The article is written by Ekta Acharya from Lloyd Law College, Delhi. This article talks about the RoDTEP scheme and the benefits that exporters get under the scheme. This scheme was introduced after the MEIS scheme which was for the benefit of the exporters but was not according to World Trade Organisation norms. So, then the government of India introduced this scheme.  

Introduction

The scheme which came into effect from 1st January 2021 is the Remission of Duties or Taxes on Export Products (RoDTEP). The scheme is basically for the benefit of the exporters. It ensures that exporters receive the refund on the embedded taxes and duties which were previously non-recoverable.

Scheme for the remission of duties and taxes on exported products

Earlier to increase the exports in the country, the Foreign Trade Policy launched the new scheme that is Merchandise Export From India Scheme (MEIS) and Service Exports From India Scheme (SEIS) with effect from 1st April 2015. The focus of these policies was to support both the manufacturing and service sectors by putting more emphasis on improving the ease of doing businesses.

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But later in 2018, the US had challenged various Indian export subsidy schemes. The allegations were heard by the World Trade Organisation’s (WTO) dispute settlement panel and a final report was issued on 30th September 2019. On 31st October 2019, WTO ruled out that these schemes are inconsistent with the WTO agreements for providing prohibited export subsidies.

Considering the arguments against the existing export subsidy scheme, India had filed an appeal before the appellate forum against the ruling of the WTO’s dispute settlement panel stating that the panel erred in its ruling to find these schemes as export subsidies. Although the matter is still subjudice, the government of India on a proactive basis decided to revisit the existing structure and roll out a scheme that is compatible with the WTO norms. After all this, the RoDTEP scheme was introduced and it replaced the MEIS and other schemes.

RoDTEP came into effect from 1st January 2021 through the press release and advisory by Ministry of Finance (MOF). The scheme ensures that exports receive the refund on the embedded taxes which is the tax that increases the base price of the product. For instance, a coal mine operator who digs coal includes the taxes they pay in the price of the coal they sell to the power plant owner, then the power plant owner includes not only the taxes that come in with the coal but he adds the taxes he pays into the price of the electricity he sells to his customers. So the final consumer will pay the part of the tax that is levied on the coal miner and the power plant operator. All of these combined form the embedded tax and duties previously non-recoverable. The exporter desirous of availing the benefit of the RoDTEP scheme shall be required to declare his intention for each export item in the shipping bill or bill of export.

The RoDTEP is a combination of MEIS and Rebate Of State And Central Taxes And Levies( RoSCTL). All the embedded taxes which were not refunded in any other scheme were 1 to 3%. RoSCTL was notified by the Ministry of Textiles to rebate the incidence of various state and central taxes/levies on the export of garments and made-ups. This scheme replaced the scheme of Rebate of State Levies w.e.f 7th march 2019.

So under the new RoDTEP scheme, the rebate of these taxes was given in the form of duty credit/ electronic scrip. These credit scrips are used to pay basic custom duties, claim rebates or can be transferred to other importers. 

RoDTEP was initially proposed to be notified from April 2020. However, the government of India decided that the benefit under the MEIS and RoSCTL be given till 31st December 2020. After this, the schemes were about to get merged with RoDTEP. So therefore the RoDTEP scheme was notified from January 2021. 

A three-member RoDTEP committee under former Home and Commerce Secretary G K Pillai was constituted in July 2020 to work out the modalities for calculation of duties/taxes/levies at the central, state, and local level borne on the exported product. The other members are Mr.Y G Parande and Mr. Gautam Ray, former member of Central Board of Excise Custom (CBEC) now named as Central Board of Indirect Taxes and Customs (CBIC).

What the scheme aims to do

  1. The RoDTEP scheme basically reimburses the taxes and duties incurred by exporters and these taxes are not reimbursed by any other scheme.
  2. It includes many types of taxes: Central and State taxes on fuel used for transportation, the duty levied by the state for the manufacturing of the exported product.
  3. The RoDTEP scheme aims to make Indian exports and merchandise product exports efficient and competitive to enable them to be viable in the international market.
  4. Some more taxes that will be taken into consideration while framing the scheme are Value Added Text (VAT) on fuel used in the generation of captive power, VAT on fuel used in the farm sector, mandi tax, stamp duty on export documents, embedded State Goods and Services Tax (SGST) and Central Goods and Services Tax (CGST) paid on inputs such as pesticides, fertilizers used in the production of agricultural goods.

