Incentives Scheme under Foreign Trade Policy 2015-20

The Foreign Trade Policy, 2015-2020 (‘FTP’) was announced by the Hon’ble Minister of  Commerce and Industry, Smt. Nirmala Sitharaman on April 1, 2015. The FTP has been announced in the  backdrop of several measures initiated by the Government of India such as ‘Make in India’, ‘Digital India’ and ‘Skills India’, among others. 

The FTP, introduced with a view to double India’s share in world trade by the year 2020, rationalizes the general provisions regarding imports and exports and promotional measures offered by the Commerce Ministry and also offer mechanism for resolving quality complaints and trade disputes. 

The transition to this new FTP will be such that the eligibility, entitlement, transferability, usage of scrip and any other condition for export of goods or rendering of the services up to March 31, 2015 will be governed by the earlier FTP. 

Key Highlights of the FTP relating to incentive schemes 

Chapter 3 benefits of the erstwhile FTP have now been consolidated into two new schemes for export of merchandise and services, viz. Merchandise Export from India Scheme (‘MEIS’) and Service Export from India Scheme (‘SEIS’). 

MEIS 

· MEIS subsumes five existing schemes, viz. Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY; and 

· MEIS reward rates (2%/3%/5%) specified for export of notified goods to notified markets [categorized into 3 groups, viz. Country Group A, B and C] as a percentage of realized FOB value in free foreign exchange. 

SEIS 

· SEIS available to “Service Providers located in India” as against the existing Served Form India Scheme available to “Indian Service Providers”; and 

· SEIS reward rates (3%/5%) specified for export of notified services and would be based on net foreign exchange earned. 

Special Provisions applicable to MEIS and SEIS 

· The duty credit scrips and the goods imported against these scrips will now be freely transferable; 

· The duty credit scrips can be used for payment of Customs duty, Excise duty, Service tax and fees for defaults relating to Advance Authorization; and 

· The benefit of MEIS and SEIS has been extended to units located in Special Economic 

Zones – This is a welcome step and is imperative to boost the SEZ sector. 

Status Holder 

· The terminology of existing status holder categories modified to One, Two, Three, Four and Five Star Export House; 

· The criteria for measuring export performance meant for recognition of status holder have been changed from Indian Rupees to US dollar earnings. Further, apart from export performance of current year, only two previous years will be considered as against the previous three years under the erstwhile FTP; and 

· Manufacturer status holders shall be entitled to self-certify ‘Certificate of Origin’. 

The new FTP is highly applaudable as it purely focuses on simplification and merger of incentive schemes, giving boost to flagship initiative of the Government, viz., ‘Make in India’ and enabling Trade Facilitation and Ease of Doing Business. 

Merchandise Exports from India Scheme (MEIS) 

Earlier there were 5 different schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY) for 

rewarding merchandise exports with different kinds of duty scrips with varying conditions (sector specific or actual user only) attached to their use. Now all these schemes have been merged into a single scheme, namely Merchandise Export from India Scheme (MEIS) and there would be no conditionality attached to the scrips issued under the scheme. 

Rewards for export of notified goods to notified markets under ‘Merchandise Exports from 

India Scheme (MEIS) shall be payable as percentage of realized FOB value (in free foreign exchange). The debits towards basic customs duty in the transferable reward duty credit scrips would also be allowed adjustment as duty drawback. At present, only the additional duty of customs / excise duty / service tax is allowed adjustment as CENVAT credit or drawback, as per Department of Revenue rules. 

Features of Merchandise Exports from India Scheme 

The main features of Merchandise Exports from India Scheme are: 

All the schemes have been merged into a single scheme, namely Merchandise Export from India Scheme (MEIS) and there would be no conditionality attached to the scrips issued under the scheme. Notified goods exported to notified markets would be rewarded on realised FOB value of exports. 

A. Country Groups: 

Category A: Traditional Markets – European Union consisting of 28 countries, USA & Canada. 

Category B: Emerging & Focus Markets, Africa (55 Countries), Latin America and Mexico (45 countries), CIS countries (12 Countries), Turkey and West Asian countries (13 countries), 

ASEAN countries (10 Countries), Japan, South Korea, China & Taiwan. 

Category C: Other Markets (70 Countries). 

