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Export Incentives

The Government of India has framed several schemes to promote exports and to obtain foreign exchange. These schemes grants incentive and other benefits. The few important export incentives, from the point of view of indirect taxes are briefed below:

Free Trade Zones (FTZ)

Several FTZs have been established at various places in India like Kandla, Noida, Cochin, etc. No excise duties are payable on goods manufactured in these zones provided they are made for export purpose. Goods being brought in these zones from different parts of the country are brought without the payment of any excise duty. Moreover, no customs duties are payable on imported raw material and components used in the manufacture of such goods being exported. If entire production is not sold outside the country, the unit has the provision of selling 25% of their production in India. On such sale, the excise duty is payable at 50% of basic plus additional customs or normal excise duty payable if the goods were produced elsewhere in India, whichever is higher.

Electronic Hardware Technology Park / Software Technology Parks

This scheme is just like FTZ scheme, but it is restricted to units in the electronics and computer hardware and software sector.

Advance Licence / Duty Exemption Entitlement Scheme (DEEC)

In this scheme advance licence, either quantity based (Qbal) or value based (Vabal), is given to an exporter against which the raw materials and other components may be imported without payment of customs duty provided the manufactured goods are exported. These licences are transferable in the open market at a price.

Export Promotion Capital Goods Scheme (EPCG)

According to this scheme, a domestic manufacturer can import machinery and plant without paying customs duty or settling at a concessional rate of customs duty. But his undertakings should be as mentioned below:

  • Customs Duty Rate
  • Export Obligation
  • Time

  • 10%
  • 4 times exports (on FOB basis) of CIF value of machinery.
  • 5 years

  • Nil in case CIF value is Rs200mn or more.
  • 6 times exports (on FOB basis) of CIF value of machinery or 5 times exports on (NFE) basis of CIF value of machinery.
  • 8 years

  • Nil in case CIF value is Rs50mn or more for agriculture, aquaculture, animal husbandry, floriculture, horticulture, poultry and sericulture.
  • 6 times exports (on FOB basis) of CIF value of machinery or 5 times exports on (NFE) basis of CIF value of machinery.
  • 8 years

  • NFE stands for net foreign earnings.
  • CIF stands for cost plus insurance plus freight cost of the machinery.
  • FOB stands for Free on Board i.e. export value excluding cost of freight and insurance.

Deemed Exports

The Indian suppliers are entitled for the following benefits in respect of deemed exports:
  • Refund of excise duty paid on final products
  • Duty drawback
  • Imports under DEEC scheme
  • Special import licenses based on value of deemed exports

The following categories are treated as deemed exports for seller if the goods are manufactured in India:
  • Supply of goods against duty free licences under DEEC scheme
  • Supply of goods to a 100 % EOU or a unit in a free trade zone or a unit in a software technology park or a unit in a hardware technology park
  • Supply of goods to holders of licence under the EPCG scheme
  • Supply of goods to projects financed by multilateral or bilateral agencies or funds notified by the Finance Ministry under international competitive bidding or under limited tender systems in accordance with the procedures of those agencies or funds where legal agreements provide for tender evaluation without including customs duty
  • Supply of capital goods and spares upto 10% of the FOR value to fertilizer plants under international competitive bidding
  • Supply of goods to any project or purpose in respect of which the Ministry of Finance permits by notification the import of goods at zero customs duty along with benefits of deemed exports to domestic supplies
  • Supply of goods to power, oil and gas sectors in respect of which the Ministry of Finance permits by notification benefits of deemed exports to domestic supplies

Manufacture Under Bond

This scheme furnishes a bond with the manufacturer of adequate amount to undertake the export of his production. Against this the manufacturer is allowed to import goods without paying any customs duty, even if he obtain it from the domestic market without excise duty. The production is made under the supervision of customs or excise authority.

Duty Drawback

It means the rebate of duty chargeable on imported material or excisable material used in the manufacturing of goods in and is exported. The exporter may claim drawback or refund of excise and customs duties being paid by his suppliers. The final exporter can claim the drawback on material used for the manufacture of export products. In case of re-import of goods the drawback can be claimed.

The following are Drawbacks:
  • Customs paid on imported inputs plus excise duty paid on indigenous imports.
  • Duty paid on packing material.

Drawback is not allowed on inputs obtained without payment of customs or excise duty. In part payment of customs and excise duty, rebate or refund can be claimed only on the paid part.

In case of re-export of goods, it should be done within 2 years from the date of payment of duty when they were imported. 98% of the duty is allowable as drawback, only after inspection. If the goods imported are used before its re-export, the drawback will be allowed as at reduced percent.