Hon’ble Minister of Commerce & Industry, Sh Kamal Nath, announcing the Annual Supplement 2008-09 to Foreign Trade Policy on 11th Apr

Pending general elections and formation of a new Government, no full fledged Annual Supplement, 2009-10 was prepared by the Department. However, some specific trade facilitation measures that were found to be too important to be postponed given the current economic slowdown were announced on 26th February, 2009. The measures included opening of new office of DGFT at Srinagar, special package of Rs.325 crore for leather and textile sector, provision of proportionate reduction in average export obligation of EPCG authorization holders in those sectors/product groups where exports have declined by more than 5% has been extended till 2009-10, early refund of service tax claims etc. 

Some of the major initiatives announced in the Annual Supplement to FTP in April, 2008 and the Trade Facilitation Measures announced on 26th February, 2009, are given below.

1. Focus Market Scheme (FMS)

For offsetting high freight cost and other externalities in select international markets, a new scheme called “Focus Market Scheme” has been launched since 1.4.2006. This allows exporters to get an incentive in the form of freely transferable duty credit scrip @2.5% of the FOB value of exports of such products. The initiative aims at enhancing India’s competitiveness for export to identified Focus Markets. To begin with, 8 countries in Latin America, 49 countries in Africa, 10 CIS countries, 5 countries in Central America and 1 country in Eastern Europe were notified as Focus Markets. 

Hon’ble Minister of Commerce & Industry, Sh Kamal Nath, announcing Trade Facilitation Measures on 26^th February, 2009

In order to give further boost to this Scheme, 10 new markets have been notified in Appendix 37C of Hand Book of Procedures (HBP) Vol I and made eligible for benefits under the said Scheme w.e.f. 1.4.2008. These markets are: Mongolia, Djibouti, Sudan, Ghana, Colombia, Honduras, Albania, Macedonia, Bosnia-Herzegovina and Croatia. Thus, a total of 83 countries have, so far, been identified as Focus Markets.

During the period April – March 2008-09, a total of 4826 authorizations having CIF value of Rs.347 crore and FOB value of Rs.17697 crore have been issued under the scheme.

2. Focus Product Scheme (FPS)

Products originating from rural and semi-urban areas have high employment potential. These products suffer from high inherent infrastructure bottlenecks and other associated costs involved in marketing of such products. To offset a portion of this unwarranted cost, a new scheme namely, “Focus Product Scheme” has been introduced w.e.f. 1.4.2006. This allows the exporters to get an incentive in form of freely transferable duty credit scrip @1.25% of the FOB value of exports. Products/items as identified for benefits include value added fish and leather products, stationery items, fireworks, sports goods, handloom products bearing handloom mark, handicraft items and Coir products, in addition to new products included from time to time.

In order to give further boost to the Scheme, for exports made with effect from 1st April, 2008, toys and sports goods are entitled to higher duty credit scrip equivalent to 6.25% of FOB value of exports. Also, special rate of 5% has been granted for export of handmade carpets.

Also, under FPS, a variant called ‘High Value Added Manufactured Goods Scheme’ has been introduced w.e.f 1.4.2008. Under this, an enhanced duty credit scrip of 2.5% (instead of the normal 1.25% under FPS) would be allowed for export of high value added manufactured goods. So far, the following items have been notified under this scheme which include Bullet proof glass, Crank shaft for engines, Instruments and Appliances used in medical, surgical, dental or veterinary sciences including scientigraphic apparatus, other electro-medical apparatus and sight-testing instruments, Optical fibres & Optical fibre bundles and cables, Original sculptures and statuary, in any material and Liquid Crystal Display Television Set.

During the period April – March 2008-09, a total of 6366 authorizations having CIF value of Rs.215 crore and FOB value of Rs.16775 crores have been issued under the scheme.