B. Products supported under MEIS 

Level of Support: 

Higher rewards have been granted for the following category of products: 

· Agricultural and Village industry products, presently covered under VKGUY. 

 Value added and packaged products. 

· Eco-friendly and green products that create wealth out of waste from agricultural and other waste products that generate additional income for the farmers, while improving the environment. 

· Labour intensive Products with large employment potential and Products with large number of producers and /or exporters. 

· Industrial Products from potential winning sectors. 

· Hi-tech products with high export earning potential. 

C. Markets Supported 

· Most Agricultural products supported across the Globe. 

· Industrial and other products supported in Traditional and/or Emerging markets only. 

D. High potential products not supported earlier: 

Support to 852 Tariff lines that fit in the product criteria but not provided support in the earlier FTP. Includes lines from Fruits, Vegetables, Dairy products, Oils meals, Ayush & Herbal Products, Paper, Paper Board Products. 

E. Global support has been granted to the following category: 

· Fruits, Flowers, vegetables, Tea Coffee, Spices, Cereals preparation, shellac, Essential oils 

· Processed foods, Eco Friendly products that add value to waste, Marine Products 

· Handloom, Coir, Jute, products and Technical Textiles, Carpets Handmade. Other Textile and Readymade garments have been supported for European Union, USA, Canada and Japan. 

· Handicraft, Sports Goods, Furniture, wood articles, 

F. Support to major markets have been given to the following product categories 

· Pharmaceuticals, Herbals, Surgicals 

· Industrial Machinery, IC Engine, Machine tools, Parts, Auto Components/Parts 

· Hand Tools, Pumps of All Types 

· Automobiles, Two wheelers, Bicycles, Ships, Planes 

· Chemicals, Plastics 

· Rubber, Ceramic and Glass 

· Leather garments, saddlery items, footwear 

· Steel furniture, Prefabs, Lighters 

· Wood , Paper, Stationary 

· iron, steel, and base metals, products 

G. Other sectors supported under MEIS 

· 352 Defence related Product with export of US$ 17.7B consisting of Core Products (20), Dual Use products (60) ,General Purpose products (272). 

 283 Pharmaceutical products of Bulk Drugs & Drug Intermediates, Drug Formulations Biologicals, Herbal, Surgicals, and Vaccines. 

 96 lines of Environment related Goods, Machinery, Equipment’s. 

 49 lines where mandatory BIS standards are prescribed. 

· 7 lines of Technical Textiles. 

H. Participation in global value chain of the items falling under the scheme: 

· 1725 lines of Intermediate Goods – These goods become inputs in the manufacturing of other countries and will strengthen backward manufacturing linkages which is vital for India’s participation in Global Value Chains. 

· 1109 lines of Capital Goods sector- will also strengthen Manufacturing Base in India. 

· 1730 lines of Consumer Goods sector- We hope a quantum jump in export from this sector with strengthening of Make in India Brand in near future. 

I. Technology based analysis: 

· 572 lines-Low skill Technology-intensive manufacturing. 

· 1010 lines-Medium skill Technology-intensive manufacturing. 

· 1309 lines-High Skill Technology-intensive manufacturing. 

Service Exports from India Scheme (SEIS) 

Served From India Scheme (SFIS) has been replaced with Service Exports from India Scheme 

(SEIS). SEIS shall apply to ‘Service Providers located in India’ instead of ‘Indian Service Providers’. Thus SEIS provides for rewards to all Service providers of notified services, who are providing services from India, regardless of the constitution or profile of the service provider. 

The rate of reward under SEIS would be based on net foreign exchange earned. The reward issued as duty credit scrip, would no longer be with actual user condition and will no longer be restricted to usage for specified types of goods but be freely transferable and usable for all types of goods and service tax debits on procurement of services / goods. Debits would be eligible for CENVAT credit or drawback. 

The present rates of reward are 3% and 5%. The list of services and the rates of rewards would be reviewed after 30.9.2015.

