A culture that credits a little squirrel carrying grains of sand to have contributed in Lord Rama building the bridge to Lanka, it’s only logical that even those who supply goods to end-exporters are also considered as exporters! Named Deemed Exports, the idea behind the scheme is to incentivise all who play a part, however little it might be, in the growth of exports from India. But is it happening?

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The basic criteria for defining something as Deemed Exports is that manufacturing of those goods should have happened in India; their payment should have been received in Indian rupees or free foreign exchange and that they should have been supplied within the political boundaries of India. For example, if a two-wheeler spare parts manufacturer based in Pune, supplies rear view mirrors to a motorcycle maker, who has availed EPCG authorisation, then the rear view mirrors sale would be considered Deemed Exports. Or, if a farmer based in Telangana supplies turmeric powder to a pharmaceutical unit based in a Biotechnology Park, then the turmeric powder sale would be considered Deemed Exports.

In fact, supply of goods manufactured/produced in India and supplied against Advance Authorisation/Duty Free Advance Authorisation or to an EOU/STP/EHTP/BTP would all be considered Deemed Exports. Supply of goods to even any project funded by UN agencies are also considered as Deemed Exports. And the main benefit of being considered as Deemed Exports is that one can avail the benefits of Advance Authorisation/DFIA, Deemed Export Drawback, among others.

But as they say, the devil lies in the details. And Deemed Exports is no different. The trouble is Deemed Exports has become almost unmanageably complicated. So many circulars and notifications have been issued on Deemed Exports over the last few years that keeping a proper track of it has become almost impossible. Similarly, although the government pretends to deem Deemed Exports as real physical exports, it is not willing to give the full benefits of exports to Deemed Exports. A case in point is Central Sales Tax (CST), which is exempted for physical exports but not for Deemed Exports. For example, if you are exporting a carpet, you are exempted from paying CST, but if you are selling wool to a carpet maker, which is ultimately used to make the carpet, you are being forced to pay CST!

What the government should really do to benefit those who are currently supplying goods that are covered under Deemed Exports is scrap the chapter on Deemed Exports! Instead, the upcoming FTP should have a new chapter, just trying to define what qualifies as Deemed Exports and then treat everything that meets the criteria the same way we treat any other physical export!

"Why a step-motherly attitude towards deemed exports?"

The main purpose of introducing the Deemed Exports scheme was to extend the benefits of exports to those goods that are not physically exported but either contribute to exports such as in case of supplies to Export Oriented Units or Software Technology Parks or are supplied for specified infrastructure projects. The question then arises as to if something is, anyway, deemed as exports, why shouldn’t it get the full benefit of exports? For example, while physical exports are exempted from paying Central Sales Tax, no such benefit has been extended to Deemed Exports. Such differential treatment not only undermines the whole object of the scheme but also leads to cascading effect of taxes in such supplies. It is, therefore, important that such supplies are treated at par with real exports under all tax laws.
Undoubtedly, treating Deemed Exports at par with physical exports and extending all the benefits of the latter to them is too big a step to take right away. So, the least the government should do in the upcoming foreign trade policy is to consolidate all the policy, circulars, trade notices and notifications that have been issued with respect to Deemed Exports. For, there have been so many of them that they have become confusing even to lawyers like me! Another step that I would like the government to take as regards to Deemed Exports is to extend the benefits of such scheme to projects that might not have been allotted though International Competitive Bidding (ICB). This is because not all of our major infrastructure projects necessarily go for ICB. Moreover, with the focus of the current government on infrastructure development, we should extend the purview of Deemed Exports beyond power and fertiliser projects or projects financed by specified agencies, to something like (say) ports.
Deemed Exports is a scheme, which is still evolving and suffers from too many complications, which further lead to difficulty in understanding and tedious paperwork. While it, no doubt, is a great initiative to incentivise all those who don’t directly export but contribute a lot to India’s exports or infrastructure, the government should try and make the scheme more implementable through simplification.