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FTZ 2015 - 2020 - Discrimination between exporters of DTA and SEZ

JULY 02, 2015

By Ashit Chatterji

THE Foreign Trade Policy and the SEZ Rules have conflicting provisions on export benefits. In the earlier Foreign Trade Policy(FTP), there were a host of export benefits like SHIS, FPS, MLFPS, FMS etc. In the current FTP, all these export benefits are subsumed and Merchandise Exports from India Scheme (MEIS) is introduced. This is probably aligned with the drive of ‘ease in doing business' by the present Government.

Let's take a look at the objectives of MEIS -

Merchandise Exports from India Scheme (MEIS)

3.03 Objective

Objective of Merchandise Exports from India Scheme (MEIS) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing India's export competitiveness.

In the above objective the emphasis was .... produced/manufactured in India. The recent notification no 8/2015-20 dt 8th June 2015 issued by the Ministry of Commerce and Industry (Department of Commerce) contains a host of amendments of which the relevant portion on Merchandise Exports from India Scheme (MEIS) is reproduced below:

Amended Paragraph 3.06 shall read as under:

3.06 Ineligible categories under MEIS

The following exports categories /sectors shall be ineligible for Duty Credit Scrip entitlement under MEIS

(i) EOUs / EHTPs / BTPs/ STPs who are availing direct tax benefits / exemption.

(ii) Supplies made from DTA units to SEZ units

....................

(vi) SEZ / EOU / EHTP / BPT / FTWZ products exported through DTA units;

...............

From the above ineligibility list, it would be observed that SEZ is not appearing and hence any products manufactured in India (whether in SEZ or DTA) and exported from SEZ would be eligible for MEIS benefits. However, as per clause (vi) of Para 3.06 of FTP 2015-20 (extracts noted above), a Merchant exporter stationed in DTA and procuring goods from an SEZ unit will for exporting, not be eligible for MEIS. Also as per Rule 46 (11)(iii) of SEZ Rules, a Merchant Exporter operating from DTA, need to submit a disclaimer that it shall not avail any benefit under any export promotion scheme under the Foreign Trade Policy.

In case of supply of goods into DTA, of goods manufactured by an SEZ unit undertaking operations of contract manufacturing on behalf of overseas entity, the Bill of Entry need to be filed by the DTA buyer with a certificate of disclaimer that the DTA buyer would not avail any benefits under the export promotion schemes. Also the Merchant Exporter should file a free Shipping Bill for doing the exports. This procedure emanates from the reading Rule 46(11)(iii) of SEZ Rules.

On a plain reading of the FTP, it appears that Merchant Exporters,whether stationed in a Special Economic Zone or in DTA, procuring goods from a DTA unit would be eligible for MEIS. Whereas a Merchant Exporter stationed in DTA and procuring goods from SEZ would not be eligible for MEIS benefits. There can be 3 combinations:-

1) Merchant exporter stationed in DTA:-

a. Procures goods from DTA and exports outside India - eligible,

b. Procures goods from SEZ unit and exports outside India - not eligible,

2) Merchant exporter stationed in SEZ:-

a. Procures goods from DTA and exports outside India - eligible,

b. Procures goods from SEZ unit and exports outside India - eligible,

The above is a clear discrimination.

In view of the above, I would urge before the law makers to suitably amend/clarify:-

1) Rule 46(11)(iii) of SEZ Rules,

2) Clause (vi) of Para 3.06 of FTP to include the Merchant Exporters.

(The author is Tax Coordinator, Asia with Timken India Ltd. and the views expressed are strictly personal.)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the sites)

 


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