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Export Oriented Units

Customs - CBEC s Customs Manual 2015 - 25 - Chapter 25 1. Introduction: 1.1 (EOU) scheme was introduced vide Ministry of Commerce Resolution dated 31-12-1980. 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 u .....

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Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs). Hence the scheme is for EOU/STP/EHTP/BTP and is referred in common parlance as EOU scheme. 1.3 Over the years, the EOU Scheme has undergone various changes and its scope has 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. Presently, the units undertaking to export their entire production of g .....

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in ITC (HS). 1.4 Some benefits that are extended to the EOUs to impart to them a competitive edge to compete in export market are, as follows: (i) EOUs are allowed to procure raw materials/ capital goods duty free, either through import or through domestic sources; (ii) Reimbursement of Central Sales Tax (CST); (iii) Reimbursement of duty paid on fuels procured from domestic oil companies; (iv) CENVAT credit on the goods and service and refund thereof; (v) Fast track clearance facilities; and (v .....

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minimum investment of ₹ 1 Crore and above in building, plant and machinery are usually considered for establishment under EOU Scheme. Minimum investment criteria is to be fulfilled at the time of commencement of production by the unit. The minimum investment criterion does not apply for certain sectors like Electronic Hardware Technology Park unit, Software Technology Park unit, Handicrafts, Agriculture and Aquaculture. Setting up of trading units is not permitted under EOU scheme. 3.2 EOU .....

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plication in the prescribed form (Appendix 14-I-A) 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 Department of Information Technology for this purpose. After approval of the application and issuance of Letter of Permission, the applicant is required to execute a lega .....

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it has to execute a legal undertaking with the Development Commissioner. The LOP/ LOI issued is construed as a license for all purposes. After obtaining the LOP and execution of legal undertaking, the unit is required to apply for a license for Private Bonded Warehouse and In-bond manufacturing sanction order under provisions of Section 58 and 65 of the Customs Act, 1962 respectively from the jurisdictional Assistant/Deputy Commissioner of Central Excise and Customs. 4. Import/ procurement and w .....

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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 are permitted duty-free import. 4.2 The Customs exemption Notification No. 52/03-Cus. (for imports) and Central Excise exemption Notification No. 22/03-CE, both dated 31-3-2003 prescribe several conditions to be fulfilled by the beneficiaries keeping in view the o .....

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visions of FTP. NFE earnings is calculated cumulatively in blocks of 5 years from the commencement of commercial production according to a prescribed formula as per para 6.9.1 of HBP. 4.3 The EOUs are licensed to manufacture goods within the bonded premises for the purpose of export. The period of LOP bonding is initially for five years after the unit as commenced production, which is extendable to another five years by the Development Commissioner. On completion of the bonding period, it is for .....

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ed duty free are required to be accounted for in accordance with SION. For the items having no SION, consumption of inputs is allowed subject to generation of waste, scrap and remnants upto 2% of input quantity. However, if any item in addition to those given in SION are required as input or where generation of waste, scrap and remnants is beyond 2% of the input quantity, consumption is allowed on the basis of self-declared norms for a period of three months till the jurisdictional Development C .....

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us dated 24-7-2008] 5. Monitoring and administrative control: 5.1 The EOUs basically function under the administrative control of the Development Commissioner of the Special Economic Zones, whose jurisdiction has been notified by the Ministry of Commerce. In all, there are seven Development Commissioners at Mumbai, Gandhidham, Chennai, Cochin, Visakhapatnam, Noida and Kolkata, who supervise the functioning of the EOUs. The Development Commissioners of the SEZs are the Licensing Authorities in re .....

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has been transferred to the jurisdictional Commissioner of Central Excise. [Refer Circular Nos. 72/2000-Cus, dated 31-8-2000, No.87/2000-Cus, dated 2-11-2000 and No. 932/22/2010-CX, dated 4-8-2010] 5.3 Administrative control of the EOUs which satisfy the conditions of large taxpayer under Notification No. 20/2006-CE (NT), dated 30-9-2006 has been transferred to the LTUs. In respect of these large taxpayer-EOUs, specific function requiring physical presence of the officers for the purposes as war .....

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n manufacture of electronic hardware and software, the policy decisions are taken by the Inter Ministerial Standing Committee (IMSC) set up under the Department of Information Technology and the same are implemented through its Designated Officers. CBEC representative is a member of both the BOA/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 Central Excise and Customs having j .....

