Foreign Trade Policy

February 2013

Foreign Trade Policy, 2009Legal Framework

14

General Provisions regarding Import and Export

Special Focus Initiatives

Promotional Measures

Duty Exemption / Remission Schemes

Export Promotion Capital Goods Scheme

Export Oriented Units (EOUs) etc

Special Economic Zones

Deemed Exports

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Legal Framework

The Foreign Trade Policy (FTP) 2009-14 operates with effect

from 27th August 2009 till 31st March 2014
An annual supplement is issued and forms part of the FTP
The Central Government can make any amendment in the FTP
by issuing a notification in the public interest
Authorizations issued before commencement of FTP shall
continue to be valid for the purpose and duration for which such
authorization was issued
In case an export or import which is permitted freely is
subsequently subjected to any restriction or regulation, such
export or import shall continue to be freely permitted, provided
that

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The shipment of export or import is made within original validity with respect
to available balance and time period of an irrevocable commercial letter of
credit established before the date of imposition of such restriction
However, for operationalizing such irrevocable commercial letter of credit,
the applicant shall have to register the LC and contract with the concerned
RA within 15 days from the date of issue of such restriction or regulation

General Provisions

Exports and Imports free unless regulated

Compliance of Imports with Domestic Laws

Interpretation of Policy

DGFT may, specify procedure to be followed by an exporter or importer or by

any licensing/ regional authority or by any other authority

Exemption from Policy / Procedure

The decision of DGFT shall be final and binding on all matters relating to
interpretation of policy

Procedure

The norms applicable to domestically produced goods shall apply, mutatis

mutandis, to imports, unless specifically exempted

DGFT may exempt any person or class or category of persons from any
provision of FTP or any procedure and may, while granting such exemption,
impose some conditions

Principles of Restriction

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Protection of public morals

Protection of human, animal or plant life or health
Protection of patents, trademarks and copyrights, and the prevention of
deceptive practices

General Provisions

Export/Import of Restricted Goods/Services

Prevention of use of prison labour

Protection of national treasures of artistic, historic or archaeological value
Conservation of exhaustible natural resources
Protection of trade of fissionable material or material from which they are derived;
and
Prevention of traffic in arms, ammunition and implements of war
Restricted goods / services may be exported or imported only in accordance with
an Authorization / Permission/ License

Terms and Conditions of a license / Certificate / Permission /

Authorization
Every Authorization shall be valid for prescribed period of validity and shall contain
such terms and conditions as may be specified by Regional Authority (RA), which may
include:
(a) Description, quantity and value of goods;
(b) Actual User condition;
(c) Export obligation;
(d) Minimum value addition to be achieved; and
(e) Minimum export / import price

Authorization / Licence / Certificate / Permission not a Right

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General Provisions

Penalty

State Trading

Penalty may be imposed if any condition of an Authorization is violated

or export obligation is not fulfilled
Any goods, import or export of which is governed through exclusive or
special privileges granted to State Trading Enterprises (STE(s)), may
be imported or exported by STE(s) as per specified conditions. Such
goods may be imported or exported by any other person also against
an Authorization obtained from DGFT

Importer-Exporter Code (IEC) Number is mandatory unless

specifically exempted
DGFT may issue instructions or frame schemes for Trade
with Neighboring Countries
Transit Facility shall be regulated in accordance with bilateral
treaties between India and those countries

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General Provisions

Actual User Condition

Second Hand Goods

Import of second hand goods, except second hand capital goods, shall be
restricted for imports and may be imported only in accordance with the
provisions of FTP, ITC (HS), HBP v1, Public notice or an Authorization in
this regard. Import of re-manufactured goods shall be allowed only against
a license

Removal of Scrap/Waste in SEZ

Capital goods, raw materials, intermediates, components, consumables,

spares, parts, accessories, instruments and other goods, which are
importable without any restriction, may be imported by any person.
However, if such imports require an Authorization, actual user alone may
import such goods unless actual user condition is specifically dispensed
with by DGFT

Any waste or scrap or remnant generated during manufacturing or

processing activities of an SEZ Unit/ Developer/Co-developer shall be
allowed to be disposed off in DTA freely subject to payment of applicable
Customs Duty

Import of Samples

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General Provisions

Import of Gifts shall be free unless otherwise specified/ restricted

Passenger Baggage

Import on Export basis

These may be imported as part of passenger baggage without an

Authorization- household goods and personal effects, samples of items
that are freely importable, exporters coming from abroad are also
allowed to import drawings, patterns, labels, price tags, buttons, belts,
trimming and embellishments required for export
Freely exportable new or second hand capital goods, equipments,
components, parts and accessories, containers meant for packing of
goods for exports, jigs, fixtures, dies and moulds may be imported for
export without an Authorization on execution of LUT / BG with Customs
Authorities

Re-import of goods repaired abroad

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Capital goods, equipments, components, parts and accessories, whether

imported or indigenous, except those restricted under ITC (HS) may be
sent abroad for repairs, testing, quality improvement or upgradation or
standardization of technology and re-imported without an Authorization

General Provisions

Import of goods used in projects abroad

Sale on High Seas

Import under Lease Financing
Clearance of Goods from Customs

After completion of projects abroad, project contractors may import,

without an Authorization goods including capital goods used in the
project, provided they have been used for at least one year

Goods already imported / shipped / arrived, in advance, but not cleared

from Customs may also be cleared against an Authorization issued
subsequently

Execution of BG / LUT

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Whenever goods are imported duty free or otherwise specifically

stated, importer shall execute prescribed LUT / BG / Bond with
Customs Authority before clearance of goods. In case of indigenous
sourcing, Authorization holder shall furnish LUT / BG / Bond to RA
concerned before sourcing material from indigenous supplier /
nominated agency as prescribed in HBP v1

General Provisions

Private / Public Bonded Warehouses for Imports

Free Exports

Private / Public bonded warehouses may be set up in DTA. Any person may
import goods, except prohibited items, arms and ammunition, hazardous
waste and chemicals and warehouse them in such bonded warehouses. Such
goods may be cleared for home consumption whenever required. Customs
duty as applicable shall be paid at the time of clearance of such goods. If such
goods are not cleared for home consumption within a period of one year or
such extended period as the custom authorities may permit, importer of such
goods shall re-export the goods
All goods may be exported without any restriction except to the extent that
such exports are regulated by ITC (HS) or any other provision of FTP or any
other law for the time being in force. DGFT may however, specify through a
public notice such terms and conditions according to which any goods, not
included in ITC(HS), may be exported without an Authorization

