Export Oriented Units, Units In Export Processing Zones, Special Economic Zone, Electronic Hardware Technology Park And Software Technology Park Units (STP), Handbook Procedures-1, Quantitative Restrictions, Foreign Trade

9.9 Deleted

9.10 Conditions of Import

The import shall be subject to the following conditions:

The goods shall be imported into the EOU/EPZ/EHTP/ STP premises. However, agriculture and allied sectors and granite sector units in EOU/EPZ may supply/transfer the capital goods and the inputs in the farms/fields/quarries with prior intimation to the jurisdictional Assistant Commissioner of Customs and Central Excise, provided the ownership of the goods rests with EOU/EPZ units.
The normal procedure as prescribed under Customs/Excise rules for EOUs and units in EPZs /EHTP/STP will be followed and appropriate bond executed with Customs/ Excise authority
Import of prohibited items in the ITC(HS) shall not be allowed;
The goods, except capital goods and spares, shall be utilised as per Policy within a period of two years or as may be extended by Customs authority. However, for items covered by chapter 8 of the Policy, the provisions of that chapter shall apply.
Goods already imported/shipped/arrived before the issue of LOP/ LOI are also eligible for duty free clearance under the EOU/EPZ/EHTP/STP scheme provided customs duty has not been paid and the goods have not been cleared from Customs.

9.10A Inter Unit Transfer

Transfer of manufactured goods from one EOU/EPZ/EHTP/STP unit to another EOU/EPZ/ EHTP/ STP unit will be allowed as per paragraph 9.16 of the Policy. It would be considered as export by the recipient unit only when the transferred goods undergo further processing/ manufacture.
Any capital goods transferred or given on loan shall require prior permission of the concerned Development Commissioner.

9.11 Maintenance of Account of Import and Utilisation

The unit shall maintain in the specified form a proper account of the import, consumption and utilisation of all imported materials and of the exports made by it and submit them periodically, as may be required, to the DC of the EOU/EPZ/EHTP/ STP concerned. The unit shall ensure minimum NFEP and EP as stipulated in Appendix 1 of the Policy. The unit shall also abide by all the terms and conditions incorporated in the LOP/LOI/Industrial Licence (IL) issued to it. Failure to ensure minimum NFEP/EP as stipulated in Appendix1 of the Policy or to abide by any of the terms and conditions of the LOP/LOI/IL shall render the unit liable to penal action under the provisions of the Foreign Trade (Development & Regulation) Act, 1992 and the Rules and Orders made thereunder without prejudice to any other action such as cancellation or revocation of LOP/LOI/IL.

Guidelines regarding monitoring of performance of NFEP and EP of EOU/EPZ units by DCs are given in Appendix 16-E.

9.12 Deleted.

9.13 Second Hand Capital Goods

The licence referred to in paragraph 5.3 of the Policy for import of second hand goods shall, in the case of EOU/EPZ/EHTP/STP units, deemed to be the approval given by the concerned DC.

9.14 Re-import

The units may be allowed by the Assistant Commissioner of Customs/Central Excise concerned, to re-import, after repairs abroad, machinery/ equipment exported by them for this specific purpose. Any foreign exchange payment for this purpose will also be allowed.

9.15
Capital goods procured from indigenous sources on the basis of lease agreement between the leasing company and the EOU/EPZ/EHTP/STP unit, will be eligible for Central Excise exemption.

9.16

The value of imported capital goods financed through leasing companies or obtained free of cost and/or on loan basis shall also be taken into account for the purpose of calculation of NFEP as defined in paragraph 9.29 of the Policy.

9.17 Fax Machines/ Laptop Computers

EOU/EPZ/EHTP/STP may install one fax machine at a place of its choice, outside the approved premises, subject to intimation of its location to the concerned Assistant Commissioner of Customs/Central Excise.
EOU/EPZ/EHTP/STP units may, temporarily take out of the bonded premises duty free laptop computers and video projection systems for working upon by authorised employees.
EOU/EPZ/EHTP/STP units may install personal computers not exceeding two in number, imported/procured duty free in their registered/administrative office subject to the guidelines issued by Department of Revenue in this behalf.

9.18 Bonding

The entire operations of an EOU/EPZ/EHTP/STP shall be in a Custom bonded premises, unless otherwise specifically exempted from physical bonding.

