Export Promotion Schemes
1. Duty Drawback Scheme:
Under Duty Drawback Scheme relief of Customs and Central Excise Duties suffered on the inputs used in the manufacture of export product is allowed to Exporters. The admissible duty drawback amount is paid to exporters by depositing it into their nominated bank account. Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944, empower the Central Government to grant such duty drawback. Customs and Central Excise Duties Drawback Rules, 1995 have been framed outlining the procedure to be followed for the purpose of grant of duty drawback (for both kinds of duties suffered) by the Customs Authorities processing export documentation.
2. Under Duty Drawback Scheme, an exporter can opt for either All Industry Rate (AIR) of Duty Drawback Scheme or brand rate of Duty Drawback Scheme. Major portion of Duty Drawback is paid through AIR duty Duty Drawback Scheme which essentially attempts to compensate exporters of various export commodity for average incidence of customs and Central Excise duties suffered on the inputs used in their manufacture. Brand rate of duty drawback is granted in terms of rules 6 & 7 of Customs and Central Excise Duties Drawback Rules, 1995 in cases where the export product does not have any AIR or duty drawback rate, or where the AIR duty drawback rate notified is considered by the exporter insufficient to compensate for the Customs/Central Excise duties suffered on inputs used in the manufacture of export products. For goods having an AIR the brand rate facility to particular exporters is available only if it is established that the compensation by AIR is less than 80% of the actual duties suffered in the manufacture of the export goods.
3. Duty Drawback facilities on re-export of duty paid goods is also available in terms of Section 74 of Customs Act, 1962. Under this Scheme part of the customs duty paid at the time of import is remitted on re-export of the goods subject to identification and prescribed procedure being followed.
A. Scheme for All Industry Rate(AIR) of Duty Drawback:
4. AIR of Duty Drawback for a large number of export products are notified every year by the Government after an assessment of average incidence of Customs and Central Excise duties suffered on Inputs utilized in the manufacture of export products. This facility is generally availed by the exporters as no proof of actual duties suffered on inputs used is required to be produced.
5. After announcement of Union Budget every year, new AIR of drawback are notified every year usually with effect from 1st June, after factoring in the changes in duty rates effected by the budget. The Directorate of Drawback requests all Export Promotion Councils/Associations, etc. to collect, collate and furnish representative data in respect of the existing export products as also for any new product which the Councils feel have sufficient export from the country. After the announcement of the Budget various Export Promotion Council/Associations are also consulted by the Joint Secretary (Drawback), and their suggestions as well as their requests and justification for suitable enhancement of rates and also any changes sought in the scheme of the Drawback Table or the entries therein are taken note of while finalizing and announcing new AIRs.
6. The AIRs are generally fixed as a percentage of FOB price of export product. Often very good export prices are obtained for a product or class of products which have no co-relation with the actual duties suffered on inputs used which is sought to be refunded to Exporters as drawback. In order to safeguard Government revenue but also be fair to exporters, reasonable duty drawback caps have been imposed in respect of many export products having rates on FOB basis. These caps essentially reflect the average duty incidence suffered on the inputs used in the manufacture of the particular goods exported by several exporters with different prices and they are fixed on the basis of data supplied by the export promotion councils and collected by Directorate from other sources.
7. The duty drawback claim scrutiny, sanction and payment in 23 Custom Houses is now done through the Electronic Data Interchange (EDI) System. This system facilitates credit/disbursal of drawback within 72 hours from the date of shipment and electronic filing of Export General Manifest (EGM) in respect of related aircraft/vessel, directly to the exporters, accounts in the specified bank branches.
8. Customs notification Nos. 29/2001(NT) dated 1.6.2001 and 30/2001(NT) dated 22.6.2001 refer for ascertaining the details of current All Industry Rates of drawback for various export products.
B. Brand Rate of Duty Drawback Scheme:
9. In respect of export products where AIR of duty drawback is not notified or where the AIR of duty drawback in considered by the exporter to be insufficient to fully neutralize incidence of duties suffered on the inputs utilized in the production/manufacture of the export product, the exporters opt for Brand Rate Duty Drawback Scheme. Under this Scheme, the exporters are compensated by paying the amount of Customs & Central Excise Duty incidence which is actually incurred on the inputs used in the manufacture of export products. For this purpose, the exporter has to produce documents/proof about the actual quantity of inputs utilized in the manufacture of export product along with evidence of payment of duties thereon.
10. The exporter has to make an application to the Directorate of Drawback in prescribed format along with enclosures (in the form of 3 drawback statements called DBK-I, II & III), within 60 days from the date of export of goods. The application has to be submitted to Directorate of Drawback with copies to the concerned Central Excise Commissionerate which has jurisdiction over the factory of production of export product. The Central Excise Authorities conduct verification of the authenticity/fact of utilization of inputs/payments of duties on the inputs on the basis of records maintained by the factory of the exporter, current production of identical goods, if being effected, etc. A verification report has to be sent to the Directorate of Drawback. The Directorate of Drawback, on the basis of verification report and other relevant documents submitted by the exporter, process and issue drawback Brand Rate Letter to the exporter on the basis of which the concerned Custom House (from where the goods were exported) makes payment of duty drawback. The Brand Rate Letter may be valid for particular export shipment or series of shipment and may also be extended for future shipments for one or more ports on request subject to proof of availability of related raw materials and duty evidence, etc., when verification was carried out.
C. Simplified Scheme of Brand Rate:
11. Under Brand Rate of Duty Drawback Scheme, a "Simplified Scheme" is also available to limited companies and registered partnership firms. Under this Scheme, a rate letter for duty drawback is issued prior to receipt of verification report from the jurisdictional Central Excise Authorities on the basis of application made by the exporter subject to certain certification etc. For this purpose, besides application in the prescribed format along with enclosures, the exporter is also required to submit Chartered Accountant/Chartered Engineers certificate about the authenticity of consumption pattern and duty payments as claimed. An indemnity bond undertaking to pay back the duty drawback being claimed by him if it is found later on verification that the drawback amount paid to him is in excess of the admissible amount, has also to be furnished. In all cases where duty drawback is paid under Simplified Scheme, after receipt of the verification report from jurisdictional Central Excise Authority, the veracity of the application is counter checked with the said verification report and recovery action taken, where ever found necessary.
D. Section 74- Drawback:
12. In case of goods which were earlier imported on payment of duty and are later sought to be re-exported within a specified period, customs duty paid at the time of import of the goods with certain cut can be claimed as duty drawback by the exporter at the time of export of such goods. Such duty drawback is granted in terms of Section 74 of the Customs Act, 1962 read with Re-export of Imported Goods (Drawback of Customs Duty) Rules, 1995. For this purpose, at the time of import, the identity particulars of the goods are recorded at the time of examination of import goods; at the time of export, cross verification of the goods under export is done with the help of related import documents to ascertain whether the goods under export are the very ones which were imported earlier.
13. Where the goods are not put into use after import, 98% of duty drawback is admissible at the maximum under Section 74 of the Customs Act, 1962. In cases where the goods are put into use in India after import (and prior to its export), duty drawback is granted on a sliding scale basis depending upon the extent of use of the goods. No duty drawback is available if the goods are put into use for a period exceeding 36 months after import. Application for duty drawback is required to be made within 3 months from the date of export of goods.
E. Limitations on Drawback Admissibility:
14. The Customs Act lays down certain limitations and conditions which exporters claiming drawback have to meet/fulfill. Thus, no drawback is admissible under Section 75 if the market price is less than the amount of drawback claimed. Drawback is also not admitted if the claim is less than Rs.50/- in individual shipments. Government has also powers to deny or admit drawback claim subject to laid down conditions where there is likelihood of goods exported being smuggled back. These powers have been used for exports to Nepal where normal provisions of duty drawback are not applied. The Drawback Rules also further lay down in Rule 8 some further limitations, where rate is less than 1%, and this may be referred to. Government has also powers to deny drawback facility in such cases where export of goods if less than the value of imported material used in their manufacture. If necessary, certain minimum value addition over the value of imported materials can also be prescribed before granting drawback.
15. It is also pertinent to note that the drawback is permitted to encourage exports and essentially there must be export proceeds repatriation. Though prior repatriation of export realization is not pre-requisite, the law prescribes that if sale proceeds are not received within the stipulated period, the drawback paid will be recoverable by the Government as per procedure laid down in drawback.
F. Procedure for Claiming Drawback:
16. The drawback on export goods whether under AIR or Brand Rate is to be claimed at the time of export and requisite particulars have to be filled in the prescribed format of shipping bill/bill of export under Drawback. Triplicate copy of the Shipping Bill is treated as claim for Drawback. The claim is also to be accompanied by certain documents as laid down in the Duty Drawback Rules. If the requisite documents are not furnished or there is any deficiency, the claim may be returned after shipment for complying with the requirements and furnishing requisite information/documents (e.g. Brand Rate letter which may not be available at the time of export but becomes available after shipment).
(Reference: Customs notification No.19 dated 6.2.1965)
2. Duty Exemption Scheme:
17. Duty Exemption Scheme is an export promotion scheme and it enables import of inputs required for export production free of Customs duty. Advance Licences are issued under Duty Exemption Scheme to allow import of inputs, which are physically incorporated in the export product (after making normal allowance for wastage). In addition, fuel, oil, energy catalysts, etc., which are consumed in the course of their use to obtain the export product can also be allowed under the scheme. Value and quantity of each item permitted duty free import are specified in the Advance Licence. Standard input-output norms (SIONs) notified by the DGFT under para 7.8 of the Handbook of Procedures (Vol.I) or as modified under para 7.10 of the said Handbook facilitate determination of the proportion of various inputs which can be used or are required in the manufacture of different resultant products.