Export of Samples and Free of Charge Goods

Export of Passenger Baggage

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Personal baggage may be exported either along with passenger or, if

unaccompanied, within one year before or after passenger's departure from
India. Samples of such items that are otherwise freely exportable under FTP
may also be exported

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General Provisions

Export of Gifts

Export of Spares

Warranty spares (whether indigenous or imported) of plant, equipment,

machinery, automobiles or any other goods, (except those restricted under
ITC (HS)) may be exported along with main equipment or subsequently but
within contracted warranty period of such goods subject to approval of RBI

Third Party Exports

Export of Imported Goods

Goods, including edible items, of value not exceeding Rs.5,00,000/- in a

licensing year, may be exported as a gift. However, items mentioned as
restricted for exports in ITC (HS) shall not be exported as a gift, without an
Authorization

Goods imported freely may be exported in same form or substantially same

form without an Authorization

Export of Imported Goods under Bond Procedures

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Goods, including those mentioned as Restricted for import (except

Prohibited items) may be imported under Customs Bond for export in
freely convertible currency without an Authorization provided that item is
freely exportable without any conditionality/ requirement of Authorization/
License/ permission

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General Provisions
Export of Repaired Goods shall be allowed clearance without an
Authorization
Private Bonded Warehouses for Exports are entitled to procure goods
from domestic manufactures without payment of duty and shall be
deemed as physical exports
Export of Replacement Goods

Goods or parts thereof on being exported and found defective/ damaged or otherwise
unfit for use may be replaced free of charge by the exporter and such goods shall be
allowed clearance by Customs authorities

Denomination of Export Contracts

All export contracts and invoices shall be denominated either in freely convertible
currency or Indian rupees but export proceeds shall be realized in freely convertible
currency

Realization of Export Proceeds

If an exporter fails to realize export proceeds within time specified by RBI, he shall,
without prejudice to any liability or penalty under any law in force, be liable to action.

Free Movement of Export Goods

Consignments of items meant for exports shall not be withheld / delayed for any
reason by any agency of Central / State Government. In case of any doubt, authorities
concerned may ask for an undertaking from exporter

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General Provisions

No Seizure of Stock shall be made by any agency so as to

disrupt manufacturing activity and delivery schedule of exports
Export Promotion Council (EPC) promote and develop exports
of particular group of products, projects and services
Registration -cum- Membership Certificate
(RCMC) is
required for import/ export against an Authorization or for
availing any other benefit or concession
Fiscal Incentives to promote EDI Initiatives adoption
Exemption from Service Tax on services received abroad
Regularization of EO default and settlement of Customs
duty and interest through Settlement Commission
Easing of Documentation Requirement
Exemption/ Remission of Service Tax in DTA
Exemption from Service Tax in SEZ

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Special Focus Initiatives

The Chapter on Special Focus Initiatives is broadly classified into:

Market Diversification

Technological Upgradation

Support to status holders

Agriculture and Village Industry

Handlooms

Handicrafts

Gems & Jewellery

Leather and Footwear

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Special Focus Initiatives

Marine Sector

Electronics and IT Hardware Manufacturing Industries

Sports Goods and Toys

Green products and technologies

Incentives for Exports from the North Eastern Region

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Promotional Measures
Following Promotional Measures have been taken by way of
Foreign Trade Policy 2009-14:

Assistance to States for Developing Export Infrastructure and

Allied Activities (ASIDE)

Market Access Initiative (MAI)

Financial assistance is provided for export promotion activities on focus country,

focus product basis. The Government may provide financial assistance ranging
from 25% to 100% of total cost

Market Development Assistance (MDA)

Financial assistance is provided for a range of export promotion activities

implemented by EPCs and Trade Promotion Organizations by way of
participation in Trade Fairs, Buyer Seller meets, Export promotion seminars etc.

Meeting expenses for statutory compliances in buyer country for

Trade Related Matters

Towns of Export Excellence (TEE)

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Promotional Measures

Brand Promotion and Quality

The primary objective is to promote and create international awareness of

the Made in India label in markets overseas

Test Houses

Central Government will assist in modernization and up gradation of test

houses and laboratories to bring them at par with international standards

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Promotional Measures

Export and Trading Houses: Status Category

Served From India Scheme (SFIS)

Focus Market Scheme (FMS)

Focus Product Scheme (FPS)

Market Linked Focus Products Scrip (MLFPS)

Status Holders Incentive Scrip (SHIS)

Incremental Exports Incentivization Scheme

Vishesh Krishi And Gram Udyog Yojana (VKGUY)

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Export and Trading Houses

Merchant as well as Manufacturer Exporters, Service Providers,

EOUs, Units located in SEZs, AEZs, EHTPs, STPs and BTPs are
eligible for recognition as a status holder

Status recognition depends upon export performance counted on

the basis of FOB value of export proceeds realized during current
plus previous three years

Following privileges are available to a status holder:

Authorization and Customs Clearances for both imports and exports on selfdeclaration basis;
Fixation of Input-Output norms on priority within 60 days;
Exemption from compulsory negotiation of documents through banks.
Remittance / Receipts, however, would be received through banking channels;
Exemption from furnishing of BG in Schemes under FTP;
SEHs and above shall be permitted to establish Export Warehouses, as per DoR
guidelines.

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Export and Trading Houses

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For status holders, a decision on conferring of ACP Status shall be

communicated by Customs within 30 days from receipt of application
with Customs.
As an option, for Premier Trading House (PTH), the average level of
exports under EPCG Scheme shall be the arithmetic mean of export
performance in last 5 years, instead of 3 years.
Status Holders of specified sectors shall be eligible for Status Holder
Incentive Scrip
Status Holders of Agri. Sector shall be eligible for Agri. Infrastructure
Incentive Scrip under VKGUY

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Served From India Scheme

Introduced to accelerate growth of services exported
(SFIS)

Service providers exporting listed services and earning

threshold forex earnings entitled for the scheme

Registration with concerned EPC/FIEO to be obtained.

