India: Government Notifies RoDTEP Scheme Guidelines And Rebate Rates

In September 2019, Hon'able Finance Minister Nirmala Sitharaman had announced the introduction of the Remission of Duties or Taxes on Export Products (RoDTEP) scheme for Indian exporters to boost Indian exports.

With effect from 1 January 2021, the erstwhile Merchandise Export from India Scheme (MEIS) was discontinued and replaced by the RoDTEP scheme. The exporters were instructed to declare their intent to claim the RoDTEP rebate in shipping bills filed w.e.f 1 January 2021. However, the scheme has been inactive for the last eight months due to the unavailability of rates and guidelines. The exporters were eagerly waiting to quantify their benefits and understand the procedure to claim the same.

After nearly two years of anticipation, the scheme guidelines and rates for 8555 tariff items were ultimately notified on 17 August 2021.

Objective

The primary objective of the RoDTEP scheme is to refund such duties and taxes (at the Central, State and local level) borne on inward procurements used in exports, which currently forms part of the cost for manufacturers. Such duties and taxes include prior stage cumulative indirect taxes on goods and services used in the production of the exported product and such indirect taxes in respect of the distribution of exported products.

Determination of RoDTEP rates by the RoDTEP committee

The scheme is said to operate on a budgetary framework for each financial year -

• The overall budget outlay and projected remission for the scheme will be finalized by the Ministry of Finance (MOF), basis which, ceiling rates will be determined by the Department of Revenue (DOR).
• This may necessitate calibrations and revisions at the beginning of each financial year to meet the budgetary limit.

Ineligible categories under the RoDTEP scheme

Following categories, items and supplies would not be eligible to claim RoDTEP rebate -

• Products manufactured or exported by a unit *
  • Licensed as 100% Export Oriented Units (EOUs) (as per Foreign Trade Policy,i.e., FTP)
  • Situated in the Free-trade Zone (FTZ) and Export-processing Zone (EPZ)
  • Special Economic Zone (SEZ)
• Products manufactured or exported in discharge of export obligation against *
  • Advance authorization (AA) scheme
  • Duty free import authorization (DFIA)
  • Special advance authorization issued under a duty exemption scheme of relevant FTP

*Please note – It has been clarified that the inclusion of exports made by the above-excluded units under this scheme is still under review. Its effective implementation date and RoDTEP rates will be decided basis the recommendations made by the RoDTEP committee.

Other ineligible categories

• Deemed export.
• Supplies of products manufactured by Domestic Tariff Area (DTA) units to SEZ/Free Trade Warehousing Zone (FTWZ) units.
• Products manufactured in Electronic Hardware Technology Park (EHTP) and Bio-Technology Parks (BTP) units.
• Products manufactured partly or wholly in a warehouse Section 65 under Customs Act, 19622 (recognized commonly as 'MOOWR, 2019' scheme).
• Re-export or imported goods exported in the same or substantially the same form.
• Exports via trans-shipment, i.e., exports originating in the third country but trans-shipped via India.
• Export products that are subject to minimum export price or export duty.
• Products restricted or prohibited under the export policy.
• Products manufactured or exported availing exemption of customs duty in imported goods for jobbing, re-exported within six months, utilized only to discharge an export obligation, etc.
• Exports from non-EDI ports for which electronic documentation on ICEGATE is not generated.
• Goods taken into use after manufacture.

RoDTEP rebate benefit and utilization

• The RoDTEP rates and the value cap per unit have been notified under Appendix 4R of FTP for the 8-digit export HS code. The currently notified rebate rate ranges from 0.01% to 4.3%.
• The rebate would be available to the eligible exporters at the notified rate as a % of the FOB value of the exported product (subject to value cap per unit).
• The e-scrips issued under this scheme can be used for payment of Basic customs duty only, freely transferrable¹.

Key condition to avail the rebate

• As against other FTP schemes where scrips are issued, under RoDTEP, the rebate will be available upon export of goods. The sale proceeds are to be received within the time limits as prescribed by the RBI (i.e., within nine months/15 months/as extended).
• However, in case the sale proceeds are not received within the allowed time limit, the rebate shall be deemed never to have been allowed, and exporters are expected to repay the same.

Following is yet to be notified

• Sequence and prioritization of sectors for the introduction of the scheme.
• Degree of benefit to be given on various items with the limit of rates and ceiling prescribed (on per item or total overall benefit amount).
• Rules and procedures regarding -
  • Grant of RoDTEP claim;
  • Manner and time period of application;
  • Export documentation, sampling procedures, record keeping, etc.
• Provisions regarding recovery of rebate amount where forex is not realized, suspension and withholding of RoDTEP in case of frauds and misuse, etc.
• Penalty provision under the scheme.
• Residual issues.

Our Comments

The anticipation throughout the industry has come to a conclusion, as the government has finally announced the RoDTEP. However, with still many open ends such as manner of application and grant of claim, the industry will still have to juggle and wait to receive the rebate benefit in their hands. The current notification will aid in quantifying the expected RoDTEP benefit in their audited financial statements.

Also, apart from EOUs and SEZs who are kept under abeyance from the scheme, three industries - steel, chemicals and pharmaceuticals would feel left out as the RoDTEP rates are not notified for these industries.

Lastly, it is very pertinent to note that the year-on-year RoDTEP rebate will be decided basis the budget outlay for the scheme. Currently, nearly INR 130 billion has been set aside for FY 2022 (and another INR 60 billion for Rebate of State and Central Levies and Taxes [RoSCTL]), which is nearly half the budget of its predecessor, the MEIS scheme. However, this scheme will at least initiate the benefit and, with wider coverage of products, will pave a path towards reaching the 1 trillion exports ambition.

The benefit holders will have to hold their horses and await the sequel notification that will be issued in this regard.

Footnote

1. The transferability aspect needs some further clarification, however earlier issued drafts suggest inclination towards the same

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.