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Risks involved in imports

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Risks involved in imports

  1. 1. Import risks/ MANAGEMENT TRANSIT, POLITCAL, FOREIGN CURRENCY
  2. 2. Dear Students •Any thoughts from your side
  3. 3. Types of risks1. Political risks: Actions of government authorities, war, revolution, terrorism, strikes. Managing political risk: Monitoring political developments, insuring against political risks. 2. Foreign credit risk: Risks of buyer’s default or delay in payment. Managing foreign credit risk: Appropriate credit management, letterof credit and other conditions, insurance. 3. Foreign exchange risk: Changes in currency values that could reduce future exporter’s receipts or increase importer’s payments in foreign currency. Managing foreign exchange risk: Shifting the risk to the other party or to third parties. 4. Transportation risk: Loss or damage to merchandise during transit.
  4. 4. Risk Management/ thanks to Aseem Kumar , book on EXIM , Excel. • Risk is a fact of business life, more so of international business. • The Management of International business is the management of risk. • No manager can make a strategic business decision or enter into important business transaction without a full evaluation of the risks involved. • Many of the best business plans have been ruined by a miscalculation or a mistake, or an error in judgment that could have been avoided with proper planning.
  5. 5. Risk in Export-import Business • If the risk cannot be reduced through advance planning and careful execution, perhaps it can be shifted to some other party to the transaction. • If the risk cannot be shifted to another party to the transaction, it might be shifted to an insurance company. • Many types of risks can be insured against, including the risk of damage to the goods at sea, the risk of loosing an investment in a developing country and many others.
  6. 6. Foreign Market Entry Strategy:Risk Assessment and the Firm’s Foreign Market Entry Strategy: • When a firm is considering its entry or expansion in a foreign market, it must consider all options and decide on a course of action commensurate with its objectives, capabilities and its willingness to assume risk. • Selling to a customer in another country results in less risk to the firm than licensing trademarks, patents and copyrights there.
  7. 7. Distance and Communications Managing Distance and Communications: • The risks of doing business in a foreign country are different from those encountered at home. • A firm doing business in a foreign country would encounter greater distances; problems in communications; language and cultural barriers; differences in ethical, moral and religious codes; exposure to strange foreign laws and government regulations; and different currencies. All these factors affect the risks of doing business abroad.
  8. 8. Currency and Exchange Rate Risks: Managing Currency and Exchange Rate Risks: • Currency risk is risk a firm is exposed to as a result of buying, selling, or holding a foreign currency. Currency risk includes: (i) Exchange Rate Risk (ii) Currency Control Risk (i) Exchange Rate Risk: Exchange rate risk results from the fluctuations in the relative values of the foreign currencies against each other when they are bought and sold on international financial markets.
  9. 9. Currency Control Risk: Currency Control Risk: • Some countries, particularly developing countries where access to ready foreign reserve is limited, put restrictions on currency transactions. • In order to preserve the little foreign exchange that is available for international transactions, such as importing merchandise, these countries restrict the amount of foreign currency that they will sell to private companies. • This limitation can cause problems for a U.S or any other country exporter waiting for payment from its foreign customer who cannot obtain the dollars needed to pay for the goods.
  10. 10. in Contracts for the Sale of Goods: Special Transactions Risks in Contracts for the Sale of Goods: • Special risks are inherent in international transactions for the purchase and sale of goods. • These transactions present special risks to both the parties because the process of shipping goods and receiving payment between distant countries is riskier than within a country. Such risks are: (i) Payment or Credit Risk (ii) Property or Marine Risk (iii) Delivery Risk (iv) Pilferage and Theft Risk
  11. 11. Political Risks Many export-import businesses are potentially exposed to various types of political risks. War, revolution, or civil unrest can lead to destruction or confiscation of cargo. A government may impose severe restrictions on export- import trade, such as limitation or control of exports or imports, restrictions of licenses, currency controls, and so on. Even though such risks are less likely in Western countries, they occur quite frequently in certain developing nations. Such risks can be managed by taking the following steps.
