Circular No. 24/2002 – Customs
6th May, 2002

F.No.605/201/2001 – DBK
Government of India
Ministry of  Finance
Department of Revenue

Subject: Changes made in Advance License, DFRC, DEPB and EPCG Schemes vide Exim Policy 2002-07 – reg.

 Exim Policy for the year 2002-2007 has been announced on 31.3.2002 by Hon’ble Commerce and Industry Minister. Changes have been carried out in the subject schemes on the demand of trade and in order to remove certain procedural bottlenecks being faced by the trade. Details of changes effected in each scheme are as follows.  2.1 Advance License Scheme

Advance License scheme is contained in chapter -4 and paras 4.1 & 4.1.1 to 4.1.14 of the Exim Policy. In terms of para 4.1.1 of the exim policy advance licence can be issued for permitting duty free import of inputs to be utilized in the export products after making normal allowance for wastage . The Scheme also permit duty free import of fuel, oil, energy, catalyst etc. which are consumed during the  manufacturing process.  Duty Free Import of mandatory spares upto 10%  of the CIF Value of licence is also permitted as earlier. Advance licence can be issued for physical export, intermediate supplies and deemed exports.  Annual Advance Licence Scheme has however, been discontinued.  Both Advance License and the materials imported against it are subject to actual user condition even after fulfillment of export obligation.  One departure made in the new Advance License Scheme is to abolish DEEC Book.  Advance license issued under the new Scheme on pre-export basis (i.e. to say where import takes place before fulfillment of export obligation) would inter-alia contain description, value and quantity of materials permitted against it and value and quantity of export obligation to be fulfilled; advance licence issued on post-export basis (i.e. to say after fulfillment of export obligation ) would in addition also contain details of exports made against the licence. In respect of Advance Licences issued on post-export basis, in doubtful cases, or where investigations have been launched by Customs or other Agencies,  Customs may require DGFT authorities to cause verification of the details of exports having actually taken place.  E.O. Discharge Certificate by DGFT authorities would be issued on the basis of export documents and bank realization certificate in terms of Para 4.25 of the Handbook of Procedure, Vol.I.Redemption of Bond/BG filed against Advance License with the Customs would normally be allowed on the basis of EO Discharge Certificate issued by the DGFT authorities.  However, in doubtful cases, or where investigations have been launched by Customs or other Agencies, Customs may requires DGFT authorities to cause further verification.Other procedural requirements of the Advance License Scheme outlined in earlier Circulars issued from time to time shall continue to be followed with the above modifications.   Customs Notification Nos. 43/2002 – Cus. Dated 19.4.2002 & 47/2002 – Customs dated 22.4.2002 have been issued to operationalise  this Scheme.

2.2 DFRC Scheme 

DFRC Scheme was first announced in Exim Policy 2000 – 2001 with effect from 1.4.2000  DFRC Scheme has been continued in Exim Policy 2002 -07 with some minor  changes.  The earlier DFRC Scheme announced in 2000-01 Exim Policy required that for the purpose of allowing DFRC benefit to imported inputs used in the resultant export product, the quality, technical characteristics and specifications of the inputs under import should be the same as those used in the resultant export product.  For this purpose the quality, technical characteristics and specifications of each input used in the resultant export product were required to be specified on the shipping bill and at the time of import Customs was required to co-relate it with the input under import so as to allow DFRC benefit to those inputs which were of the same quality, technical  characteristic and specifications .  Under the new DFRC scheme  such co-relation of quality , technical characteristic  and specifications  has been done  away except in the case of items were which are  listed in para  4.31 of the Hand book of procedure volume 1  as amended  by DGFT / Notice No. 4/2002-07 dated 1.4.2002.  In respect of such items  customs shall continue to ascertain the quality, technical characteristics and specifications  of the inputs under import with reference to the quality, technical characteristics  and specification  of the inputs used in the export product as declared on the shipping bill. Quantity of each input shall be permitted in the DFRC license in terms of SION for the relevant export product as earlier. License issued under DFRC  scheme are freely transferable as earlier.Other procedural requirements of DFRC Scheme as specified in DOR’s earlier Circular Nos. 33/2000-Cus. dated  2.5.2000, 42/2000-Cus. dated 2.5.2000 and 59/2000-Cus. dated 11.5.2000 shall continue to be followed with the aforesaid modifications. Customs Notification No. 46/2002-Cus. dated 22.4.2002 has been issued to operationalise this Scheme.

