RoDTEP: A WTO-Compliant Export Incentive Scheme

RoDTEP Stands for — Remission of Duties and Taxes on Export Products

RoDTEP is an export promotion scheme announced by the Ministry of Shipping, Government of India that replaces the Merchant Exports Incentive Scheme (MEIS) and Rebate of State and Central Levies and Taxes (RoSCTL). This multi-sector, WTO-compliant scheme is intended to provide refund of hitherto non-refundable duties and taxes including (and not limited to): 

1. Central and State Excise Duty on fuel for transportation of export goods (petrol, diesel, CNG, PNG, etc.)
2. Coal cess or duty levied by States on electricity consumed for manufacturing of export goods
3. Mandi tax levied by APMCs
4. Toll tax and stamp duties on import-export documentation
5. Value added tax (VAT) wherever applicable

The refunds on the said taxes and levies will be provided as a percentage of the FOB value of the exported goods. 

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Purpose of RoDTEP

Exporters incur various costs in manufacturing export products. While some costs like GST and customs duties on imported raw material are either exempted or refunded, there are other costs as mentioned above that are still borne by the exporters. Such hidden costs add to increase the final cost of the products that are exported. This way, Indian exporters lose their competitive edge in terms of pricing in the international markets. 

To avoid this and make Indian exports more competitive vis-à-vis other exporting countries, the Government of India has introduced the RoDTEP scheme. An expert panel headed by former Home Secretary Dr. G.K. Pillai was formed to determine the RoDTEP rates. Once these rates are finalized, remissions will be disbursed based on the FOB value of the merchandise that is exported.

Why is RoDTEP needed?

In March 2018, the United States of America (US) had challenged the export incentive schemes of India at the World Trade Organization (WTO), claiming that these schemes are harming the American workers. On October 31, 2019, the panel set up by the Disputes Settlement Board of WTO has submitted its report recommending India to withdraw the various export incentive schemes that are in effect, including:

• Duty free Import Authorization Scheme (DFIA)
• Export Oriented Units Scheme (EOU)
• Electronic Hardware Technology Park Scheme (EHTP)
• Bio-Technology Park Scheme (BTP)
• Export Promotion Capital Goods Scheme (EPCG) and 
• Merchandise Exports from India Incentive Scheme (MEIS) 

Subsequently, the Government of India discontinued the MEIS scheme after March 31, 2020 and came out with a new scheme in the form of RoDTEP that complies with WTO guidelines. Ms. Nirmala Sitharaman, Minister of Finance, announced this scheme in March 2020.

Who is Eligible to apply?

Below are the criteria of eligibility for the RoDTEP scheme:

‍Eligible:

• Multi-sector Indian exporters including textiles are eligible under RoDTEP scheme. 
• Both types of exporters (manufacturers and traders) are eligible to avail the benefits of RoDTEP
• All exporters whose export products are produced in India (even if the raw material used in manufacturing those products are imported).
• As of now, there is no minimum turnover restriction for this scheme. Even small exporters with very minimum export turnovers are eligible to avail the scheme. 
• Priority is given to labour-intensive sectors that enjoyed benefits under the now-scrapped MEIS scheme. 
• Exporters who operate via e-commerce platforms to export their goods are also eligible.‍

Not Eligible:

• Re-exports are not covered under RoDTEP. Any products that are brought in to special zones like the FTWZ for the purpose of re-exporting are not eligible for RoDTEP
• Products that do not have country of origin as India are not eligible. 
• Exporters who are already availing benefits from incentive schemes other than MEIS and RoSCTL. 

Features of RoDTEP

1. Level playing field: RoDTEP is aimed at providing a level playing field for Indian exporters to compete with international exporters. 
2. Export credit: Upto Rs.68,000 crores have been provisioned for additional export credit under this scheme and upto Rs.50,000 crores of projected foregone revenue.
3. Rebate on FOB value: The rebate or benefit will be calculated as a percentage of FOB value of the exported goods.
4. Automated ITC: A fully automated module will be created for Input Tax Credit (ITC) for manufacturing and service exporters. The automated module that has an inbuilt risk management system (RMS) that verifies the claims before providing the benefits. It is aimed at reducing double taxation and making the entire GST tax refund process easier. 
5. Insurance cover: RoDTEP is set to increase the insurance cover for exporters. Ministry of Finance has introduced a guarantee through Export Credit Guarantee Corporation (ECGC) with a budget of Rs.1700 crores. 
6. Transparency: The automated module for tax refunds provides the much-required transparency for this scheme, thus providing real time data on the validity and compliance to WTO norms. 
   

