New Foreign Trade Policy was expected w.e.f. 1st April 2020 addressing the issues, which was raised by USA against India before WTO Authority and WTO Authority have held the EPCG Scheme, DFIA Scheme, EOU Scheme and SEZ Scheme violating the principles of WTO. Albeit Govt of India have filed the appeal against the same and simultaneously perhaps preparing contingency plan in spite of the facts, grounds of appeal made by Indian Govt are very strong. Therefore in 2019, Govt has rescinded earlier regulation namely Manufacture and Other Operations in Warehouse Regulations, 1966 and issued the new Notification 69/2019-Customs (N.T.) dated the 1st October, 2019 and notified Manufacture & Other Operations in Warehouse (No. 2) Regulations 2019.

Similarly, Govt of India further notified Manufacture and Other Operations in Special Warehouse Regulations, 2020 vide Notification No. 75 /2020-Customs (N.T.) dtd 17th August 2020 for specified products like Gems and Jewelry etc. This is definitely a welcome step and covers bonded warehouse set up under Section 58A of Customs Act 1962. We give below comparative analysis of EOU Scheme, manufacture & other operations in bonded warehouse and domestic unit which will beneficial to the exporters to decide better scheme to opt based on convenience and cost benefit analysis.

SNO CRITERIA EOU / STP / EHTP / BTP Manufacture and Other Operations in Bonded Warehouse DTA
1 Eligibility Any person – For manufacture of goods, including repair, re-making, reconditioning, re-engineering, rendering of services, development of software, agriculture including  agroprocessing, aquaculture, animal husbandry, pisciculture, viticulture, poultry and sericulture. No trading units shall be permitted. Any person can set up the unit for manufacturing in warehouse and start operations.

Existing unit also can convert into manufacture in private bonded warehouse subject to approval from Principal Commissioner

Any person – Manufacturer / Merchant exporter / Service Provider / Traders
2 Approving Authority Development Commissioner, SEZ. However, for other than specified services, Board of Approval Principal Commissioner of Customs Regional DGFT Authorities for Advance Authorisation and / or Commissioner of Customs for Drawback
3 Location Any location Any location Any location
4 Investment Criteria Investment minimum of Rs.1 crore in plant and machinery, however no criteria for conversion of existing units. No criteria No criteria
5 Conversion to any Scheme Allowed, However, there is no clear provision in FTP about conversion of EOU into Private Bonded Warehouse without payment of duty. Allowed, subject to permission from principal commissioner on case to case basis Allowed
6 Export Obligation / Export Performance No export obligation, export performance should earn positive Net Foreign Exchange in 5 years. However, for DTA Sale, positive NFE is must. No Export Obligation Yes – 6 times duty saved of Capital goods to be completed in 6 years for Zero duty EPCG
7 Net Foreign Exchange Yes – Positive. Further proportionate Customs and excise duty (For Procurement Prior to 30th June 2017)  saved must be paid along with interest if NFE is less than depreciation already claimed, before exit and hence NFE to the extent of depreciation being claimed is required to ensure no additional impact of duty. Not Required Yes – Positive. The same may differ for various schemes
8 Import / Procurement of Construction Material on original work No duty benefit including no ITC available Not Allowed. No duty benefit including no ITC available
9 Import of CG
  Duty free entitlement Exemption of Basic Customs Duty and customs cess, IGST upto 31st March 2021.

Exemption of Basic Customs Duty and customs cess.  IGST needs to be paid after 31st March 2021 but ITC is available

Exemption of Basic Customs Duty and customs cess, IGST

Exemption of Basic Customs Duty and customs cess.

May be imported under Zero percent EPCG Scheme
  List for Approval Required – LUT with Exemption material list to be given including capital goods. Further list needs to be submitted to the specified Jurisdictional Authority of Customs who will attest it and send one copy to the port of import Any goods received in the warehouse subject to permission of Commissioner of Customs Required – List of capital goods along with spares, if any is to be given at the time of obtaining the EPCG Authorisation
  Nexus Compulsory Compulsory Compulsory
10 Justification for import Required Required Required
11 Import of Office Equipment / EPBX Yes Yes subject to approval of commissioner of customs No
12 Import of Spares Yes Yes Yes – under EPCG Scheme
13 Import of Inputs
 14 Duty free entitlement Exemption of Basic Customs Duty and customs cess, IGST upto 31st March 2021.