2.3    DEPB Scheme

DEPB Scheme has been continued in the Exim Policy 2002-07 for some more time.  Under the new DEPB Scheme, DEPB scrips would be issued only on post-export basis (i.e. to say on completion of exports) as pre/export DEPB Scheme has already been discontinued.  The provisions of DEPB Scheme are contained in Para 4.3 and 4.3.1 to 4.3.5 of the Exim Policy. One significant change in the new DEPB Scheme is that in terms of Para 4.3.5  of the Exim Policy even excise duty paid in cash on inputs used in the manufacture of export product shall be eligible for brand rate of drawback as per rules framed by Department of Revenue which the earlier DEPB Scheme did not permit.  Since the exemption from SAD is now incorporated in DEPB Customs notification itself, henceforth the element of SAD shall also be debited in the DEPB scrip. The Schedule of DEPB rates are contained in a separate book issued vide DGFT Public Notice No. 2/2002-07 dated 31.3.2002.  In the preamble of the said Schedule general instructions for DEPB rates are specified and Sr. No.1 of the said general instructions specify that DEPB benefit shall not be applicable if the exports have taken place in terms of any sub-serials nos. of said Sr. No.1.  General Instructions contained in Sr. Nos. 2 to 12 should also be carefully gone through before processing/permitting any export under DEPB Scheme.  DEPB Scrips are freely transferable as earlier.Other procedural requirements of DEPB Scheme, as outlined in DOR Circular No. 10/97-Cus. dated 17.4.97  and subsequent DOR Circulars issued from time to time under DEPB Scheme shall continue to be followed with the above modifications. Verification of DEPB Scrips shall continue to be done by Customs.  However, in doubtful cases, or where investigations have been launched by Customs or other Agencies, Customs may require DGFT to take suitable corrective action.Customs Notification No. 45/2002-Cus. dated 22.4.02 has been issued to operationalise this Scheme.

2.4   EPCG Scheme

EPCG Scheme is contained in Chapter 5 of the Exim Policy 2002-07.  5% Duty EPCG Scheme, which was hitherto in operation, has been continued with some changes.  Whereas the normal EO period for EPCG License of value not exceeding Rs. 100 crores has been maintained at 8 years, in respect of licenses of value Rs. 100 crores or more, a longer EO period of 12 years has been prescribed.  The four blocks in respect of such  EPCG licence would comprise of

1st  Block     –        0-5     years

2nd Block     –        6-8     years

3rd Block      –        9-10   years

4th Block      –        11-12 years

The new EPCG Scheme also permits granting extension of block-wise EO period more that once during the total EO period by competent authority.  In addition, in respect of EPCG License having total EO period of 8 years, the Scheme also permits extension of overall EO period up to a total period of 2 years by competent authority.  The provision regarding recovery of differential duty and interest in the event of non fulfillment of block-wise EO period for 2 consecutive blocks has also been done away with.  Para 5.5 of the Exim Policy also permits fulfillment of export obligation under EPCG Scheme by Export of goods capable of being manufactured from the capital goods imported  under EPCG Scheme. Similarly, export obligation under the Scheme is also allowed to be fulfilled by export of same goods ( for which EPCG license is obtained ), manufactured or produced in different manufacturing units of the license holder.  It is reiterated that redemption of Bond/ BG against license (with Customs) issued under EPCG Scheme should normally be allowed on the basis of EO Discharge Certificate issued by DGFT authorities. However in doubtful cases or where investigations have been launched by Customs or  other Agencies, Customs may require DGFT to take suitable corrective action.Other procedural requirements of EPCG Schemes as outlined in DOR Circular Nos.39/2000-Cus dated 11.05.2002, 80/2000-Cus dated 22.09.2000 and earlier DOR Circulars shall continue to be followed with the aforesaid modifications.Customs Notification Nos. 44/2002-Cus dated 19.04.2002 has been issued to operationalise this Scheme.

3. Corresponding  trade notice  and standing orders may be issued for guidance of staff and trade.

4 Receipt of this Circular may please be acknowledged.

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