3. High Tech Products Export Promotion Scheme:

For incentivizing export of High Technology products, a new scheme called ‘High Tech Products Export Promotion Scheme’ has been introduced since 1st April, 2007. Under this Scheme, exports of High Technology Products, as notified in Appendix 37E, are entitled for Duty Credit Scrip equivalent to 1.25% of FOB value of exports or 5% of incremental growth in FOB value of exports of notified products for current year over the previous year. Twelve products have been notified under the scheme. These are: PCO using wireless (GSM/Satellite) technology, Point of Sale Terminals/Transaction Terminals (ePOS) using GSM/CDMA/Ethernet/WiFi/Serial/PSTN Technology, SIM cards, Memory cards, Cellular Phones, (with 3G Standard, Wireless internet and GPS), Automatic Bank Note Dispensers, Ultrasonic Scanning Apparatus, Magnetic Resonance Imaging Apparatus, Still Image Video Cameras, Videophones, Hybrid Integrated Circuits, and Solar Cell/Photovoltaic Cells whether or not assembled in modules/panels. 

4. Market Linked Focus Products Scheme

To give a significant boost to market penetration of specific products in specified markets, the “Market Linked Focus Products Scheme” has been introduced from 1.4.2008. Under this Scheme, exports of products having high export intensity (which are not covered under the present FPS list) but which have a low penetration in countries (which are also not covered under the present FMS list) would be incentivized and entitled to a duty credit scrip equivalent to 1.25% of FOB value of exports, provided that the product/sector is destined to specified linked market for that particular product/sector. Already, bicycle parts to 5 Specified Markets, auto parts to 7 Specified Markets, and motor cars/motor cycles to other Specified Markets have been notified for benefits. Further, Readymade Garments and leather products have also been incentivized with special rate of 2% from 1.4.2009 till 30.9.2009 if exported to EU & USA. Further, for special sectors like Readymade Garments, exports to Australia, Japan and Brazil made w.e.f 1.1.2009 have been allowed an incentive of 2.5%.

5. Vishesh Krishi and Gram Udyog Yojna (Special Agriculture and Village Industry Scheme) 

Keeping in view the objective of Foreign Trade Policy to promote employment generation in rural and semi urban areas, Vishesh Krishi Upaj Yojna has been expanded to include export of Gram Udyog products i.e. village and cottage industry products w.e.f. 1.4.2006. The Scheme provides an incentive upon exports of identified products in the form of freely transferable duty credit scrip @5% of FOB value of exports. To ensure that the products manufactured/processed out of domestic inputs are incentivized at a higher rate in comparison to the imported inputs, duty credit has been reduced to 3.5% of the FOB value of exports in such cases where the exporter avails the benefit under Duty Free import of Agriculture Inputs (other than catalysts, consumable and packing materials).

In order to boost exports of flowers, fruits and vegetables (as listed in Table 13 of Appendix 37A), these products shall be entitled to an additional duty credit scrip equivalent to 2.5% of FOB value of exports, over and above the 5%/3.5% VKGUY entitlement with effect from 1st April, 2008. 

During the period April – March 2008-09 a total of 21385 authorizations having CIF value of Rs.2679 crore and FOB value of Rs.73932 crore have been issued under the scheme.

6. Gem & Jewellery 

For Gems & Jewellery sector which constitute a major share of our exports, measures undertaken were in terms of reduction of value addition norms based on upward price trend of the precious metal; extension of the facility of export of coloured gemstone on consignment basis, declaring Surat Hira Bourse as Port of export for jewellery, extension of time period for re-import of unsold branded jewellery to 365 days, raising the limit of value of Jewellery Parcel to US$ 75,000, addition of a few new agencies/entities as nominated agencies for the purpose of direct import of precious metal thereby allowing easy access of precious metal to the Gems & Jewellery exporters, free importability of “Worked Coral” etc.

