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Expor t Pr omotion

Duty Drawback

 Duty drawback is admissible under

section 74 & 75 of Customs Act 1962.
 Duty Drawback is defined as a rebate of
duty chargeable on any imported or
excisable material used in manufacture
of goods exported from India.
 Drawback is available on following items
 Raw material and components used in
manufacturing process
 Materials used in making of raw material and
components used in manufacture of finished
 Materials used in packaging of finished products
 Finished products.
 Drawback is also allowed on goods originally
imported into India and exported within two years
from payment of duty under section 74 of Customs
Act, 1962
 For goods exported without being used 98% of import
duty is refundable.
 For goods exported after use the % of duty refunded
varies depending on the period between import and
export of product.
Drawback is not allowed in case of following

 Apparels
 Tea
 Chests
 Exposed cinematographic films passes by the
Board of Film Sensor in India
 Unexposed photographic films
 X-ray films
 Cars that have been used for over 4 years
 The rate of drawback is notified by
Directorate of Drawbacks under the
Ministry of Finance, GOI, annually,
generally three months after the budget is
introduced in the Parliament.

 Duty Drawback is widely used incentive

around the world. Its main objective is to
provide a level playing field to country’s
exporters so as to exclude the export
production from the incidence of import
duty and other indirect taxes.
Export Promotion
Capital Goods (EPCG)
 In order to strengthen the export production base, the
EPCG Scheme was introduced in 1990 to enable the
import of capital goods at confessional rates of duty
subject to an appropriate export obligation accepted by
the exporter.
 The scheme was aimed to reduce the incidence of high
capital cost on export prices to make exports
competitive in the international markets by way of
reduced import duty on capital goods.
 Under the Exim policy 2002- Pd. From the date of Proportion
2007, the EPCG Scheme issuance of license of total
allows import of capital goods obligation export
and computer software
systems at 5% customs duty st
subject to an export obligation
1 & 2 nd
year nil
equivalent to 8 times the duty rd
goods 3 & 4 Year 15%
saved on capital
imported under EPCG th
Scheme. 5 & 6th Year 35%
 The export obligation has to be th
fulfilled over a specified period 7 & 8 th
Year 50%
of 8 years in following manner
 In case of agro units, import Pd. From the date of Proportion
of capital goods at 5% issuance of license of total
customs duty subject to an obligation export
export obligation equivalent
to 6 times the duty saved on 1st to 5th year nil
capital goods imported under
EPCG Scheme. 6th to 8th Year 15%
 The export obligation has to
be fulfilled over a specified 9th to 10th Year 35%
period of 12 years in
following manner 11th to 12th Year 50%
 However in case of SSI units, import of capital
goods at 5% customs duty subject to an export
obligation equivalent to 6 times the duty saved
on capital goods imported under EPCG
 The export obligation has to be fulfilled over a
specified period of 8 years.
 In case of failure to fulfill the export
obligation, an exporter has to pay the
customs duties saved in proportion of
unfulfilled portion of export obligation
along with interest @ 15%.
Duty Exemption
 Duty Exemption Schemes enable duty
free import of inputs required for export
 Under duty exemption scheme Advance
License is used.
 While Duty Remission Schemes enable
post-export replenishment of duty on
inputs used for export production.
 1. Advance License
 An advance license is issued to allow duty free import of
physical inputs used in producing exports products after
making normal allowance for wastage. In addition
consumables such as fuel, energy, catalysts etc which
are consumed in the course of their use to obtain the
export product are also allowed under the scheme.
 Advance license Holders are exempted from the
payment of basic Customs duty, additional customs duty
and anti dumping duty.
 Advance License is generally issued for the
 Physical exports – advance license may be issued for
physical exports including exports to SEZs, to a
manufacturer exporter, or merchant exporter tied to
supporting manufacturer exporter for import of goods for
the export product.

 Intermediate exports – advance license may be issued for

intermediate supply to manufacturer exporter for import of
inputs required in the manufacture of goods to be supplied
to ultimate exporter holding another advance license.

