100% EOUs /STP/EHTP units – Scheme & Procedures – Reg - Customs - 104/2001

OFFICE OF THE COMMISSIONER OF CUSTOMS C.R.BUILDING: QUEENS ROAD: POST BOX NO 5400 BANGALORE-1 PUBLIC NOTICE NO: 104/2001 DT. 17-10-2001 Sub: 100% EOUs /STP/EHTP units Scheme Procedures Reg Attention of the Trade/100% EOUs/STP/EHTP is invited to this Commissionerate s Public Notice 32/96 dated 26th March 1996 as also to the subsequent instructions/circulars issued by the Commissionerate Headquarters Office and the Customs Division from time to time on the working of 100% E0Us. The present Public Notice aims to give a broad over-view of the EOU/STP/EHTP Scheme and also to consolidate and update the instructions and circulars issued from time to time in this regard. For ease of further reference, the relevant Public Notices issued by the Commissionerate communicating instructions from the CBE C on the subject have also been indicated against the relevant paragraphs. The EOU/STP/EHTP Scheme: 1. 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 location 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. With the passage of time the Government introduced the Software Technology Park Scheme (STPI) and Electronic Hardware Technology Park Scheme (EHTP Scheme). The STP Scheme is nothing but a 100% EOU Scheme for the units undertaking the development of Software for Export, using Data Communication Link or in the form of physical exports including export of professional services. In other words, STPs are EOUs specializing in export of Software. The EHTP Scheme is primarily meant for manufacture and export of Hardware The EOU/STP/EHTP 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. Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up a 100% EOU. 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/STP/EHTP 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 equipment including material handling equipment, 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 to be imported. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisiculture, 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 and 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. With a few exceptions, working in Customs Bond is oneof the essential prerequisites. They also provide flexibility in the matter of taking out the materials for job work, inter-unit transfer, etc. The EOU/STP/EHTPs 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. For instance, the units with investment in plant and machinery of ₹ 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/STP/EHTP 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 intention and diversion of duty free materials. 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. The Development Commissioner is the Licensing Authority in respect of the EOU units. The 100% EOUs/STP/EHTP units in the jurisdiction of Bangalore Customs Commissionerate are under the administrative control of Development Commissioner at Cochin. Likewise the Director, STPI is the licensing authority for STP/EHTP units. 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 in the jurisdiction of the Commissioner of Customs, Bangalore is handled by the staff of the Customs Division, Bangalore and the five Ranges working under the said Division. This jurisdiction comprises of Bangalore, Tumkur, and Kolar. Setting up a 100% EOU: 8. For setting up of an EOU/STP/EHTP, three copies of the application in the prescribed form are required to be submitted to the Development Commissioner/Director, STPI. 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 also. 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. 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/STP/EHTP are approved as a Customs bonded warehouse under the warehousing provisions of Chapter IX of the Customs Act. For this purpose, it is essential that the place where the unit is being set up is declared as a Warehousing station by the Chief Commissioner of the concerned Zone or the concerned Commissioner of Customs or the Commissioner of Central Excise under the provisions of Section 9 of the Customs Act. Hence, in the event a place where EOU/STP/EHTP is proposed to be set up is not declared as a Warehousing Station, the person intending to set up the EOU/STP/EHTP may approach the Chief Commissioner or the concerned Commissioner of Customs and Central Excise for declaring the place as a Warehousing station. The license for private bonded warehouse and the in-bond manufacturing sanction order, under the provisions of section 58 of the Customs Act, 1962 and section 65 of the said Act respectively is issued by the Assistant/Deputy Commissioner of the Customs Division. Application to the Deputy/Assistant Commissioner of Customs in the prescribed Application is to be made in the Format at Annexure A1 along with the following documents: 1. Copy of LOP 2. Permission Letter from Development Commissioner/Director of STPI with terms and conditions. 3. Attestation of Capital Goods by the Development Commissioner/ Director of STPI 4. LUT with the Development Commissioner/ Director of STPI 5. Import Export Code ( IEC) 6. Permanent Income Tax Account Number (PAN) 7. Business Identification Number (BIN), if allotted 8. Ground Plan of Premises to be Bonded (in duplicate). 9. Articles of Association along with Certificate of Incorporation. 10. Registration - Cum -Membership Certificate (RCMC) 11. Copy of Board s Resolution indicating the Authorized Signatories 12. List of Directors, addresses, phone numbers 13. Banker s Certificate 14. Undertaking to pay the Supervision charges (Format at Annexure A2) on ₹ 100/- Non-Judicial stamp paper. 15. Copy of Project Report 16. Lease Agreement in case the premises is rented / leased 17. Details of Land/Building/Capital Goods/Machinery etc. 18. Three photographs of the Head of the organization. The manufacturing and other operations are carried out under customs bond. The EOUs are required to execute a multipurpose bond with surety/ security. Customs and Central Excise Notifications relating to EOU Scheme: 11. To enable EOUs/STP/EHTP 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: (i) General activity of manufacture, production, packaging of products and service activities for export- Notification Nos. 53/97 Cus. dated 3.6.97 and 1/95-CE, dated 4-1-1995. (ii) Software technology products for export- Notification Nos. 138/91 and 140/91 Cus, both dated 22.10.91 and 1/95-CE, dated 4-1-1995. (iii) Electronic hardware products for export- Notification Nos. 96/93 Cus, dated 2.3.93 and 1/95-CE, dated 4-1-1995. (iv) Floriculture, Pisciculture etc. for export- Notification Nos. 126/94-Cus dated 3.6.94 and 136/94-CE, dated 23-2-1995. (v) Aquaculture for export- Notification Nos. 196/94 Cus dated 8.12.94 and 10/95-CE, dated 8-12-1995. (vi) Gold, silver and jewellery products for export- Notifications No. 277/90-Cus dated 12.12.90. (vii) Granite quarrying for export Notification No. 58/2000-Cus, dated 8-5-2000 and 37/2000-CE, dated 8-5-2000. (viii) Repair and return of finished goods or partially finished goods Notification No.133/94 and Notification No.134/94 Cus dated 26.2.94. 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: (i) The goods should be imported into the EOU/STP/EHTP premises directly. However, Granite Quarrying units, agriculture and allied sector units are allowed to supply /transfer the capital goods and the inputs in the farms/fields with prior permission of Customs. (i) Prior to undertaking import / local procurement duty free, the unit is required to get their premises customs bonded. The unit is also required to execute a B-17 bond with surety/ security with jurisdictional Customs/ Central Excise officers and take out a licence under section 58 of the Customs Act, 1962. (iii) The goods, except capital goods and spares, are required to be utilised within a period of one year or within such period as may be extended by the Customs authorities. (iv) The importer is required to maintain a proper account of the import, consumption and utilisation of all imported/locally procured materials and exports made and submit them periodically to the Development Commissioner/ Customs. (v) The importer is required to achieve minimum NFEP/export performance as per the provisions of EXIM Policy. (vi) The importer is required to abide by the terms and conditions of the Letter of Permission/Letter of Intent /Industrial Licence issued to the unit. 