Circular No. 33/2004-Customs
12th May, 2004
F. No. 314/24/2001-FTT( PT-V)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
Sub: Operationalisation of the Provision of Chapter X A of the Customs Act, 1962- Issuance of SEZ Rules and Regulations- Reg
I am directed to invite your attention on the Board’s Circular No 68/2003-Cus dated 30-7-2003 on the above subject. Chapter XA of the Customs Act,1962, has now come into force with effect from 11-5-2004.
2. As provided in the Chapter XA of the Customs Act, 1962, the Special Economic Zone Rules, 2003, and Special Economic Zone (Customs Procedure) Regulations, 2003, which were notified earlier have also come into effect from this date. (Ref: notification Nos. 52/2003-Customs (NT) and 53/2003-Customs (NT), both dated 22-7-2003). However, in order to liberalise the procedures further, the SEZ Rules and Regulations have been amended vide notifications Nos 61/2004-Csu(NT) and 62/2004-Cus(NT) both dated 11.5.2004. The important features of these amendments are explained below :-
3. The important features of amendments of SEZ Rules, 2003, are as under:-
Earlier Rule 9 provided that depreciation would be allowed @20% per annum for ‘computer and computer peripherals’ and for ‘capital goods other then computer and computer peripherals’, the rate of depreciation is @ 10% per annum. The rule has been amended to provide a different rate of depreciation now for which the notfn may be referred to. The depreciation will be allowed in straight line method. For the purpose of computing rate of depreciation for any part of a quarter, full such quarter shall be taken into account. Value for charging duty at the time of removal of capital goods would be based on the depreciated value and not on the transaction value. There will be no upper limit for depreciation. In other words 100% depreciation is permissible.
Earlier it was provided that SEZ unit could transfer only manufactured goods and capital goods to EOU/EHTP/STP/SEZ. Rule 11 has now been amended to allow transfer of all goods to EOU/EHTP/STP/SEZ. However, transfer of raw materials to EOU/EHTP/STP and other SEZ should be allowed only in those cases where the SEZ units are unable to utilise the raw material for a valid reason [ Also refer paras 7.11.and of the EXIM Policy read with para 19.1,19.2 and 28.1 of the HandBook of Procedures]. Sale of unutilized raw materials to a DTA unit or to another EOU/EPZ/EHTP/STP unit can arise only in exceptional cases and can not be a regular basis.
It has also been provided that in case the goods procured by SEZ Unit from DTA are transferred, directly or via another SEZ, to EOU/EHTP/STP, as it is, or after subjecting them to processes not amounting to manufacture, the SEZ units would be required to pay back the duty drawback or DEPB benefits which was taken at the time of procurement of such goods from DTA either by the DTA unit or the SEZ unit, as the case may be. This provision has been introduced to ensure that supplies from DTA to EOU/EHTP/STP do not get benefit of DBK or DEPB indirectly.
In rule 12 , earlier there was a provision that in case of destruction of goods procured from DTA, the SEZ unit shall be liable to pay back the export benefits allowed against such goods. However, the rule has been amended so as to provide that where payment for such goods have already been made in foreign exchange, the SEZ unit will not be liable to repay back the export benefits taken against such goods. However the scrap generated through such destruction would be assessed on merits. E.g. if the scrap is HMS it will pay duty under heading 7204.4900 if cleared to DTA.
The SEZ units are now not required to submit any separate return to the jurisdictional customs. They are only required to endorse a copy of the annual/ quarterly return which they submit to the concerned Development Commissioner in the format as specified in Appendix 14-IF of HOP. Rule 14 has been amended to this effect.
The SEZ unit or a developer would be required to execute a bond with the Deputy Commissioner or Assistant Commissioner of Customs instead of Commissioner of Customs. Rule 18 has been amended to this effect.
Monitoring of the SEZ would now be done by jurisdictional customs through the Unit Approval Committee of the Zone where the jurisdictional Commissioner of Customs will be represented. Rule 19 has been amended accordingly.
In the event of closure of an SEZ, goods may be transferred to EOU/EHTP/STP or another SEZ without payment of duty subject to restrictions as mentioned in clause 3(ii) above. Rule 20 has been amended accordingly.
4. The important features of amendments of SEZ Regulations, 2003 , are as under:-
In the original SEZ regulations, it was provided that two or more zone units shall not be allowed to operate from the same ‘premises’. Since the term “premises” is subject to different interpretations, Regulations 3 has been amended to provide that each unit would be ‘a distinct establishment and identifiable or distinct and partitioned from other zone unit’.
Regulation 10 has been amended to provide that where goods are procured from DTA by SEZ unit or the developer and where no export benefit has been obtained or where such goods or sale proceeds are not counted towards fulfillment of export obligation under any export promotion scheme , admission of goods would be allowed against ‘Domestic procurement Certificate’ and ARE-I and there would be no requirement for filing any Bill of Export. For detailed procedure the relevant provision of the regulations may please be referred to. However , where the duty paid goods are procured from Domestic Tariff Area and no duty concession or export incentives are being claimed against such supplies the goods shall be allowed admission into the zone on the basis of invoice issued by the supplier of the goods and connected transport documents, if any.
