Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
Subject: EOUs/EPZ/EHTP/STP Units — clarifications on provisions of EXIM Policy vis-à-vis Excise & Customs Notifications
It is directed to refer to Chapter 9 of the revised Exim Policy 1997-2002 and Handbook of Procedures, Vol.1. The changes made therein have necessitated amendments in notifications governing duty free import/procurement of goods by EOU/EPZ/STP/EHTP units. These amendments have been made vide notifcation Nos. 71/2000-Cus, and 40/2000-CE, both dated 22.5.2000. A copy each of the notifications is enclosed for reference. The revision of Exim Policy and HOP has also necessitated amendments in existing Circulars/instructions, and the same has been made wherever necessary.
The salient features of the changes are given below.
Inclusion of a new activity, viz. Trading
2. Paragraph 9.1 of the EXIM Policy lists various activities, viz. Manufacture, services, development of software, agriculture etc. for which a unit can be set up under development of software, agriculture etc. for which a unit can be set up under EOU/EPZ/EHTP/STP Scheme. A new activity, viz. `trading’ has been included in this paragraph. This has been subsequently elaborated in paragraph 9.21, as per which 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/EPZ/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 Export and Import Policy.
3. 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 export benefits, inter-unit transfer, sub-contracting etc., otherwise available to EOU/EPZ units, shall not be available. The trading units would, however, be allowed to supply goods to other EOU/EPZ/EHTP/STP units or supply goods to DTA against valid advance licences or specific duty-free import entitlements. The notifications governing duty free procurement and import by EOU/EPZ units have been amended suitably to incorporate to the said changes.
Leasing of Capital Goods
4. under Paragraph 9.4 of the Policy, an EOU/EPZ/EHTP/STP unit is on the basis of a firm contract between the parties, allowed to source capital goods from a domestic/foreign leasing company. In such cases, the EOU/EPZ/EHTP/STP unit and the domestic/foreign leasing company are required to jointly file the documents to enable import of the capital goods without payment of duty. This paragraph has been amended now to allow EOU/EPZ/EPZ/STP/EHTP units to source indigenous capital goods without payment of duty.
Access to central facility for software development by DTA units
5. In terms of Paragraph 9.2 of the Policy, STP/EHTP/EPZ are allowed to import free of duty all types of goods for creating a central facility for use by software development units in STP/EHTP/EPZ. An amendment has been made in this paragraph to the effect that the central facility for software development could also be accessed by unit in the DTA for export of software. Necessary arrangements may be made to implement this Policy provision. It may be noted that the software exported by DTA units by availing of such central facility of EPZ/STP/EHTP will be considered as export made by DTA units only.
DTA sale of rejects
6. Paragraph 9.9(a) of the Policy provides for DTA sale of rejects. Prior to the revision of the Policy, rejects above 5% of the FOB value of exports were counted against DTA sale entitlements, which was allowed upto 50% of the FOB value of exports. An amendment has been made in this paragraph to stipulate that all sales of rejects in DTA shall be counted in the overall limit of 50%. As hitherto, the DTA sale entitlement shall be worked out on the basis of p hysical exports only.
DTA sale by software units
7. Prior to revision, under para 9.9 (g) of the Policy, the software units were allowed DTA sale in any mode including on-line data communication upto 50% of FOB value of exports. Under the amended provision, DTA sale of service upto 50% of foreign earned against sale of such services has been allowed. It means that in case services are sold in DTA against foreign exchange, the unit shall be entitled to DTA sale upto 50% of foreign exchange earned against such sale of services.
Supplies to bonded warehouses authorised to carry out manufacturing operations in bond
8. As per Paragraph 9.10 (d), supplies to bonded warehouses set up under 11.14 of the Policy are counted towards fulfillment of NFED and export performance. In the same paragraph, an amendment has been made to include bonded warehouses authorized to carry out manufacturing operations in bond under Section 65 of the Customs Act, 1962, meaning thereby that supplies made by EOU/EPZ/EHTP units of these warehouses shall also be counted towards fulfillment of export obligation and NFEP. As per the existing notifications, supplies from EOU/EPZ/EHTP units to bonded warehouses registered or appointed under Notification No. 26/98-CE (NT) dt. 15.7.1998 are allowed without payment of duty. Notifications governing duty free import/procurement by EOU/EPZ/EHTP units have been amended suitably to allow supplies from these export oriented units to warehouses authorised to carry out manufacturing operations in bond under Section 65 of the Customs Act, 1962 and under Manufacture and Other Operations in Warehouse Regulations, 1966, without payment of duty.
