Exploring Special Import Provisions under Indian Trade Policy

India’s trade policy framework includes several special provisions designed to make exports more competitive in global markets. These provisions allow manufacturers and exporters to import capital goods, raw materials, and components at reduced or zero duty rates, provided they fulfill specific export obligations. By lowering production costs and improving access to quality inputs, these schemes play a vital role in strengthening India’s position as a global exporter.

What are special import provisions? 🔗

Special import provisions refer to a set of duty exemption and remission schemes embedded within India’s Foreign Trade Policy (FTP). These mechanisms are designed to support exporters by reducing the cost of imported inputs used in manufacturing export products. Rather than paying full customs duties on materials and equipment, eligible businesses can import at concessional rates or without duty altogether, as long as they meet specified export commitments.

The primary schemes under these provisions include the Export Promotion Capital Goods (EPCG) Scheme, Advance Authorization Scheme, Duty Drawback Scheme, and specialized schemes for sectors like gems and jewellery. Each scheme serves a distinct purpose but shares the common goal of enhancing export competitiveness.

Export Promotion Capital Goods (EPCG) Scheme 🔗

The EPCG Scheme is one of the flagship initiatives under India’s FTP. Its core objective is to help manufacturers import capital goods needed for pre-production, production, and post-production activities at zero customs duty. This includes machinery, equipment, computer systems, software, spares, moulds, dies, and catalysts essential for manufacturing operations.

How the scheme works 🔗

Under this scheme, capital goods imported are also exempt from Integrated GST (IGST) and Compensation Cess, making it highly attractive for manufacturers looking to upgrade their production capabilities. The authorization remains valid for imports for 24 months from the date of issue.

The scheme covers manufacturer exporters, merchant exporters tied to supporting manufacturers, and service providers. Common Service Providers (CSPs) in Towns of Export Excellence or under the PM MITRA scheme can also benefit from EPCG authorizations.

Export obligation requirements 🔗

The duty benefits come with an important condition: exporters must fulfill an export obligation equivalent to six times the duties, taxes, and cess saved on the imported capital goods. This obligation must be completed within six years from the date of authorization. Additionally, exports must exceed the average level achieved in the preceding three licensing years for similar products.

Indigenous sourcing of capital goods attracts a 25% reduction in the specific export obligation, encouraging domestic procurement. Green technology product exporters enjoy a reduced obligation of 75% of the standard requirement. Units in the North Eastern states and Union Territories of Jammu & Kashmir and Ladakh benefit from an even lower obligation at 25% of the standard rate.

Advance Authorization Scheme 🔗

The Advance Authorization Scheme enables duty-free import of inputs that are physically incorporated into export products, after accounting for normal manufacturing wastage. This scheme directly reduces the cost of raw materials for export-oriented production.

What can be imported duty-free? 🔗

Under this scheme, several categories of items qualify for duty exemption. These include inputs physically incorporated into the export product, fuel, oil, and catalysts consumed during production, and mandatory spares required to be exported along with the final product (up to 10% of CIF value). The exemption covers Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty, Safeguard Duty, IGST, and Compensation Cess.

Eligibility and obligations 🔗

Both manufacturer exporters and merchant exporters tied to supporting manufacturers can obtain Advance Authorization. The authorization is valid for 12 months for imports, and the export obligation must be fulfilled within 18 months from the date of issue. A minimum value addition of 15% is generally required, meaning the final export product must reflect at least a 15% increase in value over the imported inputs.

Inputs can also be sourced domestically instead of being imported, with such supplies treated as deemed exports and exempted from GST. The scheme operates on an actual user condition, meaning neither the authorization nor the imported materials can be transferred.

Duty Drawback Scheme 🔗

Unlike the advance exemption approach of the previous schemes, the Duty Drawback Scheme provides a refund mechanism. Exporters first pay customs and excise duties on imported inputs, then claim reimbursement after completing the export of finished goods.

How refunds are calculated 🔗

The scheme operates under two primary rate categories. The All Industry Rate (AIR) is a standardized drawback rate applicable to most goods, calculated based on the average duty incidence across the industry. When AIR is unavailable or inadequate for specific products, exporters can apply for Brand Rate fixation based on their actual duty payments.

