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What kind of goods and services can be exported?

For the purpose of export, goods are divided into the following categories under Indian law:

1.Goods which can be freely exported – These goods do not require any license to be obtained. Only an IEC number is required for these goods. As a general principle, export and import of goods is ‘free’, that is, without any license, except when it is specifically regulated for a particular item. Such restrictions are specified in the Foreign Trade Policy (FTP) and Schedule 2 of the Indian Trade Classification (Harmonized System) (see later in this write-up for details of the Indian Trade Classification system). Goods which are not mentioned in Schedule 2 of the ITC (HS) or the FTP can be exported without a license.

What is the Indian Trade Classification?
Customs authorities follow a system known as the Indian Trade Classification, which is based on a Harmonized System of Coding which is internationally followed [we shall refer to it as ITC(HS)]. The ITC (HS) is divided into two schedules. Schedule I deals with rules and guidelines related to import policies, and Schedule II describes the rules pertaining to exports. The classification is an 8 digit classification. For example, the number 0204 50 00 pertains to goat meat as per the classification.

2.Restricted goods – Export of restricted goods requires a specific authorization or license. Restricted goods may also be exported if there is a general notification of the customs authority which is applicable to export of a particular category of goods.

Exception: There is a particular category of exporters called ‘State Trading Enterprises’ (STEs) – to whom the requirement of obtaining a license does not apply. State Trading Enterprises refers to certain government or non-government organizations notified by the government for the purpose of import and export. The Mineral and Mines Trading Corporation (MMTC) Limited, State Trading Corporation Limited (STC) and Indian Potash Limited (IPL) are some examples of STEs.

(See para 2.11 of Foreign Trade Policy 2009-14 for details of State Trading Enterprises)

3.Prohibited goods – Export of certain items is absolutely prohibited under law. For example, most categories of wild animals and live birds are not permitted to be exported. In other cases, export of specific items to particular countries is prohibited. For example, export of arms to Iraq, or any materials or technology that could potentially contribute to Iran’s enrichment related activities, or North Korea’s missile capabilities, or diamonds to Cote d’Ivoire is prohibited. These prohibitions are listed in Schedule 2 of the Handbook of Procedures, Volume I.

Taxes on export - Export duty and Export cess

Schedule II of the Customs Tariff Act, 1975 mentions the rate of export duty that is payable on export of goods. As per the schedule, export duty is levied in one of two ways:

  • a fixed sum based on the weight of the product – e.g. duty on tea, coffee, black pepper, etc.
  • ad valorem, that is, as a percentage of the export value – e.g. raw wool.

In addition, an export cess may also have to be paid on certain goods. The export cess is specified in Appendix I to Schedule II.  


Schedule II (with Appendix I) containing updated rates of export duty for the year 2013-14 is accessible here (The rates for the year 2014-15 has not been notified as of 30 July 2014).


Note: Merely because an item can be freely exported does not imply that no export duty needs to be paid. It only implies that no license or prior authorization is required for the export.

Time frame for realization of export proceeds

An exporter of goods or services may earn the money in an account opened with a bank abroad, or it may earn the proceeds in an account maintained in India (which could be an account where money can be deposited in rupees, or it could be a foreign currency account, i.e. in which the exporter can hold money in dollars, pounds or another foreign currency). Under Indian law, an exporter must realise and repatriate the entire export proceeds to India within a fixed time limit from the date of export.


For ordinary exporters, the period is nine months from the date of export, till September 30, 2013.
For SEZ units, normally the time period is 12 months from the date of export (However, RBI may grant extension on a case to case basis). For Export Oriented Units (EOUs) and units set up under Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Biotechnology Parks (BTPs) schemes (we will cover EOUs, STPs and EHTPs in another chapter), the period is 12 months from the date of export. 


Sometimes, an exporter may receive advance payment for export of goods or services. In such cases, the export must be completed within one year from the receipt of advance.

