Export Incentives

Exports are given priority in India and enjoy lot of incentives. However, the major
problem lies in the process of realising them. Unfortunately, exporters have to
approach multiple organisations for seeking sanction.

It is essential to the exporters to plan carefully in respect of incentives, even at the time
of shipment, though their benefits are available only after completion of the shipment
Exporters have to draw a suitable plan of action for claiming incentives in a timely
manner to avoid delays and cuts in realisation. Exporters have to understand the
different procedural formalities, connected with multiple and diverse agencies.

TYPES OF INCENTIVES

1. Incentive Linked to Export Performance

(a) Duty Drawback (DBK)
(b) Excise Duty—Refund/Exemption
(c) Duty Free Replenishment Certificate
(d) Duty Entitlement Pass Book Scheme.
2. Duty Exemption Scheme Advance Licence
3. Fiscal Incentives (a) Sales Tax Exemption (b) Income Tax Exemption
4. Claim for Rail Freight Rebate
5. Claim for Air Freight Assistance

Duty Drawback (DBK)

The duty drawback refers to the to the refund in respect of Central Excise and Customs
Duties paid in respect of raw materials and other inputs used in the manufacture of the
product, prior to export.
Whom to Apply: The customs house in whose jurisdiction the exporter’s factory or
warehouse is situated.
When to Apply: An exporter is entitled to claim the duty drawback as soon as the
export of goods is completed
How to File Claim: The procedure for claiming duty drawback depends upon whether
the processing of shipping documents has been computerised or not. The exporter is
not required to file any separate application for claiming duty drawback, if the
processing of documents has been computerised at the jurisdiction customs station.

Duty Drawback Credit Scheme

• As an export promotion measure, the Government of India has authorised
Reserve Bank of India to instruct Authorised Dealers in foreign exchange to grant
interest-free credit, against the duty drawback claim, to the exporters.
• The interest free credit is for a period of 90 days. Payment of Duty drawback is to
be made by the Directorate of Duty drawback within a period of two months
otherwise interest is to be paid @ 15% for the period of default.
• This credit is given to exporter against duty drawback claim, which is pending
scrutiny, sanction and payment. This scheme is applicable only if excise duty has
been determined on All Industry Rates or Brand Rate basis.

Excise Duty—Refund/Exemption
Refund of central excise is an important financial incentive for export promotion.
Universally, exporters do not bear the burden of indirect taxes. In India, indirect taxes
are levied at the Central, State and Local level
Exemption from payment of excise duty is made on execution of Bond by exporter.
Where exemption is not made available, exporter has to make payment, initially, which
is refunded later.
Alternatively, under Duty Drawback, refund of excise duty and customs duty is made on
inputs paid. By this, exporter is freed from the burden of excise duty and customs duty
both on inputs and output to make their products globally competitive.

Duty Exemption Scheme—Advance Licence

Under this scheme, registered exporters are eligible to import raw materials, which are
physically incorporated in export product, without payment of duty.
Advance licence is issued under duty exemption scheme to import inputs, subject to
actual user condition according to the Exim Policy. The licences are issued to the
manufacturer exporter or merchant exporter.

Duty Entitlement Pass Book Scheme

The exporter who is not desirous of availing the Advance licensing facility may avail the
facility of DEPB scheme. The objective of the scheme is to neutralise the incidence of
customs duty on the import content of export product.
The exporter can use this credit for the import duty payable on the import of inputs
required for the manufacture of the export product or not
Both the manufacturer and manufacturerexporter are eligible for the benefit under
DEPB scheme. They can apply within 180 days from the date of export or 90 days from
the date of realisation, whichever is later

Export Promotion of Capital Goods (EPCG) Scheme

• This scheme allows import of Capital Goods (CG) at concessional basic customs
duty of only 5%. This permission to import capital goods at concessional duty
also puts on the unit importing under this scheme, an export obligation
equivalent to 8 times of duty saved on import of CG.
• Components of capital goods are also permitted for imports under the scheme.
However, import of motorcars, sports utility vehicles etc., are allowed only to
travel agents, tour operators etc.,
• As per the scheme, exports required to be made would be eight times of the
custom duty saved on the import of the capital goods. Export obligation in the
current policy is five times of duty saved for agro, cottage and tiny sector,
whereas it is six times of the custom duty saved for SSI Units.
• EPCG Scheme lays down that the export obligation is required to be completed
within 8 years/12 years. In case duty saved amount is Rs.100 crores or more,
export obligation is required to be fulfilled within 12 years. For example: If a
company is exporting goods worth Rs. 100 crores, and it saves 10% customs duty
(10 crores) under the EPCG scheme, then it has to export goods worth 80 crores
within 8-12 years.

Advance Authorization for Deemed Exports

• under this scheme, Advance Authorizations are issued for the supplies which are
to be made within the country. Deemed exports are basically those transactions
where the goods supplied do not leave the borders of the country and payments for
such supplies are also made either in Indian Rupees or in free foreign exchange. These
authorizations are also issued based on SION entries. Inputs in this regard are
exempted from payment of custom duties and terminal excise duty.

100% Export Oriented Unit Scheme (100% EOU)

Various facilities extended to these 100% EOUs in the FTP are as follows:
 • The units can import or export any goods except the ones which are under
prohibited categories.
• The units are exempted from payment of income tax as per Section 10 B of IT
Act.
• The units are exempted from industrial licensing which is a prerequisite for
manufacture of items reserved for Small Scale Industries (SSI) sector.
• The units are permitted to realize their export proceeds within 12 months.
• 100% FDI investment is permitted in such units through automatic route.
• 100% EOUs are also entitled to reimbursement of any Central Sales Tax (CST)
paid on the goods manufactured.
• The units are also exempted from payment of Central Excise Duty on the goods
procured from DTA.
• The units are also allowed to avail Central Value Added Tax (CENVAT) credit on
the service tax paid by them.

