This article is written by Sudarshan Roy.
Table of Contents
Introduction
India has rolled out different mechanisms from time to time for the promotion of exports. Some of the mechanisms are: Export Oriented Units (EOU), Export Promotion Capital Goods (EPCG), Duty Drawback, Special Economic Zones (SEZ) etc. These mechanisms primarily focus on rebating or refunding different taxes or duties available on the exporters.
The objective of these export promotion schemes is to neutralize incidence of taxes based on the globally recognized cardinal principle of trade, that is “Goods and services can be exported but taxes should not be exported”. These schemes make sure that the cost-competitiveness of the exported product does not get hampered in the global market. In this article I am going to discuss in detail everything you need to know regarding the new RoDTEP scheme.
What is RoDTEP
Remission of Duties and Taxes on Export Products (RoDTEP) is a scheme rolled out by the GOI to promote exports by way of reimbursing duties and taxes which are not exempted or rebated under any other scheme in practice. The principle is “Refund currently un-refunded”. This scheme has been introduced to replace two similar schemes aimed to promote exports. These schemes are: MEIS and RoSCTL. This new scheme is the combination of features of both the schemes.
Currently, GST and import/customs duty on inputs required to manufacture exported products are refunded or rebated by schemes like Advance authorization, Duty Drawback etc. But there are taxes, duties or levies in the state, central or local levels that are incurred in the manufacture and distribution of export products but are not currently exempted or rebated under any other scheme. RoDTEP aims to cover all these duties and taxes. It aims to reimburse the embedded duties and taxes in the form of duty credit / electronic script through the electronic ledger with customs.
Glimpses of MEIS and RoSCTL
The objective of the Merchandise Export Incentive Scheme (MEIS) was also to boost exports by way of providing rewards and incentives. It formed a part of India’s foreign trade policy 2015-2020. Under this scheme, certain incentives and rewards were given to exporters by way of ‘duty credit script’ (transferable). The specified rates upon which the incentives used to be given depended upon product-to-product and country-to-country. It was not a tax neutralization scheme rather it was focused around providing incentives or rewards to the exporters with the objective to adjust infrastructural insufficiencies and associated costs.
The Rebate on State and Central Taxes and Levies (RoSCTL) was notified by the Ministry of Textiles on 7th of March 2019. It was aimed to rebate different state and central taxes/ levies on export of garments and made-ups. This scheme came as a replacement of the erstwhile scheme of Rebate of State Levies.
Why was MEIS scrapped
In March 2018 U.S challenged five Indian export subsidy schemes in the Disputes Settlement Panel of WTO alleging that these schemes are in violation of WTO norms. These five Indian export subsidy schemes were: 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).
On 31st October of 2019, WTO ruled out that these schemes are in contravention of WTO agreements as they are providing prohibited export subsidies. It held that India is a signatory to the WTO and a subject to the ‘Subsidies and Countervailing Measures’ (SCM Agreements) and hence India has to follow the global trade rules of WTO. An appeal has been filed by India against the ruling of Disputes Settlement Panel of WTO in the appellate forum. Although the matter is sub-judice The GOI abiding by the ruling of the panel has decided to roll out a new scheme which is fully acquiescent with WTO norms. The RoDTEP scheme was initially proposed to be notified from April 2020 but GoI decided to continue the benefits under MEIS till 31st of December 2020 and RoSCTL until the same is merged with RoDTEP.
What are the differences between MEIS and RoDTEP
In case of MEIS incentives were given in the form of transferable scripts. But RoDTEP provides for refund of indirect taxes on inputs used in the manufacturing of exported products which are not currently reimbursed under any other mechanism.
In accordance with the ruling of WTO Disputes Settlement Panel, the scheme of MEIS is not in compliance with WTO trade norms. But talking about RoDTEP, it is fully compliant with WTO trade norms because under WTO norms certain taxes are allowed to be reimbursed like: taxes imposed by the state on power, oil, water, transportation and any other local levies/cess etc.
What are the key benefits of RoDTEP
- Unlike MEIS, RoDTEP is in full compliance with WTO Norms. So, it is capable of providing uninterrupted economic benefits from the GOI to the exporters. It will also help the exporters meet international standards and help their business to grow more.
- It allows reimbursement of duties and taxes and thus allowing the exporters to be more competitive in the global market.
- In the currently existing subsidy providing schemes certain taxes like state taxes on oil, energy, water and education cess etc are not reimbursed. But these are covered under RoDTEP making this scheme more comprehensive.
Features of RoDTEP Scheme
- RoDTEP reimburses duties and taxes which are levied in different stages of the entire value chain by state, centre and local authorities and are not currently exempted or rebated by any other mechanism.
- Refund will be available under this scheme in the form of transferable duty credit/ electronic script. This process will be maintained in an electronic credit ledger with the customs ICEGATE.
- Records of the exporters will be verified by an IT-Backed risk management system which will make the clearance process faster for the exporters.
- All the sectors are covered within the periphery of this scheme.
- Refund would be claimed as Freight on Board (FOB) value of exports.
Benefits to be provided
Taxes, Duties/levies to be reimbursed:
- VAT on fuel used in transportation.
- VAT on fuel used in generation of captive power.
- VAT on fuel used in the farm sector- for farm products only.
- Mandi Tax.
- Duty on electricity charges.
- Stamp duty on export documents.
- Embedded SGST paid on inputs such as pesticides, fertilizers etc. used in production of agricultural goods.