Supplies to foreign missions/diplomats
9. Presently, under Para 9.10 (f) of the Export and Import Policy, supply of goods to defence and internal security forces are counted towards fulfillment of export obligation and NFED provided they are entitled to duty-free import of such items. This paragraph has been amended to include foreign missions/diplomats, meaning thereby that supplies made by EOU/EPZ/STP/EHTP units to missions/ diplomats, who are entitled to duty free import of goods, shall also be counted towards fulfillment of export obligation and NFEP.
Sub-contracting on behalf of DTA units
10. Under para 9.17 (d0, the EOU/EPZ units in specific sectors were allowed to undertake job work for export on behalf of DTA units. This paragraph has been amended to extend this facility to all sectors. It has also been provided that DTA units shall be entitled to brand rate of duty drawback.Online GST Certification Course by TaxGuru & MSME- Click here to Join
11. The EOU/EPZ units in textiles, ready made garments and granite sectors were allowed to undertake job work on behalf of DTA units by Board’s Circular 69/98-Cus, dated 14th September 1998. This facility was subsequently extended to the EOU/EPZ units in aquaculture, animal husbandry, hardware, software sector vide Board’s Circular No. 74/99-Cus, dated 5th Nov. 1999. Now, it has been decided to extend this facility to EOU/EPZ units in all sectors. Further, it has been decided that the DTA units shall be entitled to avail of the brand rate of duty drawback for such jobwork undertaken by EOUs/EPZ units concerned. Board’s Circular 67/98-Cus, dated 14.9.1998 and 74/99-Cus, dated 5.11.99 stand modified to the above extent.
Disposal of Capital goods
12. Para 9.19 of the Exim Policy has been amended to allow destruction of obsolete capital goods and spares without payment of duty with prior permission of Customs. To align with the revised provision of the Policy, all notifications governing duty free import/procurement by EOU/EPZ/EHTP units have been amended suitably to provide that destruction of capital goods shall be allowed by the Assistant/Deputy Commissioner of Customs/Central Excise in charge of the EPZ/EOU/STP/EHTP units without payment of duty. Such destruction shall be carried out in the presence of Customs/Central Excise officer inside the Zone or outside the Zone/unit, where it is not permissible or possible to carry out destruction within the Zone/unit. The officers supervising destruction may exercise due caution to ensure that capital goods are destroyed fully rendering them unit for further use and give certificate to that effect. After destruction of capital goods, if the remains have scrap value, the same may be cleared by the unit in DTA on payment of duty applicable to scrap.
Replacement/Repair of imported/indigenous goods
13. Paragraph 9.24 has been amended to allow replacement of goods imported and found to be
Duty-free import facility for additional items
14. Paragraph 9.8 of HOP [Handbook of Procedures, Vol.1] provides the list of items, which are allowed to be imported duty free by EOU/EPZ/STP/EHTP units for the purposes specified in the Policy. This Paragraph has been revised to include additional items, such as, uninterrupted power supply (UPS) system, pollution control equipment, quality assurance equipment, storage systems, special racks for storage, modular furniture, computer furniture, anti-static carpet, tele-conference equipment, servo control systems, air-conditioners, panel for electricals, security systems etc. The notifications governing EOU/EPZ/EHTP/STP Schemes have been amended for extending duty free facility to above items. The same may be perused for further details.
Special provisions for granite sector under EOU/EPZ Scheme
15. Under paragraph 9.10(a) of the HOP [Handbook of Procedures, Vol.1], agricultural and allied sector units in EOU/EPZ are allowed to supply/transfer capital goods and other inputs in the farms/fields. In the revised HOP [Handbook of Procedures, Vol.1], the paragraph has been amended to allow granite sector units in EOU/EPZ to transfer/supply capital goods and inputs to the quarries with prior intimation to the jurisdictional Assistant/Deputy Commissioner of Customs. To effect the above changes, two separate notifications (Nos. 58/2000-Cus, dt. 8.5.2000 and 38/2000-CE, dated 8.5.2000) have been issued to allow granite sector units in EOU/EPZ Scheme to import/procure specified capital goods, equipment and inputs etc. duty free and to use them in their own quarries. The granites so quarried would be brought back to the EOU/EPZ units for further manufacturing/processing and export thereof. This facility of duty free import/procurement of equipment for quarrying of granite shall be available only to the units which have a manufacturing/processing unit operating under EPZ or EOU Scheme. The granite so quarried shall not be allowed to be exported as such and shall be transferred to the processing unit of the importer/user industry (in case of procurement) operating under EOU/EPZ Scheme. However, the granite so quarried may be supplied to other granite processing EOU/EPZ units without payment of duty. The granites quarried shall not be allowed to be sold in DTA. The granite manufacturing/processing units under EOU/EPZ Scheme would be governed by notifications applicable to EOU/EPZ units and the granite quarrying unit shall be governed by the notification Nos. 58/2000-Cus, dated 8.5.2000 and 37/2000-CE, dated 8.5.2000 referred to above.
