Compliances for EOU
Vedavathy Kabadi
Please let me know what are all the statutory compliances that an
export oriented undertaking need to follow.
Thanks & Regards
CS Vedavathy R Kabadi
CS A Rengarajan
regards
Export Oriented Unit Scheme
The EOU scheme was introduced in the year 1980 vide Ministry of
Commerce resolution dated 31st December 1980. The purpose of the
scheme was basically to boost exports by creating additional
production capacity. It was introduced as a complementary scheme to
the Free Trade Zones/ Export Processing Zone (EPZ) Scheme introduced
in the sixties which had not attracted many units due to locational
restrictions. The exporters showed willingness to set up units with
long term commitment to exports under Customs bond operations provided
they had the freedom to locate them in places of their choice and
given most of the benefits as provided to units set up in the Zones.
2. Over the years the Scheme has undergone various changes and
its scope also expanded substantially as compared to the initial
Scheme, which was basically for manufacturing sector with certain
minimum value addition in terms of export earnings. The EOU scheme is,
at present, governed by the provisions of Chapter 9 of the Export and
Import (EXIM) Policy, 1997-2002 and Chapter 9 of the Handbook of
Procedures, Volume-I ( HOP). Under this scheme, the units undertaking
to export their entire production of goods are allowed to be set up.
These units may be engaged in the manufacture, services, development
of software, trading, repair, remaking, reconditioning, re-engineering
including making of gold/silver/platinum jewellery and articles
thereof, agriculture including agro-processing, aquaculture, animal
husbandry, bio-technology, floriculture, horticulture, pisiculture,
viticulture, poultry, sericulture and granites. The EOUs can export
all products except prohibited items of exports in ITC (HS).
3. Under the EOU scheme, the units are allowed to import or
procure locally without payment of duty all types of goods including
capital goods, raw materials, components, packing materials,
consumables, spares and various other specified categories of
equipments including material handling equipments, required for export
production or in connection therewith. Even the goods appearing in the
restricted list of the EXIM Policy (1997-02) are permitted to be
imported. However, the goods prohibited for import are not permitted.
In the case of EOUs engaged in agriculture, animal husbandry,
floriculture, horticulture, pisciculture, viticulture, poultry,
sericulture and granite quarrying, only specified categories of goods
mentioned in the relevant notification have been permitted to be
imported duty-free.
4. The Customs exemption notifications for import & related
Central Excise exemption notification when the goods are procured from
local manufacturing units, prescribe several conditions to be
fulfilled by the beneficiaries keeping in view the objective of the
Scheme and to prevent abuse. Working in Customs Bond is one of the
essential prerequisite-there being few exceptions. They also provide
various flexibilities in the matter of taking out the materials for
jobwork, interunit transfer. The EOUs are required to achieve the
minimum NFEP (Net Foreign Exchange Earning as a Percentage of Exports)
and the minimum EP (Export Performance) as per the provisions of EXIM
Policy. The NFEP and EP varies from sector to sector. As for instance,
the units with investment in plant and machinery of Rs.5 crore and
above are required to achieve positive NFEP and export US$ 3.5 million
or 3 times the CIF value of imported capital goods, whichever is
higher, for 5 years. For electronics hardware sector, minimum NFEP has
to be ‘positive’ and minimum EP for 5 years is US$ 1 million or 3
times the CIF value of imported capital goods, whichever is higher.
NFEP is calculated cumulatively for a period of 5 years from the
commencement of commercial production according to a prescribed
formula.
5. The EOUs are licensed to manufacture goods within the bonded
premises for the purpose of export. As per the policy, the period of
bonding is initially for five years, which is extendable to another
five years by the Development Commissioner. On completion of the
bonding period, it is for the unit to decide whether to continue
under, or to opt out, of the scheme. The imported capital goods are
allowed to be warehoused for a period of 5 years. For other goods, the
warehousing period is one year, which can be extended further by the
Commissioner / Chief Commissioner of Customs. On an application being
made by the unit, extension of the time limit is granted in all cases
unless there is malafide and diversion of duty free materials. As on
31-3-2001, there are about 1350 EOUs functioning in the country.
Monitoring and Administrative Control :
6. The EOUs basically function under the administrative control
of the Development Commissioner of the Export Processing Zones, whose
jurisdiction has been notified by the Ministry of Commerce. In all,
there are seven Development Commissioners at Mumbai, Gandhidham,
Chennai, Cochin, Vizag, Noida and Calcutta, who supervise the
functioning of the EOUs and eight Export Processing Zones/Special
Economic Zones in the country. The Development Commissioners of the
EPZs/SEZs are the Licensing Authorities in respect of units under the
EOU Scheme, as per specified territorial jurisdiction as indicated in
the Export and Import Policy.