  12. 12. Political Risk Managing Political Risk: Political Risk is generally defined as the risk to a firm’s business interests arising form political instability or political change in a country in which the firm is doing business. • Political Risk includes risk derived from potentially adverse actions of Governments of the foreign countries in which one is doing business or whose laws and regulations one is subject to. • It also includes laws and Government policies instituted by the firm’s home country which adversely affect the firms that do business in a foreign country.
  13. 13. US case for an example Private firms offer monitoring assistance to assess the likelihood of political instability in the short and medium term. Such information can be obtained from specialized sources for specific countries such as political risk services (e.g., Political Risk Services of Syracuse, a unit of International Business Communications, Incorporated), the Economic Intelligence Unit, Euromoney, and Business International Corporation.
  14. 14. Risks of Foreign Laws and Courts Risks of Foreign Laws and Courts: • Many Acts that are perfectly legal in one country can be illegal in another. Indeed, most travelers to a foreign country could conceivably break a host of laws and not even be aware of it. • The same is true for the law of contracts, employment, competition, torts and other business laws. • It is virtually impossible to catalog all of the differences between these laws from country to country
  15. 15. Commercial Risks: (7) Commercial Risks: The risks arising from suitability of the product for the market or otherwise change in supply and demand conditions and changes in price. Commercial risks arise due to: • (i) Lack of Knowledge • (ii) Inability to adapt to the environment • (iii) Different kinds of situations to be dealt with • (iv) Greater transit time involved
  16. 16. Cargo Risk: (8) Cargo Risk: • Transit disasters are an ever present hazard for those engaged in Export-Import business. • Every shipment runs the risk of a long list of hazards such as storm, collision, theft, leakage, explosion, spoilage etc. It is possible to transfer the financial losses resulting from perils of and in transit to professional risk bearers known as underwriters. • As most goods are transported by marine transport, every exporter should have an elementary knowledge of marine insurance to get the protection at the minimum cost.
  17. 17. Cargo Loss or Damage A number of factors contribute to the loss or damage of cargo in transit. some of the major preventable causes for cargo loss or damages as well as some ways of minimizing it. A. Theft: Appropriate packing, use of shrink-wrapping, strapping and branding, specifically patterned sealing tapes (enables quick detection of tampering), and use of coded markings. Containerized shipments should be sealed after loading. Theft accounts for 20 percent of cargo loss. B. Handling and storage: Internal blocking and bracing to distribute weight, cushioning to absorb shocks and vibrations, palletizing the cargo, use of cautionary markings and handling instructions, and not exceeding the weight/volume capacity of package and/or container. Poor handling and storage account for 40 percent of cargo loss. C. Water damage: Waterproof wrapping and waterproof linings on the interior of outer packages, elevating cargo above any drainage area, drain holes for containers to prevent accumulation of water. Water damage accounts for 15 percent of cargo loss.
  18. 18. Types of Losses Total Loss 1. Actual total loss: Goods are completely damaged or destroyed or so changed in their nature as to be unmarketable. 2. Constructive total loss: Actual loss is inevitable (such as frustration of voyage for an indefinite time), or damaged cargo can only be saved at considerable cost (i.e., cost greater than its value).
  19. 19. Partial Loss 1. General average loss These are goods sacrificed as part of a general average act or as a cargo owner’s contribution for the general average loss of others. 2. Particular charges These are expenses incurred to prevent loss or damage to insured cargo from risk that is insured against. Example: expenses for extra fodder for a cargo of horses while the ship is under repair for hurricane damage that was covered under the policy. 3. Particular average loss This includes partial losses that are not covered by general average and particular charges.
  20. 20. A case / MARINE INSURANCE: INCHMAREE CLAUSE • A forty-foot wooden hull fishing vessel sprang an unexpected leak a few days after leaving port. As more water entered the vessel, the engine was flooded and the vessel eventually sank. Inspection of the vessel during the leak showed that the water was coming from underneath a refrigerated space in the front part of the vessel. In view of its construction style, the bilge underneath the vessel was inaccessible. The underwriter refused to indemnify the insured for the loss of the vessel by claiming that the latter had not exercised diligence to make the vessel seaworthy prior to the developing of the leak (as provided under the Inchmaree clause). The owner/master of the ship had no knowledge of the leak before the ship started its voyage.
