BACKGROUND
The Remission of Duties and Taxes on Exported Products (‘RoDTEP’) Scheme is coalescence between the Merchandise Export from India Scheme (‘MEIS’) and Rebate of State and Central Taxes and Levies (‘RoSCTL’).
The RoDTEP Scheme was brought in by the Ministry of Finance as a novation or substitute to the existing MEIS. The RoDTEP Scheme has been effective from 01.01.2021.
The Ministry of Finance, Government of India through a Press Conference announced the RoDTEP Scheme on 14.09.2019 with an aim to expand the export market of the country by incentivising the exporters. The primary objective of the RoDTEP Scheme is to provide rebate for embedded duties and taxes, which are not refunded under any other scheme, ranging from 0.01% to 4.3%; in compliance with the World Trade Organization (‘WTO’) norms.
Initially, the RoDTEP Scheme was proposed to be effective from April 2020, but later the Central Government extended the benefits of the MEIS till 31.12.2020.The Ministry of Commerce and Industry vide Notification No. 19/2015-20 dated 17.08.2021 (‘Notification’) has now notified the Scheme Guidelines for RoDTEP.
The Central Bureau of Indirect Taxes and Customs (‘CBIC’) shall further notify the detailed rules and procedures for claiming remission under the Scheme on an IT-enabled platform to facilitate end-to-end digitization.
What was the need for introduction of the RoDTEP Scheme?
The need for a new RoDTEP Scheme was felt when the United States initiated a dispute agains tIndia challenging its multiple subsidy schemes in March 2018, including the MEIS, alleging that India was providing export subsidies which were prohibited under Subsidies and Countervailing Measures Agreement (‘SCM Agreement’).
The WTO Dispute Settlement Panel ruled in favour of the United States by declaring the schemes to be inconsistent with the WTO Agreements and India was directed to withdraw the prohibited subsidies in a time frame of six months.
Thus, in an effort to craft and implement a WTO trade norms compliant mechanism, the RoDTEP Scheme was introduced.
Who are the regulatory authorities for the RoDTEP Scheme?
The RoDTEP Scheme was notified by the Department of Commerce. The Department of Revenue is responsible for the administration of the RoDTEP Scheme. The Budgeting and Outlaying Mechanism for the RoDTEP Scheme has to be decided and finalised by the Ministry of Finance after consultations and deliberations with the Department of Commerce.
Representations from the Department of Revenue, Department of Commerce, Directorate General of Foreign Trade (‘DGFT’), Line Ministries and Sectoral Experts shall constitute a Committee tasked with the function of determining ceiling rates under the RoDTEP Scheme.
Other residual issues with respect to the Rules and Regulations shall be considered and formulated by the RoDTEP Policy Committee, chaired by the DGFT. The Committee shall have the binding force with respect to any decision made in this behalf.
MECHANISM FOR ISSUANCE OF REBATE
How are duties and taxes on exported products remitted under the Scheme?
The RoDTEP Scheme was implemented in compliance with the WTO trade norms and the SCM Agreement.It prescribes benefit in the form of rebate, which is a percentage of the Freight on Board (‘FOB’) value of exports capped per unit of exported product, as specified in Appendix 4Rof the Notification.
Rebate under the RoDTEP Scheme is provided through transferrable duty credit/electronic scrip (‘e-Scrip’), which to be maintained in the electronic ledger by CBIC. Under the RoDTEP Scheme, the e-scrips can be utilized for the payment of Basic Customs Duty (‘BCD’) leviable under the First Schedule of the Customs Tariff Act, 1975 only.
Hence, the RoDTEP Scheme provides for remission of duties and taxes on exported products by utilization of the e-scrips for payment of such duties and taxes, for the eligible products up to the permissible limit as laid down by Appendix 4R of the Notification.
How is RoDTEP Scheme different from MEIS?