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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 Central Excise and Customs officers. [Refer Circular No. 15/95-Cus., dated 23-2-1995] 7. Items allowed duty free imports/procurement: .....

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production/ jobwork and other operations in terms of letter of permission (LOP). All goods other than prohibited goods are allowed to be imported by an EOU/STP/EHTP. The specified activities for setting up an EOU/STP/EHTP are as follows: (i) Manufacture of articles for export or for being used in connection with the production or packaging or job work for export of goods or services by export oriented undertaking; (ii) Manufacture or development of software, data entry and conversion, data proce .....

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re or packaging of articles by export oriented undertaking in horticulture, agriculture and animal husbandary sector; (iv) Use in aqua-culture farm in connection with operational requirements of such aquacultural farm and export of aquacultural products so produced by export oriented undertaking in aquaculture sector; (v) Quarrying of granite by export oriented undertaking engaged in processing and manufacture or production of articles of granite for export; (vi) Manufacture of gems and jeweller .....

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ecified in para 6.8 of FTP. However, import of such promotional material shall be considered for computation of sum total of all imported goods for arriving at NFE. [Refer Circular No. 17/2006-Cus dated 1-6-2006] 8. Time limit for utilization of imported capital goods and inputs: 8.1 The period of utilization of goods, including capital goods, procured/ imported by the EOU shall be co-terminus with the validity of LoP (Letter of Permission) [Notification No. 34/2015-Customs dated 25.5.15 and 30/ .....

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oods and manufacturing process and accounting in an EOU is aimed at providing operational flexibility, easing restrictions and removing practical difficulties faced by EOUs. Accordingly, the manufacture is now allowed without any physical supervision of the Central Excise and Customs authorities, locking of the warehouse premises, control over the issue and return of imported goods. Further, all movements from and to the units like clearance of raw materials/ components to the job worker's p .....

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physical verification of goods by officers of Customs and Central Excise for both imported as well as indigenously procured goods. This relaxation is presently available to EOUs with a clean track record having physical export turnover of goods or services is ₹ 10 Crores or above in the preceding financial year. 10. B-17 Bond: [Circular No. 19/2007-Cus dated 3.5.2007 amended by 19/2015 dated 9.6.2015]] 10.1 Import/procurement of goods by an EOU for use in manufacture or in connection with .....

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duty. This bond also takes care of the interest of revenue against risks arising out of goods lost in transit, goods taken into Domestic Tariff Area for job work/ repair/ display etc but not brought back. Basically the B-17 bond is an all purpose bond covering liabilities of the EOU both under Customs and Central Excise Acts. However, it does not cover the differential duty amount against advance DTA sale for which a separate bond is to be executed. 10.2 The B-17 bond is executed with the jurisd .....

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r from the person standing surety duly certified by a Chartered Accountant for solvency is also required to be submitted. 10.3 Units which have achieved positive NFE and are in existence for the last three years with unblemished track record having export turnover of ₹ 5 Crores or above and have not been issued a show cause notice or a confirmed demand, during the preceding 3 years are exempted from furnishing Bank Guarantee etc. or Surety along with B-17 bond. However, this facility will .....

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sions thereof. [Refer Circulars No. 14/98-Cus, dated 10-3-1998, No. 42/98-Cus, dated 19-6-1998, No.66/98-Cus, dated 15-9-1998, No.76/99-Cus, dated 17-11-1999, No. 54/2004-Cus, dated 13-10-2004 and No. 36/2011-Cus, dated. 12-8-2011] 11. Monitoring of export performance / foreign exchange realization: 11.1 The EOUs basically function under the administrative control of the Development Commissioner of the SEZ as per the jurisdiction notified by the Ministry of Commerce. The Development Commissioner .....

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ortion to shortfall in NFE. Now the unit has to achieve a positive NFE i.e. their foreign exchange earning has to be more than the foreign exchange outflow. The NFE is calculated cumulatively in the block of 5 years. If the unit is not NFE positive, Development Commissioner is required to inform the Central Excise authorities for recovery of the proportionate duty. This provision is not only more equitable but also prevents a unit to become unviable on account of huge demand without taking into .....