  21. 21. UNIT V •Export Incentives
  22. 22. I hope the great MIBians could able to speak some points on EXPORT INCENTIVES
  23. 23. EXPORT INCENTIVES IN INDIA
  24. 24. Promotion of export has been a major thrust area of the Ministry of Commerce and Industry for the last three decades. Apart from this. many other Central / State Ministries have also been involved in the promotion of India’s exports. Many Export Promotion Councils, Public Sector Undertakings, Chambers of Commerce, Industries’ Associations and Services Organizations are also contributing towards the promotion of Indian exports.
  25. 25. Marketing Development Assistance (MDA) The Ministry of Commerce and Industry has a scheme of MDA, which was launched in 1963 with a view to stimulate and diversify the export trade, along with the development of marketing of Indian products and commodities abroad. The MDA is utilized for: Market research, commodity research, area survey and research; Participation in trade fairs and exhibitions;
  26. 26. MDI……….. Export publicity and dissemination of information; Trade delegation and study teams; Establishment of offices and branches in abroad; Grant-in-aid to Export Promotion Councils and other approved organizations for the development of exports and the promotion of foreign trade; and any other scheme which is generally aimed at promoting the development of markets for Indian products and commodities abroad.
  27. 27. Market Access Initiative (MAI) The Ministry of Commerce and Industry has introduced the MAI in April 2001 with the idea that the Government shall assist the industry in R&D, market research, specific market and product studies, warehousing and retail marketing infrastructure in select countries and direct market promotion activities through media advertising and buyer-seller meets. Financial assistance shall be available under the scheme to EPCs, industry and trade associations and other eligible activities, as may be notified from time to time. A small allocation of Rs 42 crore has been made for 2002-03.
  28. 28. Central Assistance to States The State Governments shall be encouraged to fully participate in encouraging exports from their respective States. For this purpose, a new scheme “Assistance to States for Infrastructural Development for Exports” (ASIDE) has been initiated which would provide funds to the States based on the twin criteria or gross exports and the rate of growth of exports from different States. Eighty per cent of the total funds would be allotted to the States based on the above criteria and remaining 20 per cent will be utilized by the Centre for various infrastructure activities that cut across State boundaries, etc. A sum of Rs 49.5 crore has already been sanctioned for 2001-02 and further a sum of Rs 330 crore has also been approved for 2002-03. The State shall utilize this amount for developing complementary and critical infrastructure.
  29. 29. Towns of Export Excellence • A number of towns in specific geographical locations have emerged as dynamic industrial locations and handsomely contributing to India’s exports. These industrial cluster- towns have been recognized with a view to maximiing their export profiles and help in upgrading them to move up the higher value markets. A beginning is being made to consider industrial cluster towns such as Tirupur for Hosiery, Panipat for Woollen Blankets and Ludhiana for Woollen knitwear. Common service providers in these areas shall be entitled for EPCG Scheme, funds under the MAI scheme for creating focused technological services, priority assistance for identified critical infrastructural gaps from the Scheme on Central Assistance to States. Units in these notified areas would be eligible for availing all the Exim Policy Scheme.
  30. 30. Special Economic Zones (SEZ) • The Government of India had announced an SEZ scheme in April 2000 to promote India’s exports. Four Export Processing Zones (EPZ), namely Noida (UP), Falta (West Bengal), Chennai (Tamilnadu), and Viskhapatnam (Andhra Pradesh) have been converted into SEZs from 1 January 2003. There are seven EPZs in the country. In addition, three formal approvals and 14 in-principle approvals have been granted for the establishment of SEZs in private, state, and joint sectors. Policy initiatives taken to promote SEZs include duty-free import/domestic procurement of goods for development…………
  31. 31. ….operation and maintenance of SEZs and SEZ units, external commercial borrowing up to $500 million in a year without any maturity restriction through recognized banking channels and a facility to set up overseas banking units in SEZs. The SEZ units have also been getting exemption from central sales tax on sales made from the domestic tariff area to SEZ units and exemption from service tax to SEZ units and developers.