18. Advance Licences are issued for Physical exports, Intermediate supplies and Deemed exports. Advance Licences are also issued on the basis of annual requirement for exports/supplies. This enables the exporter to plan out his manufacturing/export programme on long term basis. Advance Licences for deemed exports are issued to (i) manufacturer exporter or main contractor in case of deemed exports, and (ii) Merchant exporter having supporting manufacturer.
19. All Advance Licences and/or materials, imported thereunder are not transferable even after completion of export obligation. Advance Licences are issued with a positive value addition stipulation. However, for exports for which payments are not received in freely convertible currency, the same are subject to higher value addition.
20. In order to ensure proper monitoring and utilisation of inputs imported against Advance Licences (except Advance Licence for deemed exports), a Duty Entitlement Exemption Certificate (DEEC) Book is issued alongwith the Advance Licence by DGFT authorities. At the time of import and export against Advance Licence, entries are made in the DEEC Book by Customs to keep record of the import/export made against it. After completion of export obligation and imports against the Advance Licence, the DEEC book, Advance Licence and relevant export/import documents are submitted to Customs for logging (reconciling) of DEEC Book. Thereafter the Advance Licence, DEEC book and export/import documents are submitted to DGFT authorities for issue of export obligation (EO) discharge certificate. On the basis of EO discharge certificate issued by DGFT, redemption of bond/B.G. filed by the Advance Licence holder with Customs is allowed.
21. Advance Licence are issued on pre-export or post export basis in accordance with the Export/Import Policy and procedure in force on the date of issue of licence and are subject to the fulfillment of a time bound export obligation as in the licence. The Advance Licence holder fulfils export obligation (EO) by exporting the resultant product specified in the Advance Licence upto specifed quantity/value. In order to ensure fulfillment of such export obligation, the Advance Licence holder executes a bond with or without Bank Guarantee (B.G) with Customs undertaking to fulfill the specified export obligation. In the event of failure to fulfil the specified EO., the licence holder becomes liable to pay differential Customs duty with interest @ 24% per annum on such duty. Exemption from furnishing of bank guarantee is given in the following categories of cases :-
In such cases a bond is considered sufficient. In all other cases the Advance Licence holder is required to furnish 100% bank guarantee for the duty difference.
22. Advance Licence holder for intermediate supply is required to fulfill his export obligation by supplying the intermediate goods, which are required in the manufacture of resultant export product to the advance licence holder. In order to ensure such fulfillment of EO the licence holder is required to give bond with or without bank guarantee and in the event of failure to fulfil the EO he becomes liable to pay differential Customs duty with interest @ 24% per annum on such duty.
23. Advance Licence holder for deemed export is permitted import of materials which are required in the manufacture of resultant product free of Customs duty. The licence holder is required to fulfil his EO by supplying the resultant product to the project, specified in the said licence, in India and in the event of failure to do so, he is required to pay differential Customs duty with interest @ 24% per annum on such duty.
24. All Advance Licences are normally valid for import of goods upto 18 months from the date of issue and the relevant DGFT authority (who issues the licence) is competent to grant revalidation. DGFT authority (who issues the licence) is also competent to grant extension of EO period beyond the normal EO period of 18 months. No duty drawback is normally admissible to an Advance Licence holder. However the licence holder is entitled to claim brand rate of duty drawback in respect of inputs which are not imported against the advance licence and on which Customs/excise duty has been paid.
25. Since Advance Licence Scheme involves technicalities, its operation has been restricted to limited ports, airports, ICDs, etc. which are notified for the purpose. Commissioners of Customs have, however, been empowered to permit export/import under the Scheme from any other place which has not been notified, on case to case basis by making suitable arrangements at such other places.
(Reference: Customs notification No.48/99-Customs, dated 29.4.99 and 50/2000-Cus., and 51/2000-Customs, both dated 27.4.2000 )
3. Duty Remission Scheme:
Duty Remission Scheme consists of ;
(a) Duty Free
Replenishment Certificate and
A. Duty Free Replenishment Certificate(DFRC) Scheme:
26. DFRC Scheme was announced on 1.4.2000 under the EXIM Policy 1997-2002. It is an export promotion scheme under which DFRC licences are issued permitting duty free import of inputs which were used in the manufacture of export product on post export basis as replenishment.
27. Duty Free Replenishment Certificate (DFRC) Licence is issued to a merchant-exporter or manufacturer-exporter. DFRC licences are issued only in respect of export products covered under the Standard Input Output Norms (SION) as notified by DGFT. DFRC Licences are issued for import of inputs, as per SION, having same quality, technical characteristics and specifications as those used in the export product and as indicated in the shipping bills. The validity of such licences is normally 18 months and relevant DGFT authority (who issues the licence) is competent to grant extension of validity period. DFRC licence and or the material(s) imported against it are freely transferable.
28. Exporters operating under DFRC Scheme are entitled for availing AIR of duty drawback in respect of those duty paid materials, whether imported or indigenous, used in the export product, which are not specified in the DFRC licence. Brand rate of duty drawback can also be availed in respect of such inputs.
29. Since DFRC Scheme involves technicalities like Advance Licence Scheme, its operation has been restricted to limited ports, airports, ICDs, etc. which are notified for the purpose. Commissioners of Customs have, however, been empowered to permit export/import under the Scheme from any other place which has not been notified, on case to case basis by making suitable arrangements at such other places.
(reference: Customs notification No.48/2000-cus., dated 25.4.2000)
4. Duty Entitlement Pass Book(DEPB) Scheme:
30. DEPB Scheme was first announced on 1.4.1997 under EXIM Policy 1997-2002. It is an export promotion scheme and envisages grant of DEPB Credit Entitlement to an exporter at the time of export at an ad-valorem rate notified by DGFT, in relation to FOB value of the export product. The DGFT have so far notified DEPB rates for nearly 2000 export products. These rates are based on the computation of Basic Customs Duty suffered by the exporters on the inputs listed in the Standard Input-Output Norms (SION) applicable to the export product. The crucial feature of the DEPB Scheme is that all the inputs listed in the Standard Input-Output Norms are deemed to have been imported and to have suffered Customs duties. DEPB rates are finalised by the DEPB Committee, chaired by Additional DGFT and consists of representative from Ministry of Finance also. Value caps have been imposed on export products having DEPB rates of 15% or more to curb the tendency of unscrupulous exporters to avail most of the runaway benefits by over-invoicing export.
31. The normal validity period of a DEPB Scrip is 12 months and DGFT authority (who issues the scrip) is empowered to grant revalidation. These scrips are for a certain amount of DEPB credit and can be utilised for adjusting Customs Duties (Basic or CVD) against import of any products into India, without the necessity of any co-relation between the export product and the import goods, i.e. it is not necessary to import only the relevant inputs corresponding to the export product.
32. Since DEPB Scheme also involves technicalities like DFRC Scheme, its operation has also been restricted to limited ports, airports, ICDs, etc. which are notified for the purpose. Commissioners of Customs have, however, been empowered to permit import/export under the scheme from any other place which has not been notified, on case to case basis. The DEPB and/or the items imported against it are freely transferable. Import against DEPB scrips is allowed at the port specified in the DEPB which is the port from where exports have been made. Imports from a port other than the port of export are also allowed under TRA (Telegraphic Release Advice) facility as per the terms and conditions of the notification issued by Department of Revenue.
33. No duty drawback is allowed on exports made under DEPB Scheme. However, in cases where CVD is paid in cash on imported inputs, or where indigenous duty paid inputs, not specified in SION, are used in the manufacture of export product, in such cases brand rate of duty drawback is admissible as per circular issued by the Ministry of Finance, provided CENVAT Credit in respect of such duty incidence is not availed.
(Reference: Customs notification No.34/97-cus., dated 7.4.97)
5. Export Promotion capital Goods (EPCG) Scheme:
34. Under EPCG Scheme import of capital goods which are required for the manufacture of resultant export product specified in the EPCG Licence is permitted at concessional rate of Customs duty. This Scheme also enables upgradation of technology of the indigenous industry. For this purpose EPCG Licences are issued on the basis of approval granted by EPCG Committee. The EPCG Committee comprises of officers from DGFT, MOF and concerned Administrative Ministry. At present the EPCG licence holder is permitted to import capital goods at 5% or 10% Customs duty. Whereas under 5% duty EPCG Scheme the licence holder is required to undertake to fulfill export obligation equivalent to 5 times the CIF value of imported capital goods within a period of 8 years reckoned from the date of issue of licence, under 10% duty EPCG Scheme, the licence holder has to fulfill export obligation equivalent to 4 times the CIF value of imported capital goods in five years. EPCG licences are issued to manufacturer exporters and merchant exporter with or without supporting manufacturer, and service providers. The licence specifies the value/quantity of resultant export product to be exported against it. In the case of manufacturer/merchant exporters, such Export Obligation (EO) is required to be fulfilled by exporting resultant products manufactured with the help of imported capital goods. In the case of service providers the export obligation is required to be fulfilled by earning foreign exchange through rendering service. In order to ensure fulfillment of specified export obligation as also to secure interest of revenue, the licence holder is required to file bond with or without bank guarantee with the Customs Authority prior to commencement of import of capital goods. Bank guarantee equal to 50% of the differential duty is required to be filed by the licence holder excepting the following cases;
In such cases, a mere bond is sufficient.
35. Capital goods imported under EPCG Scheme are subject to actual user condition and the same cannot be transferred/sold till the fulfillment of export obligation specified in the licence. In order to ensure that the capital goods imported under EPCG Scheme are utilized in the manufacture of resultant export product, after importation/clearance of capital goods from Customs, the licence holder is required to produce certificate from the jurisdictional Central Excise Authority(CEA) or Chartered Engineer(CE) confirming installation of such capital goods in the declared premises.
