INTRODUCTION
Industrial policy is crucial for the economic development of any country. Many developing nations have embarked on the wagon to bolster their trade in both domestic and international markets. India like many other nations had attempted introducing its very first Package Scheme of Incentives (‘PSI’) in the state of Maharashtra in year 1964, to promote industrial development domestically.[1] Further, as India adopted its laissez faire opening its economy, it came its very first FTA in year 1992.[2] This was introduced to promote industrial efforts and make India competitive globally. This allowed manufacturers and service exporters to benefit as the government started providing incentives on exports from India.
While most countries have their own policy emphasizing their own industries and interests. They often seem askance towards the policies of other nations. As a result, creating a landmine for potential disputes concerning international trade.
This paper will proceed to elucidate the issues at the WTO which lead to paving of the new Remission of Duties and Taxes Scheme.
CAUSATION OF ASKANCE
In the present context, this paper concerns itself with the WTO dispute between the United States and India concerning with Indian Export Related Measures.[3] Wherein the United States challenged the export incentives provided by India under its FTA as these export incentives i.e., i.e. Merchandise Export from India Scheme (‘MEIS’), Export Oriented Units (‘EOU’), Electronics Hardware Technology Parks (‘EHTP’), Special Economic Zone (SEZ) and Export Promotion Capital Goods (‘EPCG’) were in direct contravention of the SCM Agreement as these consist of exemptions and deductions from customs duties and other taxes. Further, it provided for issuance of Duty Credit Scrips (‘DCS’) which are freely transferable and allowed to off-set certain liabilities vis-à-vis the government.[4]
After deliberation, the WTO in October 2019 held that the aforementioned schemes violate the SCM Agreement and India was directed to discontinue these schemes.[5]
AFTERMATH
As a result, to ensure compliance to the SCM Agreement, the Government of India announced the new Remission of Duties and Taxes on Exported Products (‘RoDTEP’) Scheme ('RoDTEP Scheme' or 'Scheme')[6] on to boost exports by allowing reimbursement of taxes and duties, which were not exempted or refunded under any other existing schemes.
While RoDTEP was initially proposed to be notified from April 2020. However, the Government decided to continue the benefits under the MEIS up to 31 December 2020[7] till it was replaced by RoDTEP from the 01 January 2021.[8] Although the date of implementation for RoDTEP was announced, the Government did not issue any Notification detailing the rules & procedures, rates etc until 17 August 2021.
"The RoDTEP scheme would refund to exporters the embedded Central, State and local duties/taxes that were so far not being rebated/refunded and were, therefore, placing our exports at a disadvantage." - PIB 31 Dec 2020
The Ministry of Commerce and Industry introduced the provisions in relation to the RoDTEP Scheme under Chapter 4 of the Foreign Trade Policy 2015-20 (‘FTP’) and also notified the applicate rate on various export products under Appendix 4R of FTP vide Notification Number 19/2015-20 dated 17 August 2021.
COMPARISON BETWEEN RODTEP, MEIS AND ROSCTL
Following the order of the WTO panel, the Government of India introduced RoDTEP and Rebate of State & Central Taxes and Levies (‘RoSCTL’) schemes which were in line with the WTO report.
Apropos to the above, it is pertinent to note the key differences between MEIS, RoDTEP and RoSCTL schemes introduced by the government of India. The same are tabulated as under:
In light of the above, the key differentiating factor between MEIS scheme and RoSCTL & RoDTEP is its compliance with the WTO SCM Agreement norms. However, one may find that the notified rate of benefit is comparatively less in comparison to the MEIS scheme as the benefit intends to refund of indirect taxes or provide rebate.
OBJECTIVES AND OPERATING PRINCIPLES (PARA 4.54)
To make export incentive schemes WTO compliant, the government created a mechanism for reimbursement of taxes/ duties/ levies, at the Central, State, and Local level, which are currently not being refunded under any other mechanism, but which are incurred in the process of manufacture and distribution of exported products. The following are the sum of taxes /duties which are not refunded under the present mechanism.
