How can an exporter import or buy inputs without duty and sales tax under the Export Facilitation Scheme?

What does the law say?

The Export Facilitation Scheme, 2021 is Chapter XL of the Customs Rules, 2001, rules 871 to 899. Its core promise is in rule 880(1): a user “shall be entitled to acquire input goods without payment of customs duty, Federal excise duty, sales tax, or withholding tax as per his authorization under these rules”. The inputs must be kept at the user’s declared premises and used to make goods that are exported.

Rule 880(1) sets out how the relief works in practice:

• imported inputs are cleared free of duty and taxes on a goods declaration quoting the authorization number;
• local inputs liable to sales tax are supplied against a zero-rated invoice;
• inputs from excisable premises are supplied without federal excise duty against the prescribed document.

Rule 880(2) requires the user to upload details of domestic purchases to WeBOC or PSW within thirty days.

Who can use the scheme?

Rule 872(1) opens the scheme to six groups, each subject to authorization and registration in WeBOC or PSW:

1. Manufacturer-cum-exporters registered for sales tax whose value-addition is “not less than ten per cent”.
2. Manufacturers acting as toll manufacturers for a foreign principal.
3. Commercial exporters.
4. Registered manufacturers operating as indirect exporters.
5. Manufacturers, including engineering goods makers, supplying against international tenders.
6. Common Export Houses.

The proviso to rule 872 limits the scheme to goods allowed under the export policy order. Restricted or prohibited exports need specific permission from the Ministry of Commerce.

Under rule 873, authorization is based on export performance for the last two financial years, a firm export contract, or both at once.

How are exporters categorised?

Rule 874 sorts users into categories, and the category decides the security, authorization period and utilization period.

Category	Who (rule 874)	Authorization period (rule 878)	Utilization period (rule 883)
A	Manufacturer-cum-exporters exporting 60% or more of annual production, or exports of at least USD 20 million	Five years	60 months
B1	Other manufacturer-cum-exporters with more than 3 years of export history	Four years	48 months
B2	Other manufacturer-cum-exporters with less than 3 years of export history	Two years	24 months
C1	Indirect exporters, commercial exporters and toll manufacturers with more than 3 years of history	Four years	48 months
C2	The same groups with less than 3 years of history	Two years	24 months

Rule 874(5) downgrades an applicant with a poor compliance profile by one category for a year. Contravention cases that are procedural or involve less than five million rupees do not count.

How does authorization work?

The application is filed online to the Regulatory Collector through WeBOC or PSW under rule 875, with documents such as bank statements for two years, export performance, a list of machinery for manufacturers, the approximate value of inputs and the input-output ratio. Small and medium exporters also need a recommendation from their chamber, trade association or SMEDA.

Rule 876 requires security equal to the duty and taxes deferred. Category A gives an indemnity bond and post-dated cheque. Commercial exporters in Category C1 give a revolving insurance guarantee, and in Category C2 a revolving bank guarantee.

Under rule 877, new inputs or outputs go to the Input Output Co-efficient Organization (IOCO), which determines the input-output ratios and issues an analysis certificate within thirty days. If the Regulatory Collector or IOCO does not process the application within thirty days, rule 877(6) says the system automatically allows acquisition against 100% of the declared value provisionally.

What reporting is required?

Rule 892 requires a reconciliation statement of inputs acquired and outputs exported, sold locally or wasted. Category A files annually within thirty days of the year end. Categories B and C file every six months within thirty days. If the statement is not filed, the system blocks further imports or acquisitions under rule 892(2). Rule 893 sets post-clearance audit once in five years for Category A, four years for Category B and three years for Category C and contract-based users.

Worked example (illustrative figures)

A towel maker in Faisalabad is authorized in Category B1. Figures are invented.

1. Under rule 883 the inputs must be used within 48 months of import or local purchase.
2. The unit makes 100,000 towels from inputs acquired under the scheme.
3. Under rule 886(1) it may sell up to 20% locally: 100,000 x 20% = 20,000 towels, on payment of duty and taxes assessed as if the towels were imported in that condition, subject to the Regulatory Collector being satisfied with the reasons.
4. If it sells 25,000 towels locally, the extra 5,000 fall under rule 886(2). They pay duty and taxes, plus a surcharge of KIBOR plus 3% per annum on the value of the inputs used in them.
5. Factory rejects and B grade goods can be sold locally on payment of duty and taxes under rule 886(3).

What if inputs are left over?

Rule 887 lets a user, with the Regulatory Collector’s approval, carry unused inputs into the next year on filing the reconciliation statement, transfer them duty-free to another authorized user before the utilization period ends, sell them locally after it ends on payment of duty, taxes and the KIBOR plus 3% surcharge, re-export them, or destroy them if unfit.

Plant and machinery can also be acquired under rule 881, but must be kept for five years, with reduced duty on earlier disposal.

Common mistakes

• Treating the relief as an exemption. It is conditional. Inputs sold locally or not accounted for become liable to duty and taxes.
• Missing the reconciliation deadline. Rule 892(2) stops further duty-free acquisitions until it is filed.
• Assuming wastage is unlimited. Rule 886(4) allows only the wastage set in the analysis certificate.
• Running two schemes at once. Rule 898(2) bars operating under EFS and the older DTRE or SRO 327 schemes together.

What to check in the official text

Read rules 871 to 899 of the Customs Rules. The edition in this corpus is updated only to 30 June 2023, so check for later SROs. One drafting point: rule 871(x) says the utilization period is “as specified in rule 783”, but the table is in rule 883. Rules 889 and 890 cover duty drawback and sales tax refund on duty-paid inputs.