Duty credit entitlement certificate ( i.e. scrip) issued is 10%

of current year forex earnings valid for 24 months

Application for duty credit entitlement certificate to be made

under Aaayat Niryat Form 3B

Relevant period for filing claim -mthly/qtly/annual/bi-annual

claim, option to be exercised for full F.Y.

Claim to be filed within 12 mths of the relevant period.

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Served From India Scheme

(SFIS)
Eligible service providers

All service providers of listed services having forex earnings

of Rs 10 lacs or more in the current financial year

Individuals having such forex earnings of Rs 5 lacs or more

in the current financial year also entitled for SFIS

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SFIS Duty credit

Ineligible remittances for entitlements:
entitlements

Related to Financial Services Sector, foreign currency loans

Export proceeds realization of clients

Labour remittances for employment

Issuance of foreign bonds and equity intruments such as ADRs, GDRs etc and
sale of securities or instruments

Other receivables not connected with services provided

Payments received from EEFC account

Healthcare Institutions (receipt of donation, equity etc. except receipt for

medical treatment, surgery, testing, consultancy and healthcare provided by
institution)

Educational Institutions (receipt of donation, equity etc. except course fees and
consultancy provided by institution)

Export turnover of schemes under SEZ, EOU , STP etc. units or Supplies of
services to such units

Services rendered by SEZ, EOU, STP units clubbed with DTA service providers

Export of goods

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SFIS - Duty credit utilization

Procurements entitled for duty credit benefit:

Import of capital goods, spares, office equipment, professional equipment, office

furniture and consumables relating to services provided

Local procurement of the above also eligible for payment of excise duty through SFIS
scrip

Duty credit not available for payment of duty on import of vehicles

except which are professional eqipment for service provider

Hotels/clubs with min 30 rooms facility/golf resorts/restaurants can

use SFIS scrip for import of food/alcoholic beverages

Duty entitlement not transferable and is subject to actual user

condition

However duty credit can be transferred to group companies/managed hotels of the

service providers

Re-export of goods

Defective and unfit procurements may be re-exported

A new scrip for 98% of duty credit issued

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Focus Market Scheme

Introduced to accelerate growth of

competitiveness to specified countries

Exports to notified countries eligible for this scheme

Duty credit entitlement of 3 % (Additional 1% for specified

countries) of the FOB value of exports

Specified proof of landing of export consignment in the foreign

country to be submitted

Application for duty credit entitlement certificate to be made

under Aaayat Niryat Form 3C

Credit can be utilised for import of inputs/ capital goods

(including goods restricted under the ITC HS subject to
conditions)

Additional duty of customs paid in cash or through debit under

this scrip shall be adjusted as Cenvat credit

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exports

and

export

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Focus Market Scheme

Duty credit certificate valid for a period of 24 months

Duty scrips freely transferable

Ineligible exports for duty credit:

Supplies to SEZ units

Service exports

Export of diamonds, precious stones, gold, silver, platinum, ores etc

Export of ores and concentrates of all types

Export of cereals and sugars of all types

Export of crude/ petroleum oil/ petroleum based products

Export of milk and milk products

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Focus Market Scheme

Re-export of goods

Defective and unfit procurements may be re-exported

A new scrip for 98% of duty credit issued

Duty credit can also be utilized for payment in case of

imports under lease financing

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Focus Product Scheme

Introduced to accelerate growth

products with high export potential

Exports to all countries (including SEZ units) eligible for this

scheme

Duty credit entitlement of 2 % of the FOB value of exports for

each licensing year with effect from April 1, 2006. Special
Focus Products are entitled to 5 % of the FOB value of
exports. Additional 2% benefit for notified products

Application for duty credit entitlement certificate to be made

under Aaayat Niryat Form 3C

Credit can be utilized for import of inputs/ capital goods

(including goods restricted under the ITC HS subject to
conditions)

Additional duty of customs paid in cash or through debit

under this scrip shall be adjusted as Cenvat credit

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of

exports

of

notified

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Focus Product Scheme

Ineligible exports for duty credit:

Re-exports/ transshipment of goods

Exports made by SEZ, EOU, STP units

Deemed exports

Re-export of goods

Defective and unfit procurements may be re-exported

A new scrip for 98% of duty credit issued

Duty credit certificate valid for a period of 24 months

Duty scrips freely transferable

Duty credit can also be utilized for payment in case of

imports under lease financing

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Market Link Focus Product

Scrip (MLFPS)

To promote exports of :
Product/Sectors of high export intensity/ employment potential
(which are not covered under present FPS List)

Duty Credit Scrip benefits, at 2% of FOB value of exports

(in free foreign exchange)

When exported to the Linked Markets (countries), which

are not covered in the present FMS list.

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Status Holders Incentive

To promote investment :
Scrip
(SHIS)
Product/Sectors of high export intensity/ employment potential

(which are not covered under present FPS List)

Status Holders of sectors specified below, shall be entitled

to a Duty Credit Scrip @1% of FOB value of exports made
during 2009-10 ,2010-11,2011-12 and 2012-13.

Leather Sector (excluding finished leather);

Textiles and Jute Sector;

Handicrafts

Engineering Sector (excluding Iron & Steel, Nonferrous Metals in primary

or intermediate forms, Automobiles & two wheelers, nuclear reactors &
parts and Ships, Boats and Floating Structures)

Plastics; and

Basic Chemicals (excluding Pharma Products)

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Status Holders Incentive

Scrip (SHIS)

Status Holders of additional sectors shall also be eligible for this

Status Holders Incentive Scrip on exports made during 2010-11,
2011-12 and 2012-13.

This shall be over and above any Duty Credit Scrip claimed/availed
under this chapter.

Status Holders availing Technology Upgradation Fund Scheme

(TUFS) benefits (administered by Ministry of Textiles) during a
particular year shall not be eligible for Status Holders Incentive
Scrip for exports of that year.
The Status Holders Incentive Scrip will be subject to actual user
condition. However transferability will be permitted amongst status
holders subject to the condition that the transferee status holder is
a manufacturer. Status Holder Incentive Scrip shall be used for
import of capital goods relating to specified sectors. Only in
respect of CG imported earlier, upto 10% value of the Duty Credit
Scrip can be used for import of components, spares/parts of such
CG.