7. The provisions of the Customs and Central Excise law in
respect of the EOUs are administered by the Commissioners of Customs
and Central Excise, who work under the control of Central Board of
Excise & Customs. The work relating to EOUs is handled by the staff of
jurisdictional Commissioner of Central Excise. However, in the case of
EOUs located in port cities/towns or within the municipal limits of
port cities/towns, the work is handled by jurisdictional Commissioner
of Customs, Seaport. (Reference Board’s Circular Nos. 72/2000-Cus,
dated 31-8-2000 and 87/2000-Cus, dated 2-11-2000.)
8. For setting up of an EOU, three copies of the application in
the prescribed form are required to be submitted to the Development
Commissioner. In certain cases, approval of the Board of Approval
(BOA) is required. Applications for setting up of Electronic Hardware
Technology Park/Software Technology Park units are submitted to the
officer designated by the Ministry of Information Technology for this
purpose. After approval of the application and issuance of Letter of
Permission, the applicant is required to execute a legal undertaking
with the Development Commissioner/Designated Officer concerned within
the prescribed time period. On execution of legal undertaking, a green
card is issued to the unit.
9. On the policy front, all decisions relating to the EOUs are
taken by the Board of Approvals (BOA), set up under the Ministry of
Commerce. The BOA is chaired by the Secretary, Ministry of Commerce
and includes the Chairman, C.B.E.C. or his nominee as a member. In the
case of units engaged in manufacture of electronic hardware and
software, the policy decisions are taken by the Inter Ministerial
Standing Committee (IMSC) set up under the Ministry of Information
Technology and the same are implemented through its Designated
Officers. Chairman, C.B.E.C. or his nominee is a member of the IMSC.
The availability of any benefit under Customs or Central Excise Acts
or the notifications issued thereunder has, however, to be determined
by the Commissioner of Customs or Central Excise having
jurisdiction-guided by CBEC in areas of doubt. Appropriate inter
Ministerial liaison is maintained for ensuring uniformity as far as
possible in the Exim Policy provisions and the provisions built in the
relevant Customs & Central Excise notifications.
Customs Bonding of EOUs :
10. The premises of EOU are approved as a Customs bonded
warehouse under the warehousing provisions of the Customs Act. The
manufacturing and other operations are carried out under customs bond
and the unit bearing appropriate charges for officers on cost recovery
basis. In case of units in Aquaculture, Horticulture, Floriculture,
Granite quarrying etc exemption from bonding is given for
administrative reasons with certain other safeguards being put in
place to check that duty free benefits where availed are not abused.
The EOUs are required to execute a multipurpose bond with surety/
security with jurisdictional Customs/ Central Excise officers.
(Reference Board’s Circular No. 15/95-Cus, dated 23-2-1995)
Customs and Central Excise Notifications relating to EOU Scheme:
11. To enable EOUs to import / procure locally their
requirement of raw materials, capital goods and office equipment etc.
duty free, a number of Customs and Central Excise notifications have
been issued by the Ministry of Finance. These notifications specify
the different categories of items allowed to be imported / procured
duty free as well as the conditions thereof. The notifications are as
under:
(i) General activity of manufacture, production, packaging of products
and service activities for export- Notification Nos. 53/97 Cus dated
3.6.97 and 1/95-CE, dated 4-1-1995.
(ii) Software technology products for export- Notification Nos. 140/91
Cus, dated 22.10.91 and 1/95-CE, dated 4-1-1995.
(iii) Electronic hardware products for export- Notification Nos. 96/93
Cus, dated 2.3.93 and 1/95-CE, dated 4-1-1995.
(iv) Floriculture, Pisciculture etc. for export- Notification Nos.
126/94-Cus dated 3.6.94 and 136/94-CE, dated 23-2-1995.
(v) Aquaculture for export- Notification Nos. 196/94 Cus dated 8.12.94
and 10/95-CE, dated 8-12-1995.
(vi) Gold, silver and jewellery products for export- Notifications No.
277/90-Cus dated 12.12.90.
(vii) Granite quarrying for export– Notification No. 58/2000-Cus,
dated 8-5-2000 and 37/2000-CE, dated 8-5-2000.
General Conditions of Duty free Import:
12. The facility of duty free import (extending exemption both
from basic & countervailing duty) is subject to certain general
conditions in accordance with the EXIM Policy and these are summed up
as follows:
(i) The goods are required to be imported into the EOU premises
directly. However, Granite Quarrying units, agriculture and allied
sector units are allowed to supply /transfer the capital goods and the
inputs in the farms/fields with prior permission of Customs.
(ii) Prior to undertaking import / local procurement duty free, the
unit is required to get their premises customs bonded. The unit is
also required to execute a B-17 bond with surety/ security with
jurisdictional Customs/ Central Excise officers and take out a licence
under section 58 of the Customs Act, 1962.
(iii) The goods, except capital goods and spares, are required to be
utilised within a period of one year or within such period as may be
extended by the Customs authorities.
(iv) The importer is required to maintain a proper account of the
import, consumption and utilisation of all imported/locally procured
materials and exports made and submit them periodically to the
Development Commissioner/ Customs.
(v) The importer is required to achieve minimum NFEP/export
performance as per the provisions of EXIM Policy.
