MAY 30, 2015

By Praveen Kashyap & Aparna Sharma

ON 01 April 2015, the Minister of State Commerce and Industry, Smt. Nirmala Sitharaman announced the much awaited Foreign Trade Policy for 2015-2020 ('FTP'). The new FTP endeavours to give impetus to several initiatives such as 'Make in India', 'Digital India', 'Skills India' etc. undertaken by the new Government as a measure to revive the economic environment of the country.

The new FTP seeks to provide a stable environment for foreign trade in goods and services. It also seeks to encourage and promote exports from various sectors, thereby, providing them an opportunity to gain global competitiveness.

The new FTP has pursued to overhaul the benefits available on export of goods and services under chapter 3 of the erstwhile FTP. For exporter of goods, a plethora of schemes with different eligibility and usage criteria has been done away with, and what remains is a single benefit available for all exporters of goods as specified by the Government; for exporters of services, the erstwhile Served from India scheme has been replaced with the new 'Service Export from India Scheme'.

Conditions for benefits available under Chapter 4 (DFIA/ Advance Authorization/ Drawback) and Chapter 5 (Export Promotion Capital Goods Scheme) have also been simplified to a certain extent. Also in order to take a step forward towards Make in India' policy, Indigenous procurement for export against the licences obtained under Chapter 4 & 5 shall now result in reduction of export obligation.

To understand the new schemes better, we hereunder provide a snapshot of the same.

1) Merchandise Export from India Scheme ('MEIS')

- About the Scheme

The objective of introducing the said scheme, as mentioned in the Policy, is to offset the costs related to infrastructural inefficiencies and to encourage export of goods with high export intensity and employment opportunities.

With the launch of the MEIS, the Government has taken a step towards providing 'Ease of doing business' by doing away with the multiple schemes and applicable eligibility criteria and prescribing a single scheme of benefits available on export of goods. The new scheme has been formulated by merging five erstwhile schemes namely, FMS, FPS, MLFPS, VKGUY, and AIIS.

- Eligibility

The Government has prescribed a list of goods, which when exported to specified countries, shall entitle the exporter to claim benefit under the scheme. To promote sale of goods through e-commerce, the Government has also provided rewards for goods sent/ sold through courier or foreign post offices. The Government has categorized the various countries into 3 Groups - Group A (developed countries), Group B (developing countries) and Group C (under-developed countries).

Supporting manufacturer, with a declaration from the principal manufacturer, can claim the benefit under MEIS.

Further, as a major step to encourage and promote exporters to operate under the Special Economic Zones, the government has extended the benefits under MEIS to units operating from SEZs.

To avail the benefits under the scheme, exporter of goods shall have to file an application in Form ANF 3A within 12 months from the 'Let Export' date or three months of receiving shipping bills, whichever is later.

- Benefits and Usage

a) The benefit available under the scheme ranges from 2% - 5% of the FOB value of goods exported.

b) The exporter shall be able to utilize the duty scrips availed under the scheme towards payment of customs duty, excise duty, and service tax.

c) The scrips are freely transferable.

- Restrictions

The Government has imposed restriction on certain categories of exports, and goods which shall not be eligible for availing benefit under the said scheme.

2) Service Exports from India Scheme ('SEIS')

- About the Scheme

The erstwhile Served from India Scheme ('SFIS') has been replaced with a new scheme of SEIS under which the service exporters shall be eligible to claim benefit for the services so exported by them. The new scheme shall be available for 'Service providers located in India' , whereas the erstwhile scheme was available to 'Indian Service Providers' . This clarity has been brought in, in light of the judgment of the High Court of Delhi in the matter of Yum Restaurants India Private Limited - 2015-TIOL-225-HC-DEL-CUS wherein the department had alleged that Indian subsidiaries of foreign companies shall not be eligible for benefit under SFIS.

- Eligibility

Exporters of services as notified under the FTP shall be eligible to claim benefits under the said scheme. To be eligible to claim benefit under the said scheme the exporter should have a Net Free Foreign Exchange Earning (NFE) of at least USD 15,000 (USD 10,000/- for proprietors). To claim the benefit under the said scheme, an application will have to be made in Form ANF 3B within 12 months from the end of the relevant financial year.

One important change is that having a valid IEC at the time of export of services is essential to claim benefit under this scheme.

- Benefit

a) The benefit available under the scheme ranges from 3% - 5% of the value of services exported.

b) The exporter shall be able to utilize the duty scrips availed under the scheme towards payment of customs duty, excise duty, and service tax.

c) The scrips are freely transferable

- Restrictions

The Government has provided a list of services/ service providers which shall be ineligible for the benefit under the scheme.

Major Differences between the erstwhile FTP and FTP 2015-2020

Summary

All in all, the new scheme provides a simplified and streamlined procedure for claiming and utilizing the benefits for bringing in foreign exchange to the country. The conditions for availing benefits, maintaining physical records and filing obligations have also been simplified for the benefit of exporters. What remains is that all the exporters of goods and services should now carefully examine the availability and applicability of the scheme to their business and make the most of the benefits allowed by our Government.

In passing: A clarification is required to be issued to eliminate the anomaly from the speech of the Minister wherein it was explicitly mentioned that the schemes of MEIS and SEIS were intended to be made available for the SEZ Units; however, the same was specifically excluded from the SEIS. We expect that a clarification will be issued soon.