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are placed in a special category, eligible for fast track clearance through the Customs on the strength of procurement certificate issued by the jurisdictional Assistant/Deputy Commissioner. Generally, the EOU cargo is not examined at the gateway port/airport and in case of loose cargo, marks and 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 clearanc .....

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r Trading House, Trading House, and Export House are allowed the facility of self-sealing of their export containers. [Refer Circulars No. 63/97-Cus, dated 21-11-1997, No.14/98-Cus, dated 10-3-1998 and No.90/98-Cus, dated 8-12-1998] 13. Goods imported / exported and found defective: 13.1 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 .....

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n 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. [Refer Circular 60/99-Cus, dated 10-9-1999] 14. Procurement of indigenous goods under CT-3 procedure: 14.1 The EOUs can procure goods from DTA without payment of Central Excise duty on strength of CT-3, which is issued by the Superintendent of Central Excise in charge of the EOU. Such goods are required to be brought directly fr .....

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licy are eligible for the Fast Track Clearance Procedure under para 6.38.3 of Hand Book of Procedure (HBP). Units having physical export turnover of ₹ 15 Crores and above in the preceding financial year are allowed to import goods without payment duty on basis of pre-authenticated procurement certificate. The request to issue pre-authenticated procurement certificate will be submitted to the jurisdictional Asstt./Dy. Commissioner of Customs/Central Excise. After examination of the request, .....

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, which are similar to the goods exported or likely to be exported from the EOU, are allowed to be sold in Domestic Tariff Area (DTA) at concessional rate of duty upon fulfillment of certain conditions in terms of Para 6.8(a) of the FTP read with Para 6.14 and Appendix 14-I-H of the HBP. 15.2 'Similar goods' has been defined as goods which are identical in all respects including goods which although not alike in all respect, have like characteristics and like components, materials which .....

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B value of export of the specific products within the overall DTA entitlement of 50%. Gems and Jewellery units may sell up to 10% of FOB value of export of preceding year subject to fulfillment of positive NFE. 15.4 The DTA sale entitlement earned by an EOU is valid for 3 years from the date of its accrual. DTA sales over and above the 50% of FOB value of exports could be made on payment of full duty subject to positive NFE condition. 15.5 For a newly set up unit, Advance DTA sale is also allowe .....

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y paid on the advance DTA sale and the duty payable on such goods. 15.6 The DTA sale facility on concessional rate is not available for certain products namely motor car, alcoholic liquor, tea (except instant tea), and such other items as are notified from time to time. This facility is also not available to units engaged in the activities of packaging/ labelling/ segregation/ refrigeration/ compacting/ micronisation/ pulverization/ granulation/ conversion of monohydrate form of chemical to anhy .....

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e 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. [Refer Circulars No.23/84-CX-6, dated 29-5-1984 and No. 330/46/97-CX dated 20-8-1997 and Instruction F.No. 268/35/92-CX-8, dated 17-8-1994] 17. Duty liability on DTA clearances/sales: 17.1 In terms of proviso to Section 3(1) of the Central Excise Act, 1944, duty payable .....

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t quantity of goods used for manufacture of any goods which are cleared into DTA or on such quantity of goods which are cleared as such into DTA. 17.2 On fulfillment of positive NFE, the EOUs other than Gem and Jewellery units are allowed to sell goods including rejects, waste, scrap, remnants, byproducts and services in DTA, its products similar to goods which are exported or expected to be exported from units, within overall ceiling of 50% of FOB value of exports at a concessional rate of duty .....

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FOB value of export by EOU provided payment for such sales are made from Foreign Exchange Account of SEZ unit. Sale to DTA would also be subject to mandatory requirement of registration of pharmaceutical products (including bulk drugs). An amount equal to Anti Dumping duty under section 9A of the Customs Tariff Act, 1975 leviable at the time of import, shall be payable on the goods used for the purpose of manufacture or processing of the goods cleared into DTA from the unit. 17.4 For services, .....

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s have an option to sell goods into DTA in terms of sub-paras 6.8 (a), (d), (e), (g) and (k) of the FTP, on payment of an amount equal to aggregate of duties of excise leviable under section 3 of the Central Excise Act, 1944 or under any other law for the time being in force, on like goods produced or manufactured in India other than in an EOU, subject to the condition that they have not used duty paid imported inputs in excess of 3% of the FOB value of exports of the preceding year and they hav .....

