Imposition Of Ceiling Limit On Meis Benefit

Recently, the Ministry of Commerce and Industry, vide notification no. 30/2015-2020- DGFT, dated 1

st September 2020, announced the ceiling on the Merchandise Exports from India Scheme (shortly known as MEIS). Interestingly, as per the Government officials, 98% of the exporters claiming MEIS benefits will remain unaffected by the new ceiling limit prescribed under MEIS. The present article briefly explains the recent announcements by the Government in MEIS and its effect thereon.

Background of MEIS

The Foreign Trade Policy 2015-2020 introduced the following two schemes-

Merchandise Exports from India Scheme (i.e., MEIS); and
Service Export from India Scheme (i.e., SEIS).

The main objective of MEIS is to encourage the manufacture and export of notified/ certified products/ goods. MEIS aims to offset the infrastructural inefficiencies and associated costs of exporting products/ goods produced in India. The exporters receive ‘duty credit scrips’ as incentives under MEIS.

Recent Announcements-

Vide notification no. 30/2015-2020- DGFT dated 1

st September 2020, two paragraphs, 3.04A and 3.04B, are inserted in the Foreign Trade Policy 2015-2020. The effect of the insertion of the new paragraphs is explained hereunder-

The gist of paragraph 3.04A-
- The total reward allowable to an Importer-exporter code holder (i.e., IEC holder) cannot exceed INR 2 Crores.
- The ceiling limit of INR 2 Crores per exporter applies to the exports from 1st September 2020 to 31st December 2020.
- The period of 1st September 2020 to 31st December 2020 shall be calculated based on the Let Export Order date of the shipping bills.
- The following exporters will not be eligible to submit any claim under the MEIS scheme-
  - IEC holder who has not done any export during the period 1st September 2019 to 31st August 2020, or
  - An exporter who has obtained IEC on or after 1st September 2020.
- The ceiling limit of INR 2 Crores per exporter can be further revised downwards to strictly limit the total prescribed allocation under MEIS to INR 5,000 Crore from 1st September 2020 to 31st December 2020.
The gist of paragraph 3.04B-

The export benefits available under MEIS shall not be available against the exports made with effect from 1

st January 2021. In short, the MEIS scheme will be withdrawn from 1st January 2021.

Effect of the recent announcement

Based on the analysis of the MEIS claim for the relevant period of 2018-2019, the Government argues that the recent restriction (i.e., ceiling limit of INR 2 Crore per exporter) will affect only 2% of the exporters. However, the sudden and immediate effect of the limit would affect the financials of the exporters to the extent that the buyers will not revise the price. Additionally, as stated, the exporter will always have the terror of a sudden downward reduction in the ceiling limit. Thankfully, the withdrawal of MEIS from 1

st January 2021 is notified by the Government four months in advance, which will undoubtedly help the exporter with future pricing decisions. Noticeably, from 1st January 2021, the MEIS scheme will be replaced by the newly announced scheme, namely the Remission of Duties or Taxes on Export Products (RoDTEP).

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Frequently Asked Questions

Common questions about MEIS Ceiling Limit 2020: Impacts on Indian Exporters.

The Merchandise Exports from India Scheme (MEIS) is a scheme introduced by the Foreign Trade Policy 2015-2020 to promote the manufacture and export of notified goods from India. It aims to offset the infrastructural inefficiencies and associated costs of exporting products by providing duty credit scrips as incentives to exporters.

The recent changes announced by the Ministry of Commerce and Industry include the imposition of a ceiling limit of INR 2 Crores per exporter for MEIS benefits on exports made between 1st September 2020 and 31st December 2020. Additionally, the MEIS scheme will be withdrawn entirely from 1st January 2021 and replaced by the Remission of Duties or Taxes on Export Products (RoDTEP) scheme.

According to the government, the ceiling limit of INR 2 Crores per exporter will not impact 98% of the exporters claiming MEIS benefits. However, it may affect the financials of the remaining 2% of exporters if their buyers do not revise the prices accordingly.

Exporters who have not done any exports during the period from 1st September 2019 to 31st August 2020 and those who have obtained their Importer-Exporter Code (IEC) on or after 1st September 2020 will not be eligible to claim MEIS benefits.

Yes, the government has stated that the ceiling limit of INR 2 Crores per exporter can be revised downwards to strictly limit the total prescribed allocation under MEIS to INR 5,000 Crore for the period from 1st September 2020 to 31st December 2020.

The MEIS scheme is being replaced by the RoDTEP (Remission of Duties or Taxes on Export Products) scheme from 1st January 2021. The article does not provide the specific reasons for this change, but it may be part of the government's efforts to streamline export incentive schemes.

The government has notified the withdrawal of the MEIS scheme from 1st January 2021 four months in advance, which should help exporters plan their future pricing decisions accordingly.

The main objective of the MEIS scheme is to encourage the manufacture and export of notified goods from India by offsetting the infrastructural inefficiencies and associated costs of exporting products produced in the country.

Under the MEIS scheme, exporters receive 'duty credit scrips' as incentives for exporting notified goods. These scrips can be used for payment of import duties on imported goods.

No, according to the government's analysis, the ceiling limit of INR 2 Crores per exporter will affect only 2% of the exporters claiming MEIS benefits, while the remaining 98% will remain unaffected.