CHAPTER-4

DUTY EXEMPTION & REMISSION SCHEMES

Duty Exemption

and Remission Schemes

4.1

Duty exemption schemes enable duty free import of inputs required for export production. An Advance Licence is issued as a duty exemption scheme. A Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in the export product. Duty remission schemes consist of (a) DFRC (Duty Free Replenishment Certificate) and (b) DEPB (Duty Entitlement Passbook Scheme).

DFRC permits duty free replenishment of inputs used in the export product. DEPB allows drawback of import charges on inputs used in the export product.

Re-import of exported goods

under Duty Exemption/ Remission Scheme

4.1.1

Goods exported under Advance Licence/ DFRC/ DEPB may be re-imported in the same or substantially the same form subject to such conditions as may be specified by the Department of Revenue from time to time.

Value Addition

4.1.2

The value addition for the purposes of this chapter (Except for the Gems and Jewellery) shall be:-

V.A

A - B

= ----------- x 100, where

B

V.A.

Value Addition

A

FOB value of the export realised /FOR value of supply received.

B

CIF value of the imported inputs covered by the licence, plus any other imported materials used on which the benefit of duty drawback is being claimed.

ADVANCE LICENCE

Advance Licence

 

 

4.1.3

 

 

 

An Advance Licence is issued to allow duty free import of inputs, which are physically incorporated in the export product (making normal allowance for wastage). In addition, fuel, oil, energy, catalysts etc. which are consumed/utilised in the course of their use to obtain the export product, may also be allowed under the scheme.

Duty free import of mandatory spares upto 10% of the CIF value of the licence which are required to be exported/ supplied with the resultant product may also be allowed under Advance Licence.

Advance Licences are issued on the basis of the inputs and export items given under SION. However, they can also be issued on the basis of Adhoc norms or self declared norms as per para 4.7 of Handbook (Vo.I). Advance Licence can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s):

i) for Physical exports (including exports to SEZ); and/ or

ii) for Intermediate supplies; and /or

iii) to the main contractor for supply of goods to the categories mentioned in paragraph 8.2 (b), (c), (d), (e), (f), (g), (i) and (j) of the Policy;

for import of inputs required in the manufacture of goods. In addition, in respect of supply of goods to specified projects mentioned in paragraph 8.2 (d), (e), (f), (g) and (j) of the Policy, an Advance Licence can also be availed by the sub-contractor of the main contractor to such project provided the name of the sub contractor(s) appears in the main contract.

Such licence can also be issued for supplies made to United Nations Organisations or under the Aid Programme of the United Nations or other multilateral agencies and paid for in free foreign exchange.

 

4.1.4

Advance Licence is issued for duty free import of inputs, as defined in paragraph 4.1.3 subject to actual user condition. Such licences are exempted from payment of basic customs duty, additional customs duty, education cess, anti dumping duty and safeguard duty, if any. However, the imports for supplies covered under paragraph 8.2 (h) & (i) will not be exempted from the payment of applicable anti-dumping and safeguard duty, if any.

 

4.1.5

Advance Licence and/or materials imported thereunder shall not be transferable even after completion of export obligation. However, the licencee will have the option to dispose off the product manufactured out of the duty free inputs once the export obligation is completed.

4.1.6

Advance Licences shall be issued with a positive value addition.

However, for physical exports for which payments are not received in freely convertible currency, the same shall be subject to value addition as specified in Appendix-11 of Handbook (Vol.1).

In case of Tea, the minimum value addition under advance licence shall be 100%.

4.1.7

Advance Licence shall be issued in accordance with the Policy and procedure in force on the date of issue of licence.

The validity period of advance licence for import shall be as prescribed in the Handbook (Vol.1).

4.1.8

The facility of Advance Licence shall also be available where some or all of the inputs are supplied free of cost to the exporter.

 In such cases, for calculation of value addition, the notional value of free of cost inputs along with value of other duty-free inputs shall be taken into consideration. However, if all the inputs are supplied free of cost, it shall be covered under paragraph 4.2.7 of the Policy.