On completion of bonding period as provided for in paragraph 9.25 of the Policy, it shall be open to the unit to continue under the scheme or opt out of the scheme. If no intimation in this regard is received from the unit within a period of six months of expiry of the bonding period, the Development Commissioner will take action, suo moto, to debond the unit. Where the unit opts to continue, the Development Commissioner concerned will extend the bonding period and determine the NFEP and EP to be achieved during the extended period.

9.19

Broad conditions governing debonding of EOU/EPZ/EHTP/STP units are indicated at Appendix 16-C.
To facilitate resource building in educational and medical institutions, electronics units under the EOU/EPZ/EHTP/STP scheme would be allowed by Assistant Commissioner of Customs/Central Excise concerned to donate imported/indigenously procured computer and computer peripherals, including printer, plotter, scanner, monitor, key-board and storage units without payment of duty, two years after their import/procurement and use by the units, to recognised non-commercial educational institutions, registered charitable hospitals, public libraries, public funded research and development establishments, organisations of the Government of India or Government of a State or Union Territory as per Custom/ Central Excise notification issued in this regard.

9.20 Legal Undertaking

The approved EOU/EPZ unit shall be required to execute a legal undertaking with the DC concerned in the form given in Appendix 16-B.
Trading/Service units shall be required to execute a legal undertaking with the DC concerned in the form given in Appendix 16-BB.

9.21 Minimum level of Net Foreign Exchange as a Percentage of exports (NFEP) and minimum Export Performance (EP)

The minimum NFEP and EP are indicated in Appendix 1 of the Policy. In case of existing units the earlier NFEP and EP may be repeated at the time of renewal. However, NFEP and EP of such units will be revised, as per Policy, at the time of renewal of the approval or mid-term revision by the DC, if such proposal envisages addition of installed capacity.

Appendix I of the policy only indicates the minimum level to be achieved but does not preclude the Board of Approvals (BOA) or the DC from prescribing a higher percentage where warranted.

9.22 Rejects

EOU/EPZ/EHTP/STP units may sell in the DTA rejects as per paragraph 9.9(a) of the Policy subject to the following conditions:

The term ‘rejects’ shall cover the products which have definite manufacturing defects and are not exportable as per declaration of the unit concerned and shall include sub-standard products but not spares, tools, waste/scrap/remnants and by-products.
The following parameters shall be kept in view for determining ‘rejects’.
(a)the unit must certify that the rejects were an unavoidable feature on account of flaws of technology, technique or material deployed in manufacture.
(b)‘Rejects’ must be invoiced and stamped by the manufacturer as ‘Rejects’ at the time of clearance into the Domestic Tariff Area.

9.23 DTA Sale Entitlement of Products Approved in LOP/LOI

If a unit manufactures and exports several products, DTA sale of any product approved for manufacture and export in the LOP/IL may be availed as per paragraph 9.9 of the policy. Detailed guidelines on DTA sales are at Appendix 42.

9.24 Bunching of DTA Sale Entitlement

Within the entitlement of DTA sale, as provided in paragraph 9.9 of the Policy, the unit may sell in DTA any of the products manufactured and exported by it, as per LOP/IL. Entitlement will be determined in totality and not with reference to specific items.

9.24A Samples

EOU/EPZ/EHTP/STP units may, on the basis of records maintained by them and on prior intimation to customs authority:

Supply or sell in the DTA, annually, samples of goods produced by it for display /market promotion, upto 1% of the value of previous year’s export or maximum of Rs.10 lakhs in case of new unit going into production, on payment of applicable duties.

Samples may also be exported through courier agencies authorised by the Commissioner of Customs.

Samples may also be allowed to be removed from the unit, without payment of duty, on furnishing a suitable undertaking to Custom authority for return of such goods.

EOU/EPZ/EHTP/STP units may, on the basis of records maintained by them and on prior intimation to customs authority:

9.24B Transfer of Goods to DTA for Repair/ Quality Testing

Transfer goods to DTA for repair/replacement, testing or calibration and return.
Transfer goods for quality testing/R & D purpose to any recognised laboratory/ institution upto a maximum of Rs. 2 lakh per annum for items appearing in the negative list of imports and Rs.5 lakh per annum for other items, without payment of duty, on giving suitable undertaking to the customs for return of the goods. However, if the goods have been consumed/destroyed in the process of testing etc. a certificate from the laboratory/institution to this effect be furnished to the Customs.

