In August 2021, the Centre notified the Remission of Duties and Taxes on Export Products (RoDTEP) scheme with the aim of “boosting our exports and competitiveness in the global markets.” With this scheme, the government is looking to compensate exporters for the taxes and duties embedded in the exported products which were previously non-recoverable. The scheme came into effect in January 2021.
The scheme was formulated by the government with a purview to replace the formerly-applicable Merchandise Exports from India Scheme (MEIS) which was more of a subsidy scheme than a duty remission scheme. But although highly anticipated by the industry, the RoDTEP scheme came with its own positives and negatives.
“The scheme has not only been a tongue twister but also a brain twister for many who have been trying to figure out when it will actually get launched and when will the benefits start coming,” explains Rajoo Goel, Secretary General, ELCINA.
Needless to say, the scheme has become a point of discussion within the industry who have been trying to make head-and-tail of the scheme with its ever-fleeting guidelines and inconsistencies from the MEIS-era. We have tried simplifying the procedure by drawing some commonalities between the two schemes and answer some of the industry’s burning questions.
MEIS vs RoDTEP: Is The Exporter Still Losing?
MEIS was introduced by the government in the Foreign Trade Policy (FTP) in 2015 as an incentive scheme to offset infrastructural inefficiencies and the associated costs. Under MEIS, the incentive percentage was around 2%, 3% or 5% of the realised FOB (free-on-board) value of exports as per shipping bills in free foreign exchange could be used for the payment of import duties. The incentive was given in the form of physical, transferrable duty credit scrips to the exporters.
Although in existence for 5 years, in 2019, the scheme was declared as a ‘export contingent reward scheme’ by the WTO, and thus a violation of its trade norms which prohibits countries above a certain development threshold from providing financial benefits to exporters in the form of incentives.
The scheme was then scrapped, only to be replaced by the RoDTEP scheme, which complied wholly with the WTO mandate.
|1. Incentives available on the export of goods||1. Refund of duties and taxes that are currently not being reimbursed by any other schemes.|
|2. Not compliant with the WTO norms.||2. Compliant with the WTO norms.|
|3. 2%-5% of the FOB (Free On Board) value of exports.||3. 0.01%-4.3% of the FOB (Free On Board) value of exports (liable to be changed as per budget).|
|4. Issued in the form of physical transferable scrips.||4. Issued in the form of transferable duty credit or electronic scrips which will be maintained via an electronic ledger.|
The RoDTEP scheme was devised by the government to refund the previously non-refundable duties and taxes, which includes Mandi tax, VAT, Coal cess, Central Excise duty on fuel etc. The refund will be issued in the form of transferable electronic scrips (e-scrips). These duty credits will be maintained and tracked through an electronic ledger.
“All of us know that we have several other export schemes like the Duty-drawback scheme, Advance authorization scheme, etc., but all of these schemes one way or the other compensation for the duty structure. Therefore, wherever the duty and taxes are not remitted or refunded or even available to us as an input tax credit, the government wanted to identify those tax incidents and remit it by way of this scheme and that is this scheme,” says P. Sridharan, Partner, Lakshmikumaran and Sridharan.
The rebates will be available to exporters at a notified rate, which may be a percentage of FOB value or a specific amount per unit. Residual issues arising from the scheme will be considered by an inter-ministerial committee, known as the RoDTEP Policy Committee, whose decisions shall be binding. The exporter must indicate in the shipping bill the details regarding the intent to claim the RoDTEP benefit with regard to a particular item of export and generate a credit scrip for it.
On 23 September 2021, the Ministry of Finance issued the Electronics Duty Credit Ledger Regulations, breaking down the process of availing the tax credit in the form of e-scrips, further providing additional conditions for reaping the benefits of the scheme.
Response From The Industry
The government has promoted the scheme to be a crucial step in increasing the country’s export competitiveness in the international market.
“It may be noted that the government is leaving no stone unturned to support domestic industry and make it more competitive in the international markets. Export centric industries are being reformed and introduced to better mechanisms so as to increase their competitiveness, boost exports, generate employment and contribute to the overall economy. This will go a long way in achieving our vision of building an Atma Nirbhar Bharat,” it had said in its notification statement on 17 August 2021.
But this vision seems too-far off, given how the government has so far dealt with the scheme. The rates, which were announced by the Directorate General of Foreign Trade (DGFT) under Appendix 4R of the HBP for 8,555 export products, have been a matter of mass disappointment and worry among industry and various export councils.
The rates, which were much higher during the MEIS-era but now range somewhere between 0.01% to 4.3%, have caused a massive stir amongst exporters who had been so eagerly waiting for the scheme, posing a big question mark on the matter of making exports internationally competitive.
And it is not just the low rates that have taken many by surprise. It is also the exemption of certain groups from benefiting from the scheme at all, which is further worrisome given the fact that MEIS has been dissolved by the government and would not be able to provide these exempted groups from availing any subsidy either.