Exemption of Basic Customs Duty and customs cess.  IGST needs to be paid after 31st March 2021but ITC is available

Exemption of Basic Customs Duty and customs cess, IGST

Exemption of Basic Customs Duty and customs cess.

Yes – Under various schemes – Advance Authorisation / DFIAS / Refund of Duty Paid through Brand Rate Fixation and Duty Drawback or through All Industry Rate. However, there is no IGST exemption, if imported after exports.
 15 List for Approval Required – LUT with Exemption material list to be given including capital goods. Further list needs to be submitted to the specified Jurisdictional Authority of Customs who will attest it and send one copy to the port of import List to be submitted to Principal Commissioner of Customs Required – List of inputs is to be given at the time of obtaining the Authorisation.

Not required for claiming Duty Drawback under All Industry Rate

16 Nexus Required – LUT with Exemption material list to be given including inputs Required Required
17 Time Limit for Consumption of Inputs Within the period of validity of LOP, i.e. 5 Years No condition specified but under section 61 of Customs Act, 1962, clearance (consumption) has to be made within one year, otherwise duty & interest is applicable N.A.
18 Other Benefits Supply to EOU is considered as Deemed Exports and Deemed Exports benefits are entitled to the Supplier / EOU.

MEIS benefits are also available.

Supplier / EOU is entitled to obtain refund of GST paid on supplies to EOU, which are duty paid.

MEIS benefits are also available. SEIS & MEIS benefits are also available.
19 Input / Output Norms SION required for having reconciliation of Duty free input received, consumed, in stock. SION is also required for payment of Custom Duty and Cess thereon, when Finished Goods are sold in DTA and proportionate duty saved on Inputs will have to be paid before effecting DTA Sale Self-declaration basis subject to no objection from Principal Commissioner Required for Advance Authorisation and Brand Rate Fixation. However, it is not required for drawback under All Industry Rate
20 Rejections Rejections upto 5% No Clarity No limit
21 Clearance of Imported Capital goods
  Permission Required – Permission from Jurisdictional Deputy Commissioner required Required permission from Bond Officer Not required
  Value for clearance > For capital goods procured prior to appointed date, depreciated value to be calculated as specified under Notification 52/2003 dt.31.03.2003 as amended and pay Basic Customs duty and cess along with IGST / CGST + SGST on the same
> For goods procured on or after appointed date, reverse the input tax credit availed after considering 5% reduction per quarter from the date of invoice or pay IGST / CGST + SGST on transaction value, whichever is higher
Same value at the time of importation.

No specific provision on depreciation is so far received.

No payment if Export Obligation is fulfilled
  Duty rate Duty forgone to be calculated on depreciated value and rate at the time of importation. Duty, interest and fine, penalty if any applicable at the time of clearance.

Interest will be applicable from the date of importation till clearance.

Applicable at the time of clearance
22 Clearance of Imported Inputs As such
  Permission Required – Permission from Jurisdictional Deputy Commissioner required Permission from Bond Officer located in the premises
  Value for clearance Import Value Import Value Import Value
  Duty rate Duty forgone to be calculated on depreciated value and rate at the time of importation and to be paid Duty & interest, fine and penalty applicable at the time of clearance.

Interest will be applicable from the date of importation till clearance.

If imported under scheme, then duty saved at time of imports is payable
23 Procurement of Indigenous Capital Goods
  Duty impact On payment of IGST / CGST + SGST and subsequent availment of input tax credit
Refund of GST paid will be entitled either to the supplier or EOU Unit.
On payment of IGST / CGST + SGST and subsequent availment of input tax credit On payment of IGST / CGST + SGST and subsequent availment of input tax credit
  Benefit to supplier Deemed Exports Nil May avail the deemed export benefit
   
24 Procurement of Indigenous Inputs
  Duty impact On payment of IGST / CGST + SGST and subsequent availment of input tax credit
Refund of GST paid will be entitled either to the supplier or EOU Unit.
On payment of IGST / CGST + SGST and subsequent availment of input tax credit On payment of IGST / CGST + SGST and subsequent availment of input tax credit
  Benefit to supplier Deemed Exports – DFIAS / AAS are allowed.

GST refund is allowed to the supplier / recipient as supplies are deemed export under GST.