36. The normal validity period of EPCG licence is 24 months and DGFT authority (who issues the licence) is empowered to grant further revalidation. In order to ensure proper accountal of fulfillment of export obligation, the EPCG licence holder is required to indicate the EPCG licence No/date on the body of the Shipping Bill. After fulfillment of specified export obligation, the licence holder submits relevant export documents alongwith EPCG licence to the DGFT authorities for the purpose of obtaining EO discharge certificate. After obtaining EO discharge certificate from DGFT, the licence holder produces the same before Customs for the purpose of obtaining redemption of bond/B.G. filed by him. In order to ensure that the licence holder maintains a specified level of export obligation throughout the EO period of 5/8 years, in addition to overall EO, yearwise/blockwise EO are also specified. A gestation period of 1/2 years is allowed for the purpose of installation of capital goods and commencement of production.
37. In cases where the EPCG licence holder is unable to maintain the specified level of yearwise/blockwise EO or overall EO., extension of yearwise/blockwise EO period upto a maximum of 1 year/block is allowed by DGFT Authority. Similarly in cases where the licence holder is not able to fulfill overall EO within specified period, extension of 1 year is allowed. In case of default in EO the licence holder has to pay differential Customs duty alongwith 24% interest per annum on such duty.
38. Exporter of goods manufactured with the help of Capital Goods imported under the EPCG Scheme is entitled to input duty incidence neutralisation benefits like Drawback, DFRC, Advance Licence, etc. in accordance with the terms of the individual scheme(s).
(Reference: Customs notification Nos.28/97-cus.,dated 1.4.97 (10% duty) and 49/2000-cus. dated 27.4.2000 (5% duty))
Export Oriented Unit Scheme
The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31st December 1980. The purpose of the scheme was basically to boost exports by creating additional production capacity. It was introduced as a complementary scheme to the Free Trade Zones/ Export Processing Zone (EPZ) Scheme introduced in the sixties which had not attracted many units due to locational restrictions. The exporters showed willingness to set up units with long term commitment to exports under Customs bond operations provided they had the freedom to locate them in places of their choice and given most of the benefits as provided to units set up in the Zones.
2. Over the years the Scheme has undergone various changes and its scope also expanded substantially as compared to the initial Scheme, which was basically for manufacturing sector with certain minimum value addition in terms of export earnings. The EOU scheme is, at present, governed by the provisions of Chapter 9 of the Export and Import (EXIM) Policy, 1997-2002 and Chapter 9 of the Handbook of Procedures, Volume-I ( HOP). Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up. These units may be engaged in the manufacture, services, development of software, trading, repair, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisiculture, viticulture, poultry, sericulture and granites. The EOUs can export all products except prohibited items of exports in ITC (HS).
3. Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith. Even the goods appearing in the restricted list of the EXIM Policy (1997-02) are permitted to be imported. However, the goods prohibited for import are not permitted. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granite quarrying, only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free.
4. The Customs exemption notifications for import & related Central Excise exemption notification when the goods are procured from local manufacturing units, prescribe several conditions to be fulfilled by the beneficiaries keeping in view the objective of the Scheme and to prevent abuse. Working in Customs Bond is one of the essential prerequisite-there being few exceptions. They also provide various flexibilities in the matter of taking out the materials for jobwork, interunit transfer. The EOUs are required to achieve the minimum NFEP (Net Foreign Exchange Earning as a Percentage of Exports) and the minimum EP (Export Performance) as per the provisions of EXIM Policy. The NFEP and EP varies from sector to sector. As for instance, the units with investment in plant and machinery of Rs.5 crore and above are required to achieve positive NFEP and export US$ 3.5 million or 3 times the CIF value of imported capital goods, whichever is higher, for 5 years. For electronics hardware sector, minimum NFEP has to be positive and minimum EP for 5 years is US$ 1 million or 3 times the CIF value of imported capital goods, whichever is higher. NFEP is calculated cumulatively for a period of 5 years from the commencement of commercial production according to a prescribed formula.
5. The EOUs are licensed to manufacture goods within the bonded premises for the purpose of export. As per the policy, the period of bonding is initially for five years, which is extendable to another five years by the Development Commissioner. On completion of the bonding period, it is for the unit to decide whether to continue under, or to opt out, of the scheme. The imported capital goods are allowed to be warehoused for a period of 5 years. For other goods, the warehousing period is one year, which can be extended further by the Commissioner / Chief Commissioner of Customs. On an application being made by the unit, extension of the time limit is granted in all cases unless there is malafide and diversion of duty free materials. As on 31-3-2001, there are about 1350 EOUs functioning in the country.
Monitoring and Administrative Control :
6. The EOUs basically function under the administrative control of the Development Commissioner of the Export Processing Zones, whose jurisdiction has been notified by the Ministry of Commerce. In all, there are seven Development Commissioners at Mumbai, Gandhidham, Chennai, Cochin, Vizag, Noida and Calcutta, who supervise the functioning of the EOUs and eight Export Processing Zones/Special Economic Zones in the country. The Development Commissioners of the EPZs/SEZs are the Licensing Authorities in respect of units under the EOU Scheme, as per specified territorial jurisdiction as indicated in the Export and Import Policy.
7. The provisions of the Customs and Central Excise law in respect of the EOUs are administered by the Commissioners of Customs and Central Excise, who work under the control of Central Board of Excise & Customs. The work relating to EOUs is handled by the staff of jurisdictional Commissioner of Central Excise. However, in the case of EOUs located in port cities/towns or within the municipal limits of port cities/towns, the work is handled by jurisdictional Commissioner of Customs, Seaport. (Reference Boards Circular Nos. 72/2000-Cus, dated 31-8-2000 and 87/2000-Cus, dated 2-11-2000.)
8. For setting up of an EOU, three copies of the application in the prescribed form are required to be submitted to the Development Commissioner. In certain cases, approval of the Board of Approval (BOA) is required. Applications for setting up of Electronic Hardware Technology Park/Software Technology Park units are submitted to the officer designated by the Ministry of Information Technology for this purpose. After approval of the application and issuance of Letter of Permission, the applicant is required to execute a legal undertaking with the Development Commissioner/Designated Officer concerned within the prescribed time period. On execution of legal undertaking, a green card is issued to the unit.
9. On the policy front, all decisions relating to the EOUs are taken by the Board of Approvals (BOA), set up under the Ministry of Commerce. The BOA is chaired by the Secretary, Ministry of Commerce and includes the Chairman, C.B.E.C. or his nominee as a member. In the case of units engaged in manufacture of electronic hardware and software, the policy decisions are taken by the Inter Ministerial Standing Committee (IMSC) set up under the Ministry of Information Technology and the same are implemented through its Designated Officers. Chairman, C.B.E.C. or his nominee is a member of the IMSC. The availability of any benefit under Customs or Central Excise Acts or the notifications issued thereunder has, however, to be determined by the Commissioner of Customs or Central Excise having jurisdiction-guided by CBEC in areas of doubt. Appropriate inter Ministerial liaison is maintained for ensuring uniformity as far as possible in the Exim Policy provisions and the provisions built in the relevant Customs & Central Excise notifications.
Customs Bonding of EOUs :
10. The premises of EOU are approved as a Customs bonded warehouse under the warehousing provisions of the Customs Act. The manufacturing and other operations are carried out under customs bond and the unit bearing appropriate charges for officers on cost recovery basis. In case of units in Aquaculture, Horticulture, Floriculture, Granite quarrying etc exemption from bonding is given for administrative reasons with certain other safeguards being put in place to check that duty free benefits where availed are not abused. The EOUs are required to execute a multipurpose bond with surety/ security with jurisdictional Customs/ Central Excise officers. (Reference Boards Circular No. 15/95-Cus, dated 23-2-1995)
Customs and Central Excise Notifications relating to EOU Scheme:
11. To enable EOUs to import / procure locally their requirement of raw materials, capital goods and office equipment etc. duty free, a number of Customs and Central Excise notifications have been issued by the Ministry of Finance. These notifications specify the different categories of items allowed to be imported / procured duty free as well as the conditions thereof. The notifications are as under:
General Conditions of Duty free Import:
12. The facility of duty free import (extending exemption both from basic & countervailing duty) is subject to certain general conditions in accordance with the EXIM Policy and these are summed up as follows:
However, the sector specific customs / excise duty exemption notification(s) have certain additional conditions, which are also required to be followed by the units.
B-17 Bond :
13. All the EOUs are required to execute a single all purpose bond i.e B-17 bond undertaking themselves to fulfil the conditions stipulated in the exemption notification of EOU scheme. This bond is taken to take care of the interests of revenue arising out of goods lost in transit, goods taken into Domestic Tariff Area for job work/ repair/ display etc but not brought back etc. The bond is executed with the jurisdictional Assistant Commissioner of Customs/Central Excise in charge of the unit. The format of the bond is prescribed vide notification No. 6/98-CE ( NT) dated 2-3-1998. The bond covers the activities which include, inter alia, transhipment of import /export goods between port of import/export and units' premises; duty-free import/procurement from the indigenous sources as per relevant notification and warehousing/storage in the unit; movement of duty-free goods for job work and return; temporary clearance for repair and display in exhibitions, testing/approvals etc.; and movement of goods against AR-4, AR-3A and CT-3 etc. and transfer from one warehouse to another. However, it does not cover the differential duty amount against advance DTA sale for which a separate bond is to be executed. The bond is taken for an amount equal to 25% of the duty forgone on the sanctioned requirement of capital goods plus the duty forgone on raw materials required for 3 months. Surety or security equivalent 5% of the bond amount in the form of bank guarantee is required to be given by the EOUs.
