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What are deemed exports? Know the meaning, benefits, and eligibility

Deemed exports refer to the transactions that take place when the goods supplied do not leave the country. The payment for such supplies is received either in Indian rupees or in free foreign exchange. Learn more about its benefits in the blog.

The Government of India has taken several steps to boost overall economic growth in the country. This includes promoting exports and stimulating India’s domestic manufacturing sector. This is where deemed exports come in. Deemed exports enable local industries to participate in global value chains without physically exporting goods outside the country. By offering incentives and benefits to deemed exports, the government encourages investment in sectors that contribute significantly to employment generation and overall economic development. In this blog post, we will discuss what deemed exports are, along with their benefits and eligibility criteria.

What are deemed exports?

In addition to the export of goods outside India, the Government of India has specified that certain transactions will enjoy the same status and benefits as actual exports. Deemed Exports refer to those transactions in which the supplied goods do not leave the country. The payment for these supplies is received either in Indian rupees or in free foreign exchange.¹

Example of deemed exports

Let us consider an example to better understand the concept of deemed exports. Suppose a dealer A, registered in Gujarat, supplies his goods to an Export Oriented Unit (EOU) dealer, and this dealer sells his goods to a person in Germany. Here, the supply of goods from the Gujarat dealer to the EOU dealer will be treated as a deemed export, while the supply of the goods from the EOU dealer to the person in Germany will be considered an export.²

Benefits of deemed exports

Some of the benefits available to suppliers of deemed exports is as follows:

1. Opportunities for advanced licensing

Suppliers of goods eligible for deemed exports can acquire advanced licenses for various purposes, such as intermediary supply, deemed export, and Duty-Free Replenishment Certificate (DFRC), or DFRC for intermediate supplies. These licenses streamline trade operations and aid in effective cost management.

2. Exemption or refund of excise duty

Deemed exports are either exempted from terminal excise duty or qualify for a complete refund of the duty paid. This helps the supplier preserve their working capital, thereby enhancing competitiveness and profitability in the global market.

3. Special import license eligibility

Manufacturers involved in deemed exports may be eligible for a special import license which enables them to acquire necessary inputs or raw materials for production. This helps manufacturers maintain business continuity and expansion.

4. Deemed Export Drawback Scheme

Suppliers fulfilling orders against an advance release order or back-to-back letter of credit are eligible to avail benefits through the Deemed Export Drawback Scheme. These benefits include refunds of terminal excise duty and the opportunity to acquire a Special Imprest License, providing additional incentives for engaging in deemed export transactions.

5. Exemption for EPCG license holders

There are instances where goods are supplied to recipients possessing an Export Promotion Capital Goods (EPCG) license with zero duty obligations. In such cases, suppliers can still enjoy several benefits under the deemed exports scheme. This exception ensures that suppliers can leverage deemed exports to facilitate various trade arrangements while adhering to specific regulatory mandates.³

Differences between export, deemed export, and merchant exports

Export

1. Goods are produced locally and shipped abroad.

2. Involves the physical movement of goods from one country to another.

3. Requires standard export documentation.

4. Eligible for export incentives and tax benefits.

Deemed export

1. Goods stay within the country but benefit a foreign entity.

2. Goods stay within the country but are indirectly used for exports.

3. Requires specific documentation for availing of benefits.

4. Eligible for specific government benefits and incentives.

Merchant export

1. Goods are procured locally and exported under the exporter’s label.

2. Involves the physical movement of goods from one country to another under the exporter’s label.

3. Requires standard export documentation.

4. Eligible for export incentives and benefits.⁴

Eligibility criteria for deemed exports

Some of the eligibility criteria for determining which transactions qualify as deemed exports is as follows:

1. Goods only

Deemed exports exclusively cover goods; services are ineligible under this scheme.

2. Production and sale within India

Goods must be manufactured or produced within India's borders to be eligible for deemed export designation. The goods involved in the transaction must not physically leave the Indian territory.