Benefits to Exporters

1. Free up working capital: With refunds as input tax credits, exporters can avoid double taxation and use the credits to pay for import duties of raw material – thus saving on the working capital.
2. Quicker claims and refunds: The entire process being automated, refund claims are processed much quicker, saving precious time in making credits available to exporters. 
3. Increased export credit: As this scheme provides increased export credit, exporters can now plan for increased volumes. 
4. Easier Transferability: The rebate would be credited to the RoDTEP Ledger of the company which can be transferred to any other importer electronically. This removes the hassles of registration of license which will enable exporters to realise the benefit much easier.
5. WTO complaint Subsidy: There will be no uncertainty on the benefits granted under the scheme. 
6. Reduced clearance time at ports: Customs clearance of export goods at seaports and airports will be made quicker, reducing the waiting time. The Ministry of Finance is taking steps in this direction. 
7. Affordable testing: Under RoDTEP, exporters will get affordable testing and certification services within India and they need not rely on international organizations for this. To this extent, these facilities are being developed under public private partnership mode and they will provide internationally accepted tests and certifications. 
   
   

How to avail RoDTEP benefits

The benefits of RoDTEP can be availed only by Import Export Code (IEC) holders with a valid Digital Signature Certificate (Class 3). Following documents are required for claiming benefits under this scheme.

• Digital Signature Certificate (DSC)
• Shipping Bill 
• Electronic Bank Realisation Certificate (eBRC)
• Registration Cum Membership Certificate (RCMC)

The procedure to avail the benefits under RoDTEP is broadly explained as below. Entire procedure is divided into FOUR parts for simplicity viz. (I) Creation of the RoDTEP Credit Ledger, (II) Declaration in the Shipping Bills (III) Claim Processing and Scroll generation (IV) Generating and using Scrips. For further details, please visit the ICEGATE RoDTEP Advisory.

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(I) Creation of the RoDTEP Credit Ledger: The exporter has to log in to the ICEGATE portal through the link https://www.icegate.gov.in/. Go to “Our Services >> RoDTEP'' to create the RoDTEP credit ledger.

RITC codes: Customs has made it mandatory for exporters to indicate in the shipping bill whether they want to claim the RoDTEP benefits or not. But the claim is mandatory for the items notified under this scheme (RITC codes). 

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(II) Declaration in the Shipping Bills: However, as the RITC codes and the corresponding rates are yet to be notified by the government, a mandatory declaration has to be made for all items in the shipping bill in ICEGATE effective January 01, 2021. 

(a) INFO Code: If the exporter wants to avail RoDTEP for an export item in the shipping bill, then in the SW_INFO_TYPE table of shipping bill, it must be notified as INFO CODE = RODTEPY (which means Yes). If the claim is not availed, then it must be INFO CODE = RODTEPN (which means NO)

Note: If the “RODTEPY” is not mentioned in the shipping bill, then the exporter cannot avail any RoDTEP benefits for that item. 

(b) RODTEPY Declaration: For every export item that has INFO CODE = RODTEPY, an additional declaration (given in Page no.18 of ICEGATE RoDTEP Advisory dated January 01, 2021) has to be submitted in the Statement of Table in the shipping bill.

(III) Claim processing and Scroll Generation:

Once the claims have been submitted in the shipping bill, the Customs will verify and perform a risk analysis before generating a scroll for the claims. It is said that risk analysis is done through a sophisticated Risk Management System. The generated scroll will contain the rates (which are yet to be announced) at which the remission will be made on the items mentioned in the shipping bill. 

The scroll thus generated will be available in the ‘Scroll Details’ section of the Credit Ledger in the exporter’s ICEGATE account. They can simply login and generate credit scrips from those scrolls. Scrips thus generated will be listed in the ‘Scrip Details’ section of the credit ledger. 

(IV) Generating and Using Scrips:

Credit scrips in the Credit Ledger are transferable. Exporters can either use them to pay for their import duties or can transfer them to any other third party (exporter or importer) within the ICEGATE portal. 

The scrips can be used like any other Duty Credit Scrips issued by the Director General of Foreign Trade (DGFT). Import duty can be paid using the credit scrips by giving their details in the license table of the Bills of Entry in the ICEGATE portal.

Users have the flexibility to use scrips generated from a single shipping bill or use a bunch of scrips from multiple shipping bills to pay the duty. Similarly, they can also transfer scrips associated with single or multiple shipping bills. 