(Reference Boards Circular Nos. 14/98-Customs, dated 10-3-1998, 42/98-Cus. dated 19-6-1998, 66/98-Cus, dated 15-9-98, 76/99-Cus, dated 17-11-1999, and 50/2000-Cus, dated 24-5-2000).
Import and Export Procedure :
14. With regard to clearance of import cargo, the EOUs are placed in a special category, eligible for fast track or green channel clearance through the Customs. Clearance of import consignments is allowed at the gateway port/ Aircargo Complexes on the strength of procurement certificate issued to the EOU by the jurisdictional Assistant Commissioner/Deputy Commissioner. In general, the EOU cargo is not examined at the gateway port. In case of loose cargo, marks & numbers on the packages are verified. As for sealed containers, the seal number and container number are verified with the Bill of Lading. If the seal is found intact, the container is allowed clearance. The imported cargo so cleared and brought into the units premises are examined by the jurisdictional Customs/Central Excise officials. After examination (percentage check only), the goods are allowed to be used for export production. Re-warehousing certificate is to be submitted to the Assistant Commissioner/Deputy Commissioner in charge of the port of import within 90 days of the issue of procurement certificate.
On the export side, the units having status of a Super Star Trading House, Star Trading House, Trading House, and Export House are allowed the facility of self-sealing of their export containers. (Boards Circular Nos. 63/97-Cus, dated 21-11-1997, 14/98-Cus dated 10-3-98 and 90/98-Cus, dated 8-12-1998.)
Goods Imported /Exported and Found Defective:
15. Subject to grant of GR Waiver by the RBI the EOUs are allowed to make free replacement of the goods exported by them earlier and found defective, damaged or otherwise unfit by the overseas buyer. However, such defective, damaged or otherwise unfit for use goods are required to be brought back subsequently, to the country. The units are also allowed to re-import part consignment/full consignment in case of failure of the foreign buyer to take delivery.
16. The EOUs are also allowed to receive free replacement of the goods imported and found defective, damaged or otherwise unfit for use prior to re-export of the same. However, such damaged, defective goods are required to be re-exported subsequently. In case the supplier of such goods does not insist for re-exportation, such goods are required to be either destroyed or cleared into DTA on payment of full customs duty. (Reference Boards Circular 60/99-Cus, dated 10-9-1999)
Procurement of Goods Indigenously under CT-3 Procedure :
17. The EOUs can procure goods from DTA without payment of Central Excise duty subject to following of the Chapter X procedure of erstwhile Central Excise Rules, 1944. Such procurement from DTA is against CT-3, which is issued by the Superintendent of Customs/Central Excise in charge of the EOU. Such goods are required to be brought directly from the manufacturer /warehouse into the unit's premises under AR3A and examined by the designated officer. After examination of such goods, one copy of AR-3A is sent by registered post to the jurisdictional Central Excise authorities as a Re-warehousing Certificate in token of receipt of the goods in the unit. To avoid separate permission every time, the EOUs are issued pre-authenticated CT-3 in booklet form and against such pre-authenticated CT-3, the EOUs are allowed to procure capital goods, raw materials, consumables etc. Goods procured from DTA and found to be defective can be returned to the manufacturer under Chapter X procedure of erstwhile Central Excise Rules, 1944.
( Reference Boards Circular No. 24/91-CX-8, dt. 01.07.1991 and 504/70/99 CE, dt. 30.12.99 and Boards instructions dated 25-7-2001 issued from F. No. 305/121/2001-FTT)
DTA sale :
18. The EOUs ( other than gems & jewellery units) are allowed to sell goods (including rejects and byproducts) manufactured by them in DTA upto 50% of FOB value of exports on payment of concessional duty subject to achievement of prescribed NFEP. However, the DTA sale facility is not available for certain products such as motor car, alcoholic liquor, tea (except instant tea), books etc. The EOUs are allowed to remove the goods into DTA on a invoice. The invoice is used both as a transport document and also as a document for determining the assessable value. The EOUs can pay the duty by depositing the same in an authorized bank or the duty can also be debited from the Personal Ledger Account if an account current is maintained.
Valuation of Goods Sold in DTA :
19. Section 3 of the Central Excise Act, 1944 provides that the valuation of goods manufactured in the EOU and cleared into DTA is to be done in accordance with the provisions of the Customs law. Thus, when the invoice price of the goods under assessment is in the nature of transaction value, such invoice value can be accepted. (Boards Circular No. 23/84-CX-6 dated 29-5-84 and Instructions issued vide File No. 268/35/92-CX-8 dated 17-8-94 and Circular No. 330/46/97-CX dated 20-8-97).
Levy of Central Excise Duty on Goods Produced or Manufactured by EOUs and Cleared into Domestic Tariff Area :
20. In terms of section 3 of the Central Excise Act, 1944, the excise duty leviable on goods manufactured in an EOU/EPZ unit and cleared into Domestic Tariff Area is the amount equal to the customs duty leviable under section 12 of the Customs Act, 1962 or under any other law for the time being in force on like goods produced or manufactured outside India, if imported into India. Thus, the measure of excise duty leviable on goods manufactured in EOU/ EPZs is worked out exactly in the same manner as applicable to imported goods.
21. On fulfillment of NFEP (Net Foreign Exchange Earnings as Percentage of Exports) the EOUs other than gem and jewellery units, are allowed to sell goods including rejects (upto 5% of FOB value of exports), waste, scrap, byproducts and services in DTA upto 50% of FOB value of exports at a concessional rate of duty in an amount equal to 50% of Customs duties. Sales beyond 50% attract full duties. It may be noted that the words "FOB value of exports" refers to physical exports only. Therefore, the value of deemed exports made by the unit is not considered while determining the FOB value of exports. However, the sales made to private bonded warehouses set up under paragraph 11.14 or a trading unit set up under paragraph 9.21 of the EXIM Policy are taken into account for the limited purpose of arriving at FOB value of exports by EOU/EPZ units provided payment for such sales are made from EEFC accounts. (Reference: Notification No.2/95-CE, dated 4.1.1995).
Goods Manufactured from Indigenous Materials in 100% EOUs
22. A concessional duty has been prescribed for goods sold in DTA which are manufactured entirely out of indigenous materials. In such cases, the duty charged is the effective rate of excise duty which is leviable on like goods manufactured & cleared by DTA units. (Reference: notification No.8/97-CE dated 1-3-97). However, if such goods manufactured by a DTA unit are fully exempt from excise duty or are chargeable to nil rate of duty, the EOUs are required to pay 30% of each of duties of customs leviable on similar imported goods. (Reference: Notification No.13/98-CE, dated 2-6-98).
Clearance of Byproducts, Rejects, Waste and Scrap, Non-excisable Goods, etc.:
23. The DTA clearance of by-products and rejects on concessional rate duty is not allowed to the EOUs, which have failed to achieve the prescribed NFEP. In such cases, the EOUs are liable to pay full duty. Further, in case of these units, DTA clearance of finished goods is not allowed even on payment of full duty. In case of waste/scrap/remnants, the same are allowed to be sold in DTA on payment of concessional rate of duty within overall limit of 50% of FOB value of exports without insisting on achievement of prescribed NFEP. In case of sale of scrap/waste/remnants beyond this limit, it is allowed on payment of full duty. As for DTA clearance of goods manufactured by the EOUs which are not excisable (e.g. cut flowers) the duty on inputs and consumables etc. procured/imported duty free under exemption notifications, which have gone into production of such non-excisable goods cleared into DTA, is recovered.
Special Concessions for Certain Waste products and Other Goods Cleared from 100% EOUs :
24. Apart from the above general concessions, special concessions are available for certain products. As per instance, under notification No.103/93-CE, dated 27.12.93 rags, trimmings and tailor cuttings arising in the course of manufacture of readymade garments are fully exempt from excise duty when cleared into DTA by EOUs. This is subject to the condition that the percentage of waste material in the form of rags, trimmings and tailor cuttings does not exceed the percentage fixed in this regard by the Board of Approval. (Reference: Notification No. 103/93-CE, dated 27-12-1993). Further, under notification No. 6/97-CE, dated 1-3-1997, the waste of fish or crustaceans, mollusks or other aquatic invertebrates falling in chapter heading 05.01, castor oil cake manufactured from the indigenous castor oil seeds on indigenous plant and machinery falling under chapter heading 23.02, guar meal manufactured wholly from indigenous guar seeds falling under chapter heading 23.01 and yarn of jute and goods of jute, manufactured from wholly indigenous raw materials headings 53.07, 53.10, 5702.12, 5703.20, 58.01, 58.02, 58.06 or 6305.10 are fully exempt from payment of duty if manufactured by EOUs and cleared into DTA. Also, cotton waste falling under heading 52.02 are fully exempted if produced or manufactured by EOU and allowed to be sold in India. ( Reference: Notification No. 6/97-CE, dated 1-3-1997)
25. In case of Gems and Jewellery EOUs, the units are allowed to sell upto 10% of FOB value of exports of the preceding year in DTA subject to fulfillment of NFEP as prescribed under the Export and Import Policy. In case of sale of plain gold jewellery, plain silver jewellery, studded gold jewellery, unsuitable/broken cut and polished diamonds, rough diamonds, precious and semi precious stones or dead stock in DTA, the units are allowed to pay concessional rate of duty. (Reference notification No. 20/97-CE, dated 11-4-1997).
26. In addition to the above, under notification No. 20/98-CE, dated 18-7-1998, certain specified textile items are allowed to pay concessional duty in case of DTA sales of such items by EOUs. ( Reference: notification No. 20/98-CE, dated 18-7-1998).
