DGFT policies for exporters

The Pillars of DGFT Export Promotion

The current Foreign Trade Policy (FTP 2023) is built on a foundation of shifting from incentive-based schemes to remission and entitlement-based schemes, prioritizing Ease of Doing Business through digitalization, and promoting exports from every corner of India.

The three cornerstones of this policy for exporters are:

1. Advance Authorisation (AA) Scheme: Duty-Free Raw Materials

The Advance Authorisation (AA) scheme is crucial for manufacturers who rely on imported inputs. It ensures that the final exported product is exempt from the duties levied on the raw materials used in its creation, making the export price instantly more attractive.

How it Works

1. Authorization: The DGFT grants an authorization permitting the duty-free import of inputs that are physically incorporated into the export product.

2. SION Norms: The quantity of inputs allowed for import is determined by the Standard Input-Output Norms (SION) specified for the exported item.

3. Export Obligation (EO): The exporter must use the imported inputs to manufacture and export the final product within a specified timeframe (typically 18 months).

Key Benefit: Exemption from Basic Customs Duty (BCD), Additional Customs Duty, and Integrated Goods and Service Tax (IGST) on the imported inputs.

2. Export Promotion Capital Goods (EPCG) Scheme: Zero-Duty Machinery

For businesses looking to upgrade their production lines with world-class technology, the EPCG scheme offers a significant financial advantage.

How it Works

1. Import: The exporter is allowed to import specified Capital Goods (machinery, equipment, jigs, fixtures, etc.) at Zero Customs Duty and IGST/Cess.

2. Export Obligation (EO): In return, the exporter undertakes a mandatory Export Obligation (EO) equivalent to 6 times the total duty saved on the imported capital goods.

3. Timeframe: This EO must be fulfilled over a period of 6 years from the date of the authorization.

Key Benefit: Major reduction in capital expenditure, allowing for rapid technological upgrade and enhanced manufacturing efficiency.

3. RoDTEP Scheme: The Refund of Embedded Taxes

The Remission of Duties and Taxes on Exported Products (RoDTEP) scheme is a WTO-compliant replacement for the old MEIS scheme. Its goal is to neutralize the embedded taxes and duties that were previously non-refundable, thereby strengthening the principle of ‘goods are exported, but taxes are not.’

How it Works

1. Identification: It identifies and refunds the costs of Central, State, and Local levies incurred at prior stages of production that are not covered by GST refunds or Duty Drawback.

   • Examples: VAT on fuel, Mandi Tax, Electricity Duty, and non-creditable input taxes.

2. e-Scrip: The refund is provided in the form of a transferable Electronic Duty Credit Scrip (e-scrip), which can be used to pay Basic Customs Duty on future imports or sold to other importers for cash.

3. Coverage: The scheme covers a vast range of sectors, and in a recent key move, RoDTEP benefits have been extended to exports made by Advance Authorisation (AA) holders, EOUs, and SEZ units (subject to specific notifications and integration).

Key Benefit: Directly enhances the competitiveness of Indian exports by compensating for hidden costs.

Trade Facilitation: The Digital and Progressive DGFT

The DGFT’s current mandate under the FTP 2023 is heavily focused on making the business environment seamless and digital:

• Digitalization and Automation: Most processes, including IEC issuance, application for AA/EPCG, and scrip issuance (RoDTEP/RoSCTL), are now entirely online through the DGFT portal, reducing manual intervention and processing time.

• e-Commerce Focus: Recognizing the huge potential of online cross-border sales, the FTP is establishing a framework for e-commerce Export Hubs and simplifying compliance for small exporters using postal and courier services.

• Amnesty Scheme: The DGFT periodically introduces an Amnesty Scheme for exporters who failed to meet their Export Obligations under older AA or EPCG authorizations, allowing them a one-time opportunity to regularize their old cases by paying the customs duty and a significantly reduced interest rate. This offers a “fresh start.”

• District as Export Hubs (DEH): This initiative focuses on decentralized export promotion by identifying products with export potential in every district and providing targeted support.

Your Roadmap to DGFT Compliance and Benefits

To successfully leverage these schemes, every exporter needs two fundamental registrations:

1. Importer Exporter Code (IEC): The mandatory 10-digit number issued by the DGFT.

2. Registration-cum-Membership Certificate (RCMC): Obtained from the respective Export Promotion Council (EPC) or FIEO, proving registration as an exporter of a specific product category.