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Incremental Exports
Incentivization
Scheme
This scheme has been introduced from 28th December, 2012 to
incentivize incremental exports

An IEC holder would be entitled for a duty credit scrip @ 2% on

the incremental growth (achieved by the IEC holder) during
the period 01.01.2013 to 31.3.2013 compared to the period
from 01.01.2012 to 31.3.2012 on the FOB value of exports

Specified exports shall not be taken into account for

calculation of export performance or for computation of
entitlement under the Scheme

The scheme is region specific and will cover exports to USA,

Europe and Asian countries only. This benefit will be over and
above any benefit being claimed by the exporter under any of
the Promotional Measures

The
duty
credit
scrip
will
be
freely
transferable.
Suchscripsshall also be eligible for domestic sourcing

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Vishesh Krishi & Gram

Udyog Yojana (VKGUY)

To promote exports of :

Agricultural Produce and their value added products

Minor Forest Produce and their value added variants

Gram Udyog Products

Forest Based Products

Other Products as notified from time to time

VKGUY benefits are granted with an aim to compensate high

transport costs and to offset other disadvantages

Duty Credit Scrip benefits, at 5% of FOB value of exports

Lower rate of 3% when specific DEPB/ Drawback more than 1%

/Advance Authorization benefit availed

Additional 2% provided for a few items

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Vishesh Krishi & Gram

Udyog Yojana (VKGUY)

Export of the specified products through all Land Customs

Stations of North Eastern Region and Arunachal Pradesh are
entitled for additional 1% Duty Credit Scrip

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Duty Exemption/Remission
The
schemes initiated by the Government under this category
Schemes
are as follows:

Export Promotion Capital Goods Scheme (EPCG)

Advance Authorization Scheme

Duty Free Import Authorization Scheme (DFIA)

Duty Entitlement Passbook (DEPB) Scheme

Duty Drawback (DBK) Scheme

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Export Promotion Capital

Goods Scheme (EPCG)
This scheme has been discussed in Foreign Trade Policy under
following headings:
Zero

duty EPCG Scheme

Concessional 3% duty EPCG Scheme

EPCG for projects

EPCG for Retail Sector

EPCG

Authorization for Annual Requirement

Export Obligation

Provisions for BIFR Units

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Export Promotion Capital

Goods Scheme (EPCG)

EPCG for agro units

Indigenous Sourcing of capital goods and benefits to

domestic supplier

Fixation of Export Obligation

Technological Up gradation of existing EPCG machinery

Incentives for Fast Track Companies

EPCG for Green Technology Products -reduced EO

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EPCG Scheme 0%
Duty concessions
Concessional
Capital goods
procured

Custom
duty rate

Export
obligation (EO)

Conditions

If duty saved is
less than Rs
100 Crores

0.00%

6 times the duty

saved

EO to be fulfilled over 6 years

If duty saved is
Rs 100 Crores
or more

0.00%

6 times the duty

saved

EO to be fulfilled over 12 years

SSI units

0.00%

6 times the duty

saved

EO to be fulfilled over 6 years

CIF value of such imports should not
exceed Rs. 50 lacs and the total
investment should not exceed the SSI
limit

The Benefit of Zero Duty EPCG Scheme has been enlarged to

those already availing benefit under TUFS and SHIS

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EPCG Scheme 3%
Export Promotion Capital Goods Scheme (EPCG) has been
Concessional
introduced to promote import of capital goods for production
of output which is exported

Duty concessions

Capital goods
procured

Custom
duty
payable

Export
obligation (EO)

Conditions

If duty saved is
less than Rs
100 Crores

3.09%

8 times the duty

saved

EO to be fulfilled over 8 years

If duty saved is
Rs 100 Crores
or more

3.09%

8 times the duty

saved

EO to be fulfilled over 12 years

SSI units

3.09%

6 times the duty

saved

EO to be fulfilled over 8 years

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CIF value of such imports should

not exceed Rs. 50 lacs and the
total investment should not exceed
the SSI limit

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EPCG scheme Eligibility

Scheme covers manufacturer exporter, merchant exporter and
Criteria
service provider

Manufacturer exporter : A person who exports

manufactured by him or intends to export such goods

Merchant exporter : A person engaged in trading activity and

exporting or intending to export such goods

Service provider : A person providing

Supply of a service from India to other country

Supply of a service from India to the service consumer of any other country in
India

Supply of a service from India through commercial / physical presence in the

territory of any other country

Supply of a service in India relating to exports paid in free foreign exchange or

in Indian Rupees which are otherwise considered as having being paid for in free
foreign exchange by RBI.

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goods

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EPCG scheme Eligibility

Criteria
Export Promotion Capital Goods (EPCG) Scheme also covers a

service provider who is designated / certified as a Common

Service Provider (CSP) by the DGFT

Exports by Users of the common service, to be counted towards

fulfillment of EO of the CSP

A 100 % Bank Gaurantee equivalent to the portion of duty

foregone by users of CSP apportioned in terms of quantum of
export obligation is to be discharged.

As regards details of users, the CSP is required to inform to the

concerned Regional Authority prior to exports, and the quantum
of Bank Gaurantee shall be equivalent to duty foregone amount
and BG can be given by CSP or any one of the users or a
combination thereof, at the option of CSP.

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EPCG schemeProcurements
Service : It includes all the tradable services covered under
allowed
General Agreement on Trade in Services and earning free
foreign exchange (Refer Appendix 10 List of services of FTP)

Imports allowed under the EPCG scheme

Capital goods for pre production, production and post production activities

Spares (including refurbished/ reconditioned spares), tools, jigs, fixtures,

dies, moulds and components used for assembly or manufacture of capital
goods

Second hand capital goods also allowed

Restricted imports

Import of motor cars, sports utility vehicles allowed only to hotels, travel
agents, tour operators, golf resorts etc

Import of restricted items under the ITC-HS allowed only subject to

approval from EFC at Headquarters.