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/STP/EHTP 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/STP/EHTP 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 Assistant/Deputy Commissioner of Customs in the Customs Division. The format of the bond is prescribed vide notification No. 6/98-CE (NT) dated 2-3-1998. ( Enclosed as Annexure A 3). 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 or Cash deposit or any other mode of security recognized by the Govt. of India is required to be given by the EOUs. In the case of surety, a letter from the person standing surety duly certified by a Chartered Accountant for solvency is also required to be submitted. (Reference: Public Notice 29/98 dated 5.5.98, 103/98 dated 13.10.98, 131/99 dated 10.12.99 and 70/2000 dated 5.6.2000) Import and Export Procedure: 14. With regard to clearance of import cargo, the EOUs/STP/EHTP 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/ Air Cargo Complexes on the strength of procurement certificate issued to the EOU/STP/EHTP by the jurisdictional Assistant Commissioner/Deputy Commissioner. In Bangalore Customs, the power to issue procurement certificate has been delegated to concerned Superintendents. In respect of cargo imported through a formation within the jurisdiction of Bangalore Customs Commissionerate, the 100% EOUs/STP/EHTP are not required to produce the procurement certificate provided the unit is located within the jurisdiction of Bangalore Customs Commissionerate. In general, the EOU/STP/EHTP 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 is 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 unit s premises are examined by the jurisdictional Customs officials. After examination, 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 180 days of the issue of procurement certificate/date of clearance. There is no requirement for executing transit bond for movement of each consignment of goods from the port of import to the bonded premises of the EOU/STP/EHTP. The B-17 Bond would cover such transit. As regards STP units, the bonding of imported goods and subsequent monitoring of export performance etc. is being done by the STPI authorities as per Bangalore Customs Commissionerate Public Notice 1/93 dated 1.1.93. 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. In such cases, the export consignment shall be subject to the prescribed examination at the port of export. The EOU/STP/EHTP scheme does not provide for duty free imports by post except for EOUs in the Special Economic Zone Scheme. However, there is provision for import and export of goods by all EOUs /STP/EHTP through the Courier services. Units intending to send goods /samples through Courier are allowed to seal the same in the presence of the Customs Officer and hand over to the representative of the Courier Company, authorized by the Commissioner of Customs, for presentation at the Port of Export. These goods/samples will not be examined again at the time of giving LET EXPORT if the seals are intact and not tampered with. The Courier Company shall within the stipulated period produce the proof of export to the Assistant Commissioner/Deputy Commissioner of Customs Division.(Reference: Public Notice 5/99 dated 8.1.99, 69/99 dated 20.7.99 and 2/2000 dated 5.1.2000) WAREHOUSING PERIOD AND EXTENSIONS THERE TO: As per section 61 of Customs Act, 1962 the imported Capital Goods may be warehoused for a period of 5 years and other goods for a period of 1 year. There is a provision for extension of the warehousing period for the first 6 months in respect of goods, other than Capital goods, by the Commissioner and thereafter, for any further period, by the Chief Commissioner. For extension of warehousing period for capital goods, Chief Commissioner is the prescribed authority. The facility of ware housing is a facility of deferred payment of Customs duty on Imported goods. As long as the goods are in the warehouse no duty is payable. EOUs/STP/EHTP seeking extension to the warehousing period are required to make an application to the Divisional Deputy/Assistant Commissioner at least one month in advance of the expiry of the warehousing period. The Application must contain all the details of the goods including quantity, value etc. On receipt of the Application the concerned Superintendents will physically verify the goods in respect of which extension in warehousing period is being sought and submit a report in this regard to the Divisional Deputy/Assistant Commissioner for recommending the case for extension to the appropriate authority (Format as per Annexure A10). (Reference: Public Notice No.28/97 dated 31.3.97 and 127/2000 dated 1.12.2000) INTEREST ON DUTY ON WAREHOUSED GOODS: As per the provisions of the Section 61 of the Customs Act, 1962, where any warehoused goods remain in a warehouse beyond the initial warehousing period i.e.5 years in case of Capital Goods and 1 year in case of the other goods, by reason of extension in the warehousing period or otherwise, interest at the specified rate shall be payable on the amount of duty payable at the time of clearance of goods for the period from the expiry of the initial warehousing period till the date of payment of duty on the warehoused goods. The rate of interest payable at present is 24% per annum. 1. However, in terms of Notification No.67/95 Cus dtd.1.11.95, specified goods imported duty free by an EOU (including EHTP/STP) units in terms of the respective Customs duty exemption notifications, as applicable to the importing unit, and warehoused, have been exempt from the payment of interest on the customs duties payable at the time of clearance of the said warehoused goods from the Warehouse under section 68 of Customs Act ,1962. In other words these goods do not attract any interest liability if they continue to remain in the warehouse for a period beyond the initial warehousing period by reason of extension to the said period or otherwise. It needs to be noted that the aforesaid exemption from payment of interest is applicable only to goods specified in the Table annexed to the Notification No.67/95 Cus dated 1.11.95 Goods Imported /Exported and Found Defective: 15. In terms of the Policy and the relevant exemption Notifications, subject to grant of GR Waiver by the RBI, the Divisional Deputy /Assistant Commissioner may allow EOUs/STP/EHTP 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 EOU/STP/EHTP may also be 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: Public Notice No.98/99 dated 4.10.99) Procurement of Goods Indigenously under CT-3 Procedure: 17. The EOU/STP/EHTP 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 in charge of the EOU on an application made in prescribed format ( Annexure A5 ). 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. The format of Re- Warehousing Certificate is Annexed at A 6 . 