Foreign Trade Development and Regulation (FTDR) Act

1992

➢ This Act replaced the earlier Act which used to be called as Import and Export
(Control) Act 1947.

➢ The basic objective of FTDR 1992 is to provide a frame work for development and
regulation of foreign trade by facilitating imports into the country, as well as, taking
measures to increase exports from India and any other related matters.

➢ In terms of these powers contained in FTDR Act 1992, the government makes
provisions to fulfill the objectives by way of formulation of the Export and Import
Policy.

➢ Earlier this policy used to be called as Export and Import Policy i.e. Exim Policy,
however, of late the Policy is being termed as Foreign Trade Policy (FTP) of the country
as it covers areas beyond export and import in the country. This Policy, in terms of the
Act is formulated by the office of the Directorate General of Foreign Trade (DGFT), an
attached office of the Ministry of Commerce & Industry, Government of India. 7 FTDR
Act, 1992 and Foreign Trade Policy
➢ The Act lays down that no person can enter into import or export business in India
unless he is issued an Importer Exporter Code No. (IEC No.) by the office of the DGFT.

➢ In case any exporter or importer in the country violates any provision of the
Foreign Trade Policy or for that matter any other law inforce, like Central Excise or
Customs or Foreign Exchange, his IEC number can be cancelled by the office of DGFT
and thereupon that exporter or importer would not be able to transact any business
in export or import.

➢ The Act also provides for issuance of a permission called licence or authorization
for import or export, wherever it is required in terms of the policy. Similarly, powers to
suspend and cancel the licence for import or export are also provided for in the Act.
➢ The powers related to search and seizure etc. of the premises, where any violation
of Export Import Policy has taken place or is expected to take place are also provided
for in the Act.

➢ The penalties which can be imposed by the authorities, competent to do so, in

case of any contravention or violation of the Foreign Trade Policy are also described in
the Act.

➢ To operationalize the provisions of any Act, Rules are required. For the FTDR Act,
the rules framed and issued by the Government are called Foreign Trade (Regulation)
Rules, 1993 which lay down the various operational provisions such as fee
requirements for issuance of licenses, conditions of licenses, refusal, suspension and
cancellation of licenses etc.

Central Excise and Customs Clearances

When exporter is ready for shipment of goods, it is necessary for him to secure
clearances from Central Excise and Customs Authorities. Excise duty is an indirect tax
imposed by the Central Government on goods manufactured in India. This is
collected at source, at the time of removal of goods from the factory/warehouse. All
excisable goods can be removed only 13 after their clearance by Central Excise
Authorities.
In other words, the intention of Government is exporters should not bear the burden
of excise duty, both on inputs and outputs. The procedure is laid down in section 37
of the Central Excise and Salt Act.
CENTRAL EXCISE CLEARANCE OPTIONS
A. Export Under Claim of Rebate of Duty
Under this method the exporter has to pay excise duty, initially, and can claim
refund of excise duty, after exportation of goods to countries except Nepal and
Bhutan. However, this method involves blockage of finances as the procedure
involves time for getting back refund of excise duty.
B. Export Under Bond

Under this method, exporter does not make payment of excise duty. He has to
obtain bank guarantee or surety to an amount equivalent to excise duty payable.
This is beneficial to the exporter, as finances are not blocked. Once evidence of
export is shown, the excise authorities would release the bond.

CUSTOMS CLEARANCES

Every exporter is required to obtain customs clearance in respect of export goods before they are sent
to buyer, irrespective of the mode of shipment. The mode of shipment could be either by sea, air, rail or
road. Customs procedures in different modes of shipment are 15 122 one and the same, barring minor
variations.
The exporter through the clearing and forwarding agent, also known as Customs House Agent (CHA),
normally, obtains the customs clearance.

Documentary Requirements

For movement of goods by sea or air, customs permission for shipment of goods is
given on a prescribed document known as ‘Shipping Bill’. In other cases, such as by
road/rail, the 124 Export-Import Procedures, Documentation and Logistics
prescribed document on which the customs permission given is called ‘Bill of Export’.
There are four types of Shipping Bill/Bill of Export used in export of goods. These are:
Dutiable Shipping Bill/Bill of Export: Export goods attract duty/cess.
(ii) Drawback Shipping Bill/Bill of Export: Export goods fall under Duty Drawback
scheme. In this case, customs duty is paid first and later duty is refunded, after
shipment of goods.
(iii) Free Shipping Bill/Bill of Export: This form is used when export goods attract
neither export duty/cess nor are covered under Duty Drawback scheme (Free
trade samples, gift parcels, warranty replacements etc).
(iv) Ex-Bond Shipping Bill/Bill of Export: Goods are shipped from the customs
bonded warehouse.
Exporter or CHA has to submit the following documents to the customs
department for securing customs clearance:
Shipping Bill (Appropriate type) in quadruplicate, if clearance is manual or
Annexure A or B, in case clearance is given in computerised manner;
(ii) Commercial Invoice (2 copies);
(iii) Exchange Control Form- GR Form or SDF as applicable, in duplicate. SDF form
is used in place of GR Form where customs operations are computerised;
(iv) Copy of Letter of Credit/Copy of Export Order/ Export contract, duly attested
by bank;
(v) Packing List;
(vi) Certificate of Origin or GSP certificate of Origin; (vii) Shipper’s declaration
form for export of goods;
(viii) ARE-1, duly approved by the Central Excise office (ARE-1 has replaced AR-4);
(ix) Original copy of Certificate of Insurance, wherever necessary;
(x) Marine Insurance Policy;
(xi) Export Licence, where required and
(xii) Any other documents.