7. Duty Neutralisation/Remission Schemes

1. Duty Entitlement Passbook (DEPB) Scheme

To impart continuity and stability to our foreign trade regime, DEPB scheme has been extended till 31st December, 2009. Supplies to SEZ developers and payment in Indian Rupees, which were not allowed the DEPB benefit, have now been allowed from retrospective effect. As an immediate relief from the impact of Global economic slowdown, DEPB rates for 1267 items (out of 2135 items) which were reduced in November, 2008 have been retained at the old rates with retrospective effect, irrespective of reduction in custom tariff. Further DEPB rates for 26 items have been increased. DEPB scheme has been made flexible by allowing the benefit of the Scheme based on shipping bill details without the requirement of Bank Realization Certificate (BRC) at the time of filing application, thereby allowing availability of liquidity on the sale of DEPB prior to realization of export proceeds. Based on the prevailing prices, value cap of certain products has been revised upward.

2. Duty Service Tax Refund

The Government has already announced refund of service tax for almost all prime services, which are directly related to export production and supply. For one point clarity on the refund of Service Tax, specific policy circulars have been issued by the DGFT and the Department of Revenue. A few pending issues regarding refund of service tax have also been resolved recently.

3. Advance Authorization

Some changes have been made in the Scheme for facilitating closure of large number of old pending cases by withdrawing the requirement of submission of non-availment of MODVAT certificate in case of quantity based advance licence issued prior to 1.4.2002, specifying for Central Excise to endorse supply invoice within 21 days of supply, thereby facilitating faster clearance of deemed export benefits, dispensing with the requirement of double verification and limiting it to random verification and addition of new ports for the purpose of exports under Export Promotion Scheme, and allowing direct supply of intermediate goods to the port of Exports by intermediate supplier etc.

4. Duty Free Import Authorization (DFIA)

For facilitating transferability on pro-rata entitlement on the basis of part realization, split-up facility has been introduced for DFIAs. Further, to facilitate utilization of DFIAs issued during 2006-07 which would have remained unutilized due to delay in clearance and clarification by the custom authority, all such DFIAs have been allowed revalidation for 12 months, 6 months at a time, from the date of expiry of its validity.

5. Served from India Scheme

The objective of the scheme is to accelerate the growth in export of services so as to create a powerful and unique ‘served from India’ brand, instantly recognized and respected world over. This benefit is granted in the form of non-transferable duty credit scrip. During the period April-March 2008-09, a total of Rs 736 crore worth duty credit scrips have been issued under the scheme.

8. Export Promotion Capital Goods (EPCG) Scheme

The Scheme was initially introduced in the Import and Export Policy 1990-93 with import facility of Capital Goods at a concessional rate of Customs duty @ 25%. The Scheme has since undergone many changes. To encourage exports from the tiny and cottage sector, the export obligation period has now been raised to 12 years. The scheme also requires the Service Sector to maintain the average level of exports to avail benefits under new EPCG scheme.

Issue of EPCG authorization for import of spares, tools, spare refractory is also allowed for existing imported plant and machinery (though not imported under EPCG cover). In order to facilitate augmentation of imports under the Scheme, the concessional rate of duty has been reduced to 3% as against 5% during the previous year. The salient features of the Scheme are:

1. Import of capital goods for pre-production, production and post production including import of spares at 3% customs duty.

2. An export obligation equivalent to 8 times of duty saved amount, with an export obligation period of 8 years.

3. In case of agro units, the export obligation is equivalent to 6 times duty saved on imported capital goods to be completed within a period of 12 years.

4. In case of SSI Units, the EO is equivalent to 6 times duty saved over a period of 8 years provided the cif value of such imported capital goods does not exceed Rs. 50 lakh and total investment in plant and machinery after such imports does not exceed the SSI limits.

5. For EPCG authorizations with a duty saved amount of Rs. 100 crore or more, the export obligation period is 12 years.

6. Import of second hand capital goods is allowed without any age restriction.

7. Import of motor cars, sports utility vehicles/all purpose vehicles is allowed only to hotels, travel agents, tour operators or tour transport operators and companies owning/operating golf resorts whose total foreign exchange earning from their respective sectors in the current and preceding three licensing years is Rs. 1.5 crore or more.

8. (viii) Vehicles imported under EPCG Scheme are to be so registered that the vehicles are used for tourist purpose only. Parts of cars, such as chassis, cannot be imported under EPCG Scheme.