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EPCG schemeProcurements
Domestic procurements also allowed
allowed

EPCG license holder required to file a request with the Regional Authority
for invalidation of direct imports and allowing domestic procurements

Domestic supplier entitled to deemed exports benefit

Deemed exports benefit include refund of terminal excise duty

However, for EO computation, duty saved would be notional customs duty on

FOR

Option to pay CVD on imports in cash

Duty paid in cash would not be counted towards computation of EO

Duty so paid should not be CENVATed

Imports subject to Actual user condition

Goods can be imported only by the actual user

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EPCG scheme Export

EO fulfillment through exports of group companies
Obligation

Upto 50% EO may also be fulfilled by exports of other good(s)

manufactured or service(s) provided by the same firm/ company, or
group company/ managed hotel, which has the EPCG authorization.
Group companies means two or more enterprises which are directly
or indirectly in a position to

Exercise 26% or more voting rights in other enterprise or

Appoint more than 51% of members of board of directors in the other

enterprise

The Group company should have been in existence at least 2 years

before applying for the EPCG scheme.
Illustration:

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If A Co and B Co hold 26% voting rights in C Co, A Co and B Co would

qualify as group companies and not A Co and C co

However, on practical basis, authorities have been allowing associate

companies and subsidiary companies to be treated as group
companies

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Post Export EPCG Scheme

Exporters if they choose to, may import Capital Goods on

payment of duty in cash and subsequently receive duty credit
scrip on completion of export obligation.

Thus there would be no duty remission / duty exemption at the

time of import of the Capital Good (CG).

Applicant will have to inform the Regional Office of DGFT (RA)

about the import of CG and based on which RA will fix export
obligation.

Since the duties have been paid upfront at the time of import of
CG, the EO would be 85 % of normal EO.

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Export Of Products From

To promote manufacturing
activity and employment in the North
North
East
Eastern Region of the country, export obligation under the EPCG
Scheme shall be 25% of the normal export obligation.

However, export of specified products through notified Land

Customs Stations of North Eastern Region shall be provided
additional incentive to the extent of 1% of FOB value of exports

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EPCG scheme Other

Extension of Export Obligation period for 2 years
Provisions

On payment of composition fee equal to 2 percent of total duty saved o n

unfulfilled EO, or
enhancement in Export Obligation imposed to the extent of 10 percent of
total Export Obligation at the choice of exporter

Clubbing of two or more EPCG licenses is permitted subject

to some conditions.

EPCG license holder can opt for technological up gradation

of existing capital goods imported under EPCG
Authorizations(subject to conditions).

Annual report for Export Obligation fulfilled to be filed

electronically with the DGFT

On fulfilling of 75 percent or more of specific Export

Obligation and 100 percent of Average Export Obligation till
date in half or less than half the original Export Obligation
period remaining Export Obligation can be condoned (Fast
track companies)
48

NCA

EPCG scheme Other

The condition of maintenance of average level of exports is
Provisions
not applicable to some sectors, namely, Handicrafts,
Handlooms, Cottage Sector, Tiny Sector, Agriculture,
Aquaculture (including fisheries), Horticulture, Pisciculture,
Viticulture, Poultry and Sericulture. Three new sectors are
being added to this list, namely, Carpet, Coir and Jute to
provide substantial relief to these labour intensive industries

Export Obligation shortfall to the extent of 5% may be

condoned by the DGFT

EPCG for Projects

Import of capital goods under Scheme for Project Imports can also avail
EPCG Authorization

EPCG for Retail Sector

To create modern infrastructure in retail sector, concessional duty benefits

under EPCG scheme shall be extended for import of capital goods required
by retailers having minimum area of 1000 sq mtrs

NCA

49

Advance Authorization
Scheme
(Erstwhile Advance License Scheme)

For making available duty free import of inputs and

consumables required to manufacture the export product

Duty free import of spares up to 10% of the CIF value of the

Authorization which are required to be exported/supplied
with resultant product are allowed

Normal allowance for wastage available

Authorizations are issued for inputs and export items given

under Standard Input Output Norms.

Advance Authorisation can be issued to either to

manufacturer exporter or merchant exporter tied to
supporting manufacturer for physical exports (including
supplies to SEZ units & SEZ Developers), deemed exports and
Intermediate supplies

NCA

50

Advance Authorization
Scheme

Such Authorization can also be issued for supplies made to United

Nations Organisations or under Aid programme of the United
Nations or other multilateral agencies and which are paid for in
free foreign exchange.

Advance Authorisations are exempted from payment of BCD, ACD,

EC, Anti-dumping duty and safeguard duty

All items except prohibited items are eligible for importation

Authorization is under actual user condition i.e. materials imported

cannot be transferred even after completion of export obligation

Option with Authorization holder to dispose off the product

manufactured out of the duty free inputs on completion of export
obligation

It necessitate exports with minimum 15% value addition however

for tea it shall be 50%. Exports to SEZ Units / supplies to Developers
/ Co-developers, irrespective of currency of realization, would also
be covered.

NCA

51

Advance Authorization
Where inputs are supplied free of cost by foreign buyer, then
Scheme
for calculation of value addition notional value shall be taken.

Authorization can also be applied for annual requirement for a

particular product group by Status holders and by the other
exporters having at least past two years export performance

Drawback is available for duty paid material, whether imported

or indigenous, used in goods exported

Advance authorisation holder shall maintain proper account of

consumption and utilization of duty free imported/domestically
procured goods against each authorisation

Import under Advance Authorization (AA) shall be permitted at

any of the EDI ports, irrespective of EDI port in which the AA
has been registered. There would be no requirement of Transfer
Release Advice (TRA). This would facilitate imports under AA
and would significantly bring down transaction costs of the
exporters.

NCA

52

Duty Free Import

Authorization (DFIA)Scheme

Combined features of Advance Authorization Scheme and Erstwhile Duty

Free Replenishment Certificate Scheme

Duty free import of inputs which are used in manufacture of export product
as per notified SION

Pre-export Authorization shall be issued with actual user condition and

shall be exempted from payment of basic customs duty, additional customs
duty/ Excise duty, education cess, anti- dumping duty and safeguard duty, if
any.