 Deemed exports – advance license may be issued for

deemed exports to main contractor for import of inputs
required in manufacture of goods to be supplied to the
categories specified in the Foreign Trade Policy.
 Export obligation under Advance License is based on
value addition which must be positive.
VA = A – B /B * 100
VA = Value Addition
A = FOB/FOR value of export realized/supplied
B = CIF value of imported inputs covered by the
license + any other imported material used on which
the benefit of Duty Drawback is being claimed.
 An advance license contains
 Names and description of items to be imported
and exported
 The quantity of each item to be imported and
where the quantity can not be indicated the value
of item shall be indicated
 The aggregate CIF value of imports
 The FOB/FOR value of quantity of
 Since advance license provides duty free imports of inputs
and consumables for export production in advance, it is
useful when large quantities of standard raw materials are
required for production.

 Advance license is issued for duty free imports of inputs

subject to actual user condition i.e. advance license and/or
materials imported there under are not permitted to be
transferred even after completion of export obligation.

 The merchant exporters are not eligible for advance

licensing schemes but they can avail benefits under Duty
Remission Schemes.
 2. Duty Remission Schemes
(a) Duty Entitlement Passbook Scheme
Under the DEPB scheme the grant of
customs duty credit against the export
product is provided on its import content.

The objective of DEPB is to neutralize the

incidence of customs duty on the import
content of the export product by way of
providing duty credit.
 Under the DEPB scheme an exporter is
eligible to apply for credit, as a specified
percentage of FOB value of exports.
 This credit is available against such
export products and at such rates as are
specified by DGFT by way of public
notice in this behalf, for import of raw
materials, intermediaries, components,
parts, packaging materials etc.
 The DEPB is valid for a period of 24
months from the date of issue.
 DEPB is fully transferable instrument
which can be used by a manufacturer as
well as merchant exporter.

 The credit rates under DEPB are generally

better than Drawback since these rates
are worked out to neutralize the incidence
of customs duty by assuming the inputs as
(b) Duty Free Replenishment Certificate (DRFC)

 DFRC is issued to merchant exporter or manufacturer

exporter for the import of inputs used in manufacture of
goods without payment of basic customs duty. However,
such inputs are subject to Additional customs duty equal to
excise duty at the time of import.
 DFRC shall be issued only in respect of export products
covered under SIONs (Special Input Output Norms) as
specified by DGFT.
 Import of inputs shall have the same quality technical
characteristics and specifications as those used in the end-
product and as indicated in shipping bills.
 The validity of such certificate is 12 months.
 DFRC and/or materials imported against it shall be freely
 DFRC shall be subject to minimum value addition of 33%.
Free Trade Zone/Export Processing
Zone/Special Economic Zone
 FTZ/EPZ scheme was introduced in the mid 60s
so as to emerge as an effective instrument to
boost exports of manufactured products.

 The zones set up as enclave separated from

Domestic Tariff Area (DTA) by physical barriers,
are intended to provide an internationally
competitive duty free environment for export
production at low cost.

 The basic objective of FTZ/EPZ are to enhance

foreign exchange earnings, develop export
oriented industries and to generate employment
 The first Zone was set up at Kandla
(Gujarat) in 1965 followed by SEEPZ
(Mumbai) in 1972. Thereafter four more
Zones were set up at NOIDA (UP),
FALTA (West Bengal), Cochin (Kerala),
Chennai (Tamil Nadu) in 1984 and at
Vishakhapatnam (Andhra Pradesh) in
1989. In 1997 Surat Export Processing
Zone came into existence.
 With the announcement of SEZ scheme
in the year 2000, the four EPZ/FTZ
namely Kandla, SEEPZ, Cochin, and
Surat have been converted into SEZs
with effect from 1.11.2000
 The performance of EPZs in India has
largely been dismal. On the other hand the
performance of EPZs in other Asian
countries such as South Korea, Malaysia,
Taiwan, Philippines, China and Srilanka
have been many impressive.

 Several committees like the Tandon

Committee, the Kaul Committee, The Abid
Hussain Committee were set to comment
and suggest on poor performance of
EPZ/FTZ in India.
 The committees came up with following

 The foreign investors often compare the

zone with those in other parts of the world
and find that Indian zones do not offer
enough facilities.