(For details, see the RBI Master Circular on Export of Goods and Services dated 1 July 2014)


Note: While the general principles for export are covered here, for export of a particular article, please refer to i)  Handbook of Procedures issued by the DGFT and ii) Schedule 2 of the ITC (HS) containing the Export Policy. The handbook contains the procedures for implementing the provisions of FTDRA and is followed by exporters, importers and customs authorities)

Understanding export process

This part explains basics of the export process. Note that in addition to the importer exporter code, specific license or authorization under the FTDRA may be required for certain goods (as explained above).

The compliance requirements for import and export may either be carried out by the importer or exporter himself, or he may appoint a customs broker for the same.


Step 1: Presenting a shipping bill/ bill of export with supporting documents


The exporter must present the electronic shipping bill (in case of goods to be exported in a shipping vessel or aircraft) or a bill of export (in case of export by land) to the Superintendent of Customs and Central Excise or Appraiser. The shipping bill contains details relating to the exporter and the goods, and must be accompanied by certain documents such as an export invoice, packing list, export contract, declaration of value, etc.

A shipping bill or bill of export can be of different types. Each type of shipping bill is required to be in a different colour. The type and colour of each kind of shipping bill is represented below:

For export of goods under a claim of duty drawback                    

 For export of dutiable goods                                                       Yellow
 For export of duty free goods                                                      Whitew
 For export of duty free goods ex-bond                                         Red


Note: An exporter can claim refund of the domestic taxes paid by him at the time of export under various schemes under Indian customs law. The duty drawback scheme is one of them (see later in this write-up for details)

Step 2: Clearance of goods for export


The goods are allowed to be received at the docks based on the documents submitted by the exporter or his customs broker. The goods may then be examined by a customs officer. The customs department follows certain principles for examination of exported goods. Only a certain portion of the exported products are examined to check correctness of documents, duty calculation, license, and the goods submitted. Under a free shipping bill, that is, where no export incentive is claimed, no examination of goods is undertaken unless the customs department has received specific intelligence.


After examination of goods is successfully completed, the Appraiser will issue a “Let Export” order permitting clearance of goods. The goods can then be taken to a steamer agent for loading in containers or directly on the vessel. In certain cases, goods are placed into containers not at the customs station but at the exporter’s premises (called ‘factory stuffing’ of containers), which requires permission of a Customs House.

Incentives available to exporters under customs law

Various incentives are available to exporters under Indian law - an exporter who intends to avail of export incentives (see below for export incentives) must get their licenses registered at the customs station.

The exporter must also i) register the code of the bank through which it intends to receive the export proceeds (in foreign exchange) and ii) open a current account with the bank for credit of duty drawback (which is an incentive for exporter, see below for details).


Entities which export products or services enjoy certain exemptions from duties and taxes paid on inputs, that is, goods and services which have been used for the production of exported goods. They are also available on re-export of imported goods.


The Government has introduced several schemes for relaxation of taxes and duties paid by exporters on those products and services which have been utilized by them in the production of the exported good. The schemes are listed below:


i. Duty drawback scheme


Under the duty drawback scheme, refund of customs, excise and service tax paid on imports can be availed after the goods have been exported, though there is no requirement that the payment for export must be received by the exporter. The rate of duty drawback is notified every year by the Central Government. This rate is known as the ‘All Industry Rate’. In case an exporter’s product is not covered under the products specified in the government notification, or if he is of the opinion that the drawback rates specified are inadequate, he can apply to the office of the Excise Commissioner for fixation of a different rate. This rate is called the ‘Brand Rate’ (if the product is not covered under the All Industry Rate or the ‘Special Brand Rate’ (if the duty is inadequate). 


 Note: In case the export proceeds are not received in India within the time limit stipulated by RBI, any amount received by the exporter as duty drawback can be recovered by customs authorities.