In case of post export DFIA, a merchant exporter is required to mention

only name and address of manufacturer of the export product. Applicant is
required to file application to concerned RA before effecting exports under
DFIA

Minimum 20% value addition required for issuance of such authorisation

Once export obligation is fulfilled, request for transferability of

Authorization or inputs imported against it may be made before concerned
RA.

NCA

53

Duty Free Import

Authorization (DFIA) Scheme

Once, transferability is endorsed, Authorization holder may

transfer DFIA or duty free inputs, except fuel and any other
item(s) notified by DGFT

Cenvat credit facility available for inputs either imported or

procured indigenously against the Authorization

NCA

54

Duty Entitlement Passbook

Scheme

To neutralize the incidence of Customs duty on import content of

the export product

Neutralisation is provided by way of grant of duty credit against

export product

Duty credit on the basis of pre-notified entitlement rates

In respect of products, if the rate of credit entitlement is 10% or

more, amount of credit against each such export product shall not
exceed 50% of Present Market Value(PMV) of export product.

Such credit can be utilized to import goods without payment of

duty

DEPB or Products imported against it are freely transferable.

Transfer of DEPB shall however be for import at specified port,
which shall be the port from where exports have been made.

No actual user condition.

NCA

55

Duty Entitlement Passbook

Additional Customs duty / Excise duty and Special
Scheme
Additional duty paid in cash or through debit may be
adjusted as Cenvat Credit or Duty Drawback.

NCA

56

Duty Drawback

Definition

Admissibility of Drawback

"Drawback in relation to any goods manufactured in India and

exported, means rebate of duty chargeable on any imported material
or excisable material used in manufacture of such goods in India.
Goods include imported spares, if supplied with capital goods
manufactured in India.

Drawback shall be available for any duty paid material, whether

imported or indigenous, used in goods exported, as per drawback rate
fixed by DoR, Ministry of Finance (Directorate of Drawback).

Applicability of Drawback

NCA

Additional customs duty / Excise Duty and Special Additional Duty paid
in cash or through debit under DEPB may also be adjusted as CENVAT
Credit or Duty Drawback as per DoR rules.

57

Duty Drawback

Export of cut & polished precious and semi-precious stones

for treatment and re-import

Gems and Jewellery exporters shall be allowed to export cut and

polished precious and semi-precious stones for the treatment and reimport as per customs rules and regulations. In case of re-export, the
exporter shall be entitled for duty drawback as per rules.

Eligibility for refund of terminal excise duty / drawback

NCA

Supply of goods will be eligible for refund of terminal excise duty,

provided recipient of goods does not avail CENVAT credit/rebate on
such goods.
Simple interest @ 6% per annum will be payable on delay in refund of
duty drawback

58

Other Major Export

EOU Scheme
Incentives

SEZ Scheme

Deemed Exports

NCA

59

Export Oriented Units

This Chapter covers the following headings:
(EOUs)
Etc.
Eligibility

Net Foreign Exchange Earnings

DTA Sale of Finished Products / Rejects / Waste / Scrap /

Remnants and By- products

Other Supplies in DTA

Entitlement for supplies from the DTA

Other Entitlements

Inter Unit Transfer

Sub-Contracting

NCA

60

Export Oriented Units

Sale of Unutilized Material
(EOUs)
Etc.

Reconditioning / Repair and Re-engineering

Replacement / Repair of imported / Indigenous Goods

Exit from EOU Scheme

Conversion

Export through Exhibitions / Export Promotion Tours /

showrooms abroad / Duty Free Shops

Personal Carriage of Import / Export Parcels including

through Foreign bound Passengers

Export / Import by Post / Courier

Revival of Sick Units

NCA

61

Export Oriented Unit (EOU)

Exemption from customs duty on import of capital goods and
scheme
raw materials for the purpose of manufacture of final goods

Goods manufactured by EOU is exempted from excise duty

vide notification 24/2003 Excise dated March 31, 2003

Notification 22/2003 provides for duty free procurement of

goods from indigenous sources

An EOU may import from DTA or bonded warehouses in DTA /

international exhibitions held in India, without payment of
duty, all types of goods for its activities, provided they are not
prohibited items of import

An EOU can source capital goods from a domestic / foreign

leasing company on lease without payment of customs /
excise duty provided the EOU and leasing unit shall jointly
file the necessary documents

NCA

62

Export Oriented Unit (EOU)

Procurement of capital goods and raw materials made by a
scheme
EOU from a supplier located outside the EOU in India are
eligible for :

Excise duty exemption on goods purchased from the Domestic Tariff Area
(DTA)

Refund of Central Sales Tax on interstate purchases of capital goods and

interest on delay in refund of CST subject to issue of form C

Cenvat credit on service tax paid if EOU has output liability

Cenvat credit of excise duty paid on inputs, if any

NCA

63

EOU scheme Eligibility

Criteria

Units which export their entire production of goods and services

(including repair, re- making, reconditioning, reengineering and
rendering of services (except permissible sales in DTA) may be set
up under EOU.

Service : It includes all the tradable services covered under General

Agreement on Trade in Services and earning free foreign exchange

Meaning of term service is similar for EOU and EPCG

Export of goods and services except items that are prohibited in

ITC (HS) is allowed. Export of Special chemical, organisms,
materials, equipment and technologies are subject to conditions
indicated in ITC (HS)}. For export promotional material up to 1.5%
of FOB value of previous years exports is allowed

Duty free imports of all goods including capital goods.

Trading units are not covered by EOU

NCA

64

EOU scheme Eligibility

Criteria

It should start production within 3 years (extension for further 3

years) from the date of grant of LOP/LOI. Once unit commences
the production, LOP/LOI so issued shall be valid for 5 years for
its activities (extension for further 5 years)
Minimum investment in plant & machinery is Rs. 1 crore [except
for existing units and units in EHTP/ STP/ BTP, Handicrafts/
Agriculture/ Floriculture/ Aquaculture/ Animal Husbandry/
Information
Technology, Services, Brass
Hardware
and
Handmade jewellery sectors]
Applications for setting up of EOU units, other than proposals
for setting up of units in services sector {except R&D, software
and IT enabled services, or any other service activity as may be
delegated by BoA}, shall be approved by Units Approval
Committee. In other cases BoA approval is required
For conversion into EOU/ EHTP/ STP/ BTP unit from existing
DTA units, having an investment of Rs 50 crores and above in
plant & machinery or exporting Rs 50 crores and above annually,
application will be approved by BoA

NCA

65

Net Foreign Exchange

Net Foreign Exchange earnings (NFE)
Earnings

EOU unit is required to achieve positive NFE cumulatively for

a period of 5 years from commencement of production

NFE is computed as :(Positive NFE = A - B > 0), where

A = FOB value of exports and other specified supplies;
B = Sum total of the CIF Value of all imported capital goods/
inputs and value of all payments in foreign exchange by way
of commission, royalties, fees, dividends and any other
charges, goods obtained from EOU and Bonded warehouse,
other specified expenditures

Import of capital goods and lump sum for technical knowhow

from outside India would be amortized over a period of ten
years for the calculation of NFE.