Export Obligation

4.1.9

The period for fulfilment of the export obligation under Advance Licence shall be as prescribed in the Handbook (Vol.1).

Provision for BIFR units

4.1.9 A

Any firm/company registered with BIFR or any firm/ company acquiring a unit, which is under BIFR shall be allowed EOP extension as per the rehabilitation package prepared by the operating agency subject to subsequent approval of BIFR.

However, in cases where the rehabilitation package does not specify the EOP extension period, a time period upto 5 years reckoned from the date of issue of licence would be permitted on merits of the case for fulfillment of export obligation.

Similarly, SSI units shall also be entitled for similar facility as per the rehabilitation scheme of the concerned State government. However, in cases where the State rehabilitation scheme does not specify the export obligation extension period, a time period upto 5 years reckoned from the date of issue of licence would be permitted on merits of the case for fulfillment of export obligation.

Advance Licence

for Annual Requirement

 

4.1.10

 

 

Advance Licence can also be issued on the basis of annual requirement for physical exports, intermediate supplies and / or deemed exports.

One to Five Star Export House shall be entitled for the Advance licence for annual requirement. All other categories of exporters having past export performance (in the preceding two years) shall also be entitled for the Advance Licence for annual requirement.

In addition, a merchant exporter shall also be issued the Advance Licence for Annual Requirement provided they agree to the endorsement of the name(s) of the supporting manufacturer(s) on the relevant licence.

The entitlement in terms of CIF value of imports under this scheme shall be upto 300% of the FOB value of physical export and / or FOR value of deemed export in the preceding licensing year or Rs 1 crore, whichever is higher. Such licence shall have value addition as specified in para 4.1.6 of the Foreign Trade Policy.

Advance Release Orders

4.1.11

An Advance Licence holder, holder of advance licence for annual requirement, holder of Diamond Imprest Licence and holder of DFRC intending to source the inputs from indigenous sources/State Trading Enterprises/ EOU/SEZ/ EHTP/STP/BTP units in lieu of direct import has the option to source them against Advance Release Orders denominated in free foreign exchange/ Indian rupees.

The transferee of a DFRC shall also be eligible for ARO facility. However, supplies may be obtained against the licence from EOU/EHTP/BTP/STP/units, without conversion into ARO.

The validity period of ARO shall be as prescribed in the Handbook (Vol.1).

Back-to-Back

Inland Letter of Credit

4.1.12

An Advance Licence holder, holder of advance licence for annual requirement, holder of Diamond Imprest Licence and holder of DFRC may, instead of applying for an Advance Release Order, avail of the facility of Back-to-Back Inland Letter of Credit in accordance with the procedure specified in Handbook (Vol.1).

Prohibited Items

4.1.13

Prohibited items of imports mentioned in ITC(HS) shall not be imported under the licence issued under the scheme.

Further the items reserved for imports by State Trading Enterprises cannot be imported against advance licence. However those items can be procured from State Trading Enterprises against ARO issued to advance licence holder.

Similarly prohibited items of exports mentioned in the ITC(HS) shall not be exported under the licence issued under the scheme. Further, export of restricted items shall be subject to all conditionalities or requirements of export licence or permission, as may be required, under Schedule II of ITC (HS).

Admissibility of Drawback

4.1.14

In the case of an Advance Licence, the drawback shall be available in respect of any of the duty paid materials, whether imported or indigenous, used in the goods exported, as per the drawback rate fixed by Ministry of Finance (Directorate of Drawback). The Drawback shall however be restricted to the duty paid materials as mentioned in the licence.

DUTY FREE REPLENISHMENT CERTIFICATE

Duty Free Replenishment Certificate (DFRC)

4.2

DFRC is issued to a merchant exporter or manufacturer exporter for the import of inputs used in the manufacture of goods without payment of basic customs duty.

However, such inputs shall be subject to the payment of additional customs duty equal to the excise duty at the time of import.  

