DGFT explains e-Commerce for Merchandise Export India Scheme

The Foreign Trade Policy of India embarks a structure and environment for uplifting the export of goods and services. It is designed to lay emphasis on generation of employment and increasing value addition in the country to align its objectives with the "Make in India" vision of our Hon'ble Prime Minister. The government has considered extending its support to both the manufacturing and services sector, with special emphasis on improving "Ease of Doing Business in India".

The Foreign Trade Policy 2015-201 (hereinafter called as "FTP 2015-20"), introduced 2 new schemes for promoting exports in India. The main objective behind introducing the new schemes was to provide reward to exporters to offset infrastructural inefficiencies and associated costs involved and also to provide exporters a level playing field.

These schemes are as follows-

a. Merchandise Exports from India Scheme (MEIS) -
♦ This is a scheme for the export of certain specified goods to specified markets and aims at reducing the costs involved in export of goods/products which are produced/manufactured in India, especially those which pose high export intensity and employment potential to enhance India's export competitiveness.

♦The notified goods and notified markets have been described in Appendix 3B of the FTP 2015-20.

b.Services Exports from India Scheme (SEIS) -
♦ This scheme is a substitute for a number of schemes launched earlier, with different conditions for eligibility and usage and aims at boosting up the exports of notified services.

♦ The notified services and rates of rewards are listed in Appendix 3D of the FTP 2015-20.
Introduction

The World Trade Organization (WTO) defines e-commerce2 as the production, distribution, marketing, sale or delivery of goods and services by electronic means.

Generally, e-commerce means goods and services crossing borders electronically. Broadly speaking, e-commerce is the sale or purchase of goods or services provided over internet or other computer networks. An e-commerce transaction can be between enterprises, households, individuals, governments and other public or private organizations."

For the first time under the FTP 2015-20, the Ministry of Commerce& Industry added e-commerce exports to the export subsidy regime. Under the scheme, e-commerce exports through postal and courier services of up to Rs.25,000/- for items such as handlooms, books, leather footwear, toys and customized fashion garments and shipped from Delhi, Mumbai and Chennai airports are eligible to receive incentives under the MEIS.

At present, the consolidated FDI policy defines e-commerce as, the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.

After the Ministry of Commerce & Industry provided incentive to e-commerce trade under the FTP 2015-20, revenue department hadkept its watch dogs after the ministry asking them to define what e-commerce is; as it was not defined under the FTP. At that instance, the ministry was only looking at bookings through the electronic medium and shipments through couriers, but DIPP had proposed to enlarge the definition of e-commerce. Also many states were coming up with their own definitions of e-commerce so it was a dire need of the hour to define the term at the central level to remove ambiguities.

Over the last couple of years, e-commerce has changed consumer experience. E-commerce companies are redefining how customers buy and manufacturers sell; subsequently, today even a street hawker can approach a global audience of buyers. E-commerce companies compete with conventional consumer goods companies in attracting customers to their sites.

"Prima facie, the Union of India/ State Government cannot, on the one hand, for the purpose of tax, treat such sales as retail and on the other hand, for the purpose of investment, not treat the same as retail sale".

This statement by the Hon'ble Justice Rajiv Sahai Endlaw, while dealing with the petition by the All India Footwear Manufacturers and Retailers Association (AIFMRA) for seeking the clarity on FDI norms for Online Market, created confusion around the e-commerce market and FDI Policy in India3.

There has been a never ending debate going on with respect to the e-commerce space in India. The e-commerce players are exempt from various taxes and hence have an edge over the traditional sellers. However, various states have now started imposing entry tax on the e-commerce player like Gujarat and Uttarakhand etc.

Introduction of e-commerce definition for MEIS
Under the MEIS, the government provides duty benefits at 2 per cent, 3 per cent and 5 per cent, depending upon the products and country. With the increasing use of internet across the globe, large amount of trade is also conducted through online platforms. The online players which have been so far trading in goods exports were deprived of the benefits of export incentives under this scheme as e-commerce had not been defined in the FTP 2015-20. The definition will now cover a wide range of online exporters under the ambit of this scheme.

The Ministry of Commerce & Industry, vide Notification No. 2/2015-204 has introduced the following definition of e-commerce.

