Circular No. 29/2003-Customs
3rd April, 2003
F. No. 305/45/2003-FTT
Government of India
Ministry of Finance & Company Affairs
Department of Revenue
(Central Board of Excise &Customs)
Sub: EOU/EHTP/STP/ SEZ Schemes-Amendments in Exim Policy and Handbook of Procedures Vol-1, 2002-2007.
I am directed to refer to Chapter 6 of the revised Exim Policy 2002-2007 and Handbook of Procedures, Vol-1. The changes made therein have necessitated amendments in the notifications governing duty free import/procurements of goods by EOU/EHTP/STP/SEZ units.
2. Over the last few years, the number of notifications governing EOU/EHTP/STP Schemes has become very large and there were about 40 notifications to govern these schemes. There were as many as seven notifications relating to duty-free import of goods by EOUs and EHTP/STP units. Similarly, there were three notifications relating to duty free procurement of goods from indigenous sources. The DTA clearances of goods manufactured (including waste, rejects, scrap and by-product etc.) by EOU/EHTP/STP on payment of concessional rate of duty were governed by eight notifications. Besides, there were several notifications exempting goods manufactured in EOUs from payment of duties under section 3 of Central Excise Act, 1944, additional duty of excise leviable thereon under section 3 of Additional Duty of Excise (Goods of Special Importance) Act, 1957 and additional duty of excise leviable thereon under section 3 of Additional duty of Excise (Textiles and Textile Articles) Act, 1978.
3. Implementation and understanding of such a large number of notifications was proving to be difficult for the trade and industry as well as Departmental officers. In line with the recommendation of the Kelkar’s Task Force on indirect taxes, it was, therefore, decided to consolidate all the notifications governing EOU/STP/EHTP schemes.
4. Accordingly, all notifications governing EOU/EPZ/STP/EHTP Schemes have been replaced by four notifications, namely, 22/2003-CE, dated 31-3-2003 providing for duty free procurement of goods from indigenous sources; 52/2003-Cus, dated 31-3-2003 providing for duty free import of goods, 23/2003-CE, dated 31-3-2003 providing for DTA clearance of goods by EOU/STP/ETHP unit on payment of concessional rate of duty and 24/2003-CE, dated 31-3-2003 providing exemption from duty of excise leviable under Section 3 of the Central Excise Act, 1944 and additional duties of excise leviable under section 3 of Additional Duty of Excise (Goods of Special Importance) Act, 1957 and additional duty of excise leviable thereon under the section 3 of Additional duty of Excise (Textiles and Textile Articles) Act, 1978. All these notifications have come into effect from 1-4-2003.
5. In addition to the above, there were several notifications governing Free Trade Zone (FTZ) scheme or Export Processing Zone (EPZ) scheme. Since these Schemes have been discontinued, the notifications relating to FTZ/ EPZ schemes have also been rescinded by notification Nos. 25/2003-Central Excise, dated 31-3-2003 and 51/2003-Customs, dated 31-3-2003.
6. While consolidating the notifications governing EOU/STP/EHTP Schemes, most of the existing provisions have been retained. However, to align the notifications governing EOU/STP/EHTP Schemes with the provisions of the revised Export and Import Policy, 2002-2007, effective from 1-4-2003, some changes have been made in the existing provisions and some new provisions have been introduced. While consolidating the notifications, though adequate care has been taken, nevertheless, it is requested that the notifications may kindly be examined in detail and feedback, if any, be furnished to the Board by 15-4-2003. This will help us in rectifying any unintended omission or error.
7. Several changes have been made in the revised Exim Policy this year. The salient features of the changes made in the new notifications so as to align them with revised Exim Policy are as under:-
(i) Exemption from SAD on Domestic sale by SEZ/ EOU units;
(a) It was a persistent demand of the Trade and Industry to exempt the goods manufactured by EOUs and EHTP/STP/SEZ unit and cleared into DTA from payment of Special Additional Duty of Customs (SAD). The argument given in support was that clearance made by EOUs and STP/EHTP/ SEZ units in DTA suffer both SAD and local sale tax, whereas in case of imported goods, only SAD is payable.