 

4.2.1

DFRC shall be issued on minimum value addition of 25% except for items in gems and jewellery sector for which value addition as given in paragraph 4A.2.1 of the Handbook (Vol.1) shall be applicable.

 

4.2.2

DFRC may be issued for physical exports against freely convertible currency / supplies effected under paragraph 8.2 of the Policy (except for supplies made to DFRC holder). DFRC may also be issued in respect of exports (including supplies to SEZ) for which payments are received in non-convertible currency. Such exports shall, however, be subject to value addition and conditions as specified in Appendix-11 of Handbook (Vol.1)

4.2.3

DFRC shall be issued only in respect of products covered under the Standard Input Output Norms as notified by DGFT.

However, in respect of Standard Input Output Norms which are subject to "actual user" condition or where the export proceeds have not been realised at the time of filing application or for import of fuel under the general norms, DFRC shall be issued with actual user condition for these inputs.

However, for fuel, the import entitlement may be transferred only to the companies which have been granted authorization to market fuel by the Ministry of Petroleum & Natural Gas.

In cases where Standard Input Output Norms allow import of Acetic Anhydride, Ephedrine and Pseudo Ephedrine, DFRC shall be issued provided these items are specifically deleted from the list of import items.

 DFRC will not be issued against SION which prescribe a prior import condition for inputs.

4.2.4

DFRC shall be issued for import of inputs as per SION as indicated in the shipping bills. The validity of such licences will be governed by the provision stipulated in the handbook (Vol. I). DFRC and or the material(s) imported against it shall be freely transferable. However, DFRC with actual user condition or the material(s) imported against it shall not be transferable.

4.2.5

The export products, which are eligible for modified VAT, shall be eligible for CENVAT credit/ service tax credit.

However, non excisable, non dutiable or non CENVAT products, shall be eligible for drawback at the time of exports in lieu of additional customs duty to be paid at the time of imports under the scheme.

4.2.6

The exporter shall be entitled for drawback benefits in respect of any of the duty paid materials, whether imported or indigenous, used in the export product as per the drawback rate fixed by Directorate of Drawback (Ministry of Finance).

The drawback shall however be restricted to the duty paid materials not covered under SION.

Jobbing, repairing etc. for re-export

4.2.7

Import of goods, including those mentioned as restricted in ITC(HS) but excluding prohibited items, supplied free of cost, may be permitted for the purpose of jobbing without a licence/certificate/ permission as per the terms of notification issued by Department of Revenue from time to time.

Similarly, import of goods for carrying out repairs, re-conditioning, re-engineering, testing etc. shall be allowed as per the terms and conditions of the Customs notification even though the goods may be restricted for imports under the Foreign Trade Policy/ITC(HS) Classification of Imports and Exports Book.

The above provisions shall, however, be subject to all conditionality or requirement of licence or permission, as may be required, under Schedule II of ITC (HS).

DUTY ENTITLEMENT PASSBOOK SCHEME

Duty Entitlement Passbook Scheme (DEPB)

4.3

The objective of DEPB is to neutralise the incidence of Customs duty on the import content of the export product. The neutralisation shall be provided by way of grant of duty credit against the export product.

The DEPB scheme will continue to be operative until it is replaced by a new scheme which will be drawn up in consultation with exporters .

 

4.3.1

Under the DEPB scheme, an exporter may apply for credit, as a specified percentage of FOB value of exports, made in freely convertible currency.

The credit shall be available against such export products and at such rates as may be specified by the Director General of Foreign Trade by way of public notice issued in this behalf, for import of raw materials, intermediates, components, parts, packaging material etc.

 

4.3.2

The holder of DEPB shall have the option to pay additional customs duty, if any, in cash as well.

Validity

4.3.3

The validity period of DEPB for import shall be as prescribed in the Handbook (Vol.1).

Transferability

4.3.4

The DEPB and/or the items imported against it are freely transferable. The transfer of DEPB shall however be for import at the port specified in the DEPB, which shall be the port from where exports have been made.