  32. 32. Duty Drawback on Goods Exported Under this Duty Drawback scheme export products get relief of incidence of customs and excise duties paid on raw materials and components used at various stages of production. It is defined as “rebate of duty chargeable on any imported or excisable material used in the manufacture of goods exported from India. Duty Drawback is admissible for exports irrespective of mode of export, i.e. whether despatched by Sea, Air, Land Customs or by Post.
  33. 33. Export Financing Financial assistance extended by the banks to exporters at pre-shipment and post shipment stages. While the pre-shipment finance is provided for working capital for the purchase of raw material, processing, packing, transportation, warehousing, etc, of the goods meant for export, post-shipment finance is generally provided in order to bridge the gap between the shipping of goods and the realization of proceeds. With a view to providing pre-shipment credit to Indian exporter at internationally competitive rates, interest, Reserve bank of India announced a new scheme in November 1993 to provide Pre-shipment Credit in Foreign Currency (PCFC) by the banks in India.
  34. 34. The PCFC scheme is in addition to normal packing credit schemes in Indian rupees presently available to Indian exporters. Exporters are also permitted to draw foreign exchange from the authorized dealers for the purposes such as foreign travel or for giving advertisement aboard. Therefore, a person resident in India may open, hold and maintain with an authorized dealer, a foreign currency to be known as Exchange Earners’ Foreign Currency (EEFC) Account, subject to the terms and conditions of the EEFC Account Schemes.
  35. 35. Exim Bank Finance The Export-Import Bank of India (Exim Bank) provides financial assistance to promote Indian exports through direct financial assistance. Overseas investment finance, term finance for export production and export development pre-shipment credit, buyers’ buyers credit, lines of credit, relining credit facility, export bills rediscounting, refinance to commercial banks finance for computer software export, finance for export marketing, and bulk import finance. The Exim Bank also extends non- funded facility to Indian exporters in form of guarantees. The diversified landing of the Exim Bank now covers various stages of export, that is from the development of export market to expansion of production capacity for exports, production for export and pre-shipment financing. The Exim Bank’s focus is on export of manufactured goods, project exports and export of technology services.
  36. 36. Indian JVs / WOS Abroad Facilities are provided for the proposals from Indian companies for overseas investment in joint ventures and wholly owned subsidiaries abroad are considered in terms of the Foreign Exchange Management (Transfer or Issue of any Foreign security) Regulations, 2000.
  37. 37. Technology Trade Promotion • The Department of Scientific & Industrial Research (DSIR) operates a scheme called Transfer and Trading in Technology (TATT) under which it can grant assistance for technology exports. Apart from financial assistance, the prospective technology / service exporters can also identify possible export opportunities by studying profiles ofvarious developing countries, which have been prepared with the support of DSIR to identify the technology needs of those countries. Under this scheme, the DSIR provides support by way of grant, to finance efforts for technology exports. The quantum of grant and eligibility is determined on case-to-case basis, but grant can be extended to 100 per cent of the eligible expenses.
  38. 38. Duty DRAWBACKS SCHEME • Various schemes like EOU, SEZ, DEEC, manufacture under bond etc. are available to obtain inputs without payment of customs duty/excise duty or obtain refund of duty paid on inputs. In case of Central Excise, Manufacturers can avail Cenvat credit of duty paid on inputs and utilise the same for payment of duty on other goods sold in India, or they can obtain refund. Schemes like manufacture under bond are also available for customs. Manufacturers or processors whoare unable to avail any of these schemes can avail ‘duty drawback’. Here, the excise duty and customs duty paid on inputs is refunded to the exporter of finished product by way of ‘duty drawback’. Section 75 of Customs Act provide for drawback on materials used in manufacture or processing of export product. Section 37 of Central Excise Act allows Central Government to frame rules for purpose of the Act. Under these powers, ‘Customs and Central Excise Duties Drawback Rules, 1995’ have been framed.
  39. 39. Drawback of customs and excise duty paid on inputs • Drawback means the rebate of duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods which are manufactured in India and exported. Export means taking out of India. Supply of stores for use in vessel or aircraft proceeding to foreign port is also covered, since it is treated as ‘export’ as per section 89 of Customs Act. • Duty Drawback is equal to (a) customs duty paid on imported inputs including SAD plus (b) excise duty paid on indigenous inputs. Duty paid on packing material is also eligible. However, if inputs are obtained without payment of customs/excise duty, no drawback will be paid. If customs/excise duty is paid on part of inputs or rebate/refund is obtained, only that part on which duty is paid and on which rebate/refund is not obtained will be eligible for drawback. No drawback is available on other taxes like sales tax and octroi.