Manner of Calculation on Duty of Goods Cleared in Domestic Tariff Area under Paragraph 9.9(b) of the Exim Policy:
27. The manner of calculation of duty leviable on goods cleared in Domestic Tariff Area in terms of paragraph 9.9(b) of Exim Policy, 1997-2002 read with notification No. 2/95-CE, dated 4-1-1995 has been laid down in Boards Circular No. 7/2001-Cus, dated 6-2-2001. To work out the total quantum of duty payable on goods cleared into DTA, each of the duty leviable on import of like goods is worked out first and thereafter, 50% of the amount of each duty so calculated, taken together is collected as excise duty on such goods produced by EOUs units when cleared into the DTA. (Reference: Boards Circular No. 7/2001-Cus, dated 6.2.2001)
Clearance of Waste/ Scrap/ By products in DTA:
28. The EOUs are allowed to clear waste and scrap in Domestic Tariff Area on payment of concessional rate of duty or full rate of duty as explained in detail in paragraph 22. Norms for scrap/ waste material for export products under EOU have been prescribed in Appendix 41 of the Handbook of Procedures, Vol. I .
29. In case of gem & jewellery EOUs, scrap, dust or sweepings generated in the unit is allowed to be forwarded to the Government Mint or Private Mint for conversion into standard gold bars and return thereof to the unit subject to the observance of procedure laid down by the Commissioner of Customs. The said dust, scrap or sweepings are also allowed clearance into DTA on payment of applicable customs duty on the gold content in the said scrap, dust or sweepings. Samples of the sweepings/dust are taken at the time of clearance and sent to mint for assaying. The assessment is finalized when the reports are received from the mint.
( Boards Circular 19/99-Cus, dated 29-4-1999)
Clearance of Samples :
30. The EOUs are allowed to supply or sell in DTA samples of goods produced by them for display or market promotion upto 1% of the previous years exports or maximum of Rs. 10 lakhs in the case of new unit going into production on payment of applicable duties. The units are also allowed to take out samples into DTA without payment of duty on returnable basis for the purpose of display/market promotion. In such cases, the procedure prescribed for sub-contracting is required to be followed.
31. The EOUs are allowed to send samples abroad through the courier. The packages containing such samples are sealed in the presence of the Customs officer and are handed over to the representative of the courier company authorised by the Commissioner of Customs for presentation to the Customs at the port of export. These sealed samples are not normally examined again before " let export" is given if the seals are found intact and not tampered. The representative of the courier company later hands over the proof of export to the jurisdictional Assistant/ Deputy Commissioner. (Reference Boards Circular Nos. 22/98-Cus, dated 27-3-1998 and 52/99-Cus, dated 20-8-1999).
Clearance of Personal Computers :
32. The EOUs are allowed to remove personal computers not exceeding two in number for installation in their registered/administrative offices located in DTA subject to the following of the procedure prescribed in this regard. (Boards Circular No.41/99-Customs dated 30-6-99)
Sale of Surplus/ Unutilized Goods :
33. The EOUs are allowed to sell surplus/unutilized goods, imported or procured duty free in DTA on payment of duty on the value at the time of import/procurement and at rates in force on the date of payment of such duty, in case the unit is unable for valid reasons to utilize the goods. The permission for such DTA sale is given by the jurisdictional Assistant Commissioner /Deputy Commissioner of Customs/ Central Excise as the case may be. Likewise, obsolete/surplus capital goods and spares can either be exported or disposed of in the DTA on payment of applicable duties. The benefit of depreciation, as applicable, is allowed in such cases. Duty is not charged if the goods are destroyed with the permission of Customs.
Destruction of Flowers/Horticulture Products :
34. Flowers, vegetables and agricultural products have a very short shelf life and are prone to malformation, injury, damage, infection etc. These products cannot be preserved for a longer period. There are circumstances (especially in case of floriculture units) when the units do not find the goods exportable/marketable for various reasons such as malformation, injury, damage, infection by pest and diseases etc. and the units have to resort to forced destruction of flowers, vegetables etc. In such cases, duty is not charged from the EOUs.
35. At times, the flowers and floriculture products deposited in the warehouse of the airlines at the international airports for the purpose of exports are not exported owing to various reasons, such as, delay in flights, cancellation of flights etc. In such cases, the units are allowed to sell such flowers and floriculture products in DTA on payment of applicable duty. For such DTA sales, the unit must have DTA sale entitlement under the scheme. The unit is required to bring permission from the concerned Development Commissioner for such DTA sale and shall clear the goods on payment of duty assessed by the concerned Assistant Commissioner/ Deputy Commissioner in charge of the cargo. The DTA sale is allowed against documents as are used for DTA sale by EOUs in the manner as if the goods cleared from the unit itself. (Reference Boards Circular No.31/2001-Cus, dated 24-5-2001).
Clearance of Goods Manufactured by EOUs against Advance Release Order (ARO) or Back-to-Back Inland Letter of Credit issued against an Advance Licence or Duty Free Replenishment Certificate (DFRC).
36. The goods manufactured by EOUs are allowed to be cleared against ARO & Back-to-Back Inland Letter of Credit issued against Advance Licence (except Advance Licence for intermediate supply) without payment of basic and additional duty of customs subject to following the provisions of EXIM Policy & HOP Vol.1, 1997-2002 & conditions of notification 28/2001-CE dated 16-5-2001. The goods may also be cleared to a person holding an ARO issued by the Licensing Authority against a DFRC or Back-to-Back Inland Letter of Credit issued by a bank on the payment of additional duty of customs subject to following of the provisions of EXIM Policy and HOP Vol.1 Vol.1, 1997-2002 & conditions of notification No. 28/2001-CE dated 16-5-2001. (Reference Boards circular No.31/2001-Cus, dated 24-5-2001).
37. The EOUs, other g than Gem & Jewellery units, are allowed to sub-contract part of their production process in DTA. These units may also sub-contract up-to 50% of production for job-work in DTA. Sub-contracting of both production and production process are also allowed to be undertaken through other EOU/EPZ/EHTP/STP/SEZ units on the basis of records maintained by the unit.
38. For sub-contractual work performed outside, the units are required to take annual permission from the Customs authorities and are required to furnish information, such as, processes to be carried out on sub-contract basis and the name, address of the subcontractor etc. After getting the permission, the unit is required to follow the Receipt Challan/ Despatch Challan ( RCDC) procedure. Under this procedure, at the time of removal of goods, the unit prepares Despatch Challan giving information, such as, value of the goods, name & address of job worker, duty forgone on the goods and the period within which the goods will be received back. Similarly, the goods after completion of sub contractual work are received back in the unit on the basis of Receipt Challan. The scrap/waste/remnants generated at the job workers premises can be either cleared from the job workers premises on payment of duty or returned to the supplying unit. Exports from job workers premises are allowed in cases where the job workers are registered with the Central Excise department. A sample of goods exported is sent to the EOU for checking whether the goods supplied by it are utilised by the job worker in the export product.
39. The EOUs are also allowed to remove moulds, jigs, tools, fixtures, tackles, instruments, hangers and patterns and drawings to the premises of sub-contractors subject to the condition that they are brought back to the bonded premises of EOU on completion of the job work within a stipulated period.
40. The EOUs are allowed to sub-contract part of the production process abroad. The approval for sub-contracting abroad is accorded by the Board of Approval. The goods sent for job-work abroad are required to be returned to the unit for final processing/manufacturing before exports. The unit is required to execute a suitable bond for sub-contracting of goods abroad and is required to account for the goods including waste/rejects in the manner as prescribed by the Commissioner of Customs/ Central Excise in this behalf.
41. To help utilize the idle capacity, the EOUs are allowed to undertake job work for export on behalf of DTA units. This is subject to the condition that the finished goods are exported directly from the EOU and export documents are made in the name of the DTA unit. On export of such goods manufactured by EOUs on behalf of the DTA unit, the DTA unit is entitled to refund of duty paid on the inputs by way of brand rate of duty drawback.
42. As mentioned earlier, the gem & jewellery EOUs are not allowed to subcontract the production or production process in DTA. However, such gem & jewellery EOUs are allowed to receive plain gold/silver/platinum jewellery from DTA against exchange of gold/silver/platinum of the same purity & quantity in weight as that of the jewellery. The EOU is not eligible for any wastage or manufacturing loss against such jewellery. The DTA units supplying such jewellery against exchange of gold/silver/platinum are not entitled for deemed export benefits.
(Reference Boards Instructions F. No. 305/107/93-FTT dated 31-1-1994 and 8-4-1994, Circular Nos. 59/98-Cus, dated 12-8-1998, 67/98-Cus, dated 14-9-98, 35/99-Cus, 74/99-Cus, dated 5-11-99, 31/2001-Cus, dated 24-5-2001).
Temporary Removal of Goods :
43. The EOUs, Software Technology Park Units or Electronic Hardware Technology Park Units engaged in development of software are allowed to remove imported laptop computers and video projection system out of the bonded premises temporarily without payment of duty subject to following the prescribed procedures.
(Reference Boards Circular Nos.17/98-Cus dated 16-3-98 & 84/2000-Cus dated 16-4-2000 ).
Inter-unit transfer :
44. An EOU is allowed to transfer imported or manufactured goods to another EOU/EPZ/STP/EHTP/SEZ unit. The officers in charge of the EOU supplying the material and the EOU receiving the material are expected to keep a watch on the movement of material between the EOUs. The rewarehousing certificate on transfer of the goods from one EOU to another is obtained by post and is crosschecked occasionally with the Superintendent in charge of the other unit to see whether the goods have been actually received in the unit or not. In case of non-receipt of rewarehousing certificate and similarly, non-receipt of proof of export from the proper officer within 90/180 days, the duty is demanded from the sending unit.