 Imports from a port other than the port of export shall be allowed under TRA facility as per the terms and conditions of the notification issued by Department of Revenue.

Applicability of

Drawback

4.3.5

Normally, the exports made under the DEPB Scheme shall not be entitled for drawback. However, the additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as CENVAT Credit or Duty Drawback as per rules framed by the Department of Revenue.

GEMS AND JEWELLERY

Scheme for Gems and Jewellery

4A

Exporters of gems and Jewellery can import/procure duty free inputs required for manufacture of gems and jewellery items.

Replenishment Licence

4A.1

Exporters of gems and jewellery are eligible to import their inputs duty free by obtaining Replenishment (REP) Licences from the licensing authorities in accordance with the procedure specified in this regard in the Handbook of Procedure (Vol.1).

4A.1.1

The exporters of gems and jewellery products listed in Appendix-12A of the Handbook (Vol.1) shall be eligible for grant of Replenishment Licences at the rate and for the items mentioned in the said Appendix to import and replenish their inputs.

Replenishment licence may also be issued for import of consumables as per the details given in paragraph 4A.28 of Handbook (Vol.1).

Export of Cut & Polished Diamonds for Certification/ Grading

4A.2

Gem and Jewellery exporters may be permitted to send cut & polished diamonds each weighing 0.25 of a carat and above for certification/grading to Indian Diamond Institute, Surat, Gujarat. In addition, Gem and Jewellery exporters with a track record of at least three years and having an annual average turnover of Rs.5 crores and above during the preceding three licensing years or the authorized offices /agencies in India of Gemological Institute of America (GIA), The Robert Mouawad Campus, International Gemological Institute (IGI) and European Gemological Laboratory (EGL) in USA, Hoge Road Voor Diamond, Antwerp, (HRD), World Diamond Centre of Diamonds High Council, Antwerp, Belgium, Central Gem Laboratory, Miyagi Building, 5-15-14 Ueno Taito-Ku, Tokyo, Japan may also be permitted to export cut & polished diamonds each weighing 0.25 of a carat and above to the said laboratories/agencies for the purpose of certification/grading reports by them with a condition that the same should be re-imported with the certificate/grading reports issued by them without any import duty at the time of re-import.

4A.2.1

At the time of export of cut and polished diamonds for certification/grading, exporter should give an undertaking to the customs that the cut and polished diamonds will be re-imported within three months of exports for certification/ grading.

The export invoice should clearly indicate the estimated value, height, circumference, weight of each diamond to be exported for certification/ grading so that at the time of their import, the above specification could be compared with the original ones to establish their identity. Subsequently these cut and polished diamonds would be exported as per the provisions of the Policy.

Schemes for Gold/ Silver/ Platinum Jewellery

4A.3

Exporters of gold/silver/platinum jewellery and articles thereof may import their essential inputs such as gold, silver, platinum, mountings, findings, rough gems, precious and semi-precious stones, synthetic stones and unprocessed pearls etc. in accordance with the procedure specified in this behalf.

Nominated Agencies

4A.4

Exporters (excepting units operating under EOU/SEZ schemes) availing the schemes of gold/ silver/platinum jewellery and articles thereof may obtain gold/silver/platinum from the nominated agencies. The nominated agencies are MMTC Ltd, Handicraft and Handloom Export Corporation (HHEC), State Trading Corporation (STC), the Project and Equipment Corporation of India Ltd (PEC) , Five Star Export House under Paragraph 3.5.2 of the Policy and any other agency authorised by Reserve Bank of India (RBI).

A bank authorised by RBI is allowed export of gold scrap for refining and import in the form of standard gold bars. The detailed procedure for the import of gold will be as per the guidelines notified by RBI separately.