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 EOU/STP/EHTP 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: Public Notice No.53/96 as amended by Public Notice 3/97 dated 15.1.97, 15/2000 dated 21.1.2000, 76/2000 dated 16.6.2000 and 86/2001 dated 27.7.2001) DTA Sale: 18. The EOUs (other than gems jewellery units)/STP/EHTP are allowed to sell goods (including rejects and byproducts) manufactured by them in DTA up to 50% of FOB value of exports on payment of concessional duty subject to achievement of prescribed NFEP. The DTA sale entitlement is however required to be availed of within 3 years of its accrual. Advance DTA facility is also available if the Development Commissioner is of the opinion that the units required to sell the trial production in the DTA in order to produce goods of exportable quality. For this purpose, a separate bond is to be executed with the Deputy/Assistant Commissioner to cover the difference of duty paid on the advance DTA sale and the duty payable on such goods. The DTA sale facility is not available for certain products such as motor car, alcoholic liquor, tea (except instant tea), books etc. The EOU/STP/EHTP 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 EOU/STP/EHTPs can pay the duty by depositing the same in an authorized bank. If a unit manufactures and exports several products, bunching of such products for disposal in the DTA is also permitted provided the total sale is within the stipulated/ceiling limit of the unit for the DTA entitlement. In other words the DTA entitlement will be determined in totality and not with reference to any specific items. (Reference: Public Notice No.68/99 dated 16.7.99 and 61/2000 dated 1.6.2000) 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/STP/EHTP 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. (Reference: Board s Circular No.23/84 Cx.6 dated 29.5.84 and instruction issued vide file No.268/335/92/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 EOU/ STP/EHTP 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/STP/EHTP 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/STP/EHTP is worked out exactly in the same manner as duties 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/STP/EHTP units, are allowed to sell goods including rejects (up to 5% of FOB value of exports), waste, scrap, byproducts and services in DTA up to 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 word FOB value of exports refers to physical exports only. 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. Certain specified goods are exempted from payment of duty if produced in EOU or FTEZ and cleared into the DTA in terms of notification no. 6/97 CE dated 1.3.97. 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. 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 8/97 CE dated 1.3.97 and Notification 13/98 CE dated 2.6.98) Clearance of By-products, 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. Rejects up to 5% of FOB value of export may be sold in DTA with prior approval form Assistant / Deputy Commissioner. For sales above 5% of FOB value of exports, approval of the Development Commissioner is required. The term rejects would cover such products which have a definite manufacturing defect and are unfit for exports, as per the declaration of the unit concerned. Thus, it is the responsibility of the unit to prove that the goods in question are rejects only and they should produce a certificate from the competent person indicating that the required quantity / specification has not been achieved due to flaws of technicality or techniques or because of quality of goods and the materials used, by the unit in the manufacture of the product. Para 6 of the Board s Circulars No. 49/00 CUS dated 22.5.2000 provides the, guidelines regarding removal of rejects For details, Board s letter F.No. 305/90/85/FTT dt:30.1.1986 may also be referred to. 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. Notification 6/97 CE dated 1.3.97 may also be referred as it provides exemption to various items like Cotton waste falling under CH 52.02. 25. In case of Gems and Jewellery EOUs, the units are allowed to sell up to 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. 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. 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: Public Notice No. 33/2001 dt. 15.3.2001) Clearance of Waste/ Scrap/ By products in DTA: 28. The EOU/EHTP 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 above. Norms for scrap/ waste material for export products under EOU have been prescribed in Appendix 41 of the Handbook of Procedures, Vol. I. In case, scrap, waste and remnants are destroyed with the permission of the Assistant Commissioner/Deputy Commissioner, no duty is payable on them. Further, if waste scrap and remnants are not excisable, the unit would be required to pay duty of customs on the imported goods contained in such waste, scrap and remnants in terms of Board s Circular 18/98 Cus dated 16.3.98. In case the waste scrap and remnants contain indigenous raw materials/inputs procured without payment of central excise duty, the same shall be cleared on payment of excise duty in terms of Board s Circular 330/46/97 Central Excise dated 20.8.97. (Reference: Public Notice No.66/2000 dated 1.6.2000) 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. (Reference: Board s Circular No.19/99 Cus. dated 29.4.99) 29A PROCEDURE FOR SALE OF GOODS IN DTA A. Permission for sale of percentage of production in the DTA has to be obtained from the Development Commissioner/Director of STP with who the unit is registered. B. This application has to be certified by the Jurisdictional Customs Officer. C. The unit will have to ensure that the AR1 procedure prescribed for removal of goods on payment of duty is followed after the application is made by them on case to case basis, to the Asst/Deputy Commissioner concerned giving the details such as value, consignee, DTA entitlement, DTA balance etc., and his/her approval obtained. AR1 no will be given running SL. NO. for the financial year by the Range Officer. Units will have to pay duty in Cash through TR 6 Challan on consignment basis. AR1 will be countersigned by the Range Officer and Sector officer Original will be for record by the unit, the duplicate will be used for transportation and the triplicate retained fro Range office Records. D. In the event, the unit manufactures several products , the DTA entitlement will be determined in totality and not with reference to specific items (Para 9.24 of the Hand Book of Procedures refers) (Note: Guidelines for sale of goods in DTA is contained in Appendix 42 of the Hand Book of Procedures.) 29B EFFECTIVE RATE OF DUTY Notification no. 2/95 CE dated 4.1.95 as amended provides that permissible DTA sales would be exempted from so much of duty under Section 3 of Central Excise Act, 1944 as is in excess of the amount calculated at the rate of 50% of each of the duties of Customs which would be leviable read with any other relevant exemption Notification. Certain doubts had been expressed regarding the manner of calculation of duty of excise payable on clearance of excisable goods manufacture in EOU s. This issue stands clarified by the Board s Circulars No. 7/2001- Cus dated 6.2.2001. It is clarified that the excise duty of goods manufactured and produced by 100% EOU/EHTP/STP units and cleared into DTA, in accordance with the Notification No.2/95-CE dated 4.1.1995, would be at a concessional rate, which is equal to 50% of each of the duties of Customs. It is further clarified in the said circular that each of the duty leviable on import of like goods should be worked out first and thereafter, 50% of the amount of each of the duty so calculated, taken together should be collected as excise duty on such goods produced by 100% EOU/EHTP/STP units are cleared into DTA. For the purpose of clarification the detailed calculation shown in Public Notice No. 33/2001 dt. 15.3.2001 may be referred to. 30. Clearance of Samples: The EOUs are allowed to supply or sell in DTA samples of goods produced by them for display or market promotion up to 1% of the previous year s exports or maximum of ₹ 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. The provisions relating to removal and clearance of samples vary for different products and for different categories of EOUs. For details the relevant Notifications may be referred to. 