Deemed Exports – an equalizer for Indian manufacturers

"Deemed Exports” refers to supplies of goods manufactured in India (and not services). The supplies do not leave India. The payment for such supplies is received either in Indian rupees or in convertible foreign exchange. Deemed exports are not zero rated supplies by default, unlike the regular exports. Today, we will see how deemed exports help equalize manufacturing industry with supply chain incentives.

What are Deemed exports?

Deemed exports are the ones which do not qualify the physical and grammatical definitions of exports as described by the Government of India under the Foreign Trade Policy. The goods/products/services do not leave the country and payments are received either in Indian rupees or in free foreign exchange. Supply of goods under Deemed exports are exempted from Custom Duties, IGST (Integrated Goods and Service tax) and Terminal Excise Duty (TED).

Simply put, it refers to the goods that are not exported outside the borders of the country. It comprises of –

Deemed Exports under FTP
Deemed Exports under GST

Objectives of Deemed Exports

Before diving deep into the scheme, let us look into the objectives:

The objective of the scheme is to provide a level field for Indian manufacturers. Let us understand this by an example: An exporter of fine jewellery makes $500,000 of foreign exchange by exporting jewellery items to USA and Canada. Now, he uses precise instruments manufactured and designed by some Indian manufacturer. The manufacturer is upset that the exporter is getting all the incentives and appreciation by the government while he is getting nothing and so, he asks the government to recognise and value his contribution in providing foreign currency to the govt by aiding the jeweller and by reducing cost of import of precise instruments. To value the contributions of such manufacturers and organisations, the concept of Deemed exports was introduced.

The Scheme of Deemed Exports

Let’s now look in the scheme:

Deemed Exports” refers to supplies of goods manufactured in India (and not services) which are notified as deemed exports under Section 147 of the CGST/SGST Act, 2017. The supplies do not leave India. The payment for such supplies is received either in Indian rupees or in convertible foreign exchange.
Deemed Exports” for the purpose of this FTP refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. Supply of goods as specified in Paragraph 7.02 below shall be regarded as “Deemed Exports” provided goods are manufactured in India.

Categories of Supply

Supply of goods under following categories “Deemed Exports”:

Supply of goods against Advance Authorisation / Advance Authorisation for annual requirement /DFIA
Supply of goods to EOU / STP / EHTP /BTP
Supply of capital goods against EPCG Authorisation
Supply of goods to projects financed by multilateral or bilateral Agencies / Funds as notified by Department of Economic Affairs (DEA), MoF, where legal agreements provide for tender evaluation without including customs duty.
Supply and installation of goods and equipment (single responsibility of turnkey contracts) to projects financed by multilateral or bilateral Agencies/Funds as notified by Department of Economic Affairs (DEA), MoF.

Benefits for Deemed Exports

Deemed exports shall be eligible for any / all of following benefits in respect of manufacture and supply of good:

Advance Authorisation / Advance Authorisation for annual requirement /DFIA.
Deemed Export Drawback.
Refund of terminal excise duty for excisable goods :

Conditions for refund of deemed export drawback

Supplies will be eligible for deemed export drawback as per para 7.03(b) of FTP as under:

Refund of drawback on the inputs used in manufacture and supply under the said category can be claimed on ‘All Industry Rate’ of Duty Drawback Schedule notified by Department of Revenue from time to time provided no CENVAT credit has been availed by supplier of goods on excisable inputs or on ‘Brand Rate Basis’ upon submission of documents evidencing actual payment of basic custom duties.

Common conditions for deemed export benefits

Supplies shall be made directly to entities listed in the Para 7.02. Third party supply shall not be eligible for benefits/exemption.
In all cases, supplies shall be made directly to the designated Projects/ Agencies/ Units/ Advance Authorisation/ EPCG Authorisation holder. Sub-contractors may, however, make supplies to main contractor instead of supplying directly to designated Projects/ Agencies. Payments in such cases shall be made to sub-contractor by main-contractor and not by project Authority.
Supply of domestically manufactured goods by an Indian Sub- contractor to any Indian or foreign main contractor, directly at the designated project’s/ Agency’s site, shall also be eligible for deemed export benefit provided name of sub-contractor is indicated either originally or subsequently (but before the date of supply of such goods) in the main contract. In such cases payment shall be made directly to sub-contractor by the Project Authority.
Steel manufacturers supplying steel against Advance Authorization, through their Service Centers/ Distributors/ Dealers/ Stock yards, shall also be eligible to claim duty drawback provided such supplies.

In the wake of India banning Chinese goods and Make in India vision, Deemed Export scheme can play a vital role as it supports domestic industries against the import of goods by providing duty-free inputs and benefits or exemptions on taxes or duties paid in India.

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