Items of Export

4A.5

The following items, if exported, would be eligible for the facilities under the schemes stipulated in paragraph 4A of the Foreign Trade Policy:

(a)

Gold jewellery, including partly processed jewellery and any articles including medallions and coins (excluding the coins of the nature of legal tender), whether plain or studded, containing gold of 8 carats and above;

(b)

Silver jewellery including partly processed jewellery, silverware, silver strips and any articles including medallions and coins (excluding the coins of the nature of legal tender and any engineering goods) containing more than 50% silver by weight;

(c)

Platinum jewellery including partly processed jewellery and any articles including medallions and coins (excluding the coins of the nature of legal tender and any engineering goods) containing more than 50% platinum by weight.

Value Addition

4A.6

The value addition for the purpose of gems and jewellery sector shall be as per paragraph 4A.2.1 of Handbook (Vol.1).

A - B

V.A. = ----------- x 100, where

B

V.A. ---Value Addition,

A ---- FOB value of the export realised /FOR value of supply received.

B ---- The Value of inputs such as gold / silver / platinum content in the export product plus the admissible wastage along with the value of the other items such as gemstone etc. ‘Value’ for this purpose includes both imported as well as domestically procured inputs. Wherever gold has been obtained on loan basis, the value shall also include interest paid in free foreign exchange to the foreign supplier.

Wastage Norms

4A.7

Under the schemes for gold/silver/platinum jewellery, the wastage or manufacturing loss shall be admissible as per paragraph 4A.2 of the Handbook (Vol.1).

Export against Supply

by Foreign Buyer

4A.8

Where export orders are placed on the nominated agencies/ status holder/ exporters of three years standing having an annual average turnover of Rs. Five Crore during the preceding three licensing years, the foreign buyer may supply to the nominated agencies/status holder/exporter, in advance and free of charge, gold/ silver/ platinum, alloys, findings and mountings of gold/ silver/ platinum for manufacture and export.

The exports may be made by the nominated agencies directly or through their associates or by the status holder/exporter as the case may be. The import and export of findings shall be on net to net basis. The foreign buyer may also supply to the nominated agencies/status holder/ exporter in advance and free of charge plain, semi finished gold/silver/platinum jewellery including findings/ mountings/ components for repairs/re-make and export subject to minimum value addition of 10%. However, if the so imported semi finished gold/silver /platinum jewellery is exported as studded jewellery, value addition of 15% shall be achieved. In such cases of export, wastage of 2% may be permitted.

The procedures in this regard shall be as prescribed in the Handbook (Vol.1).

Export Against

Supply by

Nominated

Agencies

4A.9

The exporter may obtain the gold/silver/platinum as an input for export products from nominated agencies in advance or as replenishment after exports in accordance with the procedure specified in this behalf.

Export Against

Advance Licence

4A.10

An Advance Licence may be granted for the duty free import of:

(a)

Gold of fineness not less than 0.995 and mountings, sockets, frames and findings of 8 carats and above;

(b)

Silver of fineness not less than 0.995 and mountings, sockets, frames and findings containing more than 50% silver by weight;

(c)

Platinum of fineness not less than 0.900 and mountings, sockets, frames and findings containing more than 50% platinum by weight.

 

4A.11

Such licences shall carry an export obligation which will be required to be fulfilled in accordance with the procedure specified in paragraph 4A of the Handbook (Vol.I).

 

The Advance Licence holder may obtain gold/silver/ platinum from the nominated agencies in lieu of direct import in accordance with the procedure specified in this behalf.

Gem Replenishment Licence

4A.12

Gem Replenishment (Gem & Jewellery REP) Licence may be issued under the schemes for export of gold/ silver/ platinum jewellery and articles thereof as given in paragraph 4A.8, 4A.9 and 4A.10 of the Policy. In the case of plain gold/ silver/platinum jewellery and articles, the value of such licences shall be determined with reference to the realisation in excess of the prescribed minimum value addition.

In the case of studded gold/silver/platinum jewellery and articles thereof, the value of Gem Replenishment Licence shall be determined by taking into account the value of studdings used in items exported, after accounting for the value addition on gold/ silver/ platinum including admissible wastage.

Such Gem REP licences shall be freely transferable.

