Foreign Trade Policy, SEZ, EOUs and Export Promotion Schemes
This domain tests the Foreign Trade Policy framework, Special Economic Zones, Export Oriented Units, and the principal export promotion schemes.
Foreign Trade Policy
The Foreign Trade (Development and Regulation) Act, 1992 empowers the Central Government to make the Foreign Trade Policy, administered by the DGFT. FTP 2023, effective 1 April 2023, has no fixed sunset date and is updated through notifications. It provides for advance authorisation, duty-free import authorisation, export promotion capital goods, and deemed export benefits.
Schemes
Advance authorisation allows duty-free import of inputs for export, subject to a positive value addition and export obligation. DFIA permits transfer of the authorisation after export obligation is met. EPCG allows zero customs duty import of capital goods against an export obligation generally six times the duty saved, over six years. RoDTEP remits embedded Central, State and local taxes on exported products and replaced MEIS. Duty drawback continues under sections 74 and 75 of the Customs Act.
SEZ
SEZs are governed by the SEZ Act, 2005 and rules. Supplies to and from SEZ units and developers are zero-rated / deemed inter-State under GST. Units must achieve positive net foreign exchange earnings. DTA sales attract applicable customs duty. Income-tax benefits under section 10AA apply subject to the statutory sunset.
EOU
EOUs are governed by the Foreign Trade Policy and operate under a positive net foreign exchange obligation, with duty-free procurement of inputs and capital goods, subject to bonding and supervision.
Worked example
An EPCG authorisation saves ₹10,00,000 customs duty. The export obligation is generally six times the duty saved, that is ₹60,00,000, to be fulfilled over six years.
Traps
- Treating SEZ supplies as exempt rather than zero-rated.
- Ignoring the positive NFE condition for EOU and SEZ units.
- Claiming RoDTEP without checking the notified eligibility of the product.