MEIS was one of the two schemes contrived under the Foreign Trade Policy of India (FTP 2015-20) by the Central Government with a view to increase the competitive advantage of India, thus generating employment opportunities. The main objective behind the MEIS was to offset infrastructural inefficiencies and the associated costs of exporting products produced in India.
Contrastingly, the RoDTEP Scheme was introduced in the FTP 2015-20 as a result of the dispute raised by the United States against India’s MEIS and other export subsidy schemes. Although both the Schemes have a similar objective of promoting export and enhancing India’s competitive advantage, the major difference exists in the mode of benefit. MEIS grants benefits by way of incentives, whereas, RoDTEP Scheme offers rebate on taxes and duties on exported products.
Additionally, the incentivized products and the rate of incentive (2% to 7%) under the MEIS is significantly higher than the products on which rebate can be claimed under the RoDTEP Scheme and its rate of rebate (0.1% to 4.3%). The RoDTEP Scheme has excluded sectors including pharmaceuticals, chemical, steel, etc. from the purview of is benefit.
However, the most important point of difference between the two Schemes is that, the MEIS was found to be in contravention of the SCM Agreement of WTO by the WTO Panel; whereas, the RoDTEP Scheme was introduced by the Government of India for the sole purpose to provide export benefit through a Scheme which is compliant with the WTO trade norms.
Why ‘remission’, and not incentive?
The Cambridge Dictionary defines remission as “the process of reducing the amount of money that is owed for something or stating that it no longer needs to be paid”. In context of the RoDTEP Scheme, remission refers to the reduction or refund of taxes or duties on export products.
The WTO Rules and the SCM Agreement expressly prohibit Export Subsidies as they grant an unfair competitive advantage to the recipients. The applicability of these Rules is exempted on specific developing countries which may provide export subsidies temporarily until the country obtains certain economic growth.
India was initially exempted from the applicability of these Rules; however, it met the set economic benchmark in 2015. Hence, India cannot claim exemption under the Rules anymore.
Thus, the United States challenged the existing export subsidy schemes of India as they were anti-competitive in nature. To comply with the WTO Panel’s decision, the Government of India introduced a Scheme which does not provide any export subsidy by way of incentives; but which reduces or refunds tax or duty on exported products.
Hence, the RoDTEP Scheme does not directly incentivize export activities, but rather provides for remission of taxes or duty on exported products which indirectly contributes towards increased export activity. The strategy adopted by the Government attempts to ensure compliance with the WTO norms, however, the exporters may be at loss as the rate of benefit granted under RoDTEP Scheme is significantly less in comparison to the MEIS.
What are the taxes and duties over which the benefit under RoDTEP Scheme can be claimed?
RoDTEP Scheme envisages the refund of duties and/ or taxes incurred by the exporters, which are not refunded under any other scheme present at the Central, State and Local level.The taxes or duties include the following:
- Value Added Tax on fuels
- Excise Duty on fuels
- Coal Cess
- All Embedded Taxes
- Central/ State Taxes on Fuels
- State Electricity Duty
- Mandi Taxes by Agricultural Produce and Livestock Market Committee
- Municipal Taxes
- Property Taxes
- Toll Tax
- Stamp Duty
- Central Goods and Services Tax, State Goods and Services Tax, Integrated Goods and Services Tax and Compensation Cess on products over which Input TaxCredit cannot be claimed due to Section 17(5) of the Central Goods and Services Tax Act, 2017 or due to the default of suppliers
Are any time-bound restrictions applicable on the claim of benefit under RoDTEP Scheme?
According to Clause 4.54 (viii), rebate shall be granted under the RoDTEP Scheme when the sale proceeds are received within the time period prescribed under the Foreign Exchange Management Act, 1999. Failure to receive sale proceeds within the said time period shall deem the rebate to have never been allowed.
It is pertinent to note that grant of rebate will not depend upon the realization of sale proceeds when such rebate is issued. However, the RoDTEP Scheme prescribes adequate safeguard measures to prevent grant of rebate on non-realization of the proceeds.