Gem REP Rate and Item

4A.13

The scale of replenishment and the item of import will be as prescribed in Appendix 12B of Handbook (Vol.1).

Diamond Imprest Licence

4A.14

Diamond Imprest Licence for import of cut & polished diamonds including semi processed diamonds, half cut diamonds, broken in any form, for mixing with cut & polished diamonds or for export as it is, may be issued for export of cut & polished diamonds.

 Such licences shall carry an export obligation, which has to be discharged in accordance with the procedure specified in this behalf.

Eligibility

4A.14.1

An exporter of cut & polished diamonds who is status holder may be issued a licence for import of cut & polished diamonds upto 5% of the export performance of the preceding year of cut & polished diamonds.

Export Obligation

4A.14.2

The export obligation under the scheme will be governed by the provisions of paragraph 4A of chapter 4 of the Handbook (vol.I).

Export Promotion Tours/ Export of Branded Jewellery

4A.15

The nominated agencies and their associates, with the approval of Department of Commerce, and others, with the approval of Gem & Jewellery Export Promotion Council (GJEPC), may export gold/ silver/platinum jewellery and articles thereof for holding/participating in exhibitions abroad.

Personal carriage of gold/ silver/platinum jewellery, precious, semi-precious stones, beads and articles and export of branded jewellery is also permitted. These exports shall be subject to the conditions as given in the Handbook (Vol.1).

Personal Carriage of Export/ Import Parcels

4A.16

Personal carriage of gems and jewellery export parcels by foreign bound passengers and personal carriage of gems & jewellery import parcels by an Indian importer/foreign national may be permitted as per the conditions given in Handbook (Vol.1).

Export by Post

4A.17

In case of exports through Foreign Post Office which may include export via Speed Post through Foreign Post Office, the value of the jewellery parcels shall not exceed US$50000 and 20 kg. by weight. The detailed procedure is laid down in chapter 4 of the Handbook (vol.1).

Private/ Public Bonded Warehouse

4A.18

Private/Public Bonded Warehouses may be set up in SEZ/ DTA for import and re-export of cut & Polished diamonds, cut & polished coloured gemstones, uncut & unset precious & semi-precious stones. Import & re-export of cut & polished diamonds & cut & polished coloured gemstones will be subject to achievement of minimum value addition of 5%.

Diamond & Jewellery Dollar Accounts

4A.19

Firms and companies dealing in the purchase/sale of rough or cut and polished diamonds/ precious metal jewellery plain, minakari and/or studded with/without diamond and/or other stones with a track record of at least 3 years in import or export of diamonds/ coloured gemstones/ diamond and coloured gemstones studded jewellery/ plain gold jewellery and having an average annual turnover of Rs. 5 crore or above during preceding three licensing years may also carry out their business through designated Diamond Dollar Accounts.

The Diamond Dollar Account Scheme shall operate under the current licensing scheme of this chapter. This scheme shall be optional and those importers/exporters who wish to continue to use Rupee Accounts shall be allowed to do so under the existing policies.

 

 

Dollars in such accounts available from bank finance and/or export proceeds shall be used only for

(i)

Import/purchase of rough diamonds from overseas/local sources,

(ii)

Purchase of cut and polished diamonds , coloured gemstones and plain gold jewellery from local sources,

(iii)

Import/purchase of gold from overseas/ nominated agencies and repayment of dollar loans from the bank; and

(iv)

Transfer to the Rupee Account of the exporter. Details of this Diamond Dollar Accounts Scheme (DDAS) are given in the Handbook (Vol.1). The procedure outlined in the Handbook (Vol.1) shall also apply to diamond studded jewellery.

 

A non DDA holder is also permitted to supply cut and polished diamonds to DDA holder, receive payment in dollars and convert same into rupees within the period of 7 days and cut and polished diamonds and coloured gemstones so supplied by non-DDA holder will also be counted towards the discharge of his export obligation and/or entitle him to replenishment licence as the case may be.