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 authorized 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: Board s Circular No.22/98 Cus. dated 27.3.98 and Public Notice 111/99 dated 25.10.99 and 76/2000 dated 16.6.2000) 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. Hand Book of Procedures vide its paragraph 9.17(b) provides that duty free lap top computers and video projection system imported by units may be allowed to be temporarily taken outside the bonded area for working upon by authorized employees of the unit, subject to permission of the Deputy/Asst. Commissioner of Customs. The C.B.E.C has issued instructions vide Circular No.17/98 dtd.16.03.98 so that the facility is made available to the STP/EHTP units. As per these instructions: 1. The STP/EHTP units would issue a certificate valid for a month at the time of authorizing the employee engineer, by name and giving the full description of the lap top and Video Projection System authorized to be carried by him outside the bonded premises indicating the marks and nos., the name of the manufacturer and the year of manufacture. 2. The unit would maintain a record of the letter of authorization issued and taking out and bringing in of the said goods in the unit. This record will be available for inspection by the Jurisdictional Assistant/Deputy Commissioner of Customs and or the officers deputed by him. 3. The facility of removal of said goods will be available only for taking them outside temporarily and they will have to be brought back to the unit and accounted for. 4. A general permission by the Assistant/Deputy Commissioner of Customs whenever requested may be given for a period of 6 months at a time to temporarily take out and bring in the said goods of specified employee during the period. The circular 17/98 dated 16.3.98 was modified by CBEC vide Circular 84/2000 Cus dated 16.10.2000 wherein it is clarified that the facility of taking Laptop Computer and Video Projection System shall be available only to 100% EOUs engaged in the development of Software. (Reference: Public Notice 30/98 dated 12.5.98 and 70/99 dated 21.7.99) Sale of Surplus/ Unutilized Goods: 33. The EOU/STP/EHTP 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. 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 of Customs 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 are cleared from the unit itself. (Reference: Public Notice 70/2001 dated 21.6.2001) 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 EOU/EHTP 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 the provisions of EXIM Policy and Handbook of Procedures Vol. 1, 1997-2002 and conditions of notification No. 28/2001-CE dated 16-5-2001. (Reference: Public Notice 70/2001 dated 21.6.2001) Sub-Contracting: 37. The EOUs, other 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 as per application Annexed at A-8 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/ Dispatch Challan (RCDC) procedure. Under this procedure, at the time of removal of goods, the unit prepares Dispatch Challan in Format A-9 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 worker s premises can be either cleared from the job worker s premises on payment of duty or returned to the supplying unit. Exports from job worker s 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 utilized 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. 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 Board s 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) . (Public Notice 48/96 dated 23.5.96, 117/98 dated 24.11.98, 68/99 dated 16.7.99, 124/99 dated 17.11.99, 55/2000 dated 5.5.2000, 66/2000 dated 1.6.2000 and 99/2001 dated 28.9.2001 may also be referred) A. Temporary Removal of Goods: The facility of sub contract has been made available after recognizing the fact that it may not be practicable for the unit to have all the manufacturing processes within themselves. So also it facilitates in cutting costs and renders high quality export product. At the same time, certain safe guards have been built in the relevant notifications so as to prevent any misuse of the facility by way of diversion of duty free goods into the DTA. The EOUs are allowed to sub contract in the following two situations. i) Sub contract part of their product process, which may also involve change of form or nature of the goods. On the basis of the permission of the customs, sub-contract up to 50% of the production for Job work in DTA is permitted. ii) Sub contract part of the product. In both these situations the sub-contracting may be either through units in the DTA or through other EOUs. The relevant duty exemption notifications indicate the provision for sub contracting. The units working under the provisions of notification No 53/97-Cus dated 3.6.1997 are permitted to avail the facility of sub-contracting, the part of the product as well as product itself. Similar clause is found in notification No 133/94 Cus DT 22.6.1994 . Under notification 196/94 Cus- dt.8.12.94 , which is applicable to aquaculture products, the facility of sub contracting is not envisaged. Similarly, the facility is not available to the units working under notification 126/94 cus dtd 3.6.94 pertaining to floriculture etc. Notification No 277/90 Cus- dtd.12.12.90 does not provide for sub contracting by units manufacturing Gems and Jewellery. In respect of EOU s engaged in the manufacture of electronic hardware working under the provision of notification No 95/93 Cus- and 96/93 Cus- both dated 2/3/93 , Sub contracting provision is available As regards the units engaged in the development of software, under Notification.138/91 Cus - and No 140/91, both dated 22.10.91 , there is no provision of sub-contracting through DTA Units. There is also no explicit provision for transfer of developed Software. Similarly, the units engaged in quarrying of Granite and working under the provisions of notification. No 58/2000 Cus. dtd. 08.05.2000 cannot avail the facility of sub contracting. Like wise on the central excise side, the 100% EOUs can avail the facility of subcontracting as per Notification No.1/95 C.E dtd.04.01.1995 . Clearance from the Development Commissioner for permitting the units to undertake job-work is now this is no longer necessary. The EOU/EHTP/ may get part of production completed through either through DTA units or other 100% EOU s provided raw materials first reach the 100% EOU/EHTP units and is also accounted in the sender s unit. The final products, including wastage if any are to be brought from the job worker s premises and accounted in the sending unit. Also, the moulds, jigs, tools, fixtures, instruments, hangers, patterns and drawings, may be removed to the premises of job worker s subject to return with in the stipulated period. The units may sub contract part of their production process where the raw material sent out for processing lose their identity or where the substantial manufacturing activity does not takes place in the unit itself, subject to the condition that input output norms in such case would be specified by the Deputy/Assistant Commissioner of Customs. However, the units using predominantly indigenous raw materials would not be allowed to sub contract part of their production for job work, as this would convert the units, to trading units rather than manufacturing units and the accountal of the material becomes difficult. (C.B.E.C Circular no. 59/98 Cus dtd.12.8.1998 , 67/98 Cus dtd.14.09.1998 , 30/99 Cus dtd.25.5.1999 