Repair, Reconditioning etc.:
45. The EOUs are permitted to import goods of any origin to carry on re-conditioning, repair, testing, calibration, quality improvement, upgradation of technology and re-engineering activities for export in freely convertible foreign currency provided such repairs, reconditioning, reengineering etc. are carried out in Customs bonded premises and the final goods are not sold within the country.
Special Provisions Relating to Gems & Jewellery EOUs.
46. The EOUs in gem & jewellery sector are allowed certain special facilities as mentioned below:
For availing of the above mentioned facilities, prior permission of Assistant Commissioner / Deputy Commissioner is required.
Cost Recovery Charges/Cost Sharing
47. Cost recovery charges are the amount recoverable from the EOU on account of the expenses incurred by the Government for the posting of Customs staff at its premises to supervise their operations. The cost of posts created for EOUs has been determined at an amount equivalent to the actual salary and emoluments of the staff deployed i.e. the average pay and allowances including D.A., H.R.A., C.C.A. etc. The EOUs pay in advance the cost recovery charges determined for the entire year. Generally, one Customs officer supervises the functioning of four to five units and the cost recovery charges are shared amongst them.
(Reference Boards instruction F. No. 11018/63/87-Ad IV, dated 11-1-88 and F.No.305/105/85-FTT, dated 10.6.86)
Supervision of EOUs by the Customs/ Central Excise:
48. Operational flexibility has been provided to EOUs by amendment of "Manufacture and Other Operations in Warehouse Regulations, 1966". The EOUs no longer carry out manufacturing operations under physical supervision of Customs officers. The procedure for locking of the warehouse, contral over the issue of imported goods etc. has been abolished. All the movements from and to the unit like clearance of raw materials/ component to the job workers premises, return of goods from the job-workers premises, clearance to other EOUs, export and sale in DTA are allowed to be made by the unit subject to maintenance of the records. Physical control over the EOUs has, thus, been replaced by Record Based Control.
49. As physical control has been abolished greater stress is given on proper maintenance of prescribed records & accounts and non-maintenance of the accounts by the units is viewed seriously. The cost recovery officers/the officers incharge of EOUs are required to scrutinize /examine the accounts/ records of the units and transaction undertaken by the unit at least once in a month. The cost recovery officer has to ensure that all movements of goods are recorded in the proper register. The Chief Commissioner is empowered to order special audit of the unit by Cost Accountant nominated by him in this regard. Cost audit is employed as a tool to check the correctness of raw materials, quantity used, finished goods produced or other such situation.
(Boards Circular No. 88/98-Cus, dated 2-12-1998)
Joint Monitoring of EOUs:
50. The guidelines for monitoring the performance of EOUs have been laid down in Appendix 16-E of the Handbook of Procedures (Vol.I). As per the said guidelines, the performance of EOUs is to be jointly reviewed by the Development Commissioner and the concerned Customs/Central Excise officers. The purpose of joint review is to ensure that the performance of EOUs are effectively monitored and action is taken against the units which have contravened the provisions of the EXIM Policy/Handbook and the Customs Law/Procedures. Besides, such joint monitoring gives an opportunity to the Government to discuss and help resolve the problems/difficulties being faced by the EOUs. The idea is to remove all bottlenecks in export promotion efforts while not jeopardizing the interests of revenue.
Recovery of Duty Forgone under EOU Scheme and Penal Action for Abuse/ Diversion etc. :
51. Under EOU Scheme, the units are required to achieve minimum NFEP and Export Performance as stipulated in the Exim Policy. In case of failure to achieve the minimum NFEP and EP, the duty forgone under the EOU scheme along with interest is recoverable from the units. Further, the duty is recoverable from the units in case of non receipt of imported/ indigenously procured goods in the factory premises after import/procurement, loss of goods in transit, non accountal of imported/ indigenously procured goods, unauthorized DTA sale, clandestine removal etc. Duty can also be demanded in case of failure to utilize duty free imported/indigenously procured goods including capital goods within the prescribed time limit. The duty is also recoverable on goods removed for job working/ display/ testing/ quality testing, but not received back in the unit within the specified period of time.
52. Apart from recovery of duty forgone, the law also provides for taking penal action where any 100% EOU is found to have indulged into any fraudulent activities eg. clandestine removal of production into DTA without payment of duties, diversion of duty free materials in transit to the unit after customs clearance or after receipt etc., not only the offending goods can be seized and confiscated, but even units penalized heavily/ prosecuted.
53. An EOU may debond into a normal DTA unit subject to the approval of the Development Commissioner and following of prescribed procedure & fulfilling the laid down conditions. Such de-bonding is subject to penalty, if any, that may be imposed and payment of duties of customs and excise applicable at the time of de-bonding. The standard conditions of de-bonding, as indicated in the Handbook of Procedures provide, amongst other conditions, that the applicable customs and central excise duty would be paid on imported and indigenous capital goods, finished goods, raw materials, consumables, components etc. in stock. Further, the unit in question continues to be treated as an EOU till the date of final de-bonding order.
54. The duty payable in terms of the relevant notifications by the units seeking debonding is as under:
55. At the time of debonding, the EOUs are entitled for depreciation on imported/indigenous capital goods. The rate of depreciation on capital goods have been specified and in case of the computers and computer peripherals, accelerated rate of depreciation have been provided for.
56. In the event of a gem and jewellery unit ceasing its operation, gold and other specious metals, alloys, gem and other materials available for manufacture of jewellery are handed over to a nominated agency (nominated by Department of Commerce) at a price determined by that agency.
(Reference Boards instructions issued from F. No. 305/136/92-FTT dated 5-6-1992, Circular Nos. 27/98, dt. 1.04.1998 and 43/98-Cus., dt. 26.06.1998).
Export Processing Zone Scheme
Free Trade Zones (FTZ)/ Export Processing Zones (EPZs) have emerged as an effective instrument to boost export of manufactured products. The Zones, set up as enclaves separated from the Domestic Tariff Area (DTA) by physical barriers, are intended to provide an internationally competitive duty free environment for export production at low costs. The basic objectives of EPZs are to enhance foreign exchange earnings, develop export-oriented industries and to generate employment opportunities. The first Zone was set up at Kandla (Gujarat) in 1965, followed by SEEPZ, Mumbai in 1972. Thereafter, four more Zones were set up at NOIDA (UP), FALTA (West Bengal), Cochin (Kerala), Chennai (Tamil Nadu) in 1984 and at Vishakapatnam (Andhra Pradesh) in 1989. In 1997, Surat Export Processing Zone came into existence. With the announcement of Special Economic Zone Scheme in year 2000, the four Export Processing Zones / FTZ, namely Kandla, SEEPZ, Cochin and Surat have been converted into Special Economic Zones with effect from 1-11-2000.
2. Each Zone provides basic infrastructural facilities, like developed land, standard design factory buildings, built-up sheds, roads, power supply and drainage, in addition to a whole range of fiscal incentives by way of Customs, Excise and Income Tax exemptions. Customs clearance facilities are offered within the Zone at no extra charge, while facilities like banking, post office and clearing agencies are also available in the service centers attached to each Zone.
3. The Export & Import Policy provisions for Export Processing Zones are the same as applicable to EOUs. Thus, the provisions of EXIM Policy regarding importability of goods, DTA sale, clearance of samples, sub-contracting, inter-unit transfer, repairs, re-conditioning and re-engineering, sale of unutilized material, debonding etc. for EOUs are applicable to EPZ units.
4. The Development Commissioners appointed by the Ministry of Commerce monitor and coordinate the functioning of each Zone. The Customs act in close liaison with the Development Commissioner of the respective Zone in providing bond facilities and for ensuring that goods imported/indigenously procured duty free are utilised in the production of goods for export. To enable the EPZs to import/procure locally their requirement of raw materials, capital goods and office equipment etc. duty free, a number of Customs and Central Excise notifications have been issued by the Ministry of Finance. These notifications specify the different categories of items allowed to be imported/procured duty free as well as the conditions thereof. The permissible item, cover almost all categories of goods required in connection with the production activity for export & include capital goods, raw materials, components, packing, consumables, spares etc. The relevant notifications are as under:-
As the policy provisions for units located in Export Processing Zone are the same as those applicable to EOUs, for details the chapter on EOUs may please be referred to. It may be mentioned that in case of EPZ, the units are not required to take licence under section 58 of the Customs Act. Further, the EPZ units are not required to pay cost recovery charges for the Customs staff posted in the Zone.
Software Technology Parks (STPs) are export oriented projects catering to the needs of software development for exports. STPs can be set up by the Central Government, State Government, Public or Private Sector Undertakings or any combination thereof. An STP may be an individual unit by itself or it may be one of such units located in an area designated as STP Complex by the Ministry of Information Technology. The Government has already set up Software Technology Parks at Pune, Bangalore, Bhubaneshwar, Hyderabad, Thiruvananthapuram, Gandhinagar and Noida. In these Parks all the required facilities are made available. The STP Scheme is administered by the Ministry of Information Technology.
2. For encouraging exports of electronic hardware items including hard disk drives, computers, television, etc., such parks have been developed by the Ministry of Information Technology. An Electronic Hardware Technology Park (EHTP) may be an individual unit by itself or a unit located in a area designated as EHTP Complex. As in the case of STP Scheme, the EHTP Scheme is also administered by the Ministry of Information Technology.
