While increased digitisation of EXIM documents is certainly a step in the right direction towards paperless trade, the move is also creating problems for various stakeholders involved in business beyond borders. The latest to fall victim to the new system is a bunch which is being denied rewards under MEIS despite having declared their intent on shipping bills as required. The Indian exporters!

Sai Nikesh | September 2015 Issue | The Dollar Business

A few months earlier, when The Dollar Business met Pravir Kumar, Director General, Directorate General of Foreign Trade (DGFT), Ministry of Commerce & Industry, GoI, for a discussion over India’s newly released Foreign Trade Policy, he was all praise for it and believed the new policy had what it would take to make India an unsinkable titanic on the high, trading seas. “We have removed all the confusion and overlapping that existed in the previous FTP. If we want to reward our exporters for their good work, for earning precious forex for the country and help them in overcoming infrastructural bottlenecks we need the rewards to be real,” he told The Dollar Business. One scheme he was particularly optimistic about was the new Merchandise Exports from India Scheme (MEIS) – a combination and simplified version of the erstwhile Chapter 3 schemes that offered unique duty credit scrips with varying conditions. Although the government claimed that the new simplified scheme would boost exports from India, there were several exporters who saw MEIS as nothing but “an amalgamation of various old schemes with reduced benefits” and alleged the new policy had cut down most of the sops and incentives, both in terms of percentage and number of items entitled to benefits. It did. At the same time, it also simplified procedures for claiming rewards under MEIS or SEIS, a move that was welcomed by the exporter community as well as critics. That was on days that immediately followed April Fools’ Day! Cut to today, and a lot of exporters are unhappy for the reason they were glad! Reasons? Simple enough. Frequent changes to the MEIS Schedule (both in terms of product lines and reward rates), incentivising exports of a particular product to a specific country, are steps that seem to be gradually complicating the simplified incentive structure once again (for details read Editor’s column titled “Change is good... but not always!” published in August 2015 issue of The Dollar Business). And if all this wasn’t enough, export shipments across the country are now being denied of MEIS rewards thereby giving absolute nightmares to their exporters. Yes, you read it right!

The area circled red is the box which an exporter, who intents to claim reward under MEIS, needs to fill as YES (default settings are NO) while filing shipping bills through the Customs online system. Else the DGFT system won’t validate the consignment as “exports under MEIS” at the time when the claim for rewards is made on the said shipping bills.

From horse’s mouth

Satyanarayana, Export Manager at a leading firm that exports human hair (a product entitled to 5% reward under MEIS) from India, is one of many such exporters who are getting sleepless nights these days. His problem: Despite declaring the intent to claim rewards under MEIS on shipping bills, as mandated by the new FTP, his company was denied the reward when he filed an online application to claim it on the DGFT website. The website said “no records found matching” for the relevant shipping bill. “This meant that the declaration of intent [for claiming rewards under MEIS] was not made on the shipping bills while submitting them with the Customs – that was untrue,” he complains to The Dollar Business, showing a copy of the shipping bill that clearly proved him right. Well, the total reward denied on the shipping bills is not just in a few lakhs but runs into many crores of rupees – an amount could unsettle his very business! Interestingly, this is not the only case which has come to The Dollar Business’ notice. There are several such exporters and custom house agents (CHAs) who feel they are being treated unfairly. “When I filed an application to claim MEIS reward for exports made by my client, the DGFT website could not validate the relevant shipping bill. This means my export consignment is not entitled to a reward under the MEIS scheme. How is it possible when the MEIS schedule says our product is entitled for a 3% reward,” a CHA, operating at Visakhapatnam Port, on the condition of anonymity, tells The Dollar Business, adding that the declaration of intent on the shipping bill was properly made by him as instructed in the foreign trade Hand Book of Procedures (HBP) 2015-2020.

By the rulebook

Para 3.14 of HBP [regarding Declaration of Intent on shipping bills for claiming rewards under MEIS] clearly states that “export shipments filed under all categories of the Shipping Bills would need the following declaration on the Shipping Bills in order to be eligible for claiming rewards under MEIS: We intend to claim rewards under Merchandise Exports From India Scheme (MEIS). Such declaration shall be required even for export shipments under any of the schemes of Chapter 4 (including drawback), Chapter 5 or Chapter 6 of FTP. In the case of shipping bills (other than free shipping bills), such declaration of intent shall be mandatory with effect from 1st June 2015.” Even Circular No.14/2015 dated April 20, 2015 issued by the Customs reiterates the rule. “The Policy HBP para 3.14 relating to declaration of intent for reward on goods requires the exporter to, for shipping bills filed from 1.6.2015 onwards, mandatorily declare intent for rewards on shipping bill. Till then, the present position of mandatory declaration for certain shipping bills would continue,” states the circular. Interestingly, till date, there is no circular or notification from DGFT or Customs that notifies any other condition (with respect to the Declaration of Intent) that is mandatory to claim reward under MEIS. So why are exporters being penalized despite having done the needful on their shipping bills?

] A copy of a shipping bill which despite having the declaration of intent to claim reward under MEIS was denied of the incentive when an online application to claim MEIS on the said consignment was filed on the DGFT website.

Who is at fault?

