BACKGROUND
In October 2019, based on a complaint filed by the US, the World Trade Organization (WTO)
panel report1
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 i.e. 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). Although India has appealed against the said decision,
the dispute settlement process is likely to drag on. Even before the WTO issued the panel
report, for more than a year India was working to restructure some of its contentious export
incentive schemes. It is also interesting to note that we have seen a halt of the grant of
MEIs Scheme in the recent past.
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 incentives over and
above levelling or in fact leveraging the competitiveness of the exporters, be it goods or
services. (the exporters will be entitled to get the benefit of the refund of the indirect taxes paid
in the manufacturing/production process or in the course of service rendition process. The
MEIS and the SEIS scrip benefits are given over and above the same)
RoDTEP as an alternative. The Milestones crossed so far.
On Friday March 13, 2020 the Union Cabinet of the Government of India approved a new
scheme i.e. Remission of Duties & Taxes on Export Products (RoDTEP) for reimbursement of
taxes and duties to exporters in order to provide a much needed boost to country’s exports.
The objective of this scheme is to refund taxes or duties/ levies currently not exempted or
refunded under any other mechanism.
In the coming months, the Commerce Ministry will work on the modalities for implementation
of the scheme, for which a committee has recently been formed, which is set to replace the
popular MEIS. MEIS will be replaced by RoDTEP in a phased manner based on the products
and ITC-HS code
The government of India constituted a committee for determination of ceiling rates under the
RoDTEP scheme, with effect from 30th July 2020 comprising of 2 members chaired by Shri
G. K. Pillai, Secretary(retd.), Government of India.
The terms of Reference of the committee about interact with various bodies like the Export
Promotion Council, commodities boards, etc, to elicit their views on the ceiling rates under the
scheme; to work out modalities for calculation of duties and taxes borne on the exported
products and recommend in the committee report the ceiling rates of RODTEP for the
items/sectors identified by the Government and to give a supplementary report on the issues
arising from the main report.
The Committees report must be submitted to the Government within three months of
identification and prioritization of the sectors/items by the government and any supplementary
report will have to be submitted within two months of the submission of the main report.
The notice from the Ministry of finance, dated 5th August, 2020 to the Export promotion
councils, commodity boards, trade and industry associations and chamber of commerce,
conveyed the constitution of the Committee for RoDTEP and instructed such bodies to take
necessary actions in preparation of Detailed data that is required to be submitted to the
committee for calculating ceiling rates under the RoDTEP scheme. The data would be required
for the period of six months i.e. October 2019 to March 2020.
Further, in accordance with the notice mentioned above the Ministry of Finance set forth a
notice dated 10th august, 2020 which specified the details to be given by the bodies and the
format/manner in which it has to be submitted (Enclosed in the latter part of the notice). The
Information requested include the details of Inputs used in the manufacture of Export products,
Incidence of unrefunded duties under any other Drawback scheme, among others.
REMISSION OF DUTIES & TAXES ON EXPORT PRODUCTS (RODTEP)-A Brief
RoDTEP is expected to be a WTO compliant scheme under which indirect taxes on inputs in
the production process of exports are subsumed. These are physically incorporated inputs
such as energy, fuels and oil used in the production process and catalysts which are
consumed in the course of their use in the manufacturing of the exported product. Several
indirect taxes, such as import tariff and Goods and Services Tax (GST) is already refunded.
RoDTEP would cover central and state indirect taxes, which are currently not refunded under
any mechanism. Under the WTO rules, certain state and central taxes on power, oil, water
and education cess are allowed to be refunded.
Important features of the RoDTEP scheme:
• Rates under RoDTEP will consider various non-refundable levies like VAT on fuel used
in transportation, mandi tax, duty on electricity used during manufacturing, etc.
• The rebate would be granted by way of transferrable electronic scrips to the exporters.
In this regard, the Union Budget 2020-21 had proposed a new Section 51B in the
Customs Act, 1962 to maintain an electronic duty credit ledger.
• Rebate under RoDTEP scheme will be in addition to Duty Drawback and IGST refund
schemes.
• The refund in terms of rates shall be calculated as a percentage of the Free on Board
(FOB) value of exports.
APPREHENSIONS ABOUT THE RODTEP SCHEME:
There is a speculation within the industry that the new system with RoDTEP will provide lower
support to exports than the one that was in place under MEIS for key sectors that could be
significant export performers for India. Also, some of the other support schemes, such as the
Modified Special Incentive Package Scheme (MSIPS) for investment in the electronics sector
have already ended in 2018. In view of the disadvantages that Indian exporters faced vis-àvis their global competitors, the MEIS was designed to incentivize exporters. However, since
the days of MEIS are numbered, (it is more like the classic saying “the King is dead….Long
live the King) and industry apprehensions surrounds the quantum of incentives under
RoDTEP. The Commerce Ministry has always invited representations and recommendations
from the trade bodies to provide data to the concerned Export Promotion Councils, with regard
to the un-rebated taxes/duties/levies used in the manufacture of export product(s).
NOVELLO Comments.
While it may not be commented openly that the Foreign Trade Policy benefits especially in
relation to MEIS and SEIS scrips have to go for India to be compliant to WTO trade framework,
it is exceedingly heartening to note that the Government is taking all the initiative to encourage
exports by the introduction of RoDTEP. While the newly proposed scheme may not result in
so much benefits such as MEIS or SEIS which was over and above the export benefits and
exporter was entitled to, the new scheme would ensure that all those taxes and duties that are
now not being defrayed in terms of benefits one way or the other are sought to be refunded.
The commerce ministry is focused to implement different initiatives to foster the growth of
exports. However, it is about time that the Indian industry, rises up to the challenge faced by
a sluggish economy by overhauling production process, bringing in efficiencies and initiating
measures to improve product quality and standards.
We need to move forward by making ourselves more competitive, by taking advantage of the
benefits, every single one of them that is offered to us and move on.
To know and hear more, I will be delighted to have a conversation with you. Feel free to reach
out to me [email protected]