The procedure for transfer of manufactured goods or capital goods from one zone unit to another zone unit as envisaged in earlier regulation 12 would also apply in case of transfer of raw material from one zone unit to another zone unit. Regulation 12 has been amended accordingly.
In respect of export of gem and jewellery through personal baggage, the SEZ unit shall not be required to submit advance remittance certificate . Regulation 15 has been accordingly amended
In respect of exchange of jewellery, wastage would be allowed. Regulation 20 stands amended to that effect.
As explained above at para 3(ii), rule 11 has been amended so as to provide transfer of raw material also alongwith manufactured goods and capital goods from a zone unit to EOU/EHTP/STP/SEZ. Corresponding changes have been made in Regulation 21.
Goods procured by a zone unit from DTA , when supplied back to DTA, are to be considered as re-import and all the procedures and conditions as applicable in case of normal re-import of goods would apply. However, when import duty on such goods is ‘nil’ and no export benefits were taken during procurement of such goods, in such cases , the goods may be allowed to be supplied back to DTA on the basis of invoice only and filing of Bill of Entry etc is not required. Regulation 22(6) has been amended accordingly.
In case of jobwork following important provisions have been introduced in regulation 25 , namely:-
In the regulation 25(1)(iii ), it was earlier provided that while considering application for jobwork the proper officer would ensure that there is no attempt to parcel out ‘substantial manufacturing process’ to DTA. The word ‘substantial’ has been substituted by the word ‘entire’. This entails that the zone unit would not be allowed to parcel out entire manufacturing activity in DTA in the name of jobwork.
In addition to the status holders, units having unblemished track record, which have not come to the adverse notice of Customs authorities for a period of at least last two years are also exempted from furnishing security/bank guarantee for taking goods into DTA for the purpose of jobwork.
Earlier there was provision that SEZ unit could subcontract production only up to a limit of 50% of FOB value of exports made in the previous year. However, this limitation in respect of subcontracting of production has been withdrawn. However, the zone unit should have the production facility in the zone and only to meet excess demand etc sub-contracting of production should be allowed.
Where the duty free goods procured from DTA are destroyed due to natural calamities and where export benefits have been allowed against such goods, the SEZ units would not be required to pay back the export benefits provided the payment for such goods have been made by the SEZ unit in foreign exchange. Regulation 28(2) has been amended to this effect.
The bond executed by the SEZ unit would be a running bond. Debiting and crediting of the bond would now be done on quarterly basis instead of transaction basis . The bond value would be equal to 25% of duty forgone on the sanctioned requirement of capital goods to be procured or imported duty free, plus duty on raw materials to be held in stock for three months by the zone unit. The unit having a turn over of rupees one crore or above or a unit which is in existence for more than a period of three years with an unblemished track record, would be exempted from furnishing surety or security. Regulation 29 has been amended accordingly.
The developer of SEZ is now not required to apply to any Committee for duty free import or procurement of goods. The requirement of goods shall be assessed by a Chartered Engineer and approval would be given by the concerned Development Commissioner. On the basis of approval given by the Development Commissioner, the jurisdictional Deputy Commissioner or Assistant Commissioner would allow duty free import or procurement of goods by the developer for the purpose of authorized operations. The developer would be required to submit certificate of utilisation of duty free goods from a Charterd Engineer other than one who assessed the requirement of goods, within six months of every import or procurement of goods, to the Development Commissioner. In addition , other conditions as specified in the regulation would be required to be followed. It may be noted that in the case of new zones , there would be no regular Deputy Commissioner or Assistant Commissioner of Customs in the zone. Hence all the functions of Deputy Commissioner or Assistant Commissioner under the regulation 33 would be exercised by the jurisdictional Deputy Commissioner or Assistant Commissioner customs. However, once a regular Deputy Commissioner or Assistant Commissioner of customs is posted in the zone, such functions would be exercised by the Assistant Commissioner customs in the zone.
5. In Circular No 68/2003-Cus dated 30-7-2003 it was clarified that motor vehicles for personal use or goods for consumption by the workers, staff and officials of the SEZ unit / SEZ developer can not be admitted into the SEZ without payment of duty [Rule 5(2)]. Please note that there will be no restriction on movement of duty paid vehicles in & out of the SEZ for use by the units or their employees. This position is once again reiterated.
6. Board’s Circular 68/2003-Cus dated 30-7-2003 stands modified to the above extent.
7. In regulation 17 , it has been provided that in case of export of goods for participation in exhibition abroad, the goods would be subject to examination following the same procedure as applicable in the case of normal import or export. It has been decided that in case of gem and jewellery consignments examination of goods would be restricted to 10% for both inwards and outwards consignments, at random. The other conditions remain unaltered.
8. Please note that on the operationalisation of Chapter XA of the Customs Act, 1962, along with the attendant Rules and Regulations, Drawback, DEPB and other export benefits would be available in respect of supplies from DTA to SEZ subject to fulfillment of relevant provisions of the EXIM Policy and Customs and Central Excise laws (including notifications).
9. For sanction and payment of Drawback your attention is invited to Board’s Circular no 24/2003-Cus dated 1.4.2003.
10.Wide publicity may be given by issue of a Public Notice in this regard.
11. Kindly acknowledge receipt of this Circular.
12. Hindi version follows.
Sr. Technical Officer (FTT)
Tel. No. 011-23093859