and Circular no. 74/79 Cus dtd.05.11.1999 are relevant as they relate exclusively to the area of sub contracting). B PROCEDURE FOR SUB CONTRACTING: The EOU/EHTP units seeking permission for sub contracting should make an application, in triplicate, to the Deputy/Assistant Commissioner of Customs along with the consent letter from the EOU/DTA unit. The application must indicate the nature of activity for which the goods are proposed to be sent out, the reasons for the job work, the percentage of waste, the maximum value of goods which would be at the job worker s premises and other related details including the input-output ratio where required. Based on the details furnished in the application and after scrutiny of the data furnished, the Deputy/Assistant Commissioner may permit the unit to undertake sub contract subject to the unit maintaining the records/ accounts, prescribed. The movement of the goods is to take place under a transit document, which should be machine serially numbered for each calendar year. This transit document should be in triplicate and authenticated by the Department. The original and duplicate should accompany the goods to the Job worker and the triplicate copy is for the EOU/EHTP. On completion of the job work, the goods should be returned to the unit under the cover of the Original transit document and the duplicate copy retained by the job worker for his own record. Entry in the register should be completed on receipt of the goods after job worker, and waste and scrap arising during the course of job work be returned to the EOU or disposed off, from the job worker s premises, on payment of applicable duties. The goods sent for job work, should ordinarily be received back by the EOU/EHTP within 60 days from the date of removal or within such extended period as may be allowed by the Deputy Commissioner/Assistant Commissioner. The goods sent for job work may also be exported directly from the job worker s premises provided the scrap,waste or remnants, generated during the process is either returned to the EOU/EHTP or cleared on payment of duty. In such cases, the job worker must be registered under the Central Excise. If the Job worker is not a central excise registered unit then disposal of wastage/scrap from the job worker s premises is not permitted. A sample of goods exported from the DTA unit must be sent back to the EOU/EHTP for checking whether the job work relates to the product, which has been exported and that the Job worker has utilized the goods supplied by the unit. No draw back or any other benefit shall be available to the EOU/EHTP and the export will not be taken into consideration towards fulfillment of the Export obligation of the EOU/EHTP. As a simplification measure, it has been decided to grant blanket permission unit wise on annual basis for sending goods for job work. At present the units are seeking permission from Deputy Commissioner on case-to-case basis. The unit intending to avail this facility of blanket permission has to approach the Deputy Commissioner of the Customs Division with the list of their job workers, nature of process to be carried out in the job work premises and other relevant details as per Application Annexed at A-8 . Based on the application by the unit, the job work permission will be granted on annual basis unit wise. The unit ii turn will approach the jurisdictional Range Superintendent on case-to-case basis and obtain necessary permission after fulfilling the conditions prescribed for carrying out Job work. Further, the unit availing the facility of Blanket Permission has to submit monthly report to the Deputy Commissioner through the jurisdictional Superintendent indicating the details of goods sent and received in respect of job work to different Job Workers along with the wastages generated at the job worker premises. The format of the Challan for movement of goods/inputs etc., is enclosed in the Annexure at A-9.(Reference: Public Notice 48/96 dated 23.5.96, 99/97 dated 5.12.97, 52/98 dated 8.7.98, 117/98 dated 24.11.98, 68/99 dated 16.7.99, 124/99 dated 17.11.99, 55/2000 dated 5.5.2000, 66/2000 dated 1.6.2000 and 99/2001 dated 28.9.2001) Inter-unit transfer: 43. An EOU/STP/EHTP is allowed to transfer imported or manufactured goods to another EOU/EPZ/STP/EHTP/SEZ unit. The officers in charge of the EOU/STP/EHTP supplying the material and the EOU/STP/EHTP receiving the material are expected to keep a watch on the movement of material between the EOU/STP/EHTP. The re-warehousing certificate on transfer of the goods from one EOU/STP/EHTP to another is obtained by post and is cross-checked 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 re-warehousing certificate and similarly, non-receipt of proof of export from the proper officer within 180 days, the duty is demanded from the sending unit. Inter Unit Transfer is being regulated by the provisions of the relevant duty exemption notifications applicable to the EOU/STP/EHTP units. Inter Unit Transfer may be for the purpose of use in the transferee unit for export or for further manufacture. 1. Goods imported by an EOU/STP/EHTP may be transferred or given on loan to another EOU/STP/EHTP, which shall be duly accounted for, but not counted towards discharge of Export obligation. 2. Any Capital Goods transferred or given on loan from one 100% EOU/STP/EHTP to another 100% EOU shall require permission of Development Commissioner/Director, STPI. A) PROCEDURE: The EOU/STP/EHTP may either intend to transfer Capital Goods, finished goods, manufactured and produced, packaged goods, inputs or raw materials. In case of such IUTs no duty is payable by the recipient EOU/STP/EHTP since they are entitled to get the same without payment of duty. EOU/STP/EHTP units intending to avail the facility of Inter-unit transfers shall make an application to the Divisional Assistant/Deputy Commissioner for a one time annual permission. The said application shall be accompanied by the list of units to whom the EOU/STP/EHTP intends to transfer the goods, giving indication of the broad intentions for such transfer. Once the Assistant Commissioner/Deputy Commissioner grants the permission, the EOU/STP/EHTP shall approach the jurisdictional Range Superintendent on a case to case basis subject to the maintenance of prescribed records and submission of prescribed documents. Inter-Unit transfers shall take place under the cover of a Shipping Bill being filed by the sending unit. In respect of locally procured goods/item, under cover of CT3, the format prescribed at Annexure A-7 will be used. The document should be supported with copy of Purchase Order, Invoice and packing List. In respect of Capital Goods, the concurrence of Development Commissioner /Director STPI/STP should be enclosed. The recipient unit will file a Yellow Bill of Entry (Into Bond) based on the particulars mentioned in the Shipping Bill. The Shipping Bill or the Bill of Entry as the case may be is assessed by the concerned Range Superintendents. The receipt of the goods in the Bonding premises will also get inspected and there after the Range Officer of the recipient unit will issue the Re-ware housing certificate. This certificate should be sent to the Range officer of the supplying unit through Registered Post. To facilitate the trade to get the goods bonded in the Bonded premises expeditiously, the procedure of Into Bond Bill of Entry being counter signed by the Deputy/Asst. Commissioner has been dispensed with In respect to Inter Unit Transfers effected between the Ranges of the Customs Division, Bangalore and the CWCs situated in Bangalore Customs Commissionerate. However, in case of the Inter Unit Transfers effected from other Commissionerates, the Bill of Entry has to be countersigned by the Deputy/Assistant Commissioner