(vi) The importer is required to abide by the terms and conditions of
the Letter of Permission/Letter of Intent /Industrial Licence issued
to the unit.
However, the sector specific customs / excise duty exemption
notification(s) have certain additional conditions, which are also
required to be followed by the units.
B-17 Bond :
13. All the EOUs are required to execute a single all purpose
bond i.e B-17 bond undertaking themselves to fulfil the conditions
stipulated in the exemption notification of EOU scheme. This bond is
taken to take care of the interests of revenue arising out of goods
lost in transit, goods taken into Domestic Tariff Area for job work/
repair/ display etc but not brought back etc. The bond is executed
with the jurisdictional Assistant Commissioner of Customs/Central
Excise in charge of the unit. The format of the bond is prescribed
vide notification No. 6/98-CE ( NT) dated 2-3-1998. The bond covers
the activities which include, inter alia, transhipment of import
/export goods between port of import/export and units' premises;
duty-free import/procurement from the indigenous sources as per
relevant notification and warehousing/storage in the unit; movement of
duty-free goods for job work and return; temporary clearance for
repair and display in exhibitions, testing/approvals etc.; and
movement of goods against AR-4, AR-3A and CT-3 etc. and transfer from
one warehouse to another. However, it does not cover the differential
duty amount against advance DTA sale for which a separate bond is to
be executed. The bond is taken for an amount equal to 25% of the duty
forgone on the sanctioned requirement of capital goods plus the duty
forgone on raw materials required for 3 months. Surety or security
equivalent 5% of the bond amount in the form of bank guarantee is
required to be given by the EOUs.
(Reference Board’s Circular Nos. 14/98-Customs, dated 10-3-1998,
42/98-Cus. dated 19-6-1998, 66/98-Cus, dated 15-9-98, 76/99-Cus, dated
17-11-1999, and 50/2000-Cus, dated 24-5-2000).
Import and Export Procedure :
14. With regard to clearance of import cargo, the EOUs are
placed in a special category, eligible for fast track or green channel
clearance through the Customs. Clearance of import consignments is
allowed at the gateway port/ Aircargo Complexes on the strength of
procurement certificate issued to the EOU by the jurisdictional
Assistant Commissioner/Deputy Commissioner. In general, the EOU cargo
is not examined at the gateway port. In case of loose cargo, marks &
numbers on the packages are verified. As for sealed containers, the
seal number and container number are verified with the Bill of Lading.
If the seal is found intact, the container is allowed clearance. The
imported cargo so cleared and brought into the unit’s premises are
examined by the jurisdictional Customs/Central Excise officials. After
examination (percentage check only), the goods are allowed to be used
for export production. Re-warehousing certificate is to be submitted
to the Assistant Commissioner/Deputy Commissioner in charge of the
port of import within 90 days of the issue of procurement certificate.
On the export side, the units having status of a Super
Star Trading House, Star Trading House, Trading House, and Export
House are allowed the facility of self-sealing of their export
containers. (Board’s Circular Nos. 63/97-Cus, dated 21-11-1997,
14/98-Cus dated 10-3-98 and 90/98-Cus, dated 8-12-1998.)
Goods Imported /Exported and Found Defective:
15. Subject to grant of GR Waiver by the RBI the EOUs are
allowed to make free replacement of the goods exported by them earlier
and found defective, damaged or otherwise unfit by the overseas buyer.
However, such defective, damaged or otherwise unfit for use goods are
required to be brought back subsequently, to the country. The units
are also allowed to re-import part consignment/full consignment in
case of failure of the foreign buyer to take delivery.
16. The EOUs are also allowed to receive free replacement of
the goods imported and found defective, damaged or otherwise unfit for
use prior to re-export of the same. However, such damaged, defective
goods are required to be re-exported subsequently. In case the
supplier of such goods does not insist for re-exportation, such goods
are required to be either destroyed or cleared into DTA on payment of
full customs duty. (Reference Boards Circular 60/99-Cus, dated
10-9-1999)
Procurement of Goods Indigenously under CT-3 Procedure :
17. The EOUs can procure goods from DTA without payment of
Central Excise duty subject to following of the Chapter X procedure of
erstwhile Central Excise Rules, 1944. Such procurement from DTA is
against CT-3, which is issued by the Superintendent of Customs/Central
Excise in charge of the EOU. Such goods are required to be brought
directly from the manufacturer /warehouse into the unit's premises
under AR3A and examined by the designated officer. After examination
of such goods, one copy of AR-3A is sent by registered post to the
jurisdictional Central Excise authorities as a Re-warehousing
Certificate in token of receipt of the goods in the unit. To avoid
separate permission every time, the EOUs are issued pre-authenticated
CT-3 in booklet form and against such pre-authenticated CT-3, the EOUs
are allowed to procure capital goods, raw materials, consumables etc.
Goods procured from DTA and found to be defective can be returned to
the manufacturer under Chapter X procedure of erstwhile Central Excise
Rules, 1944.