  40. 40. • Processing also eligible for Drawback - Drawback is allowable if any manufacture, process or any operation is carried out in India [section 75(1) of Customs Act]. Thus, drawback is available not only on manufacture, but also on processing and job work, where goods may not change its identity and no ‘manufacture’ has taken place
  41. 41. Type of Drawback Rates Directorate of Drawback, Dept. of Revenue, Ministry of Finance, Govt. of India, Jeevan Deep, Parliament Street, New Delhi - 110 001.
  42. 42. • ALL INDUSTRY RATE - This rate is fixed under rule 3 of Drawback Rules by considering average quantity and value of each class of inputs imported or manufactured in India. Average amount of duties paid is considered. These rates are fixed for broad categories of products. The rates include drawback on packing materials. Normally, the rates are revised every year from 1st June, i.e. after considering the impact of budget, which is presented in February every year. All Industry drawback rate is not fixed if the rate is less than 1% of FOB Value, unless the drawback claim per shipment exceeds Rs 500.
  43. 43. The All Industry Rate (AIR) is fixed on the basis of weighted averages of consumption of imported / indigenous inputs of a representative cross section of exporters and average incidence of duties. Hence, individual exporter is not required to produce any evidence in respect of actual duties paid by him on inputs.
  44. 44. BRAND RATE It is possible to fix All Industry Rate only for some standard products. It cannot be fixed for special type of products. In such cases, brand rate is fixed under rule The manufacturer has to submit application with all details to Commissioner, Central Excise. Such application must be made within 60 days of export. This period can be extended by Central Government by further 30 days. Further extension can be granted even up to one year in if delay was due to abnormal situations
  45. 45. SPECIAL BRAND RATE - • All Industry rate is fixed on average basis. Thus, a particular manufacturer may find that the actual duty paid on inputs is higher than All Industry Rate fixed for his product. In such case, he can apply under rule 7 of Drawback Rules for fixation of Special Brand Rate, within 30 days from export. The conditions of eligibility are (a) the all Industry rate fixed should be less than 80% of the duties paid by him (b) rate should not be less than 1% of FOB value of product except when amount of drawback per shipment is more than Rs. 500 (c) export value is not less than the value of imported material used in them - i.e. there should not be ‘negative value addition’.
  46. 46. Drawback Rate Fixation Forms and procedures have been prescribed for submitting details to jurisdictional Commissioner of Central Excise, who will fix the rate of duty drawback. • Drawback claim procedure: Exporter shall endorse on the ‘shipping bill’ the description, quantity and other details to decide whether goods are eligible for duty drawback. He should submit one extra copy of shipping bill for drawback purposes. Copy of Invoice should be submitted.
  47. 47. DECLARATION BY EXPORTER declaration should be made rule 12(1)(a)(ii) of Duty Drawback Rules, on shipping bill or bill of export that claim of drawback is being made and that duties of customs and excise have been paid on materials, containers and packing materials and hat no separate claim for rebate of duty will be made. If the exporter or his authorized agent was unable to make such declaration due to reasons beyond his control, Commissioner of Customs can grant exemption from this provision of making declaration on shipping bill or bill of export. Further declarations are also required when brand rate or special brand rate has been fixed. These declarations have to be signed by exporter.
  48. 48. DECLARATION FOR NON-AVAILMENT OF CENVAT a) If the manufacturer-exporter or supporting manufacturer of merchant exporter is registered with Central Excise, fact of non availment of Cenvat credit can be verified from ARE-1 form furnished (b) If the manufacturer exporter or supporting manufacturer of merchant exporter is not registered with Central Excise, they have to submit self-declaration about non- availment of Cenvat in prescribed form.