 Both Indian and foreign investors face

administrative and procedural constraints
and an absence of freedom that are
necessary for free zone.
 The committees suggested the following

 Since FTZs are not able to protect the entrepreneurs

from the complex procedures and the multiplicity of
authorities, it is essential to create a fully empowered
statutory authority for controlling all matters relating to
all FTZs, which would in effect provide a single
window clearance, without any reference to
concurrence from other departments.

 The choice of industries to be located in FTZs should

be a matter of careful consideration because these
Zones should constitute a window to the world for
acquisition of sophisticated technologies which are not
readily available in Domestic Tariff Area (DTA) and
also serve as a means to import higher skills and
expertise to the workers and managers.

 Thus SEZs were the result.

Export Oriented Units/Software
Technology Parks/Electronic Hardware
Technology Parks (EOU/STP/EHTP)

 Units committed to exporting their entire

production of goods and services can
choose to set up any of the schemes –
EOU, STP, EHTP depending upon the
area and nature of business.
 1. Export Oriented Units

 The scheme was introduced in accordance with the

recommendations of Prakash Tandon Committee in early
1981. The purpose of the scheme was basically to boost
exports by creating additional production capacity.

 It was introduced as a complementary scheme to

FTZ/EPZ scheme introduced in early 1960s which had
not attracted many units due to locational restrictions.

 The EOU scheme adopts the same production regime

but offers a wide option in locations with reference to
factors like source of raw material, ports of exports,
availability of technological skills, existence of industrial
peace and need for larger area of land for project.

 As on December31, 2006 about 2000 units are in

operation under EOU scheme.
 Major Sectors in EOU :
 Granite
 Textiles / Garments
 Food processing
 Chemicals
 Computer software
 Coffee
 Pharmaceuticals
 Gems & Jewellery
 Engineering goods
 Electrical & Electronics
 Choosing Location for EOU

 Export oriented units can be set up anywhere in the

country and may be engaged in manufacture and
production of software, floriculture, horticulture,
agriculture, aquaculture, animal husbandry, poultry,
sericulture, and similar other activities.

 However, it should be noted that in case of large cities

where the population is more than one million, the
proposed location should be at least 25 km away from
standard urban area limits of the city, unless it has
been located in an area designated as an industrial
area before 25th July 1991.

 Non-polluting EOUs such as electronics, computer

software, and printing are exempt from such
restrictions while choosing the area.
 2. Software Technology Parks And Electronic
Hardware Technology Parks

 In order to facilitate export oriented production of computer

software and hardware, units can be set up under STPs
and EHTPs respectively. The Ministry of Information
Technology monitors both these schemes.

 A software technology park may be set up by the Central

Government, State Government, public or private sector
undertaking or a combination thereof.

 Under the STP scheme a software development unit can

be set for the purpose of software development, data entry
and conversion, data processing, data analysis and
control data management, or call centre services for
 Objectives of STPs

 To establish and manage infrastructure resources

such as data communication facilities, core computer
facilities, built up space, and other common

 To provide single window statuary services such as

project approvals, import certification, software
valuation, and certification for exports for software

 To promote development and export of software

services through technology assessment, market
analysis, market segmentation, and marketing
 Major STPs at :

 Hyderabad
 Pune
 Bangalore
 Bhubaneshwar
 Gandhinagar
 Noida
 Thiruvananthapuram

 Under the EHTP scheme, a unit can be set up for the

purpose of manufacture and development of
electronic hardware and software in an integrated
manner for exports.

 The policy provisions for STP / EHTP are

subsequently the same as those applicable to units
under EOU scheme.
 Benefits – EOU / STP / EHTP