( Reference Board’s Circular No. 24/91-CX-8, dt. 01.07.1991 and
504/70/99 CE, dt. 30.12.99 and Board’s instructions dated 25-7-2001
issued from F. No. 305/121/2001-FTT)
DTA sale :
18. The EOUs ( other than gems & jewellery units) are allowed
to sell goods (including rejects and byproducts) manufactured by them
in DTA upto 50% of FOB value of exports on payment of concessional
duty subject to achievement of prescribed NFEP. However, the DTA sale
facility is not available for certain products such as motor car,
alcoholic liquor, tea (except instant tea), books etc. The EOUs are
allowed to remove the goods into DTA on a invoice. The invoice is used
both as a transport document and also as a document for determining
the assessable value. The EOUs can pay the duty by depositing the same
in an authorized bank or the duty can also be debited from the
Personal Ledger Account if an account current is maintained.
Valuation of Goods Sold in DTA :
19. Section 3 of the Central Excise Act, 1944 provides that the
valuation of goods manufactured in the EOU and cleared into DTA is to
be done in accordance with the provisions of the Customs law. Thus,
when the invoice price of the goods under assessment is in the nature
of transaction value, such invoice value can be accepted. (Board’s
Circular No. 23/84-CX-6 dated 29-5-84 and Instructions issued vide
File No. 268/35/92-CX-8 dated 17-8-94 and Circular No. 330/46/97-CX
dated 20-8-97).
Levy of Central Excise Duty on Goods Produced or Manufactured by EOUs
and Cleared into Domestic Tariff Area :
20. In terms of section 3 of the Central Excise Act, 1944, the
excise duty leviable on goods manufactured in an EOU/EPZ unit and
cleared into Domestic Tariff Area is the amount equal to the customs
duty leviable under section 12 of the Customs Act, 1962 or under any
other law for the time being in force on like goods produced or
manufactured outside India, if imported into India. Thus, the measure
of excise duty leviable on goods manufactured in EOU/ EPZs is worked
out exactly in the same manner as applicable to imported goods.
21. On fulfillment of NFEP (Net Foreign Exchange Earnings as
Percentage of Exports) the EOUs other than gem and jewellery units,
are allowed to sell goods including rejects (upto 5% of FOB value of
exports), waste, scrap, byproducts and services in DTA upto 50% of FOB
value of exports at a concessional rate of duty in an amount equal to
50% of Customs duties. Sales beyond 50% attract full duties. It may be
noted that the words "FOB value of exports" refers to physical exports
only. Therefore, the value of deemed exports made by the unit is not
considered while determining the FOB value of exports. However, the
sales made to private bonded warehouses set up under paragraph 11.14
or a trading unit set up under paragraph 9.21 of the EXIM Policy are
taken into account for the limited purpose of arriving at FOB value of
exports by EOU/EPZ units provided payment for such sales are made from
EEFC accounts. (Reference: Notification No.2/95-CE, dated 4.1.1995).
Goods Manufactured from Indigenous Materials in 100% EOUs
22. A concessional duty has been prescribed for goods sold in
DTA which are manufactured entirely out of indigenous materials. In
such cases, the duty charged is the effective rate of excise duty
which is leviable on like goods manufactured & cleared by DTA units.
(Reference: notification No.8/97-CE dated 1-3-97). However, if such
goods manufactured by a DTA unit are fully exempt from excise duty or
are chargeable to ‘nil’ rate of duty, the EOUs are required to pay 30%
of each of duties of customs leviable on similar imported goods.
(Reference: Notification No.13/98-CE, dated 2-6-98).
Clearance of Byproducts, Rejects, Waste and Scrap, Non-excisable Goods, etc.:
23. The DTA clearance of by-products and rejects on
concessional rate duty is not allowed to the EOUs, which have failed
to achieve the prescribed NFEP. In such cases, the EOUs are liable to
pay full duty. Further, in case of these units, DTA clearance of
finished goods is not allowed even on payment of full duty. In case of
waste/scrap/remnants, the same are allowed to be sold in DTA on
payment of concessional rate of duty within overall limit of 50% of
FOB value of exports without insisting on achievement of prescribed
NFEP. In case of sale of scrap/waste/remnants beyond this limit, it is
allowed on payment of full duty. As for DTA clearance of goods
manufactured by the EOUs which are not excisable (e.g. cut flowers)
the duty on inputs and consumables etc. procured/imported duty free
under exemption notifications, which have gone into production of such
non-excisable goods cleared into DTA, is recovered.