(b) The matter has been considered and it has been decided to allow DTA clearance of goods manufactured by EOU and units in SEZ from payment of SAD subject to the condition that such goods are not exempt from payment of Sales Tax/ Value Added Tax ( VAT) levied by the State Governments. It may be noted that the said exemption is only available in respect of goods manufactured and produced in EOU/EHTP/ STP/SEZ units and brought to any other place in India and it will not be available to imported goods cleared without subjecting it to a process amounting to manufacture. The exemption has been allowed w.e.f. 1-4-2003 vide notification Nos. 26/2003-CE, dated 31-3-2003 & 23/2003-CE, dated 31-3-2003 ( Ref: Sl. No. 1 of the Table).
(ii) Duty Exemption to HSD/LDO for boilers in EOUs
Hitherto only furnace oil was allowed to EOUs for use in the boilers because of the specific entry at Sr. No. 12 in the erstwhile notification No. 53/97 dated 3-6-97. However, at some places, the EOUs use LDO / HSD in their boilers. These units were being denied the benefit of exemption on the ground that it is available to furnace oil only, and not to HSD/LDO. The trade and Industry were requesting to allow duty free HSD/LDO to EOUs alongwith furnace oil. Considering the bonafide requirements of EOUs, the specific entry in the notifications providing for duty free import/procurement of “furnace oil for use in boilers” has been deleted in the new notifications Nos. 22/2003-CE and 52/2003-Cus, dated 31-3-2003. This would enable EOUs to procure/ import HSD/LDO/Furnace Oil duty free under the generic entry at Sr. No. 9 as “consumables”. Therefore, in view of above, EOUs may be allowed the facility of duty free import/ procurement of HSD/LDO/Furnace oil commensurate with their bonafide requirements.
(iii) Doing away with the requirement of Export Obligation under EOU Scheme.
Prior to 1-4-2003, under Export and Import Policy, EOUs were required to achieve NFEP (Net foreign Exchange Earning expressed as percentage of export) as well as Export Performance as prescribed in Appendix-I of the Policy. In the revised Exim Policy, the requirement of EP has been done away with and in the place of NFEP, the concept of positive Net Foreign exchange Earning (NFE) has been introduced. This means that from now onwards, the EOUs would be required to achieve only positive NFE. To implement this, suitable provision has been made in the new consolidated notifications and the requirement of achievement of Export Performance ( EP) has been omitted.
(iv) To allow Wastage of Gold /Silver to the EOUs units in case of Subcontracting of Gold / Silver Jewellery in DTA
The Gem and Jewellery sector has remained a vibrant sector of exports for the last few years. The facility of sub-contracting of production process ( Job-working) or production, though allowed to the units in SEZ, was not allowed to the Gem and Jewellery units in EOUs. To give further boost to export of Gem and Jewellery, in the revised Exim Policy, the facility of such sub-contracting has been extended to Gem and Jewellery units operating under EOU Scheme. Paragraph 6.15 of the revised Exim Policy now allows the Gem and Jewellery manufacturing EOUs to send goods into DTA for the purpose of job work or production. To implement this, suitable provision has been made in the notification No. 52/2003-Cus., dated 31-3-2003. Such units sending goods for job work or production in DTA would be allowed wastage within the overall limit of wastage as specified in the said notification. However, no cut and polished diamonds, precious or semi-precious stones would be allowed to be taken out of the unit for sub-contracting.
(v) Items Permitted to be Taken Out by EOUs for Contract Farming;
(a) In the Exim Policy 2002-2007 effective from 1-4-2002 , EOUs in Agriculture Sector were allowed to send specified micro-irrigation equipments and seeds, fertilizers etc. to the fields and farms of contract farmers. This provision was allowed vide erstwhile notification Nos. 126/94-Cus, 3-6-1994 and 136/94-CE, dated 10-11-1994.
(b). In order to provide further fillip to export of agricultural products, the EOUs engaged in the processing of agricultural products, have now been allowed to import/procure duty free more items ( mentioned in the following paragraph) in addition to the items allowed earlier and send the same to the fields and farms of their contract farmers subject to fulfillment of the condition mentioned in the notification No. 52/2003-Cus, and 22/2003-Central Excise, both dated 31-3-2003.