Export proceeds should be realized within 12 months

NCA

66

DTA sale

Sale of goods or provision of services to customers in India would

need a prior approval from the EOU authorities

An EOU unit (except gems and jewellery unit) is allowed to sell

similar goods/services up to 50 percent of FOB value of exports
(with condition of positive NFE) or 50 percent of foreign
exchange earned from services, where payment of such service is
received in foreign exchange

EOUs which are manufacturing and exporting more than one

product can sell any of these products in DTA, up to 90% of FOB
value of export of the specified products within the overall
entitlement of 50% of FOB value of exports for the unit
Specific products/specific units not allowed DTA sales

DTA sales to attract excise duty equal to custom duties on like

goods including basic customs duty and additional custom duties
50% of applicable basic customs duty exempt

In case of DTA sale of goods manufactured by EOU where basic

duty and CVD is nil, such goods may be considered as nonexcisable goods for the payment of duty.

NCA

67

DTA sale
Other supplies in DTA:
Following supplies effected from EOU/EHTP/STP/BTP units to
DTA will be counted for fulfillment of positive NFE:
Supplies

effected in DTA to holders of

Advance
Authorisation/ Advance Authorisation for annual requirement/
DFIA under duty exemption/ remission scheme/EPCG scheme.

Supplies

effected in DTA against

remittance received from overseas.

foreign

exchange

Supplies

to other EOU / EHTP / STP / BTP / SEZ units,

provided that such goods are permissible for procurement

Supplies

made to bonded warehouses set up under FTP and /

or under section 65 of Customs Act and free trade and
warehousing zones, where payment is received in foreign
exchange

NCA

68

DTA sale

Supplies of goods and services to such organizations which

are entitled for duty free import of such items in terms of
general exemption notification issued by MoF

Supplies of Information Technology Agreement (ITA -1) items

and notified zero duty telecom / electronics items

Supplies of items like tags, labels, printed bags, stickers,

belts, buttons or hangers to DTA unit for export

Supply of LPG produced in an EOU refinery to Public Sector

domestic oil companies for being supplied to household
domestic consumers at subsidized prices under the Public
Distribution System (PDS) Kerosene and Domestic LPG
Subsidy Scheme, 2002, as notified by the Ministry of
Petroleum and Natural Gas vide notification No. E20029/18/2001-PP dated 28.01.2003

NCA

69

Entitlement for supplies from

Supply from DTA to EOU will be treated as deemed export.
DTA
DTA supplier can discharge his export obligations on such
supplies

DTA supplier is entitled to export duty drawback

EOU shall be entitled for :

Reimbursement of CST
Exemption from payment of Central Excise duty on all goods
Reimbursement of duty paid on fuel procured from domestic oil
companies/ depots of
domestic oil public sector undertakings
Cenvat Credit on service tax paid

NCA

70

Other Entitlements

Exemption from Income Tax as per Section 10A and 10B of Income
Tax Act.

Exemption from industrial

reserved for SSI sector

Exports proceeds to be realized within 12 months

Facility to retain 100% foreign exchange proceeds in EEFC account

100% FDI permissible through automatic route

No bank guarantee required at the time of import or for job work in

DTA subject to certain conditions.

Units shall pay duty on the goods produced or manufactured and

cleared into DTA on monthly basis in the manner prescribed in the
Central Excise Rules

licensing

for

manufacture

of

items

NCA

71

Other salient features

Existing DTA units may convert into EOU and existing

EHTP/ STP units may also apply for conversion to EOU.

Transfer of manufactured goods/ capital goods following

procedure of in-bond movement of goods from one EOU/
EHTP/STP/BTP unit to other EOU/ EHTP / STP / BTP unit is
allowed with prior intimation to custom authorities.

Goods supplied by one unit of EOU to another unit shall be

treated as imported goods for second unit for payment of
duty, on DTA sale by second unit.

EOU may subcontract production process to DTA through

job work up to 50% of overall production of previous year in
value terms in DTA and Job work on behalf of domestic
exporters for direct export is also allowed

NCA

72

Other salient features

If EOU/ EHTP/ STP/ BTP units is unable to utilize goods and

services, procured from DTA, it may be transferred to other EOU/
EHTP/ STP/BTP/ SEZ unit or disposed of in DTA or exported. As
regards capital goods benefit of depreciation will be available in
case of disposal in DTA only when the unit has achieved positive
NFE taking into account the depreciation allowed

EOU is permitted to export through exhibitions/ export permission

tours/ showrooms abroad/ duty free shops

EOU shall maintain proper accounts for goods imported/ procured

duty free, sale in DTA or transfer to SEZ/ EOU and balance in stock
and shall file digitally signed quarterly and annual reports.

If an industrial enterprise is operating both as a domestic unit and

EOU/ EHTP/ STP/ BTP unit, it shall have two distinct identities with
separate accounts, including separate bank accounts.

NCA

73

Fast Track Clearance

EOUs having status holder certificate under FTP is eligible
Procedure
for Fast Track Clearance Procedure.

Status holder units shall be exempted from examination of

import cargo at port of import.

Units having physical export turnover of Rs 15 crores and

above in preceding financial year shall be allowed to import
goods without payment of duty on basis of preauthenticated procurement certificate

Eligible EOU may remove their capital goods or parts

thereof for repairs with the prior intimation to
jurisdictional Asstt./ Deputy Commissioner of Customs or
Central Excise.