Special Concessions for Certain Waste products and Other Goods Cleared
from 100% EOUs :
24. Apart from the above general concessions, special
concessions are available for certain products. As per instance, under
notification No.103/93-CE, dated 27.12.93 rags, trimmings and tailor
cuttings arising in the course of manufacture of readymade garments
are fully exempt from excise duty when cleared into DTA by EOUs. This
is subject to the condition that the percentage of waste material in
the form of rags, trimmings and tailor cuttings does not exceed the
percentage fixed in this regard by the Board of Approval. (Reference:
Notification No. 103/93-CE, dated 27-12-1993). Further, under
notification No. 6/97-CE, dated 1-3-1997, the waste of fish or
crustaceans, mollusks or other aquatic invertebrates falling in
chapter heading 05.01, castor oil cake manufactured from the
indigenous castor oil seeds on indigenous plant and machinery falling
under chapter heading 23.02, guar meal manufactured wholly from
indigenous guar seeds falling under chapter heading 23.01 and yarn of
jute and goods of jute, manufactured from wholly indigenous raw
materials headings 53.07, 53.10, 5702.12, 5703.20, 58.01, 58.02, 58.06
or 6305.10 are fully exempt from payment of duty if manufactured by
EOUs and cleared into DTA. Also, cotton waste falling under heading
52.02 are fully exempted if produced or manufactured by EOU and
allowed to be sold in India. ( Reference: Notification No. 6/97-CE,
dated 1-3-1997)
25. In case of Gems and Jewellery EOUs, the units are allowed
to sell upto 10% of FOB value of exports of the preceding year in DTA
subject to fulfillment of NFEP as prescribed under the Export and
Import Policy. In case of sale of plain gold jewellery, plain silver
jewellery, studded gold jewellery, unsuitable/broken cut and polished
diamonds, rough diamonds, precious and semi precious stones or dead
stock in DTA, the units are allowed to pay concessional rate of duty.
(Reference notification No. 20/97-CE, dated 11-4-1997).
26. In addition to the above, under notification No. 20/98-CE,
dated 18-7-1998, certain specified textile items are allowed to pay
concessional duty in case of DTA sales of such items by EOUs. (
Reference: notification No. 20/98-CE, dated 18-7-1998).
Manner of Calculation on Duty of Goods Cleared in Domestic Tariff Area
under Paragraph 9.9(b) of the Exim Policy:
27. The manner of calculation of duty leviable on goods cleared
in Domestic Tariff Area in terms of paragraph 9.9(b) of Exim Policy,
1997-2002 read with notification No. 2/95-CE, dated 4-1-1995 has been
laid down in Board’s Circular No. 7/2001-Cus, dated 6-2-2001. To work
out the total quantum of duty payable on goods cleared into DTA, each
of the duty leviable on import of like goods is worked out first and
thereafter, 50% of the amount of each duty so calculated, taken
together is collected as excise duty on such goods produced by EOUs
units when cleared into the DTA. (Reference: Board’s Circular No.
7/2001-Cus, dated 6.2.2001)
Clearance of Waste/ Scrap/ By products in DTA:
28. The EOUs are allowed to clear waste and scrap in Domestic
Tariff Area on payment of concessional rate of duty or full rate of
duty as explained in detail in paragraph 22. Norms for scrap/ waste
material for export products under EOU have been prescribed in
Appendix 41 of the Handbook of Procedures, Vol. I .
29. In case of gem & jewellery EOUs, scrap, dust or sweepings
generated in the unit is allowed to be forwarded to the Government
Mint or Private Mint for conversion into standard gold bars and return
thereof to the unit subject to the observance of procedure laid down
by the Commissioner of Customs. The said dust, scrap or sweepings are
also allowed clearance into DTA on payment of applicable customs duty
on the gold content in the said scrap, dust or sweepings. Samples of
the sweepings/dust are taken at the time of clearance and sent to mint
for assaying. The assessment is finalized when the reports are
received from the mint.
( Board’s Circular 19/99-Cus, dated 29-4-1999)
Clearance of Samples :
30. The EOUs are allowed to supply or sell in DTA samples of
goods produced by them for display or market promotion upto 1% of the
previous year’s exports or maximum of Rs. 10 lakhs in the case of new
unit going into production on payment of applicable duties. The units
are also allowed to take out samples into DTA without payment of duty
on returnable basis for the purpose of display/market promotion. In
such cases, the procedure prescribed for sub-contracting is required
to be followed.
31. The EOUs are allowed to send samples abroad through the
courier. The packages containing such samples are sealed in the
presence of the Customs officer and are handed over to the
representative of the courier company authorised by the Commissioner
of Customs for presentation to the Customs at the port of export.
These sealed samples are not normally examined again before " let
export" is given if the seals are found intact and not tampered. The
representative of the courier company later hands over the proof of
export to the jurisdictional Assistant/ Deputy Commissioner.
(Reference Board’s Circular Nos. 22/98-Cus, dated 27-3-1998 and
52/99-Cus, dated 20-8-1999).
Clearance of Personal Computers :
32. The EOUs are allowed to remove personal computers not
exceeding two in number for installation in their
registered/administrative offices located in DTA subject to the
following of the procedure prescribed in this regard. (Board’s
Circular No.41/99-Customs dated 30-6-99)
Sale of Surplus/ Unutilized Goods :
33. The EOUs are allowed to sell surplus/unutilized goods,
imported or procured duty free in DTA on payment of duty on the value
at the time of import/procurement and at rates in force on the date of
payment of such duty, in case the unit is unable for valid reasons to
utilize the goods. The permission for such DTA sale is given by the
jurisdictional Assistant Commissioner /Deputy Commissioner of Customs/
Central Excise as the case may be. Likewise, obsolete/surplus capital
goods and spares can either be exported or disposed of in the DTA on
payment of applicable duties. The benefit of depreciation, as
applicable, is allowed in such cases. Duty is not charged if the goods
are destroyed with the permission of Customs.
