Imposition of Ceiling Limit on MEIS Benefit
Recently, the Ministry of Commerce and Industry, vide notification no. 30/2015-2020- DGFT, dated 1st 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.
Vide notification no. 30/2015-2020- DGFT dated 1st 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 1st 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 In short, the MEIS scheme will be withdrawn from 1st January 2021.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 1st 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).