a. Rebate of Duties, Taxes and Levies
The Scheme aims to refund all embedded central, state and local duties, taxes and levies incurred in production (including prior stages) and distribution of export product. However, the benefit under the Scheme will not be available for duties, taxes and levies already exempted, remitted or credited under other Schemes.[9]
b. Budget Outlay
The Scheme will operate based on budget allocated by Ministry of Finance, taking account all relevant factors and there will be no provision for carry forward of remission of arrears or contingent liabilities. Further, a committee in the Department of Revenue/ Drawback with suitable representation from the Department of Commerce ('DoC') and DGFT will review ceiling rates on annual basis and notify them before commencement of every financial year (‘FY’). FTP empowers DoC to decide sequence of introduction of RoDTEP Scheme across sectors, prioritisation of sectors, degree of benefit, ceiling within prescribed rates etc.[10]
Having regard to the above, it is pertinent to highlight that the budget outlay is based on the Government’s estimates. Arguendo, if India’s exports exceed the Governmental estimates, then exporters will get lesser benefit due to the budget allocation. Thus, there is no certainty on getting benefits at the prescribed rate.
c. Quantum of Benefit
FTP prescribes that benefit shall be granted as fixed percentage of FOB value of export goods with value cap per unit on some products. For certain products, benefit shall be granted as fixed amount per unit.[11]
d. Realization of export proceeds
Para 4.54(viii) of the FTP states that the rebate allowed is subject to the receipt of sale proceeds within time allowed under the Foreign Exchange Management Act, 1999 failing which such rebate shall be deemed never to have been allowed.[12]
Further, the government will in-built adequate safeguards to avoid any misuse on account of non-realization of export proceeds. Notably, other systemic improvements Drawback Scheme, IGST and other GST refunds relating to exports would also be applied to RoDTEP Scheme.[13]
e. Power to Make Rules
Para 4.54(ix) of the FTP provides that Central Board of Indirect Taxes & Customs (CBIC) will be in charge of issuing detailed Rules and Procedure for claiming benefits and Department of Revenue on an IT enabled platform with a view to end to end digitization under the RoDTEP Scheme.[14]
INELIGIBLE SUPPLIES/ ITEMS/CATEGORIES
Para 4.55 of the FTP provides for ineligible supplies for the purposes of benefit under the RoDTEP scheme as follows:
Export of imported goods covered under paragraph 2.46 of FTP
Exports through trans-shipment
Export goods subject to minimum export price or export duty
Goods restricted / prohibited for export under Schedule-2 of Export Policy in ITC (HS)
Deemed Exports
Supplies of goods manufactured by DTA units to SEZ / FTWZ units
Goods manufactured in EHTP and BTP
Goods manufactured partly or wholly in warehouse under Section 65 of the Customs Act, 1962
Goods manufactured or exported in discharge of export obligation against Advance Authorization (‘AA’) or Duty-Free Import Authorization (‘DFIA’) or Special Advance Authorization (‘SIA’)
Goods manufactured or exported by 100% EOU in terms of the provisions of the FTP
Goods manufactured or exported by units in Free Trade Zones (‘FTZ’) or Export Processing Zones (‘EPZ’) or Special Economic Zones (‘SEZ’)
Goods manufactured or exported by availing benefit under Notification No.32/1997-Customs dated April 1, 1997 i.e. Jobbing Notification
Exports for which electronic documentation in ICEGATE EDI is not generated/ Exports from non-EDI ports
Goods taken into use after manufacture i.e. used goods
Para 4.55B of FTP also provides that exports by EOU, FTZ / EPZ / SEZ unit and by AA / DFIA /SIA holders may be subsequently included in RoDTEP Scheme and rates thereof will be decided by RoDTEP Committee.[15]
Apropos, the government has not provided any clarity on the factors which will be considered by the RoDTEP committee for deciding the rate of such exports. Further, the benefits under the RoDTEP Scheme are over and above the benefits under the existing schemes. As RoDTEP reimburses taxes like Excise Duty and VAT on fuel, electricity etc. which otherwise are not exempted/ refunded under the existing schemes. This creates an anomaly that an exporter can claim benefit under RoDTEP along with Duty Drawback but not with Advance Authorization though both Duty Drawback and Advance Authorization refund / exempt custom duties on imported inputs.