9.25 Other Supplies in DTA

The unit will report the transactions in terms of sub-paragraphs 9.10 of the Policy to the DC concerned on a quarterly basis. However, units effecting supplies in the DTA in terms of sub-paragraph 9.10(b) of the Policy shall obtain permission from the concerned DC. In all the cases the unit shall indicate to the DC concerned the quantity and value of items (category-wise), supplied in DTA and the total quantity and value of each such item produced by the unit as on the date during the year.

9.26

The purchaser of the goods in the DTA shall be liable to pay the duties and taxes as may be applicable on the goods in question.

9.27

Such DTA sales shall not affect the application to any goods of any other prohibition or regulation affecting import thereof in force at the time when such goods are imported. This also does not confer any immunity, exemption or relaxation at any time from any commitment or compliance with any requirements to which the importer may be subject to under other laws or regulations.

9.28 Export through Status Holder / Merchant Exporter Or other EOU / EPZ / EHTP / STP

Permission to export goods through status holder/merchant exporter or other EOU/EPZ/ EHTP/ STP in terms of paragraph 9.11 of the Policy extends only to the marketing of the goods by the status holder/merchant exporter or other EOU/EPZ/EHTP/ STP unit. The manufacture of the goods shall be done in the EOU/EPZ/EHTP/STP unit concerned. The level of NFEP and EP as well as any other conditions relating to the imports and exports as prescribed shall continue to be discharged by the EOU/EPZ/EHTP/STP unit concerned. Such export shall fulfil the following conditions:

The export orders so procured shall be executed within the parameters of EOU/EPZ/EHTP/STP schemes and the goods shall be directly transferred from the Customs bonded unit to the port of shipment.
Fulfilment of NFEP/EP by EOU/EPZ/EHTP/STP units in regard to such exports shall be reckoned on the basis of the price at which the goods are supplied by EOU/EPZ units to the status holder/ merchant exporter or the other EOU/ EPZ/ EHTP/ STP unit.
All export entitlements, including recognition as status holder would accrue to the exporter in whose name foreign exchange earnings are realised.

9.29 Reversal of Taxes Paid on Supplies from the DTA

An application for reimbursement of Central Sales Tax and grant of entitlements in terms of paragraph 10.3 of the Policy may be made to the DC of the EPZ concerned. The procedure to be followed and the form of the application for reimbursement of Central Sales Tax (CST) is given in Appendix 43.

9.29A Entitlements

Units set up in EPZs will be charged rent for lease of industrial plots and standard design factory buildings/sheds as per rates fixed from time to time.
Corporate tax: EOU/EPZ/EHTP/STP units engaged in manufacturing and services will be eligible for entitlements in respect of payment of income tax as per the provisions of Income Tax Act.
FOB Value of export of an EOU/EPZ/EHTP/STP unit can be clubbed with FOB value of export of its parent company in the DTA for the purpose of according Export House, Trading House, Star Trading House or Super Star Trading House status for the latter;
100% Foreign Equity: Foreign Equity upto 100% is permissible in the case of EOU/EPZ/EHTP/STP units.
Software units may, in addition, also be allowed to use the computer system for training purpose (including commercial training) subject to the condition that no computer terminal shall be installed outside the bonded premises for the purpose.
Procurement of raw materials and export of finished products shall be exempt from Central levies.

9.30 Disposal of Scrap / Waste / Remnants

Waste/scrap/ remnants arising out of production process and in connection therewith, may be exported or sold in the DTA as per Appendix 41, on the basis of records maintained by the unit.
In respect of items not covered by Appendix-41, norms shall be fixed by the BOA. However, DCs may fix ad hoc norms on the basis of data for a period of six months and within this period he shall get norms fixed by the BOA.
EOU/EPZ units may clear scrap/waste/ remnants arising out of sub-contracting of production/production process from the job worker’s premises, on payment of applicable duties, or bring it back to its own premises.
Sale of waste/scrap/remnants shall be subject to payment of applicable duties.

9.31 Deleted.

9.32 Registration-cum- Membership Certificate

Registering authority for EOU/EPZ/EHTP / STP units / Service / Trading units shall be the DC of the EPZ concerned. A separate Registration-cum-Membership Certificate shall not be required in their cases as provided for in paragraph 4.10 of the Policy.

9.33 Importer-Exporter Code Number

Importer-Exporter code number for EOU/EPZ units/Service/Trading units shall be allotted by the DC of the EPZ concerned.

9.34 Green Cards for EOUs

Green Card will be issued by the DC concerned to EOU/EPZ units automatically after execution of LUT.