3. Under STP Scheme, a software development unit can be set up for the purpose of development of software, data entry and conversion, data processing, data analysis and control data management or call centre services for exports. Under EHTP Scheme, a unit can be set up for the purpose of manufacture and development of electronics hardware, or electronics hardware and software in an integrated manner for exports. The policy provisions for STP and EHTP Schemes are substantially the same as those applicable to the general EOU Scheme. Thus, the provisions of EXIM Policy regarding importability of goods, DTA sale, clearance of samples, sub-contracting, inter-unit transfer, repairs, re-conditioning and re-engineering, sale of unutilized material, debonding etc. are more or less same for STP/EHTP units as well as general EOUs. However, considering the special requirements of the software/hardware development sector, some specific provisions have been made for the STP/EHTP units in the EXIM Policy as well as in the Customs notifications governing the Scheme, which may be referred to.
4. To implement STP scheme, the Government has issued two notifications, namely, 138/91-Cus, dated 22-10-1991 (for units located in Software Technology Park Complexes) and 140/91-Cus, dated 22-10-1991(for stand alone software development units ) allowing duty free import of specified goods to such units. In respect of EHTP scheme, notification Nos 95/93-Cus, dated 2-3-1993 (for units located in Electronic Hardware Technology Park Complexes) and 96/93-Cus, dated 2-3-1993 (for stand alone electronic hardware units) allow duty free import of specified goods to such units. To enable such STP /EHTP units to procure specified goods from DTA without payment of duty, a notification No. 1/95-CE, dated 4-1-1995 has been issued. The sector specific provisions in respect of STP/EHTP units are as follows:-
The provisions at serial (i), (iii) and (iv) are also applicable to the software development units under general EOU scheme operating under notification Nos. 53/97-Cus, dated 3-6-1997 and 1/95-CE, dated 4-1-1995.
Special Economic Zone Scheme
A new export promotion scheme entitled Special Economic Zone (SEZ) was introduced in the Export and Import (EXIM) Policy which came into effect from 1.4.2000. The Scheme envisages a simple and transparent policy and procedure for promotion of exports with minimum paper work. The most important feature of the Scheme is that the SEZ area is considered essentially as a foreign territory for the purposes of trade operations, duties & tariffs. Therefore, goods supplied to SEZ from the Domestic Tariff Area (DTA) are treated as deemed exports and goods brought from SEZ to DTA are treated as imported goods.
2. As per the EXIM Policy, a SEZ can be set up for the manufacture of goods and rendering of services, production, processing, assembling, trading, repair, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof.
3. Under the SEZ Scheme, the units are allowed to make or procure locally without payment of duty all types of goods including capital goods, whether new or second-hand, required by them for export production or in connection therewith. Even the goods appearing in the restricted list of the EXIM Policy (1997-2002) are permitted to be imported. However, the goods prohibited for import are not permitted. The Scheme also allows duty free import of goods including capital goods on loan basis.
4. As per the EXIM Policy, the SEZ unit has to be a positive net foreign exchange earner. Net Foreign Exchange Earning (NFE) is calculated cumulatively for a period of five years from the commencement of commercial production according to a prescribed formula.
5. The Special Economic Zones can be set up in the country in the public, private, joint sector or by the State Governments. The minimum size of the Special Economic Zone, however, shall not be less than 1000 hectares. This measure is intended to provide self-contained areas supported by world-class infrastructure oriented towards export production.
6. In pursuance of the policy, four existing Export Processing Zones (EPZ) have been converted into Special Economic Zones w.e.f. 1-11-2000. These Special Economic Zones are: (i) SEEPZ Special Economic Zone, Mumbai; (ii) Kandla Special Economic Zone, Kandla ; (iii) Cochin Special Economic Zone, Cochin; and (iv) Surat Special Economic Zone, Surat.
7. The detailed policy and procedures governing the operations of SEZ units are contained in Chapter 9 A of Export and Import Policy and Handbook of Procedures, Vol. I issued by the Ministry of Commerce. To enable the units located in the Special Economic Zone to import or procure goods without payment of duty, the Department of Revenue has issued two exemption notifications, namely, Nos. 137/2000-Cus. and 52/2000-CE, both dated 19.10.2000.
8. The SEZ Scheme places full trust on the units and, therefore, import and export operations of the units in the Zone are on the basis of self-certification. These units are governed by simplified Customs and Central Excise procedures as discussed below.
Import and Export:
9. The SEZ units are allowed to import and export through port, airport, land customs station, ICD, CFS, courier mode (as per courier rules) and post parcel. The software development units can import and export through data communication and telecommunication links. In the case of exports through data communication and telecommunication links, the SEZ units follow the same procedure and practice as is followed in case of EPZ/STP units. As for imports of software through above modes, the units are required to file the Bill of Entry within 24 hours of such import alongwith bank attested invoice and other relevant documents for obtaining notional 'out of charge'. The documents such as invoice etc. in respect of such import are required to be routed through the banks. The value of such software is certified by the Director of the STP/Development Commissioner of SEZ. Further, in case of such software imports, instructions issued by RBI, if any, are also required to be followed.
10. In case of imports, the Bill of Entry with specially stamped endorsement as "SEZ Cargo" is filed with the Assistant Commissioner/Deputy Commissioner of Customs in the SEZ for assessment. For procurement of goods from domestic sources by SEZ units, CT-3 certificates are issued to the units and against such CT-3, the goods including capital goods are procured from DTA without payment of duty. In both cases, i.e. both in respect of imported and domestically procured cargo, the goods are assessed on the basis of documents furnished by the units. Goods are not examined physically and out-of-charge is given after verifying the marks and numbers on the packages only.
11. When the import consignments are required to be transhipped to a SEZ located at a station away from the place of import, the same is allowed under normal transit procedure. The unit files the Bill of Entry with the Assistant Commissioner/ Deputy Commissioner of Customs in-charge of the SEZ on the basis of the transit document.
12. In case of exports, the Shipping Bill alongwith relevant documents is filed with the Customs authorities in the Zone. As in the case of imports, the SEZ export cargo is not examined in routine and export is allowed on the basis of self-certification by the units. The units, after self-examination of the consignments, are required to submit the shipping bills to the Assistant Commissioner/Deputy Commissioner of Customs for "let export" order. After obtaining the "let export" endorsement on the shipping bill, the consignment is taken to the gateway port for export. At the gateway port also, the SEZ export consignment is not examined in routine. However, whether at the Zone or at gateway port or during transit of such cargo, the Customs authorities can examine the consignments when there is a specific information/intelligence. For this purpose, the orders of the Assistant Commissioner/Deputy Commissioner of Customs are required to be obtained.
13. Clearance of goods to DTA without payment of duty for jobwork/further processing is permitted on the basis of a bond furnished by the unit. The bond is discharged as and when the goods are received back after job work/processing. The goods so processed are allowed to be cleared from the job workers premises for export directly, provided the job worker is registered with Central Excise and the procedure as applicable to the EPZ is followed. In such cases, the bond is discharged after the proof of export is produced. Scrap/waste/ remnants /rejects generated at the job workers premises can either be cleared therefrom on payment of applicable customs duty or returned to the SEZ unit.
14. The SEZ units are allowed to sub-contract part of the production process abroad. Approval for sub-contracting abroad is accorded by the Board of Approval. The goods sent for job-work abroad are to be returned to the unit for final processing/manufacturing before exports. The unit is required to execute a suitable bond for sub-contracting goods abroad and is required to account for the goods including waste/rejects in the manner as prescribed by the Commissioner of Customs/ Central Excise in this behalf.
15. The SEZ units are also allowed to undertake job-work for export on behalf of DTA units. This is subject to the condition that the finished goods are exported directly from SEZ units and export documents are made in the name of the DTA unit. On export of such goods manufactured by SEZ unit on behalf of the DTA unit, the DTA unit is entitled to refund of duty paid on the inputs by way of brand rate of duty drawback.
16. The SEZ units are allowed to remove the moulds, jigs, tool, fixtures, tackles, instruments, hangers, patterns and drawings without payment of duty to the premises of the sub-contractors subject to the condition that such goods are brought back to the unit on completion of the jobwork within the period specified in this behalf.
Temporary Removal of Goods into the DTA:
17. The SEZ units can take out the goods from the Zone into the DTA temporarily without payment of duty for the purpose of test, repairs, replacement, calibration, refining, processing, display or any other process necessary for manufacture of final product. For this purpose, the unit is required to execute a bond with the Assistant Commissioner/ Deputy Commissioner of Customs. On receipt of the goods back in the SEZ unit, the bond gets discharged. In case of failure of the unit to bring back the goods within the prescribed period, the unit is liable to pay applicable duty on such goods.
Removal of Goods into Another EOU/EPZ/EHTP/STP/SEZ Unit:
18. The SEZ units are allowed to clear the goods to another EOU/EPZ/EHTP/STP/SEZ unit without payment of duty for repairs, processing, testing or display on the basis of permission given by the Assistant or Deputy Commissioner of Customs. In these cases, the goods are required to be returned to the unit within the period specified in this behalf. Goods may also be sent to EOU/EHTP/STP/EPZ/SEZ units for the purposes of manufacture and export therefrom subject to maintenance of proper accounts by both the receiving and supplying units. For the above purposes, the unit is required to execute a bond with the Assistant Commissioner/Deputy Commissioner of Customs. The bond is discharged on receipt of the goods back in the SEZ or after they have been properly accounted for by way of exports. In case of failure of the unit to bring back the goods within the prescribed period or failure to account for the goods, the unit becomes liable to pay applicable customs duty on such goods.