Sl No	SECTORS	Admissi
		ble rate
1	BUSINESS SERVICES
A	Professional  services  Legal  services,  Accounting,  auditing  and	5%
	bookkeeping  services,  Taxation  services,  Architectural  services  ,
	Engineering services, Integrated engineering services, Urban planning and
	landscape architectural services, Medical and dental services, Veterinary
	services, Services provided by midwives, nurses, physiotherapists and
	paramedical personnel.
B	Research and development services R&D services on natural sciences,	5%
	R&D services on social sciences and humanities, Interdisciplinary R&D
	services
C.	Rental/Leasing services without operators Relating to ships, Relating to	5%
	aircraft,  Relating  to  other  transport  equipment,  Relating  to  other
	machinery and equipment
D.	Other business services Advertising services, Market research and public	3%
	opinion polling services Management consulting service, Services related
	to management  consulting, Technical testing and  analysis services,
	Services  incidental  to  agricultural,  hunting  and  forestry,  Services
	incidental to fishing, Services incidental to mining, Services incidental to
	manufacturing, Services incidental to energy distribution, Placement and
	supply services of personnel, Investigation and security, Related scientific
	and technical consulting services, Maintenance and repair of equipment
	(not including maritime vessels, aircraft or other transport equipment),

		Building- cleaning services, Photographic services, Packaging services,
		Printing, publishing and Convention services
2		COMMUNICATION SERVICES Audiovisual			servicesMotion  picture		and	5%
		video tape production and distribution service, Motion picture projection
		service, Radio and television services, Radio and television transmission
		services, Sound recording
3		CONSTRUCTION	AND  RELATED	ENGINEERING  SERVICESGeneral				5%
		Construction work for building, General Construction work for Civil
		Engineering, Installation and assembly work , Building completion and
		finishing work
4		EDUCATIONAL	SERVICES(Please	refer	Note	1)Primary  education		5%
		services, Secondary education services, Higher education services, Adult
		education
5		ENVIRONMENTAL SERVICES Sewage services, Refuse disposal services,						5%
		Sanitation and similar services
6		HEALTH-RELATED AND SOCIAL SERVICES Hospital services						5%
7		TOURISM AND TRAVEL-RELATED SERVICES
A.		Hotels and Restaurants (including catering)
a.		Hotel						3%
b.		Restaurants (including catering)						3%
B.		Travel agencies and tour operators services						5%
C.		Tourist guides services						5%
8		RECREATIONAL,	CULTURAL  AND	SPORTING		SERVICES(other	than	5%
		audiovisual services)Entertainment services (including theatre, live bands
		and circus services), News agency services, Libraries, archives, museums

	and other cultural services, Sporting and other recreational services
9	TRANSPORT SERVICES (Please refer Note 2)
A.	Maritime  Transport  Services  Passenger  transportation*,  Freight	5%
	transportation* , Rental of vessels with crew *, Maintenance and repair
	of vessels, Pushing and towing services, Supporting services for maritime
	transport
B.	Air transport servicesRental of aircraft with crew, Maintenance and	5%
	repair of aircraft, Airport Operations and ground handling
C	Road Transport ServicesPassenger transportation, Freight transportation,	5%
	Rental of Commercial vehicles with operator, Maintenance and repair of
	road  transport  equipment,  Supporting  services  for  road  transport
	services
D.	Services Auxiliary To All Modes Of Transport.Cargo-handling services,	5%
	Storage and warehouse services, Freight transport agency services

Duty Credit Scrip – freely transferable 

All scrips issued under MEIS and SEIS and the goods imported against these scrips would be fully transferable. Scrips issued under Exports from India Schemes can be used for the following:- 

(i) Payment of customs duty for import of inputs / goods including capital goods, except items listed in Appendix 3A. 

(ii) Payment of excise duty on domestic procurement of inputs or goods, including capital goods as per DoR notification. 

(iii) Payment of service tax on procurement of services as per DoR notification. Basic Customs Duty paid in cash or through debit under Duty Credit Scrip can be taken back as Duty Drawback as per DoR Rules, if inputs so imported are used for exports. 

Status Holders 

(a) Business leaders who have excelled in international trade and have successfully contributed to country’s foreign trade are proposed to be recognized as Status Holders and given special treatment and privileges to facilitate their trade transactions, in order to reduce their transaction costs and time. 

(b) The nomenclature of Export House, Star Export House, Trading House, Star Trading House, Premier Trading House certificate has been changed to One, Two, Three, Four, Five Star Export House. 