9. An EPCG Authorization can also be issued for import of capital goods under Scheme for Project Imports notified by the Central Board of Excise and Customs under S. No. 441 of Customs Exemption Notification No. 21/2002 dated 01.03.2002. Export obligation for such EPCG authorizations would be eight times of duty saved. Duty saved would be the difference between the effective duty under aforesaid Customs Notification and concessional duty under the EPCG scheme.

10. The scope of the EPCG scheme has been extended to Common Service Providers (CSP) who are designated/certified as a Common Service providers by the DGFT, Department of Commerce or State Industrial Infrastructural Corporation in a Town of Export Excellence.

11. A person holding an EPCG licence may source the capital goods from a domestic manufacturer instead of importing them. The domestic manufacturer supplying CG to EPCG authorization holder shall be eligible for deemed export benefits under para 8.3 of the Policy.

12. EPCG licence may be issued for retail sector for import of capital goods required by the retailer to create modern infrastructure in the retail sector.

13. EPCG Authorizations holders can opt for Technological upgradation of existing Capital goods imported under EPCG Authorizations’ subject to conditions stipulated in para 5.10(i) to (vi) of FTP.

Capital Goods imported (excepting tools) for manufacturing of export products relating to handicraft, handlooms, cottage, tiny sector, agriculture, aqua-culture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture are not transferable for a period of five years from date of import even if EO is fulfilled. However, it can be transferred within group companies after fulfillment of EO but before five years from the date of import under intimation to RA and jurisdictional Central Excise.

9. Export Oriented Units (EOUs)/Electronic Hardware Technology Park (EHTP)/Software Technology Park (STP)/Biotechnology Park

The cap on Domestic Tariff Area (DTA) sale of instant tea has been enhanced from 20% of FOB value of exports to 30%.

Board of Approval (BOA) has been empowered to extend the block period of five years for calculation of Net Foreign Exchange (NFE) suitably, whenever due to prohibition/restriction, unit is unable to export and thus achieve positive NFE.

Some conditions have been introduced in cases of subcontracting abroad. At the time of clearance of goods, the EOU/EHTP/BTP/STP shall declare: transaction value of finished goods, job work charges, value of intermediate goods, along with supporting documents like sale price contract/or invoice of finished goods, job work contract and the basis of arriving at the value of intermediate goods. The EOU/EHTP/BTP/STP shall also ensure full repatriation of foreign exchange declared as the transaction value of the finished goods cleared from the sub-contractor’s abroad.

In case of import of spices (other than pepper, cardamom and chillies) for manufacture of spice oils and oleoresins, an export obligation period of 12 months has been stipulated. In case of import of spices (pepper, cardamom and chillies) for Value Added purpose, completed upto 31.12.2008, Export Obligation period has been prescribed as 150 days.

For an Export Oriented Unit (EOU) to continue under the Scheme on completion of approval period, it has to give an option within six months of expiry of approval period. Para 6.3.9 of HBP vol. I has been amended to provide that when units exercise option to continue in the scheme belatedly, approval regarding extension will be given by BOA.

Para 6.29.3 of HBP vol. I has been amended incorporating, as per decision of BOA to allow EOUs to re-import without payment of duty, samples exported by it under intimation to customs authorities for retention with the manufacturer as a statutory requirement.

Provision has been made in Para 6.11 to make reimbursement of additional excise duty (AED) levied on fuel under the Finance Acts admissible to EOUs.

Amendment has been carried out in Para 6.22 to enable an authorized person of Gems and Jewellery EOU to import gold in primary form up to 10 Kgs in a financial year subject to guidelines of RBI and Customs.

A new clause has been added in Para 6.7 of FTP to provide that application for conversion into EOU/EHTP/STP/BTP from DTA units having an investment of Rs. 50 crore or more in plant and machinery or exporting Rs. 50 crore and above annually would be submitted to BOA for decision.

For clearance of capital goods, including second hand, in DTA shall be allowed as per FTP on payment of applicable duty and import policy in force on date of such clearance.

By amending Appendix 14-I-I, EOUs have been made eligible for reimbursement of CST paid on purchase from DTA irrespective of whether such goods are used for production of goods/services for export or used for goods sold in DTA.