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[Refer Circular No. 12/2008-Cus., dated 24-7-2008] 17.8 The concessional rate of duties for goods sold in DTA by an EOU are prescribed under Notification No. 23/2003-CE, dated 31-3-2003. 18. Goods manufactured from indigenous materials in EOUs: 18.1 Goods manufactured out of wholly indigenous inputs are allowed clearance into DTA on payment of only Central Excise duty. Earlier, goods supplied from DTA to EOU on which deemed export benefits had been availed were also considered as indigenous goo .....

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d to pay back the duty foregone on the inputs used in manufacture of goods cleared in DTA on which no duty is leviable. 19. Clearance of by-products, rejects, waste, scrap, remnants, non-excisable goods, etc.: 19.1 Scrap/ waste/ remnants arising out of production process or in connection therewith are allowed to be sold in DTA, as per SION notified by Directorate General of Foreign Trade (under Duty Exemption Scheme), on payment of concessional duties as applicable, within overall ceiling of 50% .....

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remnants may also be exported. However, no duties/ taxes on scrap/ waste/ remnants are charged, in case same are destroyed with permission of Central Excise & Customs authorities. 19.2 The DTA clearance of by-products and rejects on concessional rate duty is not allowed to the EOUs, which have failed to achieve the positive NFE. In such cases, the EOUs are liable to pay full duty. Further, in case of such units, DTA clearance of finished goods is not allowed even on payment of full duty. 19 .....

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into standard gold bars and return thereof to the unit subject to the observance of procedure laid down by the Commissioner of Central Excise & Customs. The said dust, scrap or sweepings are also allowed clearance into DTA on payment of applicable customs duty on the gold/ silver/ platinum 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 fro .....

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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. 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 23.01, guar meal manufactured wholly from indigenous guar seeds falling under chapter heading 23.02 and yarn of jute .....

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ceding year in DTA, subject to fulfillment of positive NFE. In respect of sale of plain jewellery, recipient shall pay concessional rate of duty as applicable to sale from nominated agencies. In respect of studded jewellery, duty shall be payable as applicable. 20.3 Specified textile items are allowed clearance on payment of concessional duty. 21. Reimbursement of Central Sales Tax (CST) / Drawback: 21.1 Supplies from DTA to EOUs are regarded as deemed exports and considered for discharge of any .....

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rsement of CST. 21.3 All the above benefits are administered and disbursed by the Development Commissioner/ Regional Authority of DGFT under the Ministry of Commerce. 22. Clearance of samples: 22.1 EOUs may on basis of records maintained by them, and on prior intimation to jurisdictional Central Excise and Customs authority: (i) Supply or sell samples in DTA for display/ market promotion on payment of applicable duties. (ii) Remove samples without payment of duty, on furnishing a suitable undert .....

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o Custom Authorities, and FOB value of such samples shall not be counted for NFE purpose and other export benefits, if any. (iv) Send samples to other EOUs for display on returnable basis within a period of 30 days. 22.2 EOUs are allowed to send samples abroad through the courier. The packages containing such samples are sealed in the presence of the departmental officer and are handed over to the representative of the courier company authorised by the Commissioner of Central Excise & Custom .....

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machine at a place of choice, outside the premises of unit, subject to intimation of its location to concerned Customs Central Excise authorities. (ii) Temporarily take out of premises of unit, duty free laptop computers and video projection systems for working upon by authorized employees. (iii) Install personal computers not exceeding two in number, imported/ procured duty free in their registered / administrative office subject to CBEC guidelines. (iv) For IT and IT enabled services, persons .....

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by the jurisdictional Assistant / Deputy Commissioner of Central Excise and Customs. 24.2 Unutilized goods and services may also be transferred to another EOU/EHTP/STP/BTP/ SEZ unit or exported. Such transfer to another such unit would be treated as import for receiving unit. 24.3 Obsolete/ surplus capital goods and spares can either be exported, transferred to another EOU/EHTP/STP/BTP/SEZ unit or disposed of in the DTA on payment of applicable duties. The benefit of depreciation, as applicable, .....

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les 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 EOUs 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 no .....

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obtain 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. [Refer Circular No.31/2001-Cus., dated 24-5-2001] 26. Sub-contracting: 26.1 EOUs, including Gems and Jewellery units, are allowed to sub-contrac .....

