinafter referred to as RoDTEP) was being introduced. RoDTEP aimed at reducing the post-production transactions cost for the exporters. This new scheme provided for much-needed boost to country’s exports. The objective of this scheme is to refund taxes or duties/ levies that were currently not exempted or refunded under any other mechanism.
GST and Custom duties on inputs that are used in the manufacture of products for exports are either exempted or are to be refunded. However, certain duties/taxes are outside the purview of GST as well as Customs historically are not refunded to the exporter and have been treated as a tax cost by India Inc.. The RoDTEP aimed to set out as an alternate to the existing two schemes namely Merchant Export from India Scheme (MEIS) and Rebate of State and Central Taxes and Levies (RoSCTL). It is pertinent to note that RoDTEP is extended only for exporter of goods.
Applicability of RoDTEP scheme
The scheme has been implemented with effect from January 1, 2021. The scheme provides a major boost as the benefit of the scheme is extended to all exporter of products from the effective date.
Any exporter who is desirous to avail the benefits under this scheme is required to provide a declaration stating his intention for each of the export item in the shipping bill/ bill of export. The RoDTEP shall be made applicable, subject to conditions and exemptions/exclusions if any. The rates for the same are yet to be notified, however, regardless of the date of such notification, the same shall be effective from the date of implementation of RoDTEP that is January 1, 2021.
Eligibility of Scheme
The scheme shall cover all the sectors with special preference to labour intensive sectors. Exporters be it manufacturer exporters as well as merchant exporters (Traders) are eligible under the RoDTEP scheme. Further, exporters who exports goods through e-commerce platforms are also eligible under the scheme. However, the scheme extends only to exporter of goods/products and does not include exporter of services. It is also pertinent to note here that while the MEIS Scheme has been withdrawn, the SEIS Scheme meant for service exporters are still in place.
A clarification in relation to SEZ unit was provided on January 15, 2021 by the SEZ division of the Department of Commerce, that an SEZ unit filing a shipping bill under RoDTEP shall do so by inserting the following in its shipping bill.
“Shipping Bill filed under RoDTEP scheme if applicable to SEZ unit & and subject to such conditions as prescribed including the product coverage”
No minimum turnover has been notified as yet to claim the benefit of RoDTEP.
Further, one of the conditions stated for claiming the benefits under the scheme is that the country of origin of goods shall be India. Thus, it is important to note that any re-exported products shall not be eligible to claim benefits under the scheme. Therefore, there would be a necessity to obtain Certificate of Origin at the time of exports in order to be entitled to the benefits as it gets announced.
Benefits under the Scheme
The scheme seeks to refund the central, state and local taxes and duties that were included in the cost for the exporters by way of a drawback scheme. Such refund/rebate will be credited to the exporter’s ledger account and can be utilized to pay Basic Custom Duty (BCD) on import of goods. Such credits are also available to be transferred to other importers. The exporters must exercise caution on whether GST shall be exigible in case of such transfer of RoDTEP scrip to another person. No clarity has been provided on such transfer as yet.
Declaration in the shipping bill/bill of export
It has been made mandatory for the exporters to indicate their intention of claiming or not claiming RoDTEP on the export items in their shipping bill. The claim has been made mandatory for the items having RITC codes under this scheme. RITC means the Revised Indian Trade Classification and refers to a compilation of codes for all the goods. It is essentially 8-digit code for establishing the rate of duty applicable on goods that are imported/exported. Therefore, the claim for all the products that are classified under RITC codes are mandated under the scheme. However, the rates are yet to be notified by the
Government and therefore, it has been mandated that such declaration to be provided for all items in the shipping bill with effect from January 1, 2021.
It is of vital importance that RoDTEP be specifically mentioned in the shipping bill. Any failure to do so will result in non- accrual of the benefits of the scheme to the exporter of goods. Since the country-of-origin criterion is also important and critical for the availment of the benefits, it would be well advised to obtain the COO certification when the export shipments are made. It is reiterated that goods that are imported into India and exported out of India are entitled for RoDTEP benefits.
Process for claiming scrips under the RoDTEP scheme
CONCLUSION
RoDTEP is a new age plan that has been launched as an alternate to the current MEIS scheme by adhering to the WTO norms and guidelines. RoDTEP as a scheme has been introduced to refund indirect taxes on inputs used in the manufacture of exported goods but hitherto treated as a cost and has come into effect from January 1, 2021. This scheme is restricted to exporter of goods and does to extend to exporter of services,
To claim/avail the various benefits under the scheme, all the exporters of goods are mandated to provide a declaration in the shipping bill with the requisite details. Unlike the existing schemes wherein 2-5% of the FOB value was given as an incentive, the current plan provides for an issuance of transferrable scrips as a percentage of the products (yet to be notified) to be credited to the exporters credit ledger account. These scrips can be used by the exporters to utilize against their Basic Custom duties on Imports of goods.
This scheme brings a tremendous amount of relief to the exporters of the country, thereby encouraging the exporters of the country and boosting the economy. Although, the scheme has been in effect from January 1, 2021, the Revenue is yet to provide rate notification and other conditions. However, it has clarified that any notification that is to be released will be retrospective in nature and shall be applicable from January 1, 2021.
Therefore, all the exporters who wish to avail the benefit of this scheme must comply with the mandatory requirements while filing their shipping bills.
The Government has definitely initiated this scheme to provide the Indian export Industry a greater bandwidth to compete with the international markets at par. The Industry needs to take advantage of this opportunity that is being served on a platter. To understand this better feel free to reach out to Novello advisors and we would be delighted to engage in a conversation with you.