The validity period of the notional rate certificate prescribed in Para 6.5.2 of HBP vol.I for export of jewellery has been increased from 3 working days to 7 working days.

10. Deemed Exports

ANF 8 has been modified to stipulate that excise attested invoices are necessary for refund of Terminal Excise Duty (TED)/duty drawback. As per the existing procedure, applicants have to submit individual invoices certified by the jurisdictional excise authorities for claiming duty drawback. Further, for getting refund of Terminal Excise Duty (TED), forms ER 1/ER 3 are required as documentary proof evidencing payment of excise duty. A simplified provision has now been introduced whereby exporters can now submit a Central Excise certified statement in lieu of individual invoices and a monthly statement confirming duty payment in lieu of ER1/ER3, for the purpose of Deemed Export benefits.

An alternative Bank Certificate has been added at the end of Appendix 22 B of HBP for EOUs for claiming deemed export benefits based on disclaimer certificate. This certificate which has to be produced along with domestic supplier certificate, provides for certification by EOU’s bank as against the stipulation for DTA units of certification by Suppliers bank.

The time limit for claiming deemed export benefits have been enhanced from 6 months to 12 months from the date of payment. These claims can be filed in validation Letter/ARO wise, against individual licenses, within the time limit as specified above. 100% TED refund will be allowed after 100% supply has been made physically and payment received up to 90%. Provision has been made in the current Foreign Trade Policy and Procedure that simple interest @ 6% per annum is payable in the case of delayed refund of Duty Drawback and TED under deemed export if the claim is not settled within 30 days after submission of complete application.

Terminal Excise Duty (TED) on High Speed Diesel (HSD)/ Furnace Oil purchased by EOUs from depots of domestic oil PSUs will be refunded on the basis of duty paid certificate issued by concerned domestic oil PSU.

11. Special package for Marine Sector

Some specific steps have been taken to strengthen the marine sector, which is treated a thrust sector in Foreign Trade Policy under special focus initiatives. These are as:

• Duty free import of specified specialized inputs/chemicals and flavouring oils is allowed to the extent of 1% of FOB value of preceding financial year’s export.

• To allow import of monofilament long line system for tuna fishing at a concessional rate of duty and Bait fish for tuna fishing at nil duty.

• A self removal procedure for clearance of seafood waste allowed subject to prescribed wastage norms.

• Marine products are considered for VKGUY scheme.

3. Stimulus Package for Exports

The global financial crisis and the resultant contraction in demand have adversely affected India’s export performance during 2008-09, especially since Oct., 2008. After showing robust growth over 30% upto September, 2008, India’s exports have shown marked deceleration in the subsequent months. It has resulted in job losses in some sectors like textiles, gem and jewellery, handicrafts etc. The government announced a series of fiscal, monetary and export promotion measures from time to time in the form of stimulus packages with the aim of reviving the growth of our exports. The key measures announced in the stimulus package are given in Box 4.4.

4. EDI Initiatives 

The Department is committed to simplifying procedures, facilitating electronic clearances, and putting in place an exporter friendly regime for obtaining authorizations under various export promotion schemes. Towards this end, several steps are being taken under the Electronic Data Interchange (EDI) programme. These are as follows: 

• Bring all the community partners dealing with international trade on an EDI enabled platform to reduce transaction costs.

• Extend the online web enabled application procedure for issue of license/ authorization to all categories of licenses/ authorization;

• Consolidate the message exchange system with Customs and extend its scope to cover all shipping Bills relating to different export promotion schemes.

• Doing away with the manual double verification of the authorization system by way of online validation with the Customs Authority, initially at least for the ports having EDI facility.

• Doing away with the manual verification of Bank Realization Certificates by way of online validation with the software being developed by the Indian Banks Association.