- Embedded SGST in purchases from unregistered dealers.
- Embedded SGST on coal used in production of electricity.
- Embedded SGST on inputs for the transport sector.
- Central Excise duty on fuel used in transportation.
- Embedded CGST paid on inputs such as fertilizers, pesticides etc used in production of raw materials.
- Embedded CGST in purchases from unregistered dealers.
- Embedded CGST and compensation cess on coal used in production of electricity.
- Embedded CGST on inputs for the transport sector.
How to avail the benefits
As per the advisory issued by the government of India, dated 1.01.2021, the exporter has to avail the scheme by claiming for RoDTEP in the shipping bill by making a declaration. It is applicable to all exported products. If RoDTEP is not specifically claimed in the shipping bill no RoDTEP benefit would be given to the exporter. Even though the items and rates for RoDTEP have not been declared by the GOI the exporter must express his intention to avail the benefit of RoDTEP by filing the declaration in the shipping bill. Once the rates are declared the system will automatically calculate the amounts of RoDTEP claimed by the exporter. Notification in regard to rates and items is still awaited from DGFT and MoF.
Process of claiming the benefits
No separate or serial number needed to claim the RoDTEP. RITC Code given in the shipping bill will be sufficient.
Declaration in the shipping bill:
INFO TYPE = DTY
INFO QFR = RDT
INFO CODE:
RODTEPY if RoDTEP is availed; RODTEPN if RoDTEP is not availed.
Additionally for every item where RoDTEPY is claimed in INFO CODE a declaration has to be submitted in the statement table of each of the shipping bills.
STATEMENT TYPE = DEC
STATEMENT CODE = RD 001
Submission of the above statement code for RoDTEP availed items would indicate that the exporter has made necessary declaration as enclosed in Annexure B while claiming RoDTEP benefit.
After the filling of EGM no changes in the claim will be allowed. Shipping bills are sent to RMS after EGM filed. If cleared the shipping bill is queued for scroll. Else it will come back to the officer for further details. Once the officer clears the shipping bill it will be queued for scroll. Once the scroll is generated the respective amounts would be available with the exporter, registered with the ICEGATE with their digital signature as credit for converting into a credit script, provided the exporter has created a RoDTEP (Credit Ledger) account. These credit scripts can be used for the payment of import duties subject to the notification by the CBIC. As the scripts are transferable the exporters can transfer the script to any other IEC holder who would be able to use this script in the bill of entry by giving the license details.
Need for such a Scheme
The effective and efficient introduction of RoDTEP Scheme is very much needed to boost the sentiments of exporters in this tough time when the industry has been hit by COVID-19. Export-oriented industries are needed to be backed by the government in terms of financial backing with a clear and seamless process of reimbursement of duties and taxes especially in times when merchandise exports are declining and industries are facing uncertainty and slowdown.
Issues with the RoDTEP scheme
- The GOI should have considered providing prepared guidelines and procedures beside operational rates and methodology much earlier in terms to instil clarity among the exporters and equip them with a flawless and efficient transition from MEIS to RoDTEP. The tax rates and list of items and detailed guidelines should be issued from the department without any delay in terms to avoid confusions within exporters.
- Where the benefit of certain other schemes like EOU, Advance Authorization, Jobbing etc has been availed the benefit of RoDTEP has been disallowed. The objective of this scheme is to refund the un-refunded. It is aimed to reimburse those taxes/ duties/ levies that have not been exempted or rebated under any other scheme. In the schemes like EOU, Advance Authorization, Jobbing, SEZ etc only those indirect taxes that are levied on inputs that are necessary for the manufacturing of exported products (the immediate ones) are refunded but not all the taxes or duties/levies that are incurred in the entire value chain. In this aspect, it seems quite illogical to exempt the benefit of RoDTEP when other schemes are availed.
- As there was no prior information many exporters missed to claim the RoDTEPY in their shipping bills. These exporters should be allowed to avail the benefit of this scheme by making the required changes in the shipping bills.
Conclusion
The scheme of RoDTEP was needed for the hour. After getting hit by COVID-19 Indian manufacturing exporters and merchandise industry is in need of financial backing and a suitable environment to maintain cost competitiveness in the global arena. Also being a signatory of WTO India was needed to comply with its global trade norms. This scheme performs both functions.
But the scheme has come with some anomalies in terms of implementation. The rates and detailed guidelines for the benefit should be issued by the GOI without any delay and the benefit of this scheme should be allowed to those exported products also where other benefits like Advance Authorization has been claimed. This scheme of GOI is not exhaustive but very much comprehensive and serves its purpose. Although it lacks efficiency in terms of implementation it solves the problems of exporters in the wake of exit from MEIS.
References
- https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1685206
- https://www.fieo.org/view_section.php?lang=0&id=0,673
- https://taxguru.in/dgft/rodtep-incentive-scheme-exporters.html
- https://www.ey.com/en_in/alerts-hub/2021/01/government-announces-rodtep-scheme-on-all-export-goods-from-1-january-2021
- https://www.grantthornton.in/globalassets/1.-member-firms/india/assets/pdfs/remission -of-duties-and-taxes-on-exported-products-rodtep.pdf
- https://taxguru.in/dgft/rodtep-conceived-intended-scheme-badly-implemented-leading-confusions.html
- https://www.mondaq.com/india/tax-authorities/986370/rodtep-scheme-vs-meis-scheme-fact-sheet
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