The lockdowns due to COVID-19 in various countries have shrunk global trade with countries choosing to protect their people first before opening any further borders. The Government has also been tweaking the Import and Export Policy for many goods keeping in view the requirement of these goods in India. The Government has also issued an Ordinance, circulars, press releases, etc., on various relief measures for the benefit of the trade and industry. This article while capturing the significant changes introduced in the Foreign Trade Policy 2015-20 (“FTP”) and the Handbook of Procedures 2015-20 (“HBP”) and other relief measures introduced by the Government, also highlights the adequacy of such measures.
Extension of duration of the FTP and HBP
The validity of the FTP and the HBP has been extended till 31.03.2021 vide Notification No. 57/2015-20 dated 31-03-2020 [see endnote 1] and Public Notice No. 67/2015-20 dated 31-03-2020 [see endnote 2]. Recognizing the difficulties being faced by the trade and industry due to COVID-19, the timelines for applying for benefits under various export incentive schemes such as the Merchandise Exports from India Scheme (“MEIS”), Services Exports from India Scheme (“SEIS”), the Advance Authorization (“AA”) Scheme and Export Promotion Capital Goods (“EPCG”) Scheme have been extended vide the abovementioned Public Notice. The same are discussed below.
Reliefs granted under MEIS and SEIS
In terms of Para 3.15(a)(i) of the HBP, the application for obtaining duty credit scrips under the MEIS has to be filed within a period of 12 months from the Let Export Order (“LEO”) date, or in terms of Para 3.15(a)(ii) of the HBP such application is to be filed within 3 months from the date of uploading of EDI shipping bills onto the DGFT Server by the Customs or Printing/ release of shipping bills for Non-EDI Shipping bills, whichever is later. Vide the Public Notice, the timelines for applying for availing MEIS benefit under Para 3.15(a)(i), i.e. the period of 12 months from LEO has been relaxed. For shipping bills whose LEO date falls during the period 01-02-2019 to 31-05-2019, the applications can be filed within a period of 15 months instead of the earlier period of 12 months.
Under the SEIS Scheme, service providers of notified services are rewarded for export of services rendered in the manner as per Para 9.51(i) and (ii) of the FTP. Vide the abovementioned Notification, the Central Government has added a paragraph at the end of Para 3.08(a). The said Para provides that the service categories eligible under the SEIS and the rate of reward on such services as rendered w.e.f. 31-03-2019 to 31-03-2020 shall be notified separately in a new Appendix, i.e. Appendix 3X. Also, it has been stated that for services rendered w.e.f. 01-04-2020, the decision on continuation of the SEIS shall be taken subsequently and notified accordingly.
The insertion of the said paragraph has raised doubts amongst the exporters as to which services will get covered under Appendix 3X, and whether any material changes will be made to the existing Appendix 3D. A material change in the list of services could harm service exporters who have already exported services after factoring the SEIS benefit. Also, a change in the rates of rewards can affect the service providers negatively who have already exported the services and might have considered the benefits available under the erstwhile Appendix 3D while exporting the services. Therefore, the Government must notify the Appendix 3X at the earliest to bring certainty. In addition, it would be extremely beneficial if the Government clarifies the services for which SEIS shall continue so that the same can be taken into account while fixing long term service contracts for FY 2020-21.
In addition to the above, the last date for filing applications for claim of duty credit scrips under SEIS has been extended from 31-03-2020 to 31-12-2020. While the Government has extended the timelines for applying for claiming benefits under the MEIS and SEIS, it is important to note that the reliefs may not be enough considering the overall grim situation in the world economy. The benefits under the MEIS and the SEIS Schemes are claimed on the amount realized by the exporter. So, appreciably, while the timelines for applying for the scrips along with the timelines for realization of export proceeds have been extended [see endnote 3] and is a step in the right direction, the same may not be enough considering the cash crunch the companies will be facing owing to no economic activity.
It is suggested that the Government can consider extending the benefit in cases where the exporter gets an irrevocable Letter of Credit issued in their favour from the foreign party. On the other hand, to safeguard its own interest, the Government can introduce a provision similar to the provision for recovery of drawback in cases where the export proceeds are not realized. This will be win-win situation for both parties. The Government can recover the benefits granted in case the amount is not realized and the exporters can continue their business while getting some much-needed cash flow.
Reliefs under AA and EPCG
It is important to note that many exporters avail benefits under the various export incentive schemes under the FTP. Amongst these, the AA Scheme is widely used for duty free import of raw material, while the Export Promotion Capital Goods (“EPCG”) Scheme is used for duty free import of capital goods. While these schemes permit the companies to import raw material or capital goods without payment of duty, the importers have to fulfil a corresponding export obligation (“EO”) with a specified time period. While the EO period for AA scheme is 18 months from the date of issue of authorization, the EO under the EPCG scheme is required to be fulfilled over a period of 6 years.