  49. 49. Duty drawback on Re-export • Section 74 of Customs Act, 1962 provide for drawback if the goods are re-exported as such or after use. This may happen in cases like import for exhibitions, goods rejected or wrong shipment etc. The re-exported goods should be identifiable as having been imported and should be reexported within two years from date of payment of duty when they were imported. This period (of two years) can be extended by CBE&C on sufficient cause being shown. These should be declared and inspected by Customs Officer. Original shipping bill under which the goods were imported should be produced. The goods can be exported as cargo by air or sea, or as baggage or by post. - . - . - After inspection, export and submission of application with full details, 98% of the customs duty paid while importing the goods is repaid as drawback.
  50. 50. VALUE AT THE TIME OF EXPORT IS RELEVANT • As per section 74(4), goods are deemed to have been entered for export on the date rate of duty is to be calculated under section 16. As per section 16, value of export goods will be taken on the date on which proper officer makes an order permitting clearance of goods for export under section 51 of Customs Act. Hence, ‘Value’ for the purposes of section 76(1)(b) will be value at the time of export and not the original value of import of the goods.
  51. 51. DRAWBACK FOR USED GOODS • If the imported goods are used before re-export, the drawback will be allowed at a reduced percentage [section 76(2) of Customs Act, 1962]. If the goods were in possession of the importer, they might be treated as used by the importer. As per the rules framed by Central Government, the table is as follows : (a) use upto 6 months ; 85% (b) 6 months to 12 months : 70% (c) 12 months to 18 months : 60% (d) 18 months to 24 months : 50% (e) 24 months to 30 months : 40% (f) 30 months to 36 months : 30% (g) over 36 months : Nil. Drawback is allowed if the use is over 24 months only with permission of Commissioner of Customs if sufficient cause is shown.
  52. 52. Advance Authorization • Inputs required to manufacture export products can be imported without payment of customs duty under Advance Authorisation. Advance Authorisation can be granted to merchant exporter or manufacturer exporter to import raw materials. Since the raw materials can be imported before exports of final products, the Authorisations issued for this purpose are called ‘advance authorisations’.
  53. 53. ‘Manufacture’ has the meaning assigned to it in para 9.30 of EXIM Policy. This definition is very wide. Hence, import for mere processing will also be permissible. Advance Authorisation is issued to allow duty free import of inputs with normal allowance for wastage. In addition, fuel, oil, energy, catalysts etc. required can also be allowed. Duty free import of mandatory spares upto 10% of CIF Value of Authorisation, which are required to beexported with resultant products may also be allowed. However, prohibited items of import cannot be imported.
  54. 54. Annual Advance Authorization to status holders • Annual Advance Authorisation would be issued to status holder (export houses / trading houses / star trading houses / super star trading houses) to enable them to import their requirements of inputs on annual basis. Annual Advance Authorisation will be granted upto 200% of FOB value of exports in preceding financial year. There should be positive value addition. The authorisation is valid for 12 months for import and 18 months for export. No extension will be granted. The authorisation is subject to actual user condition. They have to give LUT (Letter of Undertaking) only and not bank guarantee
  55. 55. Duty Entitlement Pass Book Scheme (DEPB Scheme)- • The scheme is easy to administer and more transparent. The scheme is similar to Cenvat credit scheme. The exporter gets credit when he exports the goods. The credit is on basis of rates prescribed. This credit can be utilised for payment of customs duty on imported goods. The objective of the scheme is to neutralise incidence of customs duty on the import content of export product. The neutralisation shall be provided by way of grant of duty credit against the export product. Exports under DEPB scheme are allowed only when DEPB rate for the concerned export product is finalised. Under this scheme, exporters will be granted duty credit on the basis of notified entitlement rates. The entitlement rates will be notified by DGFT. The entitlement rates will be a % of FOB. The entitlement rate will be fixed on basis of SION (Standard Input Output Norms) and deemed import content. Value addition achieved in export product will also be taken into account.
  56. 56. Duty Free Replenishment Scheme Duty Free Replenishment Scheme allows import of inputs without payment of duty after goods are actually exported. Thus, it is post import remission scheme. Under the scheme, after completion of exports, the exporters will be able to obtain transferable duty-free replenishment certificate (DFRC) for importing inputs used in the export products as per the standard input-output norms (SION).