NCA

74

Fast Track Clearance

Following activities of a status holder do
Procedure
permission from custom authorities:

not require

DTA sale of finished products within limits allowed

Participation in exhibition and personal carriage of Gems & jewellery for
export
promotion tours

NCA

75

Exit from EOU scheme

Exit shall be subject to payment of Excise and Custom duty

and industrial policy in force. If the units has not achieved
obligations, it shall be liable to penalty at the time of exit.

Unit shall intimate DC and custom & central excise

authorities in writing and shall assess duty liability arising
out of debonding and after the payment of duty so assessed
it shall obtain No dues certificate from the customs and
central excise authorities.

An EOU / EHTP / STP / BTP unit may also be permitted by

DC to exit from the
scheme at any time on payment of
duty on capital goods under the prevailing EPCG Scheme
for DTA Units, subject to fulfillment of positive NFE criteria

NCA

76

Exit from EOU scheme

Where a unit is initially established as DTA unit with

machines procured from abroad after payment of
applicable import duty, or from domestic market after
payment of excise duty, and unit is subsequently converted
to EOU, in such cases removal of such capital goods to DTA
after debonding would be without payment of duty.

Where a DTA unit imported capital goods under EPCG

Scheme and after completely fulfilling export obligation
gets converted into EOU, unit would not be charged
customs duty on capital goods at the time of removal of
such capital goods in DTA when debonding

EOU / EHTP / STP / BTP unit may also be permitted by DC

to exit under Advance Authorization as a onetime option.
This will be subject to fulfillment of positive NFE criteria.

NCA

77

E-BRC A Significant EDI

E-BRC would herald electronic transmission of Foreign
Initiative
Exchange Realization from the respective Banks to the
DGFTs server on a daily basis.

Exporter will not be required to make any request to bank

for issuance of Bank Export and Realization Certificate
(BRC).

This will establish a seamless EDI connectivity amongst

DGFT, Banks and Exporters and will facilitate early
settlement and release of FTP incentives.

This is a significant step to reduce transaction cost to the

exporters.

NCA

78

Special Economic Zones

(SEZ)

This Chapter is governed by the Special Economic Zone Act, 2005.

The main objectives of the SEZ Act are:

Generation of additional economic activity

Promotion of exports of goods and services

Promotion of investment from domestic and foreign sources

Creation of employment opportunities

Development of infrastructure facilities

The SEZ Rules provide for:

Simplified procedures for development, operation, and maintenance of the

Special Economic Zones and for setting up units and conducting business in
SEZs

Single window clearance for setting up a unit in a Special Economic Zone

NCA

79

Special Economic Zones

(SEZ)

Single Window clearance on matters relating to Central as well as State

Governments

The incentives and facilities offered to the units in SEZs for

attracting investments into the SEZs, including foreign
investment are:

Duty free import/domestic procurement of goods for development,

operation and maintenance of SEZ units

100% Income Tax exemption on export income for SEZ units under
Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years
thereafter and 50% of the ploughed back export profit for next 5 years

External commercial borrowing by SEZ units upto US $ 500 million in a

year without any maturity restriction through recognized banking
channels

Exemption from Central Sales Tax

NCA

80

Special Economic Zones

(SEZ)

Exemption from Service Tax

Single window clearance for Central and State level approvals

Exemption from State sales tax and other levies as extended by the
respective State Governments

NCA

81

Deemed Exports

Deemed exports broadly cover three areas:

Supplies to domestic entities who can import their requirements duty free
or at reduced rates of duty

Supplies to projects/purposes that involve international competitive bidding

Supplies to infrastructure projects of national importance

Specified categories of supplies eligible for Deemed Exports

include:

Supply of goods against Advance Authorization/Advance Authorization for

Annual Requirement / DFIA under Duty Exemption / Remission Scheme

Supply of goods to Export Oriented Units (EOUs) etc.

Supply of capital goods to holders of licences under the Export Promotion

Capital Goods (EPCG) Scheme

NCA

82

Deemed Exports

Supply of goods to projects financed by multilateral or bilateral agencies/ funds

as notified by the Department of Economic Affairs, Ministry of Finance under
International Competitive Bidding in accordance with the procedures of those
agencies/ funds, where the legal agreements provide for tender evaluation
without including the customs duty

Supply and installation of goods and equipment (single responsibility of turnkey

contracts) to projects financed by multilateral or bilateral Agencies / Funds as
notified by DEA, MoF under ICB, in accordance with procedures of those
Agencies / Funds, which bids may have been invited and evaluated on the basis
of Delivered Duty Paid (DDP) prices for goods manufactured abroad.

Supply of goods to any project or purpose in respect of which the Ministry of

Finance, by a notification, permits the import of such goods at zero customs
duty

Supply of marine freight containers by 100% EOU (Domestic freight containersmanufacturers) provided the said containers are exported out of India within 6
months or such period as permitted by the customs

NCA

83

Deemed Exports

Supply to projects funded by UN Agencies

Supply of goods to nuclear projects through competitive bidding as opposed

to international competitive bidding

Benefits for Deemed Exports

Advance Authorization/Advance Authorization for Annual requirement /DFIA

Deemed Export Drawback

Exemption/ Refund of Terminal Excise duty

Eligibility for refund of terminal excise duty / drawback

`Refund

of

Terminal

Excise

duty

or

Central

Excise

duty

paid

on

inputs/components is available only when Cenvat credit/ rebate of the same

has not been availed by the recipient of such goods. Similarly, supplies will be
eligible for deemed export drawback on Central Excise paid on inputs,
provided Cenvat credit facility/rebate has not been availed by the applicant.

NCA

84

Deemed Exports

In all the cases goods shall be supplied directly to concerned agency/

person. However, goods supplied by sub-contractor to contractor shall
also be eligible for deemed exports benefits as per the procedure laid
down in this regard.

Supplies made by an Indian sub-contractor of an Indian or foreign

main contractor directly to the designated projects / Agencies, shall
also be eligible for deemed export benefits provided name of subcontractor is indicated either originally or subsequently in the main
contract (but before the date of supply of such goods) and payment
certificate is issued by project authority in the name of sub-contractor.

NCA

85

Thank you