Gem and Jewellery units in SEZ:
19. Generally speaking, sub-contracting is not allowed to gem and jewellery units. However, the gem and jewellery units in SEZ are allowed to take out gold/silver/platinum for sub-contracting subject to the condition that goods, finished or semi-finished, including studded jewellery, containing quantity and purity equal to the gold/silver/platinum so taken out are brought back to the Zone within 30 days. It is to be noted that diamonds, precious or semi-precious stones are not allowed to be taken out for sub-contracting. The gem and jewellery units are also allowed to receive plain gold/silver/platinum jewellery from DTA in exchange of gold/silver/platinum of equal quantity and purity. These units are, however, not eligible for any wastage or manufacturing loss against the jewellery received from DTA after processing or against exchange of gold/silver/platinum. The DTA units undertaking job work or supplying jewellery against exchange of gold/silver/platinum are not entitled to deemed export benefits. The gem and jewellery units are also allowed to sub-contract part of the production or production process through other units in the same SEZ subject to records being maintained by both the supplying and the receiving units.
20. Further, the gem and jewellery units in SEZ are allowed certain other facilities as mentioned below:
For availing of the above mentioned facilities, prior permission of Assistant Commissioner / Deputy Commissioner is required.
21. In case of gem & jewellery units, scrap, dust or sweepings generated in the unit is allowed to be forwarded to the Government Mint or Private Mint for conversion into standard gold bars and return thereof to the Zone subject to the observance of procedure laid down by the Commissioner of Customs. The said dust, scrap or sweepings are also allowed clearance into DTA on payment of applicable customs duty on the gold content in the said scrap, dust or sweepings. Samples of the sweepings/dust are taken at the time of clearance and sent to mint for assaying. The assessment is finalized when the reports are received from the mint.
22. Inter unit transfer of goods amongst units in a SEZ does not require any prior permission, but the supplying and receiving units are required to maintain proper accounts of the transaction.
Duty Remission on Destruction of Goods:
23. A provision has been made in the notifications that duty would not be levied on capital goods, raw materials, components, waste or scrap etc. if these goods are destroyed in the presence of the Customs authorities. This provision, however, does not apply to gold, silver, platinum, diamond, precious stones and semi-precious stones. The officers supervising destruction are required to ensure that goods are destroyed fully rendering them unfit for further use and give certificate to that effect. After destruction of capital goods, raw materials, components, waste or scrap etc., if the remains have scrap value, the same can be cleared by the unit in DTA on payment of duty applicable to scrap.
24. The facility of DTA sale is available to the SEZ units. Under the Scheme, finished goods including by-products and services and waste/scrap/remnants/rejects etc. can be sold in the DTA on payment of applicable duty and in accordance with the Export-Import Policy in force. However, where such finished goods (including rejects, waste and scrap materials) are not excisable, duty equal in amount to that leviable on the inputs imported/indigenously procured under the notifications and used for the purpose of manufacture of such finished goods, which would have been paid but for the exemption under the said notifications, is payable at the time of clearance of such finished goods. In case of service sector SEZ units, the rendering of services in DTA is allowed subject to the condition that the unit has achieved the positive NFE, cumulatively, as specified in the Policy. This would mean that service units will not be eligible for making DTA sale if the NFE is not positive cumulatively at any point of time. Further, if any of such services are taxable under provisions of Chapter V of Finance Act, 1994, then rendering of such services in DTA would require payment of service tax as per the provisions of Finance Act, 1994.
Levy of Central Excise Duty on Goods Produced or Manufactured by SEZ Units and Cleared into Domestic Tariff Area :
25. In terms of section 3 of the Central Excise Act, 1944, the excise duty leviable on goods manufactured in an SEZ unit and cleared into Domestic Tariff Area is an amount equal to the customs duty leviable under section 12 of the Customs Act, 1962 or under any other law for the time being in force on like goods produced or manufactured outside India, if imported into India. Thus, the duty is worked out exactly in the same manner as applicable to imported goods.
Valuation of Goods Cleared into DTA:
26. Under the SEZ Scheme, the goods cleared from the Zone are treated as imported goods. Therefore, in case of DTA clearances, though the duty charged is central excise duty, this duty is taken as equal to the aggregate of all duties of customs. In other words, the SEZ units are required to pay full customs duty (applied duty) on their DTA clearances. In view of this, in case of sale/clearance of goods referred to in the preceding paragraphs, the valuation is made as per the provisions of the Customs Act, 1962 and the Customs Valuation Rules, 1988. Further, the DTA sales are subjected to the same assessment and examination procedure as applicable to imported goods in DTA. Licences, wherever applicable, will have to be produced before clearing the goods into DTA.
Disposal of Obsolete Goods:
27. The SEZ units are allowed to dispose of obsolete or unusable capital goods, spares and other goods in the DTA on payment of applicable customs duty. Such disposal is governed by the conditions of Import Policy in force. In case of capital goods, clearance is allowed on payment of applicable duty on the depreciated value thereof and at the rate in force on the date of payment of such duty. In case of other goods (including empty cones, bobbins, containers suitable for repeated use) clearance is allowed on payment of applicable duty on the value at the time of import and at rates in force on the date of payment of such duty. However, no duty is charged on clearance of used packing materials such as cardboard boxes, polyethylene bags of a kind unsuitable for repeated use. Similarly, no duty is charged if the goods are destroyed with the permission of Customs authorities.
Clearance of Samples :
28. The units in SEZ are allowed to supply or sell in DTA samples of goods produced by them for display or market promotion on payment of applicable duties. The units are also allowed to take out samples into DTA without payment of duty on returnable basis for the purpose of display/market promotion. In such cases, the procedure prescribed for sub-contracting is required to be followed.
29. The units in SEZ are allowed to send samples abroad through the courier. The packages containing such samples are sealed in the presence of the Customs officer and are handed over to the representative of the courier company authorised by the Commissioner of Customs for presentation to the Customs at the port of export. These sealed samples are not normally examined again before " let export" is given if the seals are found intact and not tampered. The representative of the courier company later hands over the proof of export to the jurisdictional Assistant / Deputy Commissioner.
30. A SEZ unit may debond into a normal DTA unit subject to the approval of the Development Commissioner. Such de-bonding is subject to penalty, if any, that may be imposed and payment of duties of customs and excise applicable at the time of de-bonding. The standard conditions of de-bonding, as indicated in the Handbook of Procedures provide, amongst other conditions, that the applicable customs and central excise duty would be paid on imported and indigenous capital goods, finished goods, raw materials, consumables, components etc. in stock. Further, the unit in question continues to be treated as a SEZ unit till the date of final de-bonding order.
31. The duty payable in terms of the relevant notifications is as under:
32. At the time of debonding, the unit is entitled for depreciation on imported/indigenous capital goods. The rate of depreciation on capital goods have been specified and in case of the computers and computer peripherals, accelerated rate of depreciation have been provided for.
Maintenance of Accounts:
33. A SEZ unit is required to maintain proper account in the format convenient to it and financial year-wise, of all foreign exchange inflow by way of exports and other receipts, all foreign exchange out flow on account of imports, payment of dividend, royalty, fees etc., consumption and utilisation of the materials and sale in the DTA. The units are required to submit regularly quarterly statement to the Development Commissioner and the Customs in this regard in the format prescribed at Appendix 16H of the Hand Book of Procedures.
Monitoring of activities of SEZ units:
34. All activities of the SEZ unit, unless otherwise specified, are through self-certification procedure and are monitored by a Committee comprising Development Commissioner and Customs. The Development Commissioner in charge of the Zone heads the Committee. The Committee is also required to see that wastage / manufacturing loss on gold/ silver/platinum jewellery and articles are within the overall percentage prescribed in Appendix-41 of the Handbook (Vol-1). In case of higher wastage/manufacturing loss, the Committee is required to satisfy itself of the reasonableness of the same.
Penal action in case of default:
35. The Customs officials posted in SEZs are not supposed to visit the units for verification of records or even otherwise in routine. However, in case of specific information/intelligence which, prima facie, show that there is fraud, collusion, mis-declaration, suppression of information etc having a bearing on the export performance of the unit or where there is specific information regarding clandestine/unauthorized removal of goods into DTA etc, the Customs officials can visit the units for verification of records, goods etc. so as to initiate proceedings under Customs Act, 1962. The Assistant Commissioner/Deputy Commissioner may keep a watch on the export performance of the units and in the event of non-achievement of positive NFE within the stipulated period, action can be taken against the units for recovery of the duty and interest. So far as utilization of imported/indigenously procured goods is concerned, the same may be utilized within the period of five years. In case of failure to utilize the imported / indigenously procured goods within the period of five years, the unit is liable to pay duty on the said unutilized goods along with the interest at the rate of 24% per annum from the date of importation or procurement of the said unutilized goods till the date of payment of such duty.
36. In case of conversion of existing Export Processing Zone into Special Economic Zone, an existing EPZ unit can opt for SEZ scheme. On conversion, its previous obligations as an EPZ unit are subsumed by its obligations under the SEZ scheme. The raw materials, components, consumables and finished goods lying in stock with the unit at the time of conversion are taken as its opening balance under the SEZ scheme. All un-utilised DTA sale entitlements of the unit under EPZ scheme also ceases to exist from the date of conversion as notified by the Ministry of Commerce and Industry. In case an existing EPZ unit decides not to work under the SEZ Scheme, it may either debond itself on payment of applicable duties on unutilized raw materials, depreciated value of capital goods and other goods imported / procured locally duty free by such unit or convert itself into an EOU. In both cases, the unit is required to physically move out of SEZ.
37. The SEZ units are allowed to operate under a single all-purpose bond. The bond amount is equal to 25% of the duty foregone on the sanctioned requirement of capital goods plus the duty foregone on raw materials required for three months. Surety or security equivalent to 5% of the bond amount in the form of bank guarantee is required to be given. The SEZ units having a turnover of Rs. 1 crore or more in the preceding financial year are exempted from the requirement of furnishing security/surety. This facility is not available to the units against whom offence cases have been proved in a court of law. In case of new units, they are required to give surety or security till they achieve the turnover of Rs.1 crore.