ELIGIBILITY TO CLAIM REFUNDS UNDER THE RoDTEP SCHEME
What products are eligible?
The RoDTEP Scheme specifically provides that all exporters who export such products or services as are covered under the Appendix 4R of the Notification would be eligible to claim refunds under the RoDTEP Scheme, provided that refund has not been claimed over such product under any other Scheme.
No turnover requirement has been prescribed by the Notification for claim of refund. However, the refunds would be granted subject to the fulfilment of conditions as would be provided under the RoDTEP Scheme.
What products are not eligible?
The RoDTEP Scheme specifically lays down the following exports which are not eligible to claim rebate under Clause 4.55 of the RoDTEP Scheme:
i. Export of imported goods covered under Para 2.46 of FTP
ii. Exports through trans-shipment, meaning thereby exports that are originating in third country but trans-shipped through India
iii. Export products which are subject to Minimum export price or export duty
iv. Products restricted for exports under Schedule-2 of Export Policy in ITC (HS)
v. Products prohibited for exports under Schedule-2 of Export Policy in ITC (HS)
vi. Deemed Exports
vii. Supplies of products manufactured by DTA units to SEZ/FTWZ units
viii. Products manufactured in EHTP and BTP
ix. Products manufactured in a warehouse under Section 65 of Customs Act, 1962
x. Products manufactured or exported in discharge of export obligation against an Advance Authorization or Duty-Free Import Authorization, or Special Advance Authorization issued under a Duty Exemption Scheme
xi. Products manufactured or exported by a unit licensed as 100% Export Oriented Unit (EOU)
xii. Products manufactured or exported by units situated in Free Trade Zones or Export Processing Zones or Special Economic Zones
xiii. Products manufactured or exported availing benefit of the Notification No. 32/1997-Customs dated 1st April, 1997
xiv. Exports for which electronic documentation in ICEGATE EDI has not been generated/ Exports from non-EDI ports
xv. Goods taken into use after manufacture
What products may become eligible on a later date?
The exports under Clause 4.55 (x), (xi) and (xii) may become eligible for the benefit under RoDTEP Scheme, based on the recommendations of the RoDTEP Committee. The aforementioned export products are:
- Products manufactured or exported under the Advance Authorization or Duty-Free Import Authorization;
- Products manufactured or exported from 100% EOU; and
- Products manufactured or exported by the FTWZ, EPZ or SEZ units.
AUDIT, VERIFICATION AND RISK MANAGEMENT
How will audit, verification and risk management be undertaken in RoDTEP?
For the purpose of audit and verification under this Scheme, CBIC requires the exporter to keep records substantiating claims under the RoDTEP Scheme. Further, a monitoring and audit mechanism with an information technology (‘IT’) based Risk Management System (‘RMS’) has now been implemented for efficient management of risk.
AMLEGALS REMARKS
The RoDTEP Scheme has been introduced at a crucial time, as the Indian economy is recovering from the impact of COVID-19.The Scheme intends to boost the export participation of the country, thus uplifting the economy. Further, the RoDTEP Scheme is in consonance with the WTO’s trade norms.
The Notification and its Appendix lays down the refund rates applicable on a variety of exported products. Hence, exporters can now estimate the cost of production accordingly and claim refund on BCD as applicable.
It is pertinent to note that the rates could be notified much earlier than it was so as to enable the exporters to revive their businesses from the repercussions of COVID-19. This delay has negatively impacted multiple exporters. However, it is expected that significant recovery will be made by the exporters now after notification of the refund rates.
Further, the RoDTEP Scheme itself possesses pitfalls, such as exclusion of sectors like pharmaceuticals, chemicals, steel, SEZ, etc. from the claim of refund under RoDTEP Scheme; which is likely to severely affect the business operations of such exporters.
– Team AMLEGALS, assisted by Mr. Adinath Lokhande and Ms. Rhishika Srivastava (Interns)
For any query or feedback, please feel free to connect with chaitali.sadayet@amlegals.com or riddhi.dutta@amlegals.com.
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