Another point that to be noted is the introduction of the RoDTEP scheme under Chapter 4 of the FTP which deals with duty remissions. This is a very important departure from the previously introduced schemes where MEIS under chapter 3 of the FTP. This means that the scheme now depends on the budget allocated by the Finance Ministry for duty remissions, so it is the budgetary allocation that is going to decide what one is going to get. The rates are also, therefore, liable to be changed every financial year based on the budget allocation, but that still provides little relief.
Although not an ideal situation, Sridharan assures that, although alarming, the low rates should not cause intense distress in the industry. “This is just the beginning. Now that we have a scheme that is compliant with the international trade laws, you can rest assured that the rates have many chances of being reformed by the government. They are not set in stone.”
However, he also explains that it is imperative that the industry bodies take the issue up with the government and associated policymakers to bring their displeasure to light.
“These rates will only be reviewed by the government if the industry picks it up with them because they will otherwise not know what is the problem.”
Some WHATs, WHYs and HOWs Answered
The scheme has left exporters, and the industry in general, baffled with its unwinding guidelines and with there being little to no clarity on certain aspects, there have been questions that have arised in the minds of the people. We have compiled a few such doubts and tried to provide a comprehensive answer to appease your doubts.
Please note, as there have been no government clarifications issued on certain matters, any answers provided on those are mere assumptions based on existing laws and other such schemes and can, therefore, not be taken as the final word. The scheme is ever-changing and there is always room for more additions, subtractions and changes.
- How can I use the duty credit scrips that I get through the scheme?
These duty credit scripts can be used only for making for the basic customs duty. So whenever you are importing some components for your product and utilizing the RoDTEP duty scripts to make the basic customs duty payment, when these components are re-utilised in your exported products, the basic customs duty you paid through these scrips will be available to you as drawback at the time of exporting the final product.
- Will the amount paid through the duty scrips be regarded as duty payment or duty exemption?
It is to be noted that the scheme is notified under the Section 51B of the Customs Act which deals with Duty Credit and not under Section 25 (under which schemes like MEIS and such were added) since it is not an exemption notification. But now a departure has been made, clearing the air that the duty debited will always amount to duty payment.
- Is GST payable on such transfer of e-scripts?
Earlier, the MEIS script was physical and there was a specific notification under the GST rules that exempted them. With the e-scrips nature of RoDTEP, there can be a chance of the government viewing it as a service and therefore levying GST on it although it has not yet been clarified.
“But we have to wait and see how the government actually reacts once the transfer from these e-ledgers takes place. As of now, it seems that GST cannot be payable,” says Sridharan.
- Can items in a shipping bill be split to generate separate e-scrips?
As of now, that is not possible. The scrips will be generated shipping bill wise or custom station wise. At the end of shipping, they will generate one scroll and the entry will show one amount of credit. However, because the RoDTEP scheme is based on an 8-level HS classification and each item may attract different rates of remissions, you may ask for separate shipping bills or items-based credits, although it is yet to be determined.
- Can I realise some amount in the e-script and then transfer the e-scrips containing the remaining credit amount?
No, part transfer of e-scrips is not possible. Transfer of e-scrips for one’s own separate customs duty is yet to be clarified.
- If the amount in one e-script is not sufficient to pay Customs Duty, can we pay the remaining amount through cash or use another e-scrip?
As of now, it seems to be permissible and should be possible.
- During the operational period of MEIS, many were denied the benefit for unintentionally not specifying the intent in the shipping bill. Will it continue to be so?
Yes, you have to indicate that you wish to claim the benefit of RoDTEP item-wise. It is advised to be careful while filing the shipping bill, because the system by default may take ‘no’ as an answer.
- The rates are low and may not cover the incidence of refund of tax duty borne on the exported products. Will the facility of brand rate be available under the scheme like in the case of the Duty Drawback Scheme?
Like in the case of all industry rates of drawback, if the percentage of duty incidence being covered is less than 80%, then you can seek a brand rate under Rule 7 of the Drawback rules. However, such a scheme has not yet been contemplated under RoDTEP which means that whatever rate has been decided will be what will be rebated.
- Will the duty drawback scheme also be available in addition to the remission provided through the RoDTEP scheme?
You can claim duty drawbacks and also RoDTEP. It will be available because duty drawback compensates the customs duty incidence whereas the RoDTEP scheme compensates the uncompensated embedded tax and these two completely different schemes are completely different.
- What if an exporter did not mention the intent of the claim on exports made in the past?
The claim will be denied.
- What if an exporter is already claiming the benefit of unrefunded tax or duty under any state-specific scheme?
The committee has taken into account the unrefunded taxes including states taxes when fixing the rate and thereafter come to an all-industry average rate. Whether you are eligible for a state’s VAT exemption or not should not disentitle you from the RoDTEP incentive.
- Can supplementary claims be raised in case of an increase in the FOB value of the goods subsequent to export?
There is no facility as of now for supplementary claims under this scheme. Since it relies on the budget being allocated to it, if the budget in any year happens to be below, then even the claims of that financial year may collapse, hence there is no provision for supplementary claims. However, we expect the government to make changes in the future years as supplementary claims must be included in the scheme.
- Will interest be available on the past eligible exports in terms of Appendix 4R made past 1 January 2021?