On further scrutiny – having spoken to over a dozen aggrieved parties – The Dollar Business figured out that the chaos was being caused because exporters and CHAs were unaware of the fact that they also need to pay attention to an entry field [“Item Code As Per Reward Directory (MEIS)”] while filing shipping bills through the Customs online system, and confirm that their export consignment is entitled to MEIS benefit, while filing the shipping bill online on the Customs website besides making a declaration of intent on the bill. “Nowadays, if exports are made through EDI ports, the relevant shipping bill automatically gets linked with the online application being filed on the DGFT website to claim reward under MEIS. Since the relevant shipping bill filed by these exporters or CHAs on the Customs website did not have that field marked as ‘YES’, the claim for MEIS reward on the DGFT website could not be validated, as the relevant shipping bill showed that the export consignment was not entitled to reward under the MEIS scheme. But then, there was no circular or notification issued by the government to notify this new provision – of checking the box as ‘YES’ besides making the declaration of intent on the shipping bill. This lack of communication from the authorities’ ends have got many exporters in a troublesome situation today,” Ramesh Vummaneni, a consultant on Exim matters and documentation, tells The Dollar Business. What’s even more worrying is that there are exporters who have obtained the MEIS licence from the DGFT. But they cannot not register it with the Customs as the master notification for MEIS has not been updated on Customs website. Irony is that not many are still aware of the situation. Those who have filed application to claim MEIS reward are the select few aware of the situation. Although they have already taken up the matter with the Customs officials, not much has resulted. “The Customs have assured that they will discuss this matter with the DGFT. But when, we don’t know,” says Satyanarayana. Rough estimates suggest that if the government doesn’t do anything to resolve the issue, the Indian exporting community will end up losing about Rs.1,000 crore in incentives. Who will suffer? Exporters – a group that is always most hopeful and bets big on incentives for their survival and for whom the loss of incentives is a dent in their working capital needs.

The way out!

Several exporters, CHAs and experts, The Dollar Business spoke to, are of the opinion that the best solution to this problem would be to extend the deadline, say by 2-3 months, for manual submission of the application to claim MEIS rewards. Meanwhile, the authorities should also issue a notification or a circular that notifies the “new mandate in full” and come up with initiatives that create awareness about the new rules that an exporter needs to adhere to while filing an application or a shipping bill online. “Creating awareness about the new online procedures and conditions will not only help Indian exporters stay away from such quandaries, but will also reinforce their confidence on the authorities,” avers Vummaneni. We couldn’t but totally agree with Vummaneni as this is perhaps the only solution if the government wants the very purpose of the scheme to be served!

Ramesh Vummaneni, Consultant, Exim Matters & Documentation

 

TDB: We have heard that exporters are facing problems when it comes to realising export incentives under the MEIS scheme. How far is it true?
Ramesh Vummaneni (RV): Yes, it’s true. While increased digitisation of exports and imports documents is certainly a welcome step towards paperless trade, thanks to a lack of communication about online documentation process, the move is also creating a lot of problems for various stakeholders involved in international trade i.e. exporters, custom house agents (CHAs), etc. A recent case in point is that the exporters are being denied of MEIS rewards, all because they were not aware of the fact that they also need to check a box, to confirm that their export consignment is entitled to MEIS benefit, while filing the shipping bill online on the Customs website.
TDB: What exactly is the issue? Can you please elaborate?
RV: The new FTP, which was introduced on April 1, 2015, states that export shipments filed under all categories of the shipping bills would need a “Declaration of Intent” on shipping bills in order to be eligible for claiming rewards under MEIS. In short, an exporter cannot claim rewards under MEIS if the declaration of intent [“We intend to claim rewards under Merchandise Exports From India Scheme (MEIS)”] is not there on the shipping bill. There is certainly nothing wrong about this condition. The problem is that despite declaring the intent to claim rewards under MEIS on shipping bills, for exports made through EDI ports, across the country, exporters are being denied of the reward while filing an online application to claim the reward on the DGFT website. Reason, as I mentioned before, is they were not aware of the fact that they also need to confirm that their export consignment is entitled to MEIS benefit while filing the shipping bill online on the Customs website. Nowadays, if exports are made through EDI ports, the relevant shipping bill automatically gets linked with the online application being filed on the DGFT website to claim MEIS reward. Since the relevant shipping bill filed by an exporter or a CHA on the Customs website did not have that box marked as ‘YES’, the claim for MEIS reward on the DGFT website could not be validated as the relevant shipping showed that the export consignment was not entitled to reward under the MEIS scheme. But then, there was no circular or notification issued by the government to notify this new provision – of checking the box as ‘YES’ besides making the declaration of intent on the shipping bill. It’s because of this lack of communication from the authorities’ end that the exporters are in a big mess today. In fact, there are exporters who had checked the box ‘YES’ and had obtained the MEIS licence from the DGFT. When they submitted the licence to Customs for registration, they were told they cannot register the licence as the Customs master notification for MEIS has not been updated on Customs website.
TDB: What impact will it have on Indian exporters?
RV: It will not only impact the profitability of exporters but will also have a negative influence on India’s overall exports. In fact, there is no point running programmes like ‘Make in India’ if the exporting community continues to face such problems. Rough estimates suggest that if the government doesn’t do anything to resolve the issue, the Indian exporting community will end up losing about Rs.1,000 crore in incentives. The impact would be the most on exporters who have been relying on such incentives for survival!
TDB: What, according to you, is the best way out of the situation?
RV: The best solution would be to allow manual submission of the application to claim MEIS rewards for some more time, at least for 2-3 months, till the time the entire exporting community is aware of these new online procedures. Meanwhile authorities should also issue a circular or a notification about the guidelines an exporter or a CHA needs to adhere to while filing an application or a shipping bill online. Creating awareness about the new online procedure and conditions will not only help Indian exporters stay away from such quandaries, but will also reinforce their confidence in the authorities/system.