Destruction of Flowers/Horticulture Products :
34. Flowers, vegetables and agricultural products have a very
short shelf life and are prone to malformation, injury, damage,
infection etc. These products cannot be preserved for a longer period.
There are circumstances (especially in case of floriculture units)
when the units do not find the goods exportable/marketable for various
reasons such as malformation, injury, damage, infection by pest and
diseases etc. and the units have to resort to forced destruction of
flowers, vegetables etc. In such cases, duty is not charged from the
EOUs.
35. At times, the flowers and floriculture products deposited
in the warehouse of the airlines at the international airports for the
purpose of exports are not exported owing to various reasons, such as,
delay in flights, cancellation of flights etc. In such cases, the
units are allowed to sell such flowers and floriculture products in
DTA on payment of applicable duty. For such DTA sales, the unit must
have DTA sale entitlement under the scheme. The unit is required to
bring permission from the concerned Development Commissioner for such
DTA sale and shall clear the goods on payment of duty assessed by the
concerned Assistant Commissioner/ Deputy Commissioner in charge of the
cargo. The DTA sale is allowed against documents as are used for DTA
sale by EOUs in the manner as if the goods cleared from the unit
itself. (Reference Board’s Circular No.31/2001-Cus, dated 24-5-2001).
Clearance of Goods Manufactured by EOUs against Advance Release Order
(ARO) or Back-to-Back Inland Letter of Credit issued against an
Advance Licence or Duty Free Replenishment Certificate (DFRC).
36. The goods manufactured by EOUs are allowed to be cleared
against ARO & Back-to-Back Inland Letter of Credit issued against
Advance Licence (except Advance Licence for intermediate supply)
without payment of basic and additional duty of customs subject to
following the provisions of EXIM Policy & HOP Vol.–1, 1997-2002 &
conditions of notification 28/2001-CE dated 16-5-2001. The goods may
also be cleared to a person holding an ARO issued by the Licensing
Authority against a DFRC or Back-to-Back Inland Letter of Credit
issued by a bank on the payment of additional duty of customs subject
to following of the provisions of EXIM Policy and HOP Vol.1 Vol.–1,
1997-2002 & conditions of notification No. 28/2001-CE dated 16-5-2001.
(Reference Board’s circular No.31/2001-Cus, dated 24-5-2001).
Sub-Contracting :
37. The EOUs, other g than Gem & Jewellery units, are allowed
to sub-contract part of their production process in DTA. These units
may also sub-contract up-to 50% of production for job-work in DTA.
Sub-contracting of both production and production process are also
allowed to be undertaken through other EOU/EPZ/EHTP/STP/SEZ units on
the basis of records maintained by the unit.
38. For sub-contractual work performed outside, the units are
required to take annual permission from the Customs authorities and
are required to furnish information, such as, processes to be carried
out on sub-contract basis and the name, address of the subcontractor
etc. After getting the permission, the unit is required to follow the
Receipt Challan/ Despatch Challan ( RCDC) procedure. Under this
procedure, at the time of removal of goods, the unit prepares Despatch
Challan giving information, such as, value of the goods, name &
address of job worker, duty forgone on the goods and the period within
which the goods will be received back. Similarly, the goods after
completion of sub contractual work are received back in the unit on
the basis of Receipt Challan. The scrap/waste/remnants generated at
the job worker’s premises can be either cleared from the job worker’s
premises on payment of duty or returned to the supplying unit. Exports
from job worker’s premises are allowed in cases where the job workers
are registered with the Central Excise department. A sample of goods
exported is sent to the EOU for checking whether the goods supplied by
it are utilised by the job worker in the export product.
39. The EOUs are also allowed to remove moulds, jigs, tools,
fixtures, tackles, instruments, hangers and patterns and drawings to
the premises of sub-contractors subject to the condition that they are
brought back to the bonded premises of EOU on completion of the job
work within a stipulated period.
40. The EOUs are allowed to sub-contract part of the production
process abroad. The approval for sub-contracting abroad is accorded by
the Board of Approval. The goods sent for job-work abroad are required
to be returned to the unit for final processing/manufacturing before
exports. The unit is required to execute a suitable bond for
sub-contracting of goods abroad and is required to account for the
goods including waste/rejects in the manner as prescribed by the
Commissioner of Customs/ Central Excise in this behalf.
41. To help utilize the idle capacity, the EOUs are allowed to
undertake job work for export on behalf of DTA units. This is subject
to the condition that the finished goods are exported directly from
the EOU and export documents are made in the name of the DTA unit. On
export of such goods manufactured by EOUs on behalf of the DTA unit,
the DTA unit is entitled to refund of duty paid on the inputs by way
of brand rate of duty drawback.