5. Grievance Redressal Committee

A Grievance Redressal Committee (GRC) headed by the Additional Secretary, Department of Commerce has been set up to handle grievances of exporters relating to Foreign Trade Policy. The Exporters need to send their grievances to the Committee in Electronic form, besides all other normal modes. Representations to the Committee may be forwarded by post addressed to the Chairman of the Committee. The application of the aggrieved party must contain the name of the applicant, IEC No. address (with contact Nos. and e-mail ID), the details of reference earlier made to DGFT, if any and the grounds in support of grievances, in brief.

Any decision relating to Foreign Trade Policy i.e. decisions of ALC, EPCG, PIC, PRC, EPZ/EOU etc. i.e. all non- statutory matters relating to Foreign Trade Policy which has caused grievances to the exporter/importer will be heard by the Committee. Grievance Committee functioning in DGFT may be approached in the first instance for redressal of the grievances. The petitioner may thereafter refer the matter to GRC if still aggrieved with the decision of the Grievance Committee of DGFT. During the period April 2008 – March 2009, the GRC met 7 times wherein 89 cases were considered and disposed off. Decisions of GRC are made available on the website of Department of Commerce.

 

Box 4.4

Stimulus Package for Exports to Counter Effects of Global Economic Slowdown

Enhancing the period of pre-shipment and post-shipment Rupee Export Credit by 90 days each (by RBI);

Enhancing the limit of Export Credit Refinance (ECR) facility for commercial banks to 50% (from 15%) of the outstanding Rupee Export Credit;

Increasing the time period of export realization for non-status holder exporters to 12 months. This provision shall be valid till 30.6.09.

Pre and post-shipment export credit for labour intensive exports i.e., textiles (including handlooms, carpets and handicrafts), leather, gems and jewellery, marine products and SME sector has been made more attractive by providing an interest subvention of 2% upto 30/9/2009 subject to minimum rate of interest of 7% per annum;

Export duty on export of Iron ore fines withdrawn, reduced to 5% on iron pre lumps; and the railway tariff on export of Iron ore brought at par with domestic railway tariff;

Additional funds of Rs.1100 crore will be provided to ensure full refund of Terminal Excise duty/CST;

An additional allocation of Rs.1400 crore will be made to clear the entire backlog in TUF Scheme;

Government back-up guarantee will be made available to ECGC to the extent of Rs.350 crore to enable it to provide guarantees for exports to difficult markets/products;

Exporters will be allowed refund of service tax on foreign agent commissions of up to 10% of FOB value of exports. They will also be allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme;

An additional allocation for export incentive schemes of Rs.350 crore will be made; and

Handicraft products have been included under ‘Vishesh Krishi & Gram Udyog Yojana’.

6. Commodity specific policy decisions taken during the year

The government has also taken several specific measures pertaining to import and export of major commodities like rice, wheat, pulses, sugar, oilseeds etc. keeping in view domestic and international price situation. The import specific measures are given in Annexure 4.1 and the export specific measures are given in Annexure 4.2.

7. Commodity specific policy decisions taken during the year

VII. Trends of authorizations issued under Export promotion & duty neutralization schemes of Foreign Trade Policy during the period April, 2008 – March, 2009

During the period April 08 – March 09, a total of 1,90,374 authorizations having CIF/Duty credit value of Rs. 1,50,155 Crore and FOB / Export Obligation of Rs. 5,60,604 Crore have been issued. This represents a growth of 22% in number, decline of 15% in CIF/Duty credit value and increase of 22% in FOB value / EO over the corresponding period of last year. However, category wise, pattern of issuance of authorizations during the period remained the same as in the corresponding period of last year. A statement on total number of authorizations issued and their CIF/duty credit & FOB values during April,08-March,09 and during the corresponding period of last year is given in Table -4.1. Comparative picture of authorizations issued & their CIF values during the period April-March of the years 2007-08 & 2008-09 is depicted through Charts-4.1 & 4.2. Percentage share of authorizations issued & their CIF values by Category during April-March, 2009 is depicted through Charts 4.3 & 4.4.

Table 4.1

Trends of Authorizations Issued Under Export Promotion & Duty Neutralization Scheme

CHART-4.1

CHART-4.2

CHART-4.3

CHART-4.4