One hobbled step forward

In a welcome move, the Director General of Foreign Trade (DGFT) has prescribed a procedure for grant of benefits under the Merchandise Exports from India Scheme (MEIS) for goods exported from a Special Economic Zone (SEZ) or an Export Oriented Unit (EOU), on behalf of Domestic Tariff Area (DTA) units.

The existing Foreign Trade Policy (FTP) allows MEIS benefits for such shipment by EOU and SEZ units. The benefits are also available for shipment by DTA units through merchant exporters. EOU and SEZ units are also allowed to export through merchant exporters but the FTP does not allow MEIS benefits for such export. This restriction did not make sense.

Now, DGFT Policy Circular 20/2018, dated February 22, says export made directly from an EOU or SEZ unit to a foreign consumer would be so eligible. The relevant documents must be prepared and filed at the relevant Customs office, mentioning the name of the EOU or SEZ unit and of the DTA unit on whose behalf the export is being made. Eligible for MEIS benefits, on the condition that only one of these, i.e either EOU/SEZ unit or the DTA unit, can claim these. This eligibility applies to only those cases where goods are produced by the EOU/SEZ unit and exported directly to the foreign consumer, with the name of the DTA unit. The benefits to be taken on the basis of a disclaimer from the other (domestic) firm, subject to specified conditions. Thus, the DGFT has got around the restriction in the FTP. Good, since denial of the benefit for such export was not justified.

However, it would have been far better had the FTP been amended suitably. Also, the DGFT has stipulated unrealistic conditions. One of these require the commercial invoice to show the name of the DTA exporter and of the EOU or SEZ unit as manufacturer. No merchant exporter would like to let the foreign buyer know the name of the manufacturer, for fear that the buyer will then approach the manufacturer directly. That would mean giving away the benefit of all the effort and resources in wooing the customer. So, it is surprising that the Circular stipulates this condition.

There is another condition, that the declaration of intent to avail of MEIS benefits be mentioned in the commercial invoice. Now, why should a buyer abroad know what benefits the Indian exporter gets? If he knows, it is more likely that he will ask for these benefits to be passed on or shared with him, by way of reduction in price. This condition serves no useful purpose but causes unnecessary harm.

Another condition is that the related GST Invoice or ARE-1 be signed by both the DTA and EOU or SEZ unit. This is again an unnecessary condition, serving no useful purpose but adding to the compliance requirements. DGFT should review and get the necessary changes made in the FTP, without such unreasonable and impractical conditions.

E-mail: tncrajagopalan@gmail.com