"'e-commerce' means buying and selling of goods and services, including digital products, conducted over digital and electronic network. For the purposes of Merchandise Exports from India Scheme (MEIS) e-commerce shall mean the export of goods hosted on a website accessible through the internet to a purchaser. While the dispatch of goods shall be made through courier or postal mode, as specified under the MEIS; the payment for the goods purchased on e- commerce platform shall be done through international credit/debit cards and as per the Reserve Bank of India Circular (RBI/2015-16/185) [A.P. (DIR Series) Circular No. 16 dated September 24, 2015] as amended from time to time."

If observed carefully, the definition can be broken into 4 parts. While the major impact lies in the first two parts of the definition, the remaining two are the supporting provisions which are required for completion of a transaction through e-commerce portals:
DESCRIPTION

Part I
General definition of e-commerce – e-commerce means buying and selling of goods and services, including digital products, conducted over digital and electronic network.
The impetus of this definition is however not affecting the FTP 2015-20 but it will surely be helpful in regulating the e-commerce from the perspective of various laws and regulations which cover buying and selling or say in general, the trading activities related with goods and services.
Part II
Definition of e-commerce for MEIS – For the purposes of Merchandise Exports from India Scheme (MEIS) e-commerce shall mean the export of goods hosted on a website accessible through the internet to a purchaser.
For the purpose of the scheme, the definition will include export of goods which are hosted on the website of the e-commerce player and which are accessible through internet to the buyer. The definition has marked the following as essential features for being categorized as e-commerce –
a.

Export of goods – The important aspect which is missed is that services are still excluded from this definition. This is still a relief for the e-commerce players which largely export services through their online portals such as flight and hotel booking websites, consulting websites, online project vetting and documentation websites, etc.
b.

Hosted on website – This is a restrictive term used. It means mobile applications are still not covered under this definition. Strange to see where the e-commerce portals as big as Myntra, Amazon, Flipkart are shifting to app based portals, the government is still lagging to catch up with the changing scenario of e-commerce.
c.

Accessible through internet – The technology has outreached to such an extent where people do have access to offline pages and offline applications but yet again these have escaped the definition.
Implications – The new definition shall promote many traders and exporters to switch to e-commerce platforms in order to process their trading activities with greater ease. The service providers will however, not be happy as they have been kept out of the purview of the e-commerce definition. They equally deserved the benefits of FTP 2015-20,as the export of services in India amounts to a great chunk of the economy. This will surely look like a setback for the major service providers in IT, consulting, etc.
Part III
Dispatch Mode – While the dispatch of goods shall be made through courier or postal mode, as specified under the MEIS;
This is merely given in the definition for the purpose of reference as the provision remains the same. The dispatch mode has to be the same as specified in the FTP 2015-20, i.e. through foreign post or courier regulations to claim the reward.
Part IV
Payment Mode – the payment for the goods purchased on e- commerce platform shall be done through international credit/debit cards and as per the Reserve Bank of India Circular (RBI/2015-16/185) [A.P. (DIR Series) Circular No. 16 dated September 24, 2015]5 as amended from time to time.
As per this circular of RBI, to facilitate e-commerce, it was decided to permit AD Category-l banks to offer facility of payment for imports by entering into standing arrangements with the Online Payment Gateway Service Providers (OPGSPs).
However, the new definition now introduces international credit card and debit cards as accepted mode of payments. This will facilitate in smooth transactions taking place. The payment system which had to be passed through the ADs will now be directly executed by the parties.
 Conclusion
Defining the term "e-commerce" is a very prudent step taken by the government. However, the intention reflecting from this definition does not seem for general good, rather it apparently looks good for scheme specific purposes. It is still like talking about a Macintosh in the age of Apple MacBook Pro.

Where the definition completely ignores services, it has also created space on the goods exported through mobile and computer applications. We can of course sit and wait for a similar definition in the SEIS, but in the meantime this is what the Indian exporters will have to be content with. The idea is not to criticize the step taken, rather the intent is to figure out where the definition lacks and can be worked upon. Growth needs to be boosted for exports of goods and services simultaneously for achieving holistic development.
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