subsequent to assessment by the concerned Range Superintendents. (Reference: Public Notice 4/99 dated 8.1.99 and 99/2001 dated 28.9.2001) Repair, Reconditioning etc.: 45. The EOU/STP/EHTP units are permitted to import goods of any origin to carry on re-conditioning, repair, testing, calibration, quality improvement, up-gradation 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: (i) The items of gem and jewellery to be taken out temporarily into DTA without payment of duty for the purpose of display and to be returned thereafter; (ii) personal carriage of gold/silver/platinum jewellery or precious or semi-precious stones or beads and articles as samples upto US$ 1,00,000 for export promotion tours and temporary display or sale abroad subject to the condition that the exporter would bring back the jewellery or the goods or its sale proceeds within 45 days from the date of departure through normal banking channel; (iii) export of jewellery including branded jewellery for display and sale in the permitted shops setup abroad, or in the showroom of their distributors or agents provided that items not sold abroad within 180 days, shall be re-imported within next 45 days; (iv) Gem and jewellery units to remove parts tools of machine temporarily without payment of duty for the purpose of repair and return thereof. (v) Gem and jewellery manufactured in the EOU situated in the municipal limits of Calcutta, Chennai, Delhi and Mumbai and sold to a foreign-bound passenger are allowed to be transferred to the retail outlets or showrooms set up in the departure lounge or Customs warehouse at international airports for being handed over to the said passenger for the purpose of export. (vi) Removal of moulds, tools, patterns, and drawings into the DTA for jobwork without payment of duty and to be returned to the unit thereafter. For availing of the above mentioned facilities, prior permission of Assistant / Deputy Commissioner of Customs is required. (Reference: Public Notice 37/2000 dated 14.3.2000) Cost Recovery Charges/Cost Sharing: 47. Cost recovery charges are the amount recoverable from the EOU/EHTP on account of the expenses incurred by the Government for posting of Customs staff at its premises to supervise their operations. The cost of posts created for EOU/EHTP 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 EOU/EHTP 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 Board s 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 EOU/STP/EHTP by the Customs/ Central Excise: 48. Operational flexibility has been provided to EOU/STP/EHTP by amendment of Manufacture and Other Operations in Warehouse Regulations, 1966 . The EOU/STP/EHTP no longer carry out manufacturing operations under physical supervision of Customs officers. The procedure for double locking of the warehouse, control 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 EOU/STP/EHTP export and sale in DTA are allowed to be made by the unit subject to maintenance of the records. Physical control over the EOU/STP/EHTP has, thus, been replaced by Record Based Control. The 100% EOUs/STPI/EHTP units which are not already under Cost Recovery system, will have to pay supervision charges, for every visit of the Customs Officer at the rate of ₹ 225/- for 3 hours on working days and at the rate of ₹ 315/- for 3 hours on Holidays, as per Notification No.69/98 Cus NT dated 4.9.98 . 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 units shall make available to the cost recovery officers/the officers in charge of EOU/STP/EHTP to scrutinize /examine all the relevant 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. (Reference: Public Notice No.4/99 dated 8.1.99) PROCEDURE FOR EXPORT: 50. The application for removal of goods for Export from a 100% EOU/EHTP shall be in Pink colour Shipping Bill, (in Triplicate) to be presented, 24 hours in advance, to the Range Superintendent in-charge of the unit. The packages meant for Export should have distinctive marks and numbers so as to enable the Inspector to verify the particulars of the packages with the details mentioned in the Shipping Bill, Packing List and the related Invoice. All the copies of the Shipping Bill will be endorsed by the Superintendent and the connected documents by the Inspector. The Inspector will conduct the examination as ordered by the Superintendent and endorse his examination report on the original as well as the Duplicate Shipping Bill before giving orders for LET EXPORT and seal the packages The original will be retained in the Range office and the duplicate and the triplicate returned to the Exporter who shall then dispatch the goods. At the port of Export, the goods will be presented to the officer of Customs along with the duplicate and triplicate copy of the Shipping Bill. The packages will be checked for seal intact and the particulars verified as per the application. The proper officer will certify for allowing the shipment for Export and give the details of shipping bill number of vessel etc., and return the triplicate copy to the exporter, who will produce it to the inspector in-charge of the EOU/EHTP, as proof of export. PROCEDURE FOR RE-EXPORT OF DEFECTIVE GOODS: 50A) The exemption Notifications granting Customs duty Exemption on the Import of capital Goods, Raw materials, components etc., required by the EOU/EHTP/STP provide for Re-Export of defective parts, components etc., Permission in this regard is to be given by the Deputy/Assistant Commissioner, subject to conditions prescribed by him. For this purpose the Exporter is required to give the copy of the consent letter of the supplier indicating his willingness to receive the returned goods and also the GR waiver where ever applicable. These documents are to be filed in addition to the copy of Bill of Entry at the time of Original Import and also the certificate from the Qualified Engineer of the unit indicating that it is not possible to rectify the defect or re-condition, either in the unit, or elsewhere in India. The unit may be allowed to receive free replacement of the goods wherever found defective, damaged or otherwise unfit for use. In the event that the supplier does not insist for return of the defective, damaged or unfit goods, the same can be cleared in DTA on payment of full Customs duty. (Reference: Public Notice 93/99 dated 16.9.99, 98/99 dated 4.10.99 and 76/2000 dated 16.6.2000) THIRD PARTY EXPORTS: 50B) Third Party Exports means Export made by an EOU on behalf of the Third Party. In such cases, Shipping Bill shall indicate the name of both the EOU and the Third Party The C.B.E. C vide F.No. 305/56/92 FTT dtd. 28.04.1992 has given the following guidelines for Third Party Exports by 100% EOU/STP/EHTP units: 1. 100% EOU/STP/EHTP units may procure export orders from the Third Party. 2. The name of the Third Party may or may not appear on the export documents such as Invoice, Shipping Bill, bank certificate etc., but a condition shall be stipulated thereon that all exports benefits including CCS will be admissible to 100% EOU/STP/EHTP units only. 3. At the time of passing of Export orders by the Third Party to 100% EOU/EHTP/STP units, the Third Party shall give a disclaimer certificate indicating that they will not claim any export benefits( including Export performance ) for issue of: a) Export Performance Certificate, b) Export/Trading/Star Trading House Certificate and c) Additional/Special Additional License on such Exports. 4. Export Orders so procured from Third Party shall be executed within the parameters of 100% EOU/EHTP/STP units scheme and directly exported from the Customs Bonded units of 100% EOU/EHTP/STP units. 