Disposal of scrap/waste/remnants
16. As per para 9.30 of the HOP, scrap/waste/remnants arising out of the production upto 5% of FOB value of exports are allowed to be sold in DTA. In case waste/scrap/remnants generated is more than 5%, it shall be approved by Development Commissioner in accordance with the norms provided in Appendix 41 of HOP. In the revised edition of HOP, the limit i.e. 5% of FOB value of exports has been withdrawn. The waste/scrap/remnants shall be allowed as per the norm stipulated in Appendix 41 of HOP. For items not covered by Appendix 41, the norms shall be fixed by the Board of Approval.
Depreciation norms for capital goods
17. As per para 9.35 of HOP, at the time of debonding, depreciation upto 90% is allowed in respect of capital goods. The maximum limit (i.e.90%) is achieved over a period of 8 years. For computer and computer peripherals, accelerated depreciation was allowed i.e. the limit of 90% was achieved over a period of 4 years and 3 months. Under the revised HOP, further accelerated depreciation for computers and computer peripherals has been provided i.e. maximum limit of 90% would be achieved over a period of 2 years and 9 months in lieu of 4 years and 3 months as at present. Board’s Circular 27/98-Cus, dated 21.4.98, provides depreciation norms for computer and computer peripherals upto the limit of 90%, and for the capital goods other than the computers upto a limit of 75%. Circular 27/98-Cus, dated 21.4.98 was subsequently modified by circular No. 43/98-Cus dated 26.6.98 in order to provide depreciation to capital goods other than computer and computer peripherals upto a limit of 90%. To implement the changes made in the HOP, it has been decided to allow a further 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 and thereafter @||5%|
|Subject to a maximum of 90%|
Circular Nos. 27/98 dated 24.4.98 and 43/98-Cus dated 26.6.98 stand modified to the above extent.
Powers of approval of Development Commissioner
18. At present, under Paragraphs 9.37 of the HOP, DG sets upto capacity of 1000 KVA is approved by Development Commissioner (DC) and of capacity beyond 1000 KVA is approved by Board of Approvals. This Paragraph has been amended so as to allow the DC to permit import/procurement of DG sets without any limit in regard to the capacity of such sets. All notifications governing EOU/EPZ/EHTP/STP Scheme have been amended suitably to reflect the above change.
Allowing Export of Call Centre Services under STP scheme
19. The notification Nos. 138/91-Cus and 140/91-Cus both dated 22.10.91, governing STP scheme presently allow duty free imports for certain purposes viz. Development of software, data entry or data conversion, data analysis and control or data management for export out of India. Call Centre Services are not listed in the notification as one of the specific purposes. In recent past, a number of proposals has been received regarding setting up of units under STP scheme for the purpose of export of Call Centre Services in addition to development of software. Considering that the Call Centre Service is a growing area of export and has substantial potential for foreign exchange earning, notification Nos. 138/91-Cus and 140/91-Cus both dated 22.10.91 have been amended to include Call Centre Services as one of the purposes under STP scheme.
Duty free import of DG Set by STP Units
20. Hitherto, STP units were not allowed to import captive power plants and captive generating sets duty free under notification Nos. 138/91-Cus and 140/91-Cus, both dated 22.10.91. However, the same was allowed under notification No. 1/95-CE, dated 4.1.95. In order to provide a uniform Policy in this area, notification Nos. 138/91-Cus, dated 22.10.91 and 140/91-Cus, dated 22.10.91 have been amended so as to allow STP units to import captive power plants and captive generating sets without payment of duty.