3. Government notification

The goods must be officially recognized as deemed exports as per Section 147 of the Central Goods and Services Tax Act, 2017 (CGST Act).

4. Currency and tax payment

Payments for deemed exports can be made in Indian rupees or any other convertible foreign exchange. Moreover, the GST imposed on the goods must be settled at the time of supply, with the option for a complete refund of this tax.

5. Exclusion of bonds

Goods categorized as deemed exports cannot be processed under a letter of undertaking (LUT) or a bond.⁵

Categories that qualify as deemed exports

The following are some of the key categories of goods which qualify as deemed exports:

1. Goods supplied against Advance Authorisation/Advance Authorisation for annual requirement/DFIA.
2. Supply of goods to Export Oriented Units (EOUs), Software Technology Park (STP) units, Electronic Hardware Technology Park (EHTP) units, Bio Technology Park (BTP) units.
3. Capital goods supplied to the holders of Export Promotion Capital Goods (EPCG) authorization.
4. Goods delivered for projects funded by bilateral or multilateral agencies/funds, as announced by the Ministry of Finance's Department of Economic Affairs, under the International Competitive Bidding (ICB) program.
5. Capital goods that may be in unassembled/disassembled form, along with plants, machinery, accessories, tools, dies, and similar items utilized for installation purposes until the commercial production stage.
6. Goods supplied for projects or for purposes authorized by the Ministry of Finance through a notification allowing duty-free import of such goods.
7. Supply of marine freight containers, provided that the containers are exported out of India within 6 months or such further period as permitted by the customs.
8. Goods used in projects funded by UN agencies.
9. Goods supplied to nuclear power projects through competitive bidding.⁶
In conclusion, deemed exports can play a vital role in strengthening India's domestic manufacturing sector and promoting economic growth. From supplying goods to Export Oriented Units to participating in projects funded by international agencies, deemed exports offer a wide array of incentives for both large-scale manufacturers and smaller enterprises alike. Grasping the nuances of deemed export regulations can help e-commerce exporters understand various aspects of the global value chain and enhance competitiveness in international markets. For additional support on e-commerce exports, Indian exporters can leverage the tools and services offered by Amazon Global Selling

Visit Exports Compliance Dashboard to meet your documentation requirements

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Frequently Asked Questions

Who is eligible under deemed exports?

The eligibility criteria for deemed exports cover various categories. Manufacturers and suppliers supplying goods falling under the following categories are considered eligible for deemed exports:
● Those supplying goods against Advance Authorization, DFAI, capital goods against EPCG Authorization, and to EOUs.
● Those supplying goods for projects funded by bilateral and multilateral agencies, ICB, UN and nuclear power projects.⁷

What benefits are available under deemed exports?

Suppliers of deemed exports can enjoy benefits such as Advance Authorization, DFAI, and deemed export drawback. Additionally, they can receive a refund of terminal excise duty for excisable goods listed in schedule 4 of the Central Excise Act of 1944, provided the supply qualifies under that deemed export category and there is no exemption.⁸

What is the time period to claim the benefits of deemed exports?

The time period for claiming benefits for deemed exports varies based on the category of goods and type of transaction.

Published on August 31, 2023.

Sources:
1. https://www.meity.gov.in/writereaddata/files/DeemedExportScheme(1).pdf
2. https://cleartax.in/s/gst-taxation-deemed-exports
3. https://www.credlix.com/blogs/deemed-exports-meaning-eligibility-and-benefits
4. https://www.credlix.com/blogs/deemed-exports-meaning-eligibility-and-benefits
5. https://www.credlix.com/blogs/deemed-exports-meaning-eligibility-and-benefits
6. https://www.meity.gov.in/writereaddata/files/DeemedExportScheme(1).pdf
7. https://www.indiantradeportal.in/vs.jsp?lang=0&id=0,55,283
8. https://www.indiantradeportal.in/vs.jsp?lang=0&id=0,55,283

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