PROCEDURE TO CLAIM BENEFIT UNDER RODTEP SCHEME
a. Generation of RoDTEP Credit Ledger
Exporters will be required to create a RoDTEP credit ledger in their ICEGATE Account. Once registered the user can perform several functions including accessing Scroll Details, Scrip Details, Transaction Details, Transfer Scrip, Approve Scrip Transfer.[16]
b. Declaration of Shipping Bills
The exporter will have to make the following declarations is the SW_INFO_TYPE Table of the Shipping Bill for each item as follows:
INFO TYPE = DTY
INFO QFR = RDT
INFO CODE = RODTEPY – If RoDTEP is availed and RODTEPN – if not availed
INFO MSR = Quantity of the items in Statistical UQC as per the Customs Tariff Act for that item RITC
INFO UQC = UQC for the Quantity indicated in INFO_MSR
For every item where RODTEPY is claimed in INFO CODE, a declaration has to be submitted in the statement table of the SB as below
STATEMENT TYPE = DEC
STATEMENT CODE = RD001
It is pertinent to highlight that to claim the benefit under RoDTEP the exporter must specify RODTEPY on the shipping bill to claim benefit. However, one must note that a similar condition was there under MEIS scheme, still various High courts have held that substantial benefit cannot be denied for the procedural grounds. Accordingly, the said issue may continue in RoDTEP Scheme also.[17]
c. Processing of claims and generation of the scroll
Based on exporter’s declaration in Shipping Bill, DGFT will process RoDTEP claim. Shipping Bill with RoDTEP declaration, will be routed for officer intervention basis risk-based targeting by Risk Management System (RMS). Accepted Shipping Bill will move to respective scrolls for disbursement of benefit in electronic form.
Whereas exporter not registered with ICEGATE, will be required to register themselves for generation of Scrips. Exporter will be required to convert credits (generated through scrolls) into Scrips. Export can club multiple Shipping Bills for generating Scrips.[18]
d. Utilization of scrips
Exporters can use such Duty Credit Scrips ('DCS') for payment of Basic Customs Duty only. Further, exporters can also transfer such e-DCS to any other entity having IEC and ICEGATE registration. [19] It is pertinent to highlight that While sale of Scrips will be exempt under GST, exporters selling such scrips may need to reverse Input Tax Credit pertaining to such exempt supply.
Further, the Customs Officer will be empowered to suspend Scrips. Once suspended, transfer or utilisation of Scrips will not be allowed.[20]
MONITORING, AUDIT AND RISK MANAGEMENT SYSTEM
Per Para 4.57 of the FTP exporters would be required to maintain proper records substantiating claims made under the Scheme. Further, a monitoring and audit mechanism with an IT based RMS will be put in place by the CBIC to physically verify the records of the exporters on sample basis. Sample cases for physical verification will be drawn objectively by the RMS, based on risk and other relevant parameters.[21]
MAINTAINANCE OF RECORDS
Exporters would be required to maintain proper records substantiating claims made under the RoDTEP Scheme. Government may physically verify such records on sample basis based on risk and other relevant parameters.[22]
CONCLUSION
RoDTEP being a WTO compliant scheme, Ministry has notified the rates, however, at the benefit under RoDTEP scheme are relatively less in comparison to the erstwhile scheme. Thus, the Indian exporters will quote their products in international markets accordingly. Further, the government also has to consider the exports made by Advance Authorization holders, EOU and SEZ units if they are eligible under this scheme as they also suffer the incident of State and Central levies which are not available as refund under GST or by any other route.
REFERENCES
[1]Ajay Sundaria, Package Scheme of Incentive – 2019, TAX GURU (2021) (https://taxguru.in/finance/package-scheme-incentive-2019.html). [2] PHD Chamber, India’s Foreign Trade Policy Environment: Past, Present & Future 4 (2015) (http://phdcci.in/file/thematic_pdf/Foreign%20Trade.pdf). [3] WTO Panel Report, India – Export Related Measures, WT/DS541/7 (adopted October 31, 2019)( https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/DS/541R.pdf&Open=True). [4]Id. [5]Id at 110. [6] Notification No. 19/2015-20 dated August 17, 2021. [7] Trade Notice 04/2020-21 dated April 15, 2020. [8]Press Information Bureau (PIB), Remission of Duties and Taxes on Exported Products (RoDTEP) SCHEME GETS IMPLEMENTED FROM 01.01.2021 (December 31, 2020). https://www.pib.gov.in/PressReleseDetail.aspx?PRID=1685206 [9] Scheme Guidelines for Remission of Duties and Taxes on Exported Products (RoDTEP), Notification No. 19/2015-2020 dated 17 August 2021, ¶4.54 (i). [10] Id. at ¶ 4.54 (v). [11] Id. at ¶ 4.54 (vii). [12] Id. at ¶ 4.54 (viii). [13] Id. [14] Id. [15] Id. at ¶ 4.55. [16] Ministry of Finance, Notification No. 75/2021 (Non-Tariff) dated 23 September 2021 at ¶4. [17] Id. at ¶5. [18] Id. at ¶3. [19] Id. at ¶6. [20] Id. [21] Supra note 9 at ¶ 4.57. [22] Id at ¶4.5
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