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t therefrom with the permission of Assistant/ Deputy Commissioner of Customs/ Central Excise having jurisdiction over the unit. The intermediate goods so removed to sub- contractor abroad shall be allowed to be cleared under export documents [Refer Circular No. 12/2008-Cus., dated 24-7-2008] 26.2 To help utilize the idle capacity, an EOU can undertake job work for export, on behalf of DTA exporter, provided the goods are exported directly from EOU's premises and export documents are prepared .....

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ecious stones (except precious, semi-precious and synthetic stones having zero duty) shall be allowed to be taken out for sub-contracting. (iii) Receive plain gold/ silver/ platinum jewellery from DTA/ EOU/ SEZ units in exchange of equivalent quantity of gold/ silver/ platinum, as the case may be, contained in said jewellery. (iv) EOUs shall be eligible for wastage as applicable as per para 4A.2 of HBP v1 for sub-contracting and against exchange. (v) DTA unit undertaking job work or supplying je .....

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er Circulars No.17/98-Cus dated 16-3-1998. No.84/2000-Cus., dated 16-4-2000 and No. 17/2003-Cus. dated 24-3-2003] 28.1 Inter-unit transfer of manufactured and capital goods from one EOU unit to another EOU/SEZ unit is permitted in terms of Para 6.13 of the FTP. Sale of unutilized goods is also allowed from one EOU to another EOU/SEZ unit in terms of Para 6.15 of FTP. Inter-unit transfer of the raw material is not allowed in normal course. However, where a unit proves that it is not able to utili .....

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, such supplies are also counted towards FE earning provided these are permissible in terms of Para 6.15 of the HBP. 28.3 Capital goods and goods manufactured, produced, processed, or packaged in an EOU can be taken to another EOU/ SEZ unit without payment of duty under the cover of ARE-3 for manufacture and export there from or for use within the unit after giving intimation to the proper officer. Both the units have to keep account of such removal and receipt and are required to follow in-bond .....

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s the unit undertaking these activities are not permitted sale in DTA and some other benefits. 30. Replacement/repair of imported /indigenous goods: 30.1 EOUs may send capital goods abroad for repair with permission of Customs authorities. Any foreign exchange payment for this purpose will also be allowed. However, no permission will be required for sending capital goods for repair within the country. 30.2 Removal of capital goods by all units irrespective of status within the country for the pu .....

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authorized person of the EOU can import gold in primary form, upto 10 Kgs in a financial year through personal carriage, as per guidelines prescribed by RBI and DOR; (ii) The items of gems and jewellery to be taken out temporarily into DTA without payment of duty for the purpose of display and to be returned thereafter; (iii) Personal carriage of gold/ silver/ platinum jewellery, cut & polished diamonds, semi-precious stones, beads and articles as samples upto US$ 1 million for export promot .....

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road, 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; (v) Gems and jewellery manufactured in the EOUs 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 fo .....

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o the actual salary and emoluments of the staff deployed i.e. the average pay and allowances including D.A., H.R.A etc. The EOUs pay in advance the cost recovery charges determined for the entire year. Generally, one Central Excise and Customs officer supervises the functioning of four to five units and the cost recovery charges are shared amongst them. [Refer Instructions F.No.305/105/85-FTT, dated 10-6-1986 and F. No. 11018/63/87-Ad IV, dated 11-1-1988] 33. Supervision by Departmental officers .....

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m the job-workers' premises, clearance to other EOUs, export and sale in DTA are allowed to be made by the EOU subject to maintenance of the records. 33.2 In absence of physical control greater stress is given on proper maintenance of prescribed records & accounts and non-maintenance of the accounts by the units is viewed seriously. The officers incharge of EOUs are required to scrutinize/examine the accounts/ records and transactions of the EOU at least once a month and ensure that all .....

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(UAC) of the SEZ headed by the Development Commissioner which consists of Commissioner of Central Excise and Customs or his nominee as one of the members. The purpose of review is to ensure that the performance of EOUs is effectively monitored and action is taken against the units which have contravened the provisions of the FTP/HBP and the Customs Law/ Procedures. Besides, such monitoring gives an opportunity to the Government to discuss and help resolve the problems/ difficulties being faced b .....

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