Understanding the All Industry Rate of duty drawback
The Central Government notifies the rate of duty drawback on goods applicable for each year. There are two rates specified in the government notification:

  • Drawback when CENVAT facility has been availed – This rate specifies a rate for refund of customs duty only. Sometimes, businesses may claim refund of service tax and excise duty under a separate mechanism, covered under the Cenvat Credit Rules, 2004. These rules only provide for credit of excise duty and service tax on inputs. For exporters who have already claimed a credit under these rules, a lesser rate of duty drawback will be admissible, because their claim for drawback will only be limited to the customs duty paid on inputs.
  • Drawback when CENVAT facility has not been availed – This rate specifies a combined rate for refund of customs, excise and service tax on inputs. This rate can be used when no input credit has been availed for excise duty and service tax.

Ceiling on duty drawback: There is a cap on the amount of duty drawback that an exporter can claim. Duty drawback is not available if the amount exceeds one third of the market price of the export product, or where the value of imports is greater than the value of the exported goods. Minimum amount of duty drawback that can be granted under Indian law is 1% or INR 500 on the value of the goods, whichever is lower.


[For more details, see generally: i) Sections 74 - 75, Customs Act, 1962 ii) Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 and iii) Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995]


The duty drawback scheme allows a refund of duties (paid on inputs) at or after the time of export. Thus, the refund is subsequent to the import of inputs. We discuss two other schemes below. They permit exporters to obtain an authorization in advance, that is, prior to import of inputs.


ii. Duty free import authorisation scheme (DFIA)


DFIA permits duty free import of inputs only for those products for which the government has specified input-output norms, called ‘Standard Input Output Norms’ (SION). SION specifies the inputs and the quantity which can be imported by an exporter, with reference to his intended output. They are notified by the DGFT in Volume 2 of the Handbook of Procedures.


So, for example, if the manufacturer exports product X – which is made of polyester fibres, the SION may specify that 1 kg of input A, and 0.5 kg of input B for every 100 kg of polyester fibre is applicable. In order to find out the authorization he is eligible for, an exporter must find his output product in the SION, and he can then view the SION here.


To be eligible to claim relaxation under the DFIA, the exporter must contribute a minimum value addition of 20%. For certain products, higher percentage of value addition is specified by the government.


iii. Advance authorization scheme


An advance authorisation is issued to allow duty free import of the following inputs:

  •  Inputs which are physically incorporated in the export product
  • Fuel, oil or other catalysts which are consumed or utilised to produce the export product.

The raw materials and inputs are allowed duty free as per the quantity specified in the Standard

Input-Output Norms (SION) notified by the DGFT or as per self-declared norms of the exporter as per Volume 1 of the Handbook of Procedures.


The DGFT has the power to exclude products from the purview of Advance Authorisation scheme by issuing a public notice.


An exporter must fulfil his commitment (called Export Obligation or EO) by exporting the product in the quantity specified in the EO within 36 months of the grant of the advance authorization. He is required to file a bond with a bank guarantee to that effect. Upon failure of the EO, the exporter has to pay the differential customs duty with interest.


NoteMinimum value addition must be 15%. However, for tea, minimum value addition specified is 50%.


The key differences between the duty drawback and the duty free import authorisation and advance authorisation scheme are provided below:


Duty Drawback Scheme

Duty Free Import Authorisation/ Advance Authorisation Scheme (Authorisation Scheme)

Drawback is available provided after the export.

An Authorisation Scheme is typically availed prior to exporting goods.

Drawback scheme allows for relaxation not only on the import duty, but domestic taxes as well – such as excise duty, etc.

An Authorisation Scheme allows for relaxation of import duty only.

The drawback scheme is available on inputs sourced from the domestic market and imports.

An Authorisation Scheme can be availed only for imports.



iv. Services/ Served from India Scheme (SFIS)

Service providers who have foreign exchange earnings of INR 10 lakhs (INR 5 lakhs in case of individuals) can take advantage of a duty credit scrip of 10 percent. This duty credit can be used for import of capital goods (spares, office equipment) by the service provider without payment of import duties. These cannot be transferred (the condition is known as an Actual User condition under customs law).


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