5 All Customs bonding procedures and formalities under the said schemes shall be adhered to. (Reference: Public Notice 99/2001 dated 28.9.2001 and Board s Circular F.No.305/56/92 FTT dated 28.4.1992) TRADING UNITS: 51. Paragraph 9.1. of the EXIM Policy lists a new activity, subsequently elaborated in paragraph 9.21, whereby trading units would be allowed to import/procure from DTA goods duty free for the purpose of exports. The trading units may also undertake re-packing, labeling, minor processing etc., for which they shall be eligible for duty free procurement of packing, labeling materials etc. and the required capital goods. Further, the trading units may also procure goods without payment of duty from other EOU/EHTP/STP units for exports. The trading units shall be required to achieve positive NFEP and export performance as prescribed in Appendix 1 of the EXIM Policy.The provision concerning trading units in paragraph 9.21 is in lieu of the earlier paragraph, which dealt with setting up of private bonded warehouses in the EPZs. It may be noted that in case of these units the usual entitlements like DTA sale, Deemed exports benefits, inter-unit, transfer, sub-contracting etc., otherwise, available to EOU units, shall not be available. The trading units would, however, be allowed to supply goods to other EOU/EHTP/STP units or supply goods to DTA against valid advance license or specific duty free imports entitlement. The notifications governing duty free procurement and import by EOU/STP/EHTP units have been amended suitably to incorporate to the said changes. (Reference: Public Notice 66/2000 dated 1.6.2000) DISPOSAL OF CAPITAL GOODS: 52. Para 9.19 of the Exim Policy, 1997-2002 has been amended to allow destruction of obsolete capital goods and spares without payment of duty with prior permission of the presence of Customs officer inside the Zone or outside the Zone/Unit, where it is not permissible or possible to carry out destruction. Due caution is to be exercised to ensure that capital goods are destroyed fully rendering them unfit for further use and give a certificate to that effect. After destruction of capital goods, if the remains have scrap value, the same may be cleared by the EOU in DTA on payment of duty applicable to scrap. (Reference: Public Notice No: 66/2000 dated 1.6.2000) DONATIONS OF COMPUTERS: - 53. In order to facilitate resource building in educational institutions, EOU/EHTP/STP units are permitted to be Donate Computers/peripherals etc., free of duty to recognized non-commercial educational institution, registered charitable hospitals, public libraries, public funded R D establishments provided the Computers intended to be donated have completed 2 years after their import and use. The CBEC has issued Notification No. 47/98-Cus dt.16.07.1998 for Customs duty exemption and Notification No. 37/99-CE dt. 15.09.1998 for Central Excise duty exemption. This exemption is subject to the following two conditions: a) The donee certifies that it is a recognized non-commercial educational institution, registered charitable hospital, public library, public funded research and development establishment, as the case may be. b) The donee undertake to observe the procedure prescribed by the Assistant/Deputy Commissioner of Customs for transport of the goods to his premises and that such goods shall not be used for commercial purposes, and shall not be sold, disposed of,gifted loaned, exchanged or parted with, without the permission of the Assistant/ Deputy Commissioner of Customs within five years from the date of their receipt. CONVERSION OF DTA UNIT INTO EOU: 54. The existing DTA units may also apply for conversion into an EOU/EHTP/STP unit but no concession in duties and taxes would be available under the scheme for Plant, Machinery and equipment already installed. If the Industrial Unit intends to operate both as a domestic unit as well as an EOU/EHTP/STP, it shall have two distinct identities with separate accounts. There is no necessity for a separate legal entity but there should be every possibility to distinguish the imports and exports or supplies made by the EOU/EHTP/STP from those of the DTA unit of the company. In the event of partial conversion of a DTA unit into an EOU/EHTP/STP, they would be permitted to continue from the same or adjacent premises. However, revenue considerations would definitely warrant physical segregation of DTA and EOU/EHTP/STP. (For details Circulars No.38/95-Cus dt. 17.05.1995 and No. 77/99-Cus dt. 18.11.1999 and public notice 133/99 dated 13.12.99 may be referred.) CONVERSIONOF 100% EOU TO EPCG SCHEME: 55. With effect from 01.04.1995, the EXIM Policy had been amended to provide that an EOU /EHTP/STP may, as a one time option, also be permitted to de-bond on payment of duty on the Capital goods under the 15% EPCG scheme, subject to undertaking the export obligation applicable under the said scheme and on payment of duties of Customs and Excise applicable at the time of de-bonding. However, as per the present EXIM Policy the option to de-bond and enter the EPCG scheme has been revised as per paragraph 9.27 which provides that the EOU/EHTP/STP unit may also be permitted as a one time option, to de-bond on payment of duty on capital goods under the prevailing EPCG schemes, subject to the unit satisfying the eligibility criteria and such conditions as may be specified by the Board of Approval. The de-bonding shall be on payment of duties of Customs and Central Excise on other goods applicable at the time of de-bonding. Circular No. 8/96-Cus Dt.12.02.1996 may be referred. 56. DEMANDING OF DUTY FROM DEFAULTING UNITS: a) It has been provided to demand duty and interest on the duty free raw-materials, components, spares and consumables (other than Capital goods), if the unit fails to achieve stipulated NFEP and EP within a period of one year of importation/procurement or within such extended period, not exceeding further one year as the Assistant Commissioner/Deputy Commissioner may on being satisfied that there is sufficient cause, allow. Commissioner may extend this period for achievement of NFEP and EP for further period not exceeding 5 years from the date of importation or the procurement of such goods. b) The duty and interest will also be demanded from the units who have failed to: - (i) Install or use or re-export the capital goods within a period of one year from the date of importation or procurement or within the extended period as allowed by Assistant/Deputy Commissioner. (ii) Use or re-export/return the imported/indigenous goods procured duty free (other than capital goods) within a period of one year or the extended period as permitted by the Assistant/Deputy Commissioner. (iii) To export the manufactured/produced/packaged goods within one year or such extended period as permitted by the Assistant/Deputy Commissioner from the date of importation or procurement of the imported or indigenous goods. (Reference: Public Notice no 68/99 dated 16.7.99) Clearance by EOU/EHTP/STP units will be regarded as Deemed exports : 56A) Besides being eligible for relevant benefits under paragraph 10.3 of the EXIM Policy 1997-2002, will be eligible for the following benefits: (i) Reimbursement of Central Sales Tax: (ii) Exemption from payment of Central Excise duty on capital goods, Components, raw materials etc. and (iii) Discharge of Export performance, if any, on the supplier the benefits under paragraph 10.3 are as follows. a) advance license for intermediate supply /deemed export. b) Deemed Exports Drawback. c) Refund of terminal excise duty. The application for the benefits under paragraph 10.3 is to be made to the Development Commissioner. REGISTRATION OF EOUs UNDER CENTRAL EXCISE and Applicability of erstwhile Central Excise Rules, 1944 : 57. By virtue of the Notification No. 22/98-CE (NT) dated 4.6.1998 , all EOU units licensed under the Customs Act are deemed to be registered under the Central Excise Law. Even with the introduction of new Central Excise Rules, 2001 with effect from 1.7.2001, the 100% EOUs registered under the Customs Act, 1962 continue to be deemed to have been registered under Central Excise, in view of the exemption contained in Notification No.36/2001 CE (NT) dated 26.6.2001. Recovery of Duty Forgone under EOU Scheme and Penal Action for Abuse/ Diversion etc.: 58. Under EOU/STP/EHTP 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 within the stipulated period of one year of importation/procurement or within such extended period not exceeding one year/five years as may be granted by the Deputy Commissioner/Commissioner respectively, the duty forgone under the EOU/STP/EHTP 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 install and utilize duty free imported/indigenously procured goods including capital goods or to re-export/return the same 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. Apart from recovery of duty forgone, the law also provides for confiscation of offending goods, taking penal action and prosecution where any 100% EOU is found to have indulged into any fraudulent activities e.g. 