42. As mentioned earlier, the gem & jewellery EOUs are not
allowed to subcontract the production or production process in DTA.
However, such gem & jewellery EOUs are allowed to receive plain
gold/silver/platinum jewellery from DTA against exchange of
gold/silver/platinum of the same purity & quantity in weight as that
of the jewellery. The EOU is not eligible for any wastage or
manufacturing loss against such jewellery. The DTA units supplying
such jewellery against exchange of gold/silver/platinum are not
entitled for deemed export benefits.
(Reference Board’s Instructions F. No. 305/107/93-FTT dated 31-1-1994
and 8-4-1994, Circular Nos. 59/98-Cus, dated 12-8-1998, 67/98-Cus,
dated 14-9-98, 35/99-Cus, 74/99-Cus, dated 5-11-99, 31/2001-Cus, dated
24-5-2001).
Temporary Removal of Goods :
43. The EOUs, Software Technology Park Units or Electronic
Hardware Technology Park Units engaged in development of software are
allowed to remove imported laptop computers and video projection
system out of the bonded premises temporarily without payment of duty
subject to following the prescribed procedures.
(Reference Board’s Circular Nos.17/98-Cus dated 16-3-98 & 84/2000-Cus
dated 16-4-2000 ).
Inter-unit transfer :
44. An EOU is allowed to transfer imported or manufactured
goods to another EOU/EPZ/STP/EHTP/SEZ unit. The officers in charge of
the EOU supplying the material and the EOU receiving the material are
expected to keep a watch on the movement of material between the EOUs.
The rewarehousing certificate on transfer of the goods from one EOU to
another is obtained by post and is crosschecked occasionally with the
Superintendent in charge of the other unit to see whether the goods
have been actually received in the unit or not. In case of non-receipt
of rewarehousing certificate and similarly, non-receipt of proof of
export from the proper officer within 90/180 days, the duty is
demanded from the sending unit.
Repair, Reconditioning etc.:
45. The EOUs are permitted to import goods of any origin to
carry on re-conditioning, repair, testing, calibration, quality
improvement, upgradation of technology and re-engineering activities
for export in freely convertible foreign currency provided such
repairs, reconditioning, reengineering etc. are carried out in Customs
bonded premises and the final goods are not sold within the country.
Special Provisions Relating to Gems & Jewellery EOUs.
46. The EOUs in gem & jewellery sector are allowed certain
special facilities as mentioned below:
(i) the items of gem and jewellery to be taken out temporarily into
DTA without payment of duty for the purpose of display and to be
returned thereafter;
(ii) personal carriage of gold/silver/platinum jewellery or precious
or semi-precious stones or beads and articles as samples upto US$
1,00,000 for export promotion tours and temporary display or sale
abroad subject to the condition that the exporter would bring back the
jewellery or the goods or its sale proceeds within 45 days from the
date of departure through normal banking channel;
(iii) export of jewellery including branded jewellery for display and
sale in the permitted shops setup abroad, or in the showroom of their
distributors or agents provided that items not sold abroad within 180
days, shall be re-imported within next 45 days;
(iv) gem and jewellery units to remove parts & tools of machine
temporarily without payment of duty for the purpose of repair and
return thereof.
(v) gem and jewellery manufactured in the EOU situated in the
municipal limits of Calcutta, Chennai, Delhi and Mumbai and sold to a
foreign-bound passenger are allowed to be transferred to the retail
outlets or showrooms set up in the departure lounge or Customs
warehouse at international airports for being handed over to the said
passenger for the purpose of export.
(vi) Removal of moulds, tools, patterns, and drawings into the DTA for
jobwork without payment of duty and to be returned to the unit
thereafter.
(vii)
For availing of the above mentioned facilities, prior permission of
Assistant Commissioner / Deputy Commissioner is required.
Cost Recovery Charges/Cost Sharing
47. Cost recovery charges are the amount recoverable from the
EOU on account of the expenses incurred by the Government for the
posting of Customs staff at its premises to supervise their
operations. The cost of posts created for EOUs has been determined at
an amount equivalent to the actual salary and emoluments of the staff
deployed i.e. the average pay and allowances including D.A., H.R.A.,
C.C.A. etc. The EOUs pay in advance the cost recovery charges
determined for the entire year. Generally, one Customs officer
supervises the functioning of four to five units and the cost recovery
charges are shared amongst them.
(Reference Board’s instruction F. No. 11018/63/87-Ad IV, dated 11-1-88
and F.No.305/105/85-FTT, dated 10.6.86)
Supervision of EOUs by the Customs/ Central Excise:
48. Operational flexibility has been provided to EOUs by
amendment of "Manufacture and Other Operations in Warehouse
Regulations, 1966". The EOUs no longer carry out manufacturing
operations under physical supervision of Customs officers. The
procedure for locking of the warehouse, contral over the issue of
imported goods etc. has been abolished. All the movements from and to
the unit like clearance of raw materials/ component to the job workers
premises, return of goods from the job-workers’ premises, clearance to
other EOUs, export and sale in DTA are allowed to be made by the unit
subject to maintenance of the records. Physical control over the EOUs
has, thus, been replaced by Record Based Control.