(c) The additional items allowed to be procured/ imported duty free by such units for the purpose of contract farming are as under:-
Crates drums and preservation media (such as acetic acid and vinegar).
Green house equipment, accessories, heated rooting tables, propagation trays, seeding machines.
Plants and parts thereof, seeds, saplings, tubers, bulbs, Rhizomes roots, cuttings all types of grafts, tissue culture material, and other vegetatively propagated material utilised for sowing or planting.
Growing media such as Peat Moss (including peat litres) (whether or not agglomerated), Pearlite /Vermiculate, Rockwool, Coca Peat, Hydrocorn, Foam based medium and other cultivation medium.
(v) To Enlarge List of Zero Duty Items under Notification No. 6/97-CE, (relating to wastes) to Cover other Agro Items;
(a) In the erstwhile notification No. 6/97-CE, dated 1-3-1997, clearance of goods, namely, waste of fish or crustaceans, castor oil cakes, guar meal, cotton waste and jute yarn and fabric, jute carpets and other goods of jute were allowed on payment of ‘Nil’ rate of duty provided such goods were manufactured out of wholly indigenous raw materials. This notification was, basically, for clearance of waste items of agricultural/ aqua-cultural goods having very low value. The trade and Industry have requested to allow duty free clearance of additional items, namely, bone meal, rice husk and shark, residue of wheat, residue of pulses and other cereals, tea waste or coffee waste; waste of castor oil seed, waste of caster oil derivatives, waste of sesame seeds and waste of other oil seeds and waste from food industries.
(b) Since these items are normally low valued items, it has been decided to provide full exemption from payment of duty to the above-mentioned items if cleared into DTA provided the same have been manufactured fully out of indigenous raw materials. The notification No. 6/97-CE, dated 1-3-1997 has since been rescinded. DTA clearance of the items covered under erstwhile notification No. 6/97-CE and the additional items as mentioned above, have been allowed on payment of ‘Nil’ rate of duty vide notification No. 23/2003-CE dated 31-3-2003.
(vii) Demand of duty from EOUs in case of failure to achieve NFEP/EP on Proportionate basis in Proportion to default as in the case of SEZ units.
(a) Hitherto, the notifications governing EOU/STP/EHTP Schemes provided that in case of failure to achieve NFEP/EP, the entire duty foregone on the raw materials and consumables is recoverable from the unit along with interest. It was pointed out by the Trade and Industry that the existing practice of demanding duty on the entire quantity of goods procured or imported duty free, irrespective of the quantity of goods that have been used in export production or have been already exported, is very unfair. It was further argued that the provision does not take into consideration the quantity of goods utilised in production of finished product, which have been cleared in to DTA on payment of duty.
(b) In view of above, it was suggested that in case of failure to achieve NFE (EP being deleted in the new Policy), the demand of duty alongwith interest should be in direct proportion to the default as already provided in case of SEZ Scheme. Since the concept is already in existence in case of SEZ Scheme, it has been decided to incorporate the same in EOU/STP/EHTP Scheme also. To implement this, a suitable provision has been incorporated in the notifications Nos. 22/2003-CE and 52/2003-Cus, both dated 31-3-2003, governing duty free procurement and import by EOUs and STP/EHTP.
(viii) Import and export through post parcel and personal baggage
(a) Presently, import of goods by EOUs/STP/EHTP/SEZ is not allowed by Post. Considering the fact that this dispensation, if allowed, would help in reduction of the transaction cost of the unit, it has been decided that EOU/STP/EHTP/SEZ unit may be allowed to import goods duty free by post through Foreign Post Offices ( FPOs) provided the delivery is taken by the unit from the post office on the basis of procurement certificate and other relevant documents. The respective jurisdictional Commissioners of Customs or Central Excise, as the case may be, of the FPOs may prescribe a suitable procedure for import of goods through post parcels by EOU/EHTP/STP/SEZ units.
(b) As regards export /import through personal carriage by air, presently this facility is limited to gems & Jewellery goods only. Now, it has been decided to allow this facility to all goods provided they are not in commercial quantities subject to production of procurement certificate and other relevant documents and following the procedure specified by the respective jurisdictional Commissioners of Customs or Central Excise, as the case may be, of the International Airport.