For re-exported imported goods that were not used after importation, exporters can claim up to 98% of the duty paid, provided re-export occurs within two years. The scheme provisions are described under Section 74 and Section 75 of the Customs Act, 1962.

Benefits for exporters 🔗

The Duty Drawback Scheme offers tangible financial advantages. It improves cash flow by releasing tied-up capital through duty refunds. It reduces production costs, allowing exporters to price their products more competitively in international markets. The scheme is administered by the Central Board of Indirect Taxes and Customs (CBIC), and claims are typically processed through the Electronic Data Interchange (EDI) system.

Schemes for gems and jewellery exports 🔗

India’s gems and jewellery sector enjoys specialized import provisions given its significant contribution to exports. The sector contributes approximately 7% to India’s GDP, employs over five million workers, and accounts for about 15% of total merchandise exports. Exporters of gems and jewellery can import or procure duty-free inputs for manufacturing export products including gold, silver, and platinum jewellery.

Available schemes for the sector 🔗

Several mechanisms support this sector, including Advance Procurement and Replenishment of Precious Metals from Nominated Agencies, Advance Authorization for Precious Metals, and duty-free import provisions for diamonds sent abroad for certification and grading. The Gem and Jewellery Export Promotion Council (GJEPC) facilitates these benefits and helps exporters navigate the compliance requirements.

Precious metals like gold, silver, and platinum can be obtained from designated nominated agencies including MMTC Ltd, the Handicrafts and Handlooms Exports Corporation of India, State Trading Corporation, and others. Exporters can take delivery of duty-free gold through various methods such as outright purchase, booking basis, or exhibition sale basis.

Value addition requirements 🔗

Minimum value addition norms apply to gem and jewellery exports. For plain jewellery, the requirement is generally lower (around 3%), while studded jewellery requires higher value addition (around 6%). Wastage norms are predefined by DGFT-for plain jewellery, manufacturing loss allowed is 2.5% for gold/platinum and 3.2% for silver. Studded jewellery permits 5% wastage for all precious metals.

Key compliance requirements 🔗

All special import provisions share common compliance threads. Exporters must maintain accurate documentation, including import invoices, shipping bills, customs-attested documents, and bank realization certificates. Authorizations are subject to actual user conditions until export obligations are discharged.

The FTP 2023 emphasizes automation and a paperless environment to streamline procedures. The Directorate General of Foreign Trade (DGFT) has implemented rule-based automatic approval systems using business analytics tools, particularly benefiting MSMEs through reduced fees and faster processing times.

For exporters who have defaulted on export obligations, the FTP 2023 introduced a one-time Amnesty Scheme. This allows regularization of pending cases under EPCG and Advance Authorization by paying exempted customs duties along with capped interest payments.

Strategic benefits for Indian exporters 🔗

These special import provisions collectively deliver multiple advantages. They reduce the cost of production by eliminating or minimizing duty burden on imported inputs. They enable access to advanced capital goods and technologies that enhance manufacturing quality. They improve cash flow management through either upfront exemptions or post-export refunds.

For businesses planning to enter export markets or expand their international presence, understanding and utilizing these schemes can significantly impact profitability. The choice between EPCG, Advance Authorization, or Duty Drawback depends on factors like the nature of production, capital investment needs, and preferred cash flow management approach.

What do you think? If you’re involved in export-oriented manufacturing, which of these schemes aligns best with your business model? Have you considered how the reduced export obligations for green technology products or indigenous sourcing might influence your procurement strategy?

References

1. https://www.drishtiias.com/daily-updates/daily-news-analysis/foreign-trade-policy-2023
2. https://content.dgft.gov.in/Website/dgftprod/9f6336a2-e03d-4dbb-86eb-305615f0db13/FTP2023_Chapter05.pdf
3. https://cleartax.in/s/advance-authorization-scheme
4. https://www.mygstrefund.com/blog/advance-authorisation-guide/
5. https://www.indiafilings.com/learn/duty-drawback-scheme/
6. https://sell.amazon.in/grow-your-business/amazon-global-selling/blogs/duty-drawback
7. http://www.dgep.gov.in/introduction-gems.php
8. https://gjepc.org/guide-to-export.php
9. https://afleo.com/duty-free-import-of-gold-silver-platinum-advance-authorisation-scheme/
10. https://www.impriindia.com/insights/foreign-trade-policy-ftp/