(c) The criteria for export performance for recognition of status holder have been changed from Rupees to US dollar earnings. The new criteria is as under:-

Status category	Export Performance FOB / FOR (as converted)
	Value (in US $ million) during current and previous two years
One Star Export House	3
Two Star Export House	25
Three Star Export House	100
Four Star Export House	500
Five Star Export House	2000

Approved Exporter Scheme – Self certification by Status Holders 

Manufacturers who are also Status Holders will be enabled to self-certify their manufactured goods as originating from India with a view to qualify for preferential treatment under different Preferential Trading Agreements [PTAs], Free Trade Agreements [FTAs], Comprehensive Economic Cooperation Agreements [CECAs] and Comprehensive Economic Partnerships Agreements [CEPAs] which are in operation. They shall be permitted to self-certify the goods as manufactured as per their Industrial Entrepreneur Memorandum (IEM) / Industrial Licence (IL)/ Letter of Intent (LOI). 

Amendments to Advance Authorization Scheme 

Imports under Advance Authorisation would now also be exempted from Transition Product Specific Safeguard Duty. Earlier, the exemption was restricted to Basic Custom Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty and Safeguard Duty. 

Advance Authorization for annual requirements would only be issued for items notified in SION and it shall not be available in cases of adhoc norms. 

Validity period for import under Advance Authorisation has been prescribed as twelve months from the date of issue of Authorisation. In respect of Deemed Export, validity  period would be co-terminus with the contracted duration of project execution or twelve months from the date of issue of Authorisation, whichever is more. 

In case of supplies to the turnkey projects in India under ‘Deemed Export’ category or turnkey projects abroad, the Export Obligation Period (‘EOP’) has been prescribed to be  18 months or contracted duration of the project execution, whichever is more. Similarly, in case of defence, military store, aerospace and nuclear energy the EOP has been prescribed to be 24 months of date of issue of authorisation or co-terminus with contracted duration of the export order, whichever is more. 

In respect of BIFR/Rehabilitation units, it has been clarified that if time period up-to which Export Obligation extension is to be granted is not specifically mentioned in the  BIFR order, then the Export Obligation extension of two years from the date of expiry of  EOP or the date of BIFR order, whichever is later shall be granted without payment of composition fee. 

A detailed list of items (including vegetables/edible oils, Cereals, Spices etc.) has been issued which are in-eligible for importation on self-declaration basis. 

Pre-import condition has been prescribed on importation of drugs from un-registered sources. The new provision empowers DGFT to notify such pre-import condition in suitable cases. 

Amendments to DFIA Scheme 

Ø Detailed procedure has been prescribed for the transfer of the DFIA licence. The same has been mentioned hereunder:- 

ü Applicant shall file online application to Regional Authority concerned before starting export under DFIA. 

ü Export shall be completed within 12 months from the date of online filing of application and generation of file number. 

ü While doing export/supply, Applicant shall indicate file number on the export documents viz. Shipping Bill / Airway Bill/ Bill of Export / ARE-1 / ARE-3, Central Excise certified Invoice. 

After completion of exports and realization of proceeds, request for issuance of transferable Duty Free Import Authorisation may be made to concerned Regional Authority within a period of twelve months from the date of export or six months (or additional time allowed by RBI for realization) from the date of realization of export proceeds, whichever is later. 

ü Applicant shall be allowed to file application beyond 24 months from the date of generation of file number as per paragraph 9.03 of HBP. 

ü Separate DFIA shall be issued for each SION and each port. 

ü Exports under DFIA shall be made from a single port as mentioned in paragraph 4.37 of HBP. 

ü No Duty Free Import Authorisation shall be issued for an export product where SION prescribes ‘Actual User’ condition for any input.

ü Regional Authority shall issue transferable DFIA with a validity of 12 months from the date of issue. No further revalidation shall be granted by Regional Authority.

Ø In respect of the resultant products requiring specified inputs, exporters shall be required to provide declaration with regard to technical characteristic, quality and specification in Shipping Bill.

Ø It has been clarified that Duty Free Import Authorization Scheme shall not be available for Gems and Jewellery sector.

To conclude, it is proposed to give higher level of rewards to products with high domestic content and value addition, as compared to products with high import content and less value addition.