  57. 57. EPCG The scheme, first introduced on April 1, 1990 and amended from time to time, allows for the import of capital goods at concessional customs duty. Under this scheme an exporting producer (i.e., every manufacturer who exports) or merchant/exporter (i.e., traders) who is tied to a producer, is eligible for the scheme. For availing of the scheme, a company is required to provide the details of the type and the value of capital goods to be imported. Depending on the level of export commitment the company is willing to take, the company is allowed to import the capital good at concessional customs duty of 5%. The export obligation is 5 times the CIF value of the capital good on FOB basis or 4 times CIF value of capital goods on Net Foreign Exchange Earnings (NFE) basis. The export obligation is to be fulfilled over 8-year period. In order to meet the export obligation, goods exported must have been produced with the imported capital goods.
  58. 58. Duty Exemption/Duty Remission Schemes: • While duty exemption scheme enables import of inputs required for export production, the duty remission scheme enables post export replenishment/ remission of duty on inputs used in the export product. • DGFT currently has three duty exemption/duty remission schemes. Table 2 shows the popularity of these schemes. These are (i) Advance Licence (ii) Duty Free Replenishment Certificate, and (iii) Duty Exemption Passbook Scheme.
  59. 59. Advance Licence: Advance Licence is issued under Duty Exemption Scheme to allow import of inputs which are physically incorporated in the export product. Import of raw material is on the basis of quantity based advance licence. The quantity of raw materials is determined on the basis of government provided Standard Input-Output Norms (SIONs). These norms specify the proportion of inputs used in the production of final product. Both the quantity and the value of inputs allowed to be imported are specified in the licence as well as the overall value of the licence depending on the value of exports commitment that an exporter undertakes. If the quantity for a particular description cannot be imported in the specified value then its value can be adjusted within the overall value fixed in the licence.
  60. 60. Advance Licence can be issued for physical exports, intermediate supplies or deemed exports. Advance Licence is issued for duty free import of inputs and is subject to actual user condition. Such licences (other than Advance Licence for deemed exports) are exempted from payment of Basic Customs Duty, Additional Customs Duty, Anti Dumping Duty and Safeguard Duty, if any.29 (For deemed exports, however, Advance Licence is exempted from Basic Customs Duty, and Additional Customs Duty only.) These licences are issued to manufacturer exporter(main contractor in case of deemed exports) or merchant exporter with the endorsement of the supporting manufacturer(s). In case of Advance Licence for Intermediate Supply, such licence is issued to a manufacturer-exporter for the importof inputs required in the manufacture of goods to be supplied to the ultimate exporter/deemed exporter holding another Advance Licence
  61. 61. Duty Free Replenishment Certificate (DFRC): • Both Duty Free Replenishment Certificate (DFRC) and Duty Entitlement Passbook (DEPB) Scheme are duty remission schemes. These schemes allow drawback of import charges on inputs used in the export product. Under DFRC, merchant-exporter or manufacturer-exporter obtains, after completion of exports, transferable duty free replenishment certificate for importing inputs used inthe export products as per SIONs. The scheme was introduced in April 2000 and allows imports of inputs used in the manufacture of goods without payment of Basic Customs Duty, Special Additional Duty (and also Surcharge, if any). However, such inputs shall be subject to the payment of Additional Customs Duty equal to the Excise Duty, and Anti- dumping /Safeguard duty at the time of import (since a certificate or the material imported against it is freely transferable).
  62. 62. EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME • Under Export Promotion Capital Goods (EPCG) scheme, a licence holder can import capital goods (i.e. plant, machinery, equipment, components and spare parts of the machinery) at concessional rate of customs duty of 5% and without CVD and special duty. Computer software systems are also eligible. Import of spares of capital goods is permitted, without any limit. Jigs, fixtures, dies, moulds will be allowed to the extent of 100% of CIF value of licence. Spares for existing plant and machinery can also be imported. Second hand capital goods upto 10 year old can also be imported under EPCG scheme.
  63. 63. Merchant Exporters can also import capital goods under EPCG scheme, if the capital goods are installed in the factory of their supporting manufacturer. The name and address of supporting manufacturer should be endorsed on EPCG licence and bond with Bank guarantee has to be executed jointly and severally by merchant exporter and his supporting manufacturer.
  64. 64. • Please bring case studies during your class presentati ons

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