Deemed Exports- All You Need to Know
The deemed export scheme is designed with the goal of enhancing the advantages and incentives that exporters enjoy to suppliers who play an indirect role in exports. For instance, this includes suppliers who provide goods to export-oriented units or those contributing to specific infrastructure projects.
The policy’s objective is to strengthen India’s domestic industry by offering duty-free inputs and providing benefits or exemptions on taxes and duties paid within the country, thereby counteracting the impact of imports on the domestic market.
What is Deemed Export
According to the Export and Import (EXIM) Policy of 1997-2002, ‘Deemed Exports’ refer to goods, not services, produced in India and distributed within the country without leaving its borders.
In essence, deemed exports imply that the supplier has the flexibility to receive payment for this transaction either in Indian Rupees or convertible foreign exchange.
What’s the Difference Between Export, Deemed Export, and Merchant Export
Let us understand the meaning of export, deemed export, and merchant export in simple words.
- Export: It involves the trade of locally produced goods that are shipped to a foreign country.
- Deemed Export: This refers to goods that, although not physically leaving the country, are classified as exports.
For example, when a manufacturer in Tamil Nadu supplies goods to an Export Oriented Unit in Maharashtra, which then ships the products to its customer in the UAE, the initial transaction is deemed export, while the subsequent one is referred to as an export.
Merchant Export: It involves the procurement of goods locally, followed by their export under the exporter’s own label. A merchant exporter is an individual or entity that buys goods locally and exports them globally, representing their own brand in the international market.
Eligibility Criteria for Qualifying Under Deemed Exports
Now that the meanings are clear, we have defined what deemed exports mean, let us go through the conditions mentioned in the FTP for qualifying any transaction as deemed export.
- Goods Only: Deemed exports exclusively pertain to goods and do not encompass services.
- Production in India: The goods must be manufactured or produced within the borders of India.
- Local Transportation: The goods should not physically leave the geographical boundaries of India.
- Central Government Notification: The goods in question must be officially notified by the Central Government as deemed exports under Section 147 of the Central Goods and Services Tax Act, 2017 (CGST Act).
- Transaction Currency: The transaction for deemed exports can be conducted in Indian Rupees or any other convertible foreign exchange.
- No LUT/Bond Processing: Goods supplied as deemed export are not eligible for processing under a Letter of Undertaking (LUT) or a bond.
- GST Payment: The GST (Goods and Services Tax) levied on the goods should be paid at the time of supply. A complete refund of this tax can be claimed later.
Certainly, here are additional conditions where the supply of goods is treated as Deemed Export:
- Advance Authorisation (AA)/Advance License Holder: Supplying goods to a party holding an Advance Authorisation (AA) or Advance License qualifies as a deemed export transaction.
- Supplies to Special Economic Zone (SEZ) Entities: If a person registered under GST supplies goods to entities such as Export Oriented Unit (EOU), Electronic Hardware Technology Park Unit (EHTP), Software Technology Park Unit (STP), or Bio-Technology Park Unit (BTP), it is considered a deemed export.
- Duty-Free Import Authorisation (DFIA): Transactions made against Duty-Free Import Authorisation (DFIA) are treated as deemed exports.
- Export Promotion Capital Goods Authorisation (EPCG Scheme): Supplying capital goods to a recipient holding an Export Promotion Capital Goods Authorisation (under the EPCG scheme) is considered a deemed export.
- UN Projects and Nuclear Power Projects: Goods supplied for UN projects and nuclear power projects, as well as projects funded by bilateral or multilateral agencies, qualify as deemed exports.
What are the Benefits of Deemed Exports Scheme
Eligible goods can avail following deemed export benefits:
The supplier is eligible to receive an Advance License for intermediate supply, deemed export, Duty-Free Replenishment Certificate (DFRC), DFRC for intermediate supplies, or a special imprest license.
Exemption/Refund of Terminal Excise Duty
Deemed exports are either exempted from terminal excise duty or the duty paid is fully refundable.
Special Import License
Manufacturers can avail of a Special Import License at the rate of 6 per cent of the Freight On Board (FOB) value.
Benefits under Deemed Export Drawback Scheme
If the goods have been supplied against an Advance Release Order or Back to Back Letter of Credit, the supplier can avail benefits under the Deemed Export Drawback scheme, refund of terminal excise duty, and a Special Imprest License.
Exception for EPCG License Holders
In the case of supplying goods to a recipient holding an Export Promotion Capital Goods (EPCG) license, the supplier can avail all the above benefits except for the Special Imprest License or the Deemed Export Drawback Scheme. This exception applies to cases where supplies are made to a zero-duty EPCG license holder.
Deemed Export Under GST
Under GST, traditional exports involving the physical transportation of goods out of India are zero-rated. However, when it comes to deemed exports, where the goods do not leave the country, they are not zero-rated.
Instead, GST is levied on the goods qualifying as deemed exports. The critical distinction lies in the fact that while deemed exports are not zero-rated, the supplier can still avail a full refund of the GST paid on these transactions.
The Central Government, through Notification No. 48/2017-Central Tax, has specified a comprehensive range of transactions that qualify as deemed exports. Even though these transactions attract GST, both the supplier and the receiver have the opportunity to claim a refund for the GST paid on deemed exports under the GST framework. This ensures that the tax burden on such transactions is effectively reimbursed.
To sum up, deemed exports are integral to global trade strategies. DGFT professionals play a vital role in ensuring compliance and navigating complexities. With benefits such as Advance Licenses and tax refunds, businesses can optimise their international transactions and thrive in the ever-evolving landscape of deemed exports.