Export incentives under foreign trade policy

Introduction

Export incentives under the Foreign Trade Policy refer to financial benefits, tax-related concessions, duty exemptions and other government facilities provided to encourage domestic businesses to export goods and services. These incentives aim to improve international competitiveness, increase foreign exchange earnings, promote industrial development and generate employment opportunities.

In India, export incentives form an important part of the government's international trade strategy. They support manufacturers, exporters, service providers, small businesses and special economic zones by reducing export-related costs and improving access to international markets.

The Foreign Trade Policy (FTP) 2023, administered by the Directorate General of Foreign Trade (DGFT), provides the principal policy framework for promoting exports. It operates alongside legislation such as the Foreign Trade (Development and Regulation) Act, 1992, the Customs Act, 1962 and the Customs Tariff Act, 1975.

Legal framework governing export incentives in India

1. Foreign Trade (Development and Regulation) Act, 1992

This Act provides the statutory foundation for India's foreign trade policy. Section 3 empowers the Central Government to make provisions for prohibiting, restricting or regulating imports and exports.

Section 5 authorises the Central Government to formulate and announce the Foreign Trade Policy. The policy establishes the framework for export promotion schemes, authorisations and trade facilitation measures.

2. Foreign Trade Policy 2023

The Foreign Trade Policy 2023 introduced a flexible framework for promoting exports and improving the ease of doing business.

Its major objectives include:

Increasing India's international trade participation.

Promoting domestic manufacturing and export competitiveness.

Simplifying export procedures and digital documentation.

Supporting districts as export hubs.

Encouraging small businesses and emerging exporters.

Improving coordination between exporters and government authorities.

3. Customs Act, 1962

The Customs Act regulates the import and export of goods and provides the legal framework for customs procedures and duty-related benefits.

Exporters claiming eligible customs exemptions or refunds must comply with the relevant notifications, declarations and procedural requirements.

4. Customs Tariff Act, 1975

The Customs Tariff Act provides the framework for customs duties and related exemptions. Section 25 empowers the Central Government to grant exemptions from customs duties through notifications.

It is relevant to export promotion schemes involving duty exemptions on imported inputs used in export production.

Major export incentive schemes under Foreign Trade Policy

1. Advance Authorisation Scheme

The Advance Authorisation Scheme allows eligible exporters to import specified inputs without payment of basic customs duty, subject to prescribed conditions.

The imported inputs must be used in manufacturing products intended for export. Exporters must satisfy applicable export obligations and maintain the required records.

This scheme helps reduce production costs and improves the international competitiveness of Indian manufacturers.

2. Export Promotion Capital Goods Scheme

The Export Promotion Capital Goods (EPCG) Scheme allows eligible exporters to import capital goods at concessional or nil customs duty, subject to applicable conditions and export obligations.

Capital goods may include machinery, equipment and other specified production assets used in manufacturing or service delivery.

The scheme supports technological modernisation and increases production efficiency.

3. Duty Drawback Scheme

The Duty Drawback Scheme provides refunds of eligible customs and central excise duties on inputs used in exported goods, subject to the applicable rules and rates.

Its purpose is to prevent domestic indirect taxes from becoming an additional cost of exported products.

The Customs and Central Excise Duties Drawback Rules, 2017 provide the relevant procedural framework.

4. Remission of Duties and Taxes on Exported Products (RoDTEP)

RoDTEP provides remission of specified duties, taxes and levies that are not otherwise refunded or exempted.

The scheme seeks to ensure that domestic taxes do not remain embedded in exported products. Eligible exporters receive benefits in accordance with applicable rates, conditions and procedures.

5. Service Exports from India Scheme (SEIS)

SEIS was an earlier export incentive scheme that provided rewards to eligible service exporters under previous Foreign Trade Policies.

It is important to distinguish SEIS from the current Foreign Trade Policy 2023. SEIS should not be presented as a generally available incentive under the present policy.

Important judicial decisions

1. Union of India v. V.V.F. Ltd. (2020)

The Supreme Court examined the government's power to modify or withdraw tax exemptions granted under industrial incentive schemes. The judgment recognised that exemption policies may be changed in accordance with law, particularly where public interest justifies the modification.

Its relevance to export incentives lies in the principle that exporters cannot automatically assume that every government incentive will remain unchanged indefinitely.

2. Kasinka Trading v. Union of India (1995)

The Supreme Court considered the withdrawal of customs duty exemptions and the doctrine of promissory estoppel. It held that the government may withdraw an exemption in public interest, even where businesses have acted upon the earlier policy, subject to the applicable legal principles.

This decision is important for understanding the limits of exporters' expectations concerning continuing fiscal benefits.

3. Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh (1979)

The Supreme Court explained the doctrine of promissory estoppel and recognised that government representations may create enforceable expectations in appropriate circumstances.

The judgment is relevant where exporters invest or undertake commercial commitments based on specific government incentive promises. However, promissory estoppel cannot override statutory restrictions or compelling public-interest considerations.

4. Shree Sidhbali Steels Ltd. v. State of Uttar Pradesh (2011)

The Supreme Court examined the application of promissory estoppel against government authorities in relation to fiscal concessions. The decision demonstrates that representations concerning financial incentives must be assessed in light of statutory provisions and the government's lawful policy powers.

5. Commissioner of Customs v. Dilip Kumar & Company (2018)

The Constitution Bench of the Supreme Court held that ambiguity in exemption notifications should generally be interpreted in favour of the Revenue, and the claimant must establish eligibility for an exemption.

This principle is particularly relevant to exporters claiming customs duty exemptions under Advance Authorisation and EPCG-related notifications.

WTO rules and international obligations

Export incentives must also comply with international trade obligations under the World Trade Organization framework.

The Agreement on Subsidies and Countervailing Measures (SCM Agreement) prohibits certain export-contingent subsidies and regulates other forms of government financial assistance.

However, legitimate remission of indirect taxes and import duties on exported products may be permissible when it does not exceed the amount of duties or taxes actually incurred, subject to the Agreement's requirements.

Consequently, India must design its export incentive schemes carefully to ensure compatibility with WTO obligations.

Challenges in implementing export incentives

Despite their importance, export incentive schemes face several practical and legal challenges:

Complex documentation and eligibility requirements.

Delays in processing refunds and authorisations.

Frequent amendments to export policy and customs notifications.

Disputes concerning classification and interpretation of exemption conditions.

Compliance difficulties for small and medium-sized exporters.

International scrutiny of export-contingent financial benefits.

Exporters must therefore maintain accurate financial records, shipping documents, tax declarations and evidence of compliance with export obligations.

Conclusion

Export incentives under India's Foreign Trade Policy play an important role in promoting international trade, supporting domestic industries and improving export competitiveness. The Foreign Trade Act, 1992, Foreign Trade Policy 2023, Customs Act, 1962 and Customs Tariff Act, 1975 provide the principal legal framework. Schemes such as Advance Authorisation, EPCG, Duty Drawback and RoDTEP help exporters reduce costs and improve market access. Judicial decisions including Kasinka Trading, Motilal Padampat Sugar Mills and Dilip Kumar & Company establish important principles concerning government exemptions and incentive eligibility. Ultimately, export incentives must balance domestic economic development with fiscal responsibility and India's international trade obligations.