No interest has been contemplated. But there are legal procedures that if something is due from the government and not paid within a particular time then interest will have to be paid. This issue needs to be raised with the government.
- Can the government change the rates multiple times in the same year?
As of now, this does not appear feasible Since they review the rates only once a year so changing the rates multiple times within the same financial year might not be possible. However, it has been notified that the rates may be changed every year based on the budget allocation.
- What if there are contraventions of an export scheme? Will it affect the e-script under RoDTEP?
Although not clearly specified, if you claim any other drawback in the shipping bill which you were not entitled to, it should not have any effect on the e-script under RoDTEP since these are distinct schemes. As per guidelines, only contravention pertaining to the exports made relating to the RoDTEP e-scrips alone will be investigated by the proper officer.
- Will non-declaration of 8 digit HS code in export documents disentitle the benefit or will be considered a procedural lapse?
Since the scheme is linked to the 8 digit HS code, therefore, non-declaration or inaccurate declaration of the code may pose as a serious problem especially if the rates are different between the codes. It is advised to be careful as the authorities will not be considered a procedural lapse.
- Can an expired e-scrip be restored?
There is currently no provision for restoration. If by the end of the validity period (1 year from date of issue) you have not claimed the credit amount in the e-scrip, it will expire.
- Can SEZ units apply for the scheme?
Even though SEZ units were initially excluded from eligible for the scheme, after several demands from the industry, there have been reports that the government may now extend the scheme to SEZ units as well. However, nothing is concrete yet.
- If a sector falls under the ineligibility list, should they not indicate their intent of claim in the shipping bill?
Since the scheme is in its nascent stage and is liable to undergo several important changes in the eligibility and ineligibility list, it is advised that exporters specify their intent to claim the RoDTEP benefit even if they are not currently eligible for it.
- Will supplies of products manufactured by DTA units to SEZ/FTWZ units for exports be eligible for the RoDTEP scheme?
Though it is categorical that supplies to these units are not eligible for RoDTEP as they are not considered as exports, there is a subtle distinction when the supplies are made only for an eventual export because there is a difference between supply to an SEZ unit and export through an FTWZ unit.
In some cases, like the case of Ashwini Ashish Dighe vs Union of India, the Bombay High court reported a case where the exporter made a supply to an overseas entity only, but the entity insisted that the supply is made to an SEZ/FTWZ unit from where he will take the goods. This, although was decided to be an eligibility criteria to claim benefits, is still needed to be clarified by the government.
- In case of inclusion of a sector in the future, will they be able to claim the benefit even if they did not previously indicate their intent to claim benefit in the shipping bill prior to their inclusion?
If the RoDTEP committee decides to provide benefit for the erstwhile-excluded sector in the future, there will be a provision to allow the exporters to claim benefit even if they have not indicated their intent to claim in the shipping bill.
- Under the MEIS scheme, sale of credit scrip was allowed? Will the same be under RoDTEP?
Yes, but it will now occur electronically through the e-scrip. The transfer from the electronic credit ledger to the receipts e-ledger will continue to be the same as before.
- Are there any country-specific guidelines like the groupings under MEIS in RoDTEP?
There are no country-specific guidelines under RoDTEP. However, there do lie some exceptions:
For exports to Nepal, Bhutan and Myanmar, duty credit shall be allowed only upon realization of sale proceeds in freely convertible currency and against irrevocable letter of credit by the importer.
- Notification explained: Value of goods for calculation of duty credit be declared export FOB value or 1.5 times market price, whichever is less
When you are exporting goods to be used in Project Exports (engineering projects set up outside India), the value of the goods need not be the same value for which you procured it because there is a service component that is also eligible on those products. The exaggerated amount is thus, the entire project value money that one gets when they set up a project.
Keeping this in mind, the Government of India has put a value cap for those kinds of project exports. For instance, with this, even if the value of a component is Rs 100, you can enhance the value to Rs 140 to claim the drawback, i.e 1.5 times the market price.This is only related to project exports and not normal exports. Normally, it is 100 percent of the imported value.
- If 100% EOUs and SEZ units are being considered to be included, why are products manufactured under EHTP and BTP still ineligible?
This is a point that needs to be taken up by the RoDTEP committee because as per distinction made by the Ministry of Commerce in the Foreign Trade Policy, EHTP (Electronics Hardware Technology Parks) fall under 100% EOUs and the exporters are incurring the same duty and tax incidence. Their exclusion could deprive exporters operating in these areas from redeeming the benefit even though they are incurring the same duty incidence.
Paving Way For A New Regime
The RoDTEP scheme is by no way perfect.
Nonetheless, the inclusion of the WTO-approved scheme that is aimed that providing relief to exporters and helping them gain an edge in the international market where they are dangerously outweighed by monetary constraints still seems to be a step towards the right direction.
And with the government being open to suggestions from industry councils, there is hope for the scheme to become a big harbinger of success, falling in line with the Make In India initiative. The onus now lies on beneficiaries of the schemes to make its move towards contributing to that success.
The article is based on the session “RoDTEP” – Benefits, Challenges and the Way Forward” by P.Sridharan and R. Srinivasan which was hosted by ELCINA