RoDTEP for EOUs and SEZs

The guidelines for RoDTEP clearly indicate that the benefits under RoDTEP cannot be availed by those who are availing similar schemes like EOU and SEZ among others. However, the beneficiaries under EOU and SEZ have claimed that these units could take a hit due to the RoDTEP scheme. The Export Promotion Council of EOUs and SEZs (EPCES) contends that units under EOU and SEZ contribute about 30% of the India’s total exports. They too procure domestic inputs and pay various taxes and duties that are covered under the RoDTEP. By not including them under RoDTEP, they are being deprived of the benefits of this scheme. Though the Government has not included EOUs and SEZs at the moment, there are pressures to make them a part of the scheme.

RoDTEP and RoSCTL

RoSCTL is specifically meant for the textile industry (for textiles and made-ups exporters) and was launched in March 2019, with an annual budget of Rs.7,500 crores. This scheme helps textile exporters in the form of rebates on state and central taxes. Similar to RoDTEP, this was launched in response to the mounting pressure on India (especially from the US) to discontinue export schemes like MEIS as they were allegedly flouting the WTO agreements on subsidies. 

Export incentives under this scheme are offered as transferrable and sellable duty scrips that are calculated based on the FOB value of the textiles and made-up goods. RoSCTL replaced Rebate on State Levies (RoSL) which was a monetary incentive scheme. To claim a rebate under RoSCTL, exporters must file an application in the ANF 4R form, in which upto 50 shipping bills can be attached, and submit to DGFT for review. 

From January 01, 2021, RoSCTL was merged into RoDTEP, thus making the former a comprehensive scheme for exporters across the industries. 

RoDTEP and MEIS

As mentioned in the beginning of this article, there was a lot of pressure to remove non-WTO compliant incentive schemes and MEIS was one such scheme. MEIS that came into effect in 2015 was discontinued in March 2020, giving way to RoDTEP. Here are some basic differences between MEIS and RoDTEP:‍

Current issues with RoDTEP

RoDTEP was introduced in good faith to set right the compliance issues of WTO agreements. However, there has been a certain delay in getting it off the block and thus creating uncertainty and confusion among the export community. 

Though the Government announced that the scheme will take effect from January 01, 2020, nothing has been clarified about the refund rates and from when exporters will start getting the said benefits. One of the primary reasons for this delay is the differences between Commerce and Finance ministries in the total budget that is to be allocated for this scheme. 

While the initial planned outlay for RoDTEP was Rs.50,000 crore per annum, the G.K. Pillai panel suggested benefits around Rs.30,000 crores per annum. But the Ministry of Finance is looking at ceiling those benefits to around Rs.13,000 crores to Rs.15,000 crores and it has already budgeted Rs.13,000 crores for RoDTEP benefits for the year 2021-22. This is way below the 2019-20 budget for the MEIS scheme which was Rs. 39,097 crores. Textile exporters get an estimated Rs.7,500 crore of benefits per year under RoSCTL. With this chunk of benefits going to just the textile industry, other manufacturing industries will have very little left. 

As industry experts feel, the low budget figure could be because of Government’s prior commitments towards various economic stimulus measures and Productivity-Linked Incentives as part of Atmanirbhar Bharat Abhiyan. 

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Road ahead

RoDTEP scheme is definitely the need of the hour. The impact of Covid-19 pandemic and the discontinuation of the MEIS scheme had left the Indian exporters high and dry. They require the financial backing from the Government and a suitable environment to maintain their cost competitiveness in the global markets. On the other hand, being a signatory of WTO, it is India’s obligation to comply with global trade norms and reform its existing incentive schemes. RoDTEP fits the bill perfectly as it serves both these purposes.

Keeping in view the government’s intention and integrity to help the export community by introducing the RoDTEP scheme to benefit the exporters. Announcing this scheme as MEIS’s replacement proves the intention and bringing it into effect from January 01, 2021 even before the final rates are fixed proves the integrity. It is more like a tightrope walk for the Government right now in terms of (a) implementing WTO-compliant incentive schemes and (b) juggling the available funds among its various schemes. 

Cogoport advises exporters to maintain restraint till the time RoDTEP rates are finalized and implemented. Though there are delays / teething troubles in implementing this scheme, it is poised to bring good dividends to Indian exporters in the long run (as the rewards are expected to be better than MEIS) and compete better with their international counterparts. Once the remission rates are fixed and the ministries reach an understanding, things will fall in place.