 The EOU scheme is complementary to SEZ scheme

and provides the choice of locating the units anywhere
in India unlike the SEZ scheme.
 Eligible for concessions from payment of income tax for
profit earners
 FDI in EOUs allowed up to 100% for manufacturing
 Exemption from central excise duties in procurement of
capital goods, raw material consumables, spares etc.
 Exemption from custom duties in import of capital
goods, raw material consumables, spares etc.
 Entitlement for duty free supply of furnace oil.
 Reimbursement of Central Sales Tax (CST) paid on
domestic purchases
 Complete freedom to sub-contract a part of production
and production process in domestic area.
 Supplies from domestic area to EOU are allowed deemed
 Supplies can be made to other EOU/SEZ/STP/EHTP unit
without the payment of duty and such supplies are counted
towards the fulfillment of export performance.
 The EOUs are required to be only positive Net Foreign
Exchange earners (NFE) and therefore, the condition of
export performance stated in the scheme has been deleted
w.e.f. 1st April, 2004. Net foreign exchange earnings is
defined as FOB value of exports minus CIF value of all
imported inputs, capital goods and payment made foreign
exchange for royalties, fees, dividends, interest on
borrowings during the first five year period. However, the
status of a positive NFE is to be achieved over a stipulated
period of 5 years from the date of commencement of
business or commercial production.
EOUs performance

Year EOUs Exports

(in Rs Crore )
1996 - 1997 8730
1997 - 1998 10279
1998 - 1999 12058
1999 - 2000 13701
2000 - 2001 15912
2001 - 2002 18743
2002 - 2003 22729
Special Economic
Zones (SEZ)
 India was one of the first in Asia to recognize the
effectiveness of Export Processing Zone model in
promoting exports, with Asia’s first EPZ set up in
Kandla in 1965.

 With a view to overcome the shortcomings

experienced on account of multiplicity of controls
and clearances, absence of world class
infrastructure and with a view to attract larger
foreign investments in India, the Special
Economic Zones policy was announced in April
 This policy intended to make SEZs an engine for
economic growth supported by quality
infrastructure complemented by an attractive
fiscal package, both at the Centre and State level,
with a minimum possible regulations.

 SEZs in India functioned from 1-11-2000 to 9.2.

2006 under the provisions of Foreign Trade

 With a view to impart greater freedom to SEZ, the

SEZ Act 2005, supported by SEZ rules came into
effect from 10. 2. 2006 providing for drastic
simplification of procedures and for single window
clearance on matters relating to central as well as
state governments.
 Objectives of SEZ Act

 Generation of additional economic activity.

 Promotion of exports of goods and services
 Promotion of investment from domestic and
foreign services.
 Creation of employment opportunities.
 Development of infrastructure facilities.
 SEZ Rules

The SEZ rules provide for :

 Simplified procedure for development, operation, and

maintenance of Special Economic Zones and for setting
up units and conducting business in SEZs.
 Single window clearance for setting up SEZ.
 Single window clearance for setting up a unit in SEZ.
 Single window clearance for matters relating to central
as well as state governments.
 Simplified compliance procedure and documentation
with emphasis on self certification.
 Incentives & Facilities offered to SEZs

The incentives and facilities offered to units in SEZs for attracting

investments in SEZs, including foreign investment include :

 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 Income Tax Act for first five years, 50% for next five
years thereafter.

 External commercial borrowings by SEZ units up to $500 million in a

year through recognized banking channel.

 Exemption from Central Sales Tax.

 Exemption from Service Tax.

 Exemption from State Sales Tax and other levies as extended by the
respective state governments.
 Exports Growth from the functioning of SEZs
Year Value Growth Rate
(Rs. Crore) (over prev. year)
2005 - 2006 22840 25%

2006 - 2007 34615 52%

2007 - 2008 66638 92%

 Current investment & employment

 Investment - 83,450 crore

 Employment – 1,13,426 persons
 Functional SEZs

 260 as of today
 Major 7 SEZs

 Vishakhapatnam
 Kankla & Surat
 Santa Cruz
 Falta
 Noida
 Cochin
 Chennai
 List of Developers who have set up SEZs

 Nokia SEZ in Tamil Nadu (Co-developers of Telecom SEZ)

 Mahindra World City in Tamil Nadu (IT / ITES)
 Motorola, Dell, and Foxconn in Andhra Pradesh
 Quark City in Chandigarh (IT / ITES)
 Apache SEZ (Adidas Group) in Andhra Pradesh (Footwear)
 Rajiv Gandhi Technology Park in Chandigarh (IT / ITES)
 Hyderabad Gems Ltd. in Hyderabad (Gems & Jewellery)