Specific reference is drawn to the extension of EO under the AA Scheme. Wherever the import validity period and the export obligation (“EO”) period under the AA is expiring between 01-02-2020 to 31-07-2020, the said period has been automatically extended by 6 months from the date of expiry without the need for any amendment/ authorization and without payment of any composition fee. Also, the option to revalidate the import period and to avail extension of EO period would remain available for these authorizations as per the eligibility on payment of composition fee in terms of Paras 4.41 and 4.42 of the HBP respectively.
Similar extension is provided for EPCG Authorizations. Where the block wise EO expires between 01-02-2020 to 31-07-2020, the said period will be deemed to be automatically extended by six months from the date of expiry. Also, in case, the EO period expires between 01-02-2020 to 31-07-2020, the EO period will also stand automatically extended by 6 months from the date of expiry. Like the AA Scheme, the option to avail a further extension in block wise EO and the overall EO period would be available to the EPCG Authorization holder where the EO period expiring between 01-02-2020 to 31-07-2020 on payment of composition fee in terms of Paras 5.14 and 5.17 of the HBP.
However, the extension in the time lines do not cover the cases where the EO period is expiring after 31-07-2020. Thus, while the authorization holder with EO period expiring on 31-07-2020 would get an automatic extension without payment of any composition fee, the authorization holder with EO period expiring on 01-08-2020 would not be eligible for the automatic extension and in addition, will have to also pay composition fee for extension of EO. This would be absurd to say the least, since the impact of the lockdown on the exports to be made by an authorization holder with EO period expiring on 31-07-2020 would be on an equal footing when compared with an authorization holder with EO period expiring on 01-08-2020 and thereafter.
It would also mean that while the authorization holder with EO period expiring on 31-07-2020 can apply for two extensions after including this automatic extension, while an authorization holder, with EO period is expiring on 01-08-2020 and thereafter, would not get the benefit of such automatic extension.
Therefore, it would have been more prudent if the government had allowed the EO extension for all AA and EPCG authorizations, since the present situation is akin to a ban on the export product – a situation provided for under the HBP itself. Here reference is made to Paras 4.42 (h) and Para 5.20 of the HBP which provide for an automatic EO extension in the event of a ban on the export product in respect of AA and EPCG Authorizations already issued prior to the imposition of the ban for the duration of the ban without any composition fee. Also, the EPCG Authorization holder would not be required to maintain average EO for the said period.
The present lockdown is an unprecedent situation. While there is no ban on the export products stricto sensu, the complete lockdown followed by India and other countries effectively is a ban on industrial activities. While the HBP is allowed to be amended by the DGFT and the DGFT has taken a policy decision regarding extension in EO period for authorizations expiring during a certain period, a question to ponder upon would be whether it would have been more prudent for the DGFT to extend the EO period for the AA and the EPCG Scheme without payment of any composition fee, instead of extending the EO period for authorizations expiring during a certain period.
While the Regional Authorities may allow the extensions in Authorization and the PRC may also take a lenient view for authorizations expiring post 01-08-2020, the Customs Department may demand duty and interest from the authorization holders who fail to fulfil the EO on the ground that even amidst lockdown there was no ban on exports and imports. The Customs might not be inclined to take a lenient view since all Customs formations even amidst the lockdown are functioning 24 x 7 till June 2020 [see endnote 4]. Resultantly, the Authorization holders with authorisation expiring on or after 01-08-2020 will be left high and dry and the only recourse will be to settle the dispute in a manner known to law.
It will be in the interest of the importers and exporters operating under the aforesaid schemes that the EO period is excluded, irrespective of the last date of EO period. By excluding the EO period for the said duration, the industries would be treated at par which would effectively mean that there is no preferential treatment based on the expiry of the EO period. The importers and the exporters should represent to the Ministry of Commerce for relief on the above lines.
[The authors are Partner and Senior Associate, respectively, in Customs Advisory practice of Lakshmikumaran and Sridharan, New Delhi]
- Amended by Central Government in exercise of powers conferred under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 read with Para 1.02 of the FTP.
- Amended by DGFT in exercise of powers conferred under Para 2.04 of the FTP.
- The time period for realization and repatriation of export proceeds for exports made up to or on July 31, 2020, has been extended to 15 months from the date of export. The measure will enable the exporters to realise their receipts, especially from COVID-19 affected countries within the extended period and also provide greater flexibility to the exporters to negotiate future export contracts with buyers abroad.
- Instruction No. 02/2020-Cus., dated 20-02-2020