Fate of export incentive schemes –SEIS, MEIS and RoDTEP

by | Sep 18, 2020 | Insight | 1 comment

In the past, the Government had been focusing on export promotion to improve foreign trade. To foster the same, Ministry of Commerce and Industry introduces Foreign Trade Policy (‘FTP’) every five years. The validity of FTP 2015-20 was extended till March 31, 2021 amid COVID-19.

In past few months, there is growing uncertainty on fate of various export incentive schemes granted through FTP 2015-20. Vide this update, we wish to apprise you regarding status of referred schemes as on date:

A. Service Export Incentive Scheme (‘SEIS’)

Period

Status

NITYA Comments

Financial Year (‘FY’) 2019-20

Eligible service categories and reward rate is yet to be notified

It is unjust at Government’s end to keep exporters in uncertainty regarding fate of SEIS for both these years. The exporters of services will be forced to charge higher price of their services on the assumption that such benefits will not be given.

 

For FY 2019-20, there is a possibility of reduction in category of eligible services and rates. In case Government reduces this benefit as compared to FY 2018-19, exporters can consider challenging the same before the High Court being retrospectively denying benefit and against doctrine of legitimate expectation. 

FY 2020-21

Government is yet to decide on continuation of this scheme

 

 

B. Merchandise Export Incentive Scheme (‘MEIS’)

Period

Status

NITYA Comments

April to August 2020

MEIS benefit is not released as online MEIS module for accepting new MEIS applications is blocked from July 23, 2020.

 

During this tough time of COVID-19, Government should consider immediate grant of scrips to ease working capital needs of exporters.

 

September to December 2020

MEIS benefit is capped to Rs. 2 crore per Importer Exporter Code (‘IEC’). Further, there is overall cap of Rs.5,000 crore for this benefit. If total claims for this period exceed Rs.5,000 crore, MEIS benefit will be further pruned.

 

Restriction of benefit will adversely impact large exporters who can consider challenging this restriction before the High Court. Please refer to ‘NITYA Insight | Issue 175 | Restriction on MEIS benefits amenable to challenge before Constitutional Courts’ discussing the issue in detail.

 

January 2021 onwards

 

MEIS benefit will be discontinued.

 

We have discussed the same in detail in succeeding paragraphs.

 

 

C. Remission of Duties and Taxes on Exported Products Scheme (‘RoDTEP’)

  • In October 2019, the World Trade Organisation (‘WTO’) ruled that Indian export subsidy schemes inter-alia including MEIS, EOU, SEZ, etc. were violative of the Agreement on Subsidies and Countervailing Measures (‘SCM Agreement’). Accordingly, India was directed to remove said schemes. Presently, India has appealed against this decision before the WTO’s Appellate Body which is pending adjudication.
  • Apropos MEIS, the WTO held that purpose of MEIS was to offset infrastructural inefficiencies and associated costs (not to compensate any tax costs) which is impermissible under SCM Agreement. Accordingly, Government has decided to replace MEIS with RoDTEP w.e.f. from January 2021.
  • For being compliant with SCM Agreement, Government has stated that RoDTEP will reimburse indirect taxes and duties involved in manufacturing of export product which are not being credited / reimbursed under any scheme.
  • RoDTEP aims to inter-alia reimburse following taxes:

                – VAT and Excise duty paid on fuel

                – Electricity duty

                – Stamp duty

               – Embedded GST where no ITC is available

  • The Government has not yet notified precise details of scheme as well as rates under RoDTEP.
  • Vide document bearing File No. 605/22/2020-DBK/862-932 dated August 10, 2020, the CBIC has sought data from Export Promotion Councils, Trade Industry Associations and Chambers of Commerce of aforesaid tax costs in specified formats (Form R1, R2 and R3). The key aspects of data sought are as under:

                 – Exporters need to calculate tax incidence borne by them on export goods.

                 – For computing tax incidence, only taxes / duties not refunded / reimbursed under any of prevailing schemes need to be reckoned. These include local bodies levies such as property tax, sewage tax, professional tax, electricity duty etc.

                 – Data needs to be submitted product wise and common cost needs to be apportioned basis turnover.

                 – Trade associations have been asked to provide data of at least 5 units for each product.

NITYA Comments:

 The effectiveness of transition from MEIS to RoDTEP is uncertain due to lack of formal and clear information. The manner and form of data sought from exporters is cumbersome and impractical given the details required to be submitted. 

Irrespective, exporters need to diligently work and submit maximum data and information to the RoDTEP Committee. While submitting the data, exporters need to provide details of direct costs and should also reckon all hidden costs like taxes and duties embedded in following:

  • Fuel in case of FOR or CIF procurements, built in purchase cost
  • Fuel for employee transportation, built in transportation cost
  • Taxes at job-workers, built in job-charges
  • Taxes incurred by power generation and distribution companies, built in power cost

 Exporters should also request RoDTEP Committee for releasing detailed legislative framework well in advance from date of implementation date of RoDTEP i.e. January 2021. In case of delay, exporters should represent for extension in introduction of this scheme and continuation of all existing schemes.

 Notably, the Finance Minister during her speech on September 14, 2019 stated that RoDTEP will more than adequately incentivize exporters than existing schemes put together. However, the reality seems to be different. In our view, the incidence of Indirect taxes sought to be covered under RoDTEP is much lower than existing MEIS benefit.

 Therefore, benefits under RoDTEP are likely to be much lower than present MEIS benefit. Hence, there is likely to be significant reduction in export incentives to exporters if RoDTEP is introduced in this form and MEIS is discontinued. Exporters should represent to Government to bring some mechanism (either continuation of MEIS scheme or increasing benefit sought to be given under RoDTEP) so that they continue to get at least present benefits.

 Hope you find this an interesting read. Please feel free to share your comments / feedback on the same.

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1 Comment

  1. Sharvan kumar

    Very well explained. I am a regular reader of Nitya Articles

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