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. De-Bonding: 59. An EOU/STP/EHTP may debond into a normal DTA unit subject to the approval of the Development Commissioner/Director, STPI 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/EHTP/STP unit till the date of final de-bonding order. 59A The duty payable in terms of the relevant notifications by the units seeking de-bonding is as under: (a) Semi-finished and finished goods lying in stock at the time of de-bonding can be cleared on payment of the excise duty equal to aggregate duties of Customs payable on similar imported goods. (b) Capital goods, material handling equipment, office equipment and captive power plants can be cleared on payment of an amount equal to the customs duty leviable on such goods on the depreciated value thereof and at the rates in force on the date of payment of such duty. (c) Goods including containers suitable for repeated use other than those at (b) above can be allowed clearance on payment of customs duty on their value at the time of import and at the rate of duty in force on the date of payment of such duty. (d) Used packing materials such as cardboard boxes, polyethylene bags of a kind unsuitable for repeated use can be cleared without payment of duty. 59B At the time of de-bonding, the EOU/EHTP/STPs are entitled for depreciation on imported/indigenous capital goods. The rate of depreciation on capital goods has been specified and in case of the computers and computer peripherals, accelerated rate of depreciation have been provided for. There may be cases where the unit may choose to debond within the initial bonding period or there may be a situation where the Deputy Commissioner / Director STP may take a decision to debond the unit for having failed to meet the export obligation and where it is decided that the continuance of the unit in the scheme would not be desirable. In the later case the de-bonding is subject to imposition of penalty by the Deputy Commissioner/ Director STP. In the former case, levy of penalty is at the discretion of the Board of Approval. As per para 9.35 of Hand Book of procedures 1997-2002, at the time of de-bonding, depreciation up to 90% is allowed in respect of capital goods. This maximum limit (i.e. 90%) is spread over a period of 8 years. For Computer and Computer peripherals, accelerated depreciation is allowed i.e. the limit of 90% is spread over a period of 2years and 9 months. To implement the changes made in the Hand Book of Procedures, it has been decided to allow an accelerated depreciation for Computer and Computer peripherals as under: For every Quarter in the First year @10% For every Quarter in the Second year @ 8% For every Quarter in the Third year @ 7% For every Quarter in the Fourth year @ 7% Subject to maximum of 90%. 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. PROCEDURE FOR DEBONDING: 59C The procedural sequencing for the purpose of de-bonding would be as follows: I Issue of in principle de-bonding approval by the Development Commissioner / Director STP. II Execution of legal undertaking regarding the payment of penalty, if any, imposed under the Foreign Trade (Development and Regulation) Act.1992 III Issue of letter of NOC by the Development Commissioner to the Commissioner of Customs. IV Payment of applicable Customs/Central Excise duty and Issue of de-bonding certificate by the Assistant/Deputy Commissioner Customs. Thus the Assistant/Deputy Commissioner of Customs will permit de-bonding of the unit only after the NOC from the Development Commissioner/ Director, STPI is produced by the concerned unit. DUTY PAYABLE ON IMPORTED/INDEGENOUS PROCURED GOODS ON DEBONDING: 59D The imported Capital goods, material handling equipment, Office equipment, Captive Power Plants can be cleared on payment of an amount, equal to the Customs duty, leviable on such goods on the depreciated value and at the rate in force on the date of payment of duty. The raw materials or components will have to be assessed on the value at the time of import and at the rates of duties in force at the time of clearance. The Containers, packing materials, which are suitable for repeated use will have to be cleared only on payment of duty on the value at the time of import. If these materials are unsuitable for repeated use, they can be cleared without payment of duty, after obtaining approval from the Assistant/ Deputy Commissioner. On the Central Excise side, there is a parallel provision, provided in Notification No. 1/95-CE dated 4.01.1995 . (Reference Board s 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 ). 60. The following registers/records are to be maintained by 100% EOU/EHTP units. These registers can be maintained electronically, in the system also, provided express permission is obtained from the Assistant/Deputy Commissioner Customs.this apart all the information as specified in these registers and documents should also be available in the system.Hard copies of these registers will have to be maintained and submitted to the jurisdictional officers whenever sought for. A Bond register (Format at annexure D-1) B Daily stock account of finished goods (Format at Annexure-D-2) C Rejects account (Format at Annexure D-3) D Wastage/Scrap Account (Format at Annecure-D-4) E Export Account (Format at Annexure D-5) F DTA Sale Account (Format at Annexure D-6) G De-bonding Account (Format at Annexure D-7) H Consumption account (Format at Annexure D-8) I Running Bond Account (Format at Annexure D-9) J Job-work Register (Format at Annexure D-10) K Inter Unit Transfer Register (Format at Annexure D-11) L Third Party Export Register (Format at Annexure D-12) (Reference: Public Notice No.32/96 dated 26.3.96 as amended by 53/96 dated 21.6.96). NOTE : Wherever the letters EOU appears, it should be construed that the provisions are also applicable to STP and EHTP units, unless the contents of the relevant exemption Notifications or Board s circulars are inconsistent or have specific applicability. 61 All the Trade Associations and Chambers of Commerce and Industries are requested to bring the contents of the Public Notice to the notice of their members constituents. 62 In case of any difficulties noticed, the same may be brought to the notice of the Deputy Commissioner of Customs, Customs Division, No.29/2, Basaveshwara Building, Crescent Road, Bangaloe 560 001. E Mail ID: [email protected]. Telephone No.(080) 2261326 Fax No. (080) 2380627. Encl : as above Sd./- (A.P. SUDHIR) COMMISSIONER CUSTOMS BANGALORE Dated 17.10.01 (Reference: Public Notice No:66/2000 dated 1.6.2000) To: All as per Customs mailing list B (Issued from C.NO. VIII/48/115/2001 CUS TECH)