Nil May avail the deemed export benefit
25 Clearance of Indigenous Capital Goods
  Value for clearance > For goods procured prior to appointed date, depreciated value to be calculated as specified under Notification 22/2003 dt.31.03.2003 as amended and pay Central Excise Duty on the same

> For goods procured on or after appointed date, reverse the input tax credit availed after considering 5% reduction per quarter from the date of invoice or pay IGST / CGST + SGST on transaction value, whichever is higher

> For goods procured on or after appointed date, reverse the input tax credit availed after considering 5% reduction per quarter from the date of invoice or pay IGST / CGST + SGST on transaction value, whichever is higher Transaction value
  Duty Rate Applicable at the time of clearance Applicable at the time of clearance Reverse the input tax credit availed after considering 5% reduction per quarter from the date of invoice or pay IGST / CGST + SGST on transaction value, whichever is higher
26 Sale of Indigenous Inputs
  Value for clearance Purchase Value Purchase Value Purchase Value
  Duty Rate Applicable at the time of clearance Applicable at the time of clearance Applicable at the time of clearance
27 Conditions for period of Consumption Till validity of LOP No condition specified but under section 61 of Customs Act, 1962, clearance (consumption) has to be made within one year, otherwise duty & interest is applicable No limitation
28 Indigenous Office Equipment Duty Free, With approval of BOA. Deemed Export for Suppliers GST to be paid and credit to be availed No Benefits
29 GST on Services GST to be paid and credit to be availed GST to be paid and credit to be availed GST to be paid and credit to be availed
30 Income Tax No exemption

MAT Applicable

No exemption

MAT Applicable

No exemption

MAT Applicable

31 Stamp Duty Exempted only on Immovable Properties Applicable Not Exempted
32 Electricity Duty Exempted for 10 years. Not exempted Not Exempted
33 DTA Sale Allowed without any limit, but Basic Customs Duty saved on inputs will have to be paid back.

In addition to the above DTA sale will be on payment of IGST / CGST + SGST, subject to achieving positive NFE.

Advance DTA sale is also permitted for new unit.

DTA Sale is allowed without any limit and without anybody’s permission. However, on removal of goods duty is required to be paid on import contents in the goods to be removed and it should be against bill of entry for home consumption. No approval is needed.
34 Sub-contracting Part of production process is allowed to be sub-contracted in DTA on filing of intimation. Substantial production process to be done inside EOU. In addition to above, 50% of FOB Value of exports can be sub-contracted totally, if capacities are fully utilised. Sub-contracting may be carried out through another EOU without any limit. Sub-contracting can be done by EOU only for exports No specific provision mentioned in the warehousing regulations. However, it may be allowed with the specific permission of the bond officer Permitted without any limit on filing of intimation
35 Labour Laws Labour reforms are not applicable Labour reforms are not applicable Labour reforms are not applicable
36 Procedures Customs Clearance at the port of import – superficial examination w.r.t. marks and numbers. Customs Clearance at the port of import – superficial examination w.r.t. marks and numbers. Customs Clearance at the port of import – superficial examination w.r.t. marks and numbers.
  Permissions required for sub-contracting, removal / inward movement of goods No provision for sub-contracting, removal / inward movement of goods No other permissions are required
    Digital Record based control control of bond officer Digital Record based control
    Specific office has to be provided to the bond officer for specified goods Gems and Jewellery
    Cost Recovery charges to be paid on monthly basis

Benefit of the new scheme can be summarized below:

  • Single Point Approval
  • Common Form
  • No geographical restriction
  • No Approval from Ministry of Commerce (DGFT / Development Commissioner)

In spite of above, EOU Scheme will have better advantages over manufacturing & other operations in bonded warehouse on account of following:

a) There is record based control in EOU as against physical control of bond officer in manufacture and other operations in bonded warehouse.

b) Depreciation is allowed on the capital goods when removed in EOU as against duty will have to be paid on the value of imports of capital goods in manufacture and other operations in bonded warehouse.

c) There is no specific provision of sub-contracting in in manufacture and other operations in bonded warehouse.

d) Debonding of EOU will be much cheaper than that of exit from manufacture and other operations in bonded warehouse.

e) In EOU there is Provision of Adhoc Norms when Standard Input Output Norms is not fixed , whereas norms will be given by the unit and will be approved by Principal Commissioner and there is no provision of redressal in case of disputes.

Until above difficulties are removed, EOU Scheme will be better to operate and will have better ease of doing business than that of manufacture and other operations in bonded warehouse.

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