Duty free import of Additional Items for Software Exports
21. Notification No. 153/93-Cus, dated 13.8.93, allows duty free import of telematic infrastructural equipment for software exports under the STP scheme. The equipments imported under this notification are used for creating a Central facility for the purpose of export of software. Ministry of Information Technology has requested for inclusion of additional items, which are stated to be required for setting up of STP Complexes. These additional items are uninterrupted power supply, diesel generating sets, servo control system, air conditioner, private automatic branch exchange, fax machine, video projection system, security system, computer furniture, tool, kits, and spares for the above. Accordingly, notification No. 153/93-Cus, dated 13.8.93 has been amended to allow duty free import of the additional items as mentioned above.
Duty Free Import/Procurement of Accessories of Capital Goods under EOU/EPZ/STP/EHTP Scheme
22. The notifications governing duty free import/procurement of goods by EOU/EPZ/STP/EHTP units allow duty-free import of capital goods and spares. However, in these notifications, there is no specific entry for accessories of capital goods. The notifications have since been amended to allow import/procurement of accessories of capital goods. The notifications have since been amended to allow import/procurement of accessories of capital goods also.
Furnace Oil for Boilers
23. Notification Nos. 133/94-Cus, dated 22.6.1994, 53/97-Cus, dated 3.6.97 and 1/95-CE, dated 4.1.95, provide for duty free import/procurement of furnace oil for boiler in textile units only. The Ministry of Commerce has requested that the boiler is required for units other than textiles also. It has also been pointed out that notification No. 126/94-CE, dated 2.9.94, does not allow duty free procurement of furnace oil even for the textile units. The matter has been considered, and notification Nos. 133/94-Cus, dated 22.6.94, 53/97-Cus, dated 3.6.97, 1/95-CE, dated 4.1.95 and 126/94-CE dated 2.9.94 have been amended to allow duty free import/procurement of furnace oil for boilers in an EOU/EPZ units.
Import/Procurement of HSD for Aquaculture and Agriculture Sector
24. Aquaculture and agriculture sector EOUs operate under notification Nos. 196/94-Cus dated 8.12.94 & 10/95-CE dated 23.2.95 and 126/94-Cus, dated 3.6.94 & 136/94-CE, dated 10.12.94 respectively. These units are not amendable to physical bonding. Therefore, the units are allowed to import/procure duty free only some specified goods. HSD is not included in the duty free import category. Ministry of Commerce have been requesting persistently that HSD is an essential item required by the aquaculture and agriculture units and, therefore, it should be allowed duty free. Considering the erratic power situation in the country and the fact that the units are allowed to import/procure DG sets duty free, it has been decided to allow duty-free import/procurement of HSD by the aquaculture and agriculture sector on the basis of the recommendation of the Board of Approval. In other words, BOA will fix norms for each unit on the basis of which duty-free import/procurement of HSD should be allowed. The units importing/sourcing indigenously duty free HSD shall maintain proper account of import/procurement and utilisation of such duty free HSD, in the same way as accounts of duty free imported/indigenously sourced goods are being maintained by any other bonded EOUs. Notification Nos. 196/94-Cus, dated 8.12.94, 10/95-CE dated 23.2.95 and 126/94-Cus, dated 3.6.94, 136/94-CE dated 10.12.94 have been amended to allow duty free import/procurement of HSD for use in the diesel generating sets by aquaculture/agriculture sector EOUs, on the recommendation of the Board of Approvals.
25. In the notifications governing duty free procurement of indigenous goods by EOU/EPZ, there is a provision that the EOU/EPZ units are allowed to clear the goods (including rejects, wastes, scraps and remnants) into DTA on payment of appropriate duty of excise. In Budget 2000-2001, notification No. 1/95-CE, dated 4.1.95, governing duty free procurement of indigenous goods by EOU/EHTP/STP units has been amended to provide that the goods so cleared into DTA which are not excisable, excise duty equal in amount to that leviable on the inputs obtained under this notification and used for the purpose of manufacture of such articles, which would have been paid but for the exemption under this notification, shall be payable at the time of clearance of goods. Similar amendments have been carried out in notification Nos. 126/94-CE, dated 2.9.94, 136/94-CE dated 10.11.94 and 10/95-CE dated 23.2.95 in order to achieve uniformity in provisions of all the notifications.
26. Wide publicity may be given to the above changes by issue of a Public Notice in this regard.
27. Difficulties, if any, faced in understanding or in implementation of the above changes, may be brought to the notice of the Board at an early date.