49. As physical control has been abolished greater stress is
given on proper maintenance of prescribed records & accounts and
non-maintenance of the accounts by the units is viewed seriously. The
cost recovery officers/the officers incharge of EOUs are required to
scrutinize /examine the accounts/ records of the units and transaction
undertaken by the unit at least once in a month. The cost recovery
officer has to ensure that all movements of goods are recorded in the
proper register. The Chief Commissioner is empowered to order special
audit of the unit by Cost Accountant nominated by him in this regard.
Cost audit is employed as a tool to check the correctness of raw
materials, quantity used, finished goods produced or other such
situation.
(Board’s Circular No. 88/98-Cus, dated 2-12-1998)
Joint Monitoring of EOUs:
50. The guidelines for monitoring the performance of EOUs have
been laid down in Appendix 16-E of the Handbook of Procedures (Vol.I).
As per the said guidelines, the performance of EOUs is to be jointly
reviewed by the Development Commissioner and the concerned
Customs/Central Excise officers. The purpose of joint review is to
ensure that the performance of EOUs are effectively monitored and
action is taken against the units which have contravened the
provisions of the EXIM Policy/Handbook and the Customs Law/Procedures.
Besides, such joint monitoring gives an opportunity to the Government
to discuss and help resolve the problems/difficulties being faced by
the EOUs. The idea is to remove all bottlenecks in export promotion
efforts while not jeopardizing the interests of revenue.
Recovery of Duty Forgone under EOU Scheme and Penal Action for Abuse/
Diversion etc. :
51. Under EOU Scheme, the units are required to achieve minimum
NFEP and Export Performance as stipulated in the Exim Policy. In case
of failure to achieve the minimum NFEP and EP, the duty forgone under
the EOU scheme along with interest is recoverable from the units.
Further, the duty is recoverable from the units in case of non receipt
of imported/ indigenously procured goods in the factory premises after
import/procurement, loss of goods in transit, non accountal of
imported/ indigenously procured goods, unauthorized DTA sale,
clandestine removal etc. Duty can also be demanded in case of failure
to utilize duty free imported/indigenously procured goods including
capital goods within the prescribed time limit. The duty is also
recoverable on goods removed for job working/ display/ testing/
quality testing, but not received back in the unit within the
specified period of time.
52. Apart from recovery of duty forgone, the law also provides
for taking penal action where any 100% EOU is found to have indulged
into any fraudulent activities eg. clandestine removal of production
into DTA without payment of duties, diversion of duty free materials
in transit to the unit after customs clearance or after receipt etc.,
not only the offending goods can be seized and confiscated, but even
units penalized heavily/ prosecuted.
De-Bonding :
53. An EOU may debond into a normal DTA unit subject to the
approval of the Development Commissioner and following of prescribed
procedure & fulfilling the laid down conditions. Such de-bonding is
subject to penalty, if any, that may be imposed and payment of duties
of customs and excise applicable at the time of de-bonding. The
standard conditions of de-bonding, as indicated in the Handbook of
Procedures provide, amongst other conditions, that the applicable
customs and central excise duty would be paid on imported and
indigenous capital goods, finished goods, raw materials, consumables,
components etc. in stock. Further, the unit in question continues to
be treated as an EOU till the date of final de-bonding order.
54. The duty payable in terms of the relevant notifications by
the units seeking debonding is as under:
(a) Semi-finished and finished goods lying in stock at the time of
de-bonding can be cleared on payment of the excise duty equal to
aggregate duties of Customs payable on similar imported goods.
(b) Capital goods, material handling equipment, office equipment and
captive power plants can be cleared on payment of an amount equal to
the customs duty leviable on such goods on the depreciated value
thereof and at the rates in force on the date of payment of such duty.
(c) Goods including containers suitable for repeated use other than
those at (b) above can be allowed clearance on payment of customs duty
on their value at the time of import and at the rate of duty in force
on the date of payment of such duty.
(d) Used packing materials such as cardboard boxes, polyethylene bags
of a kind unsuitable for repeated use can be cleared without payment
of duty.
55. At the time of debonding, the EOUs are entitled for
depreciation on imported/indigenous capital goods. The rate of
depreciation on capital goods have been specified and in case of the
computers and computer peripherals, accelerated rate of depreciation
have been provided for.
56. In the event of a gem and jewellery unit ceasing its
operation, gold and other specious metals, alloys, gem and other
materials available for manufacture of jewellery are handed over to a
nominated agency (nominated by Department of Commerce) at a price
determined by that agency.
(Reference Board’s instructions issued from F. No. 305/136/92-FTT
dated 5-6-1992, Circular Nos. 27/98, dt. 1.04.1998 and 43/98-Cus., dt.
26.06.1998).
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csarengarajan
Company Secretary, Chennai
email csaren...@gmail.com
mobile 093810 11200
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