(ix) Charging of Full Duty in respect of Certain Categories of Deemed Exports by EOU/STP/EHTP and SEZ.
In the Exim Policy, in paragraphs 6.9, 7.8 (c) and 8.2, certain category of supplies of goods to DTA by EOU/STP/EHTP/SEZ units are treated as deemed export and counted towards fulfillment of NFE. These supplies will not be exempt from Customs or Central Excise duties merely because they are being considered as “deemed exports” under the Exim Policy. On such supplies, Central Excise duties would be leviable in terms of proviso to section 3(1) of Central Excise Act, 1944 read with relevant exemption notifications.
Presently, notifications governing duty free import/ procurement of goods by SEZ developers provides for setting up a Committee under the Chairmanship of jurisdictional Chief Commissioner of Customs. Since Commissioners of Customs are more accessible due to their proximity to Special Economic Zones, it has been decided that the Committee will now be headed by jurisdictional Commissioner of Customs in place of the Chief Commissioner. Notifications Nos. 82/2002-Cus and 39/2002-Central Excise, both dated 13-8-2002 has been suitably amended vide notifications Nos. 28/2003-CE and 50/2002-Customs, both dated 31-3-2003, respectively. Board’s Circular No. 52/2002-Cus dated 14-8-2002 also stands modified to this extent.
(xi) 100% Depreciation of Capital Goods
In the notifications governing EOU/STP/ETHP, an important change has been made regarding depreciation to be allowed on capital goods cleared into DTA after use in the unit. It has been specifically provided in the notification that in case of clearance of capital goods into DTA, duty has to be paid (customs or excise depending on whether the goods are imported goods or locally procured goods) either on the depreciated value thereof or on the transaction value, whichever is higher. Further, such duty is to be calculated at the rate in force on the date of payment of such duty. The rate of depreciation would be at the rate of 20% per annum or part there of, of the original value in respect of IT products and 10% per annum or part there of, in case of other capital goods. There will be no upper cap of such depreciation and depreciation upto 100% can be allowed. Earlier instructions issued by the Board in this regard stand modified to this extent. For the purpose of calculating the depreciation, the period of depreciation shall be from the date of commencement of commercial production of the unit or where such goods have been received after such commencement, from the date such goods have come into use for commercial production till the date of payment of duty.
(xi) Miscellaneous .
(a). Notification No. 24/2003-Central Excise, dated 31-3-2003 has been issued to allow exemption from payment of duty of excise leviable under Section 3 of the Central Excise Act, 1944 and additional duites of excise leviable under Section 3 of Additional Duty of Excise (Goods of Special Importance) Act, 1957 and additional duty of excise leviable thereon under the Section 3 of Additional duty of Excise (Textiles and Textile Articles) Act, 1978.
(b).However where the goods are cleared into DTA, duty would be levied on the goods under Section 3 of the Central Excise Act, 1944. Since duty on goods manufactured by EOU/EHTP/STP and sold in DTA is equal to aggregates of the duty of customs leviable on similar imported goods, the CVD would constitute all the components of excise duties viz, duty of excise leviable under Section 3 of the Central Excise Act, 1944 and additional duties of excise leviable under section 3 of Additional Duty of Excise (Goods of Special Importance) Act, 1957 and additional duty of excise leviable thereon under the section 3 of Additional duty of Excise (Textiles and Textile Articles) Act, 1978.
(c) Therefore, to avoid double charging of duty leviable under section 3 of Additional Duty of Excise (Goods of Special Importance) Act, 1957 and under the section 3 of Additional duty of Excise (Textiles and Textile Articles) Act, 1978, once as a component of CVD and then independently under respective Acts, the exemption has been provided under respective Acts so that duty leviable under Additional Duty of Excise (Goods of Special Importance) Act, 1957 and under Additional duty of Excise (Textiles and Textile Articles) Act, 1978 is collected once only as a components of CVD. This point may be kept in mind while calculating duty in case of goods manufactured by EOU/ETHP/STP units cleared in DTA.
8. Difficulties, if any faced in the implementation of the above instructions may be brought to the notice of the Board at an early date.
9. Wide publicity may be given by issue of a Public Notice in this regard.
10. Kindly acknowledge receipt of this circular.
11. Hindi version will follow.
Sr. Technical Officer