Features of the scheme

The following features of the scheme is being discussed below: 

  1. RoDTEP scheme is applicable to all sectors including the textile sector.
  2. Labor-intensive sectors that enjoy benefits under MEIS will be given a priority under this scheme.
  3. The benefits given under MEIS are at various rates of 2%, 3%, and 5% of the export value.
  4. The merchant exporters and manufacturer exporters are eligible to take benefit of the scheme.
  5. Re-exported products are not eligible under this scheme. 
  6. To avail the benefit under this scheme the exported product needs to have a country of origin as India. 
  7. The special economic zone units (SEZU) and export-oriented units (EOUZ) are also eligible to claim benefits under this scheme. 
  8. The tax assessment in the scheme is also fully automatic. The refunds are also issued in the form of transferable electronic scrips. 
  9. These duty credits will be maintained and tracked through an electronic ledger. 
  10. A monitoring and audit mechanism with an information technology-based risk management system will be put in to verify the record of the exporters. This will enable faster clearance through digital platforms. 
  11. The goods that have been exported via courier through the e-commerce platform RoDTEP scheme applies to it as well.

Merchandise exports from India schemes

This scheme is introduced in the Foreign Trade Policy for the period of 2015-2020. This scheme’s objective is to promote the manufacture and export of notified goods/products. The MEIS is notified by the Directorate General of Foreign Trade (DGFT) and implemented by the Ministry of Commerce. This scheme replaced various other export incentive schemes that give duty credit scrips. The replaced scheme was  Focus Market Scheme(FMS), Focus Product Scheme(FPS), Vishesh Krishi Gramin Udyog Yojana (VKGUY), Market Linked Focus Product Scheme (MLFPS), and Agri Infrastructure incentive scheme. All the duty credits given under these schemes were transferred to the MEIS. Under the foreign trade policy 2015-2020 the MEIS tends to incentivize exports of goods that are manufactured in India and produced in India.

These incentives are for goods widely exported from India, industries producing or manufacturing such goods with a view of making Indian exports competitive. The incentives under these schemes are calculated under a percentage, which is 2%,3%, or 5% of the realized Free on Board(FOB) value exports in free foreign exchange or FOB value of exports as per shipping bills in free foreign exchange. These incentives are allotted through a MEIS duty credit scrip.

The free foreign exchange will include foreign exchange earned through international credit cards and other instruments allowed by the Reserve Bank of India (RBI).

Claiming of the duty credit scrip under MEIS

  1. To claim the duty credit scrip under MEIS you have to make an online application in form ANF 3A through a digital signature. The application has to furnish hard copies of the application filed with DGFT, EDI (electronic data exchange) shipping bills, Bank Realisation Certificate obtained electronically (e-BRC), and Registration cum membership certificate (RCMC). However, if the application is made through EDI ports then the applicant is not required to submit the hard copies, but only export promotion copies, non-EDI bills, and proof of landing. 
  2. The applicant shall file a separate application for each port and the applicant is not required to submit any document in original but they have to retain the document for a period of 3 years. 
  3. The application must be filed within the period of 12 months from the next export date or 3 months from the date of uploading of the EDI shipping bills to the DGFT server by customs, or printing of shipping bills for non-EDI shipping bills whichever is later.
  4. These duty credit scrips can be utilized to pay customs duties on imports of inputs or goods, safeguard duty, the anti-dumping duty under FTP 2015-2020. 
  5. Exporters can request for a split of duty credit scrip with a condition of each scrip valuing at least 5 lakhs. The request for split can be made after the issuing of the script with the same port of registration as applicable for the original script. This method is applicable when the registration is done through the online enable port. If the application is not filed through the EDI then you cannot split the duty credit after it is issued. 
  6. This scheme provides the flexibility of import and payment to exporters and has removed many structural inefficiencies of the earlier incentive schemes. MEIS incentivizes close to 5000 items classified and notified under various ITC(HS) codes and with a corresponding response rate that ranges from 2% to 5%. These incentives are only applicable from 1st April 2015 to 31st March 2020.

The difference between RoDTEP and MEIS

  1. RoDTEP is compliant with the WTO norms and MEIS was not compliant with the WTO norms.
  2. In RoDTEP the application forms are yet to be notified, but in MEIS the duty credit scripts were claimed by filling the ANF-3A form. In RoDTEP the incentive is product-based % and is yet to be notified and in MEIS the incentive is 2% to 5% of the FOB value of exports.
  3. In MEIS the incentives are issued in the form of transferable scrip (physical copy) and in RoDTEP the refund is to be issued in the form of transferable duty credit/electronic scrip, which will be maintained in an electronic ledger.

Conclusion

As we have seen that earlier the MEIS scheme was there to benefit the exporters but as it was not compliant with the WTO norms, it had to be replaced with the new scheme by the government of India, which introduced the RoDTEP into the picture. This scheme also has its own benefits. It can provide a seamless flow of economic benefit from the government. It will add more competitiveness in the foreign markets with assured duty benefits by the government of India. By being more compliant it will help the exporters meet international standards and boost business growth. By now the scheme has been announced but the rate of reimbursement is yet to be finalized. The rate of 0.5% has been allowed as a dummy rate with the following advisory. India’s good exports declined to 17.76 % in April-November 2020-2021 to $176.66 billion due to a fall in the global demand hit further by the covid-19 pandemic. Exporters are expecting that the situation will improve in the coming year. 

References

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