9.35 Depreciation norms for capital goods

The depreciation norms for capital goods of units, including electronics, would be subject to an overall limit of 90% as notified by the Department of Revenue.

Accelerated depreciation for computers and computer peripherals for all types of electronic units would be as follows:
10% for every quarter in the first year,
8% for every quarter in the 2^nd year,
7% for every quarter in the3rd year, and
5% for every quarter in the 4^th year and thereafter.
For capital goods, other than computers and computer peripherals the depreciation rate would be as follows:
4 % for every quarter in the first year.
3 % for every quarter in the second year
3 % for every quarter in the third year
2.5 % for every quarter in the fourth year and thereafter.

9.36 Sub- Contracting

EOU/EPZ/EHTP/STP Units may, on the basis of annual permission from the Assistant Commissioner of Customs, sub-contract part of their production process in DTA, which may also involve change of form or nature of the goods, through job work by units in DTA.
EOU/EPZ/EHTP/STP units may also sub-contract up to 50% of production for job work in DTA with the permission of Assistant Commissioner of Customs.

Sub-contracting of both production and production process may also be undertaken through other EOU/EPZ/EHTP/STP units on the basis of records maintained in the unit.
EOU/EPZ/EHTP units may be permitted to remove moulds, jigs, tools, fixtures, tackles, instruments, hangers and patterns and drawings to the premises of sub contractors subject to the condition that these shall be brought back to the bonded premises of EOU/EPZ/EHTP unit on completion of the job work within a stipulated period.
Export of finished goods directly from the job worker’s premises may be permitted provided the job worker’s premises is registered with the Central Excise Department. However, export of such products from the job worker’s premises shall not be allowed through third parties as provided under paragraph 9.11 of the Policy.
In case of sub-contracting of production in DTA in terms of paragraph 9.17(a) of the Policy, a sample of the export product being subcontracted shall be sent in advance to the jurisdictional Excise Officer of the subcontractor in DTA. However, this will not be required in case the sub-contracting is done to another unit in the same EPZ.
In the case of EOU/EPZ unit undertaking job work for export on behalf of DTA unit, in terms of para 9.17(d) of the Policy, the finished goods shall be exported directly from the EOU/EPZ unit and export documents shall be in the name of the DTA unit
Sub-contracting by gem and jewellery units shall be governed by the provisions of Chapter 8 of the Policy.

9.37 Powers of approval of Development Commissioner

Apart from the original powers under the Policy and Hand Book, the DCs have been delegated with the following powers in respect of EOU/EPZ units :

(a) Approval of units:
Applications for setting up of units in EPZ or as EOU outside the EPZ, other than proposals for setting up of unit in the services sector (except software and IT enabled services or any other service activity as may be delegated by the BOA, and conversion of sick/closed DTA unit into EOU), satisfying the following conditions, may be approved by the DC.

the item of manufacture does not require an IL under the Industries (Development & Regulation) Act, 1951;
location of the unit is either in the EPZ (for which availability of space and conformity with environment and other standards of EPZ have been confirmed) or in an area other than the EPZ for which the locational conditions stipulated by the Department of Industrial Policy & Promotion have been complied with;
the unit undertakes to achieve the minimum NFEP and EP as stipulated in Appendix 1 of the Policy;
foreign exchange required for import of capital goods (net of taxes) is not more than US $ 20 million;
foreign technology agreement, if any, is as per the RBI guidelines; and
conversion of existing DTA unit into EOU conforming to para 9.3 above.
Conversion of EOU to STP/EHTP and vice versa as per procedure laid down in paragraph 9.3 above.
EOUs on leased premises provided the lease agreement is for a minimum period of 5 years.

(b) Powers for post approval matters :

Import of additional capital goods: to allow import of additional capital goods subject to the condition that the total value of imported capital goods is not more than US $ 20 million;
Currency Fluctuation: to allow increase in the value of capital goods in terms of Indian Rupees, on account of foreign exchange rate fluctuations;
Enhancement of production capacity: to permit capacity enhancement without any limit in case of de-licensed industries only, provided the value of additional imported capital goods, if any, and the value of CG already allowed do not exceed US $ 20 million;
Broad banding/diversification: to permit broad-banding/diversification provided that requirement of additional imported capital goods, if any, is within the limits indicated at (iii) above
Change in name: to authorise change in name of the company or the implementing agency and change from a company to another provided the new implementing agency/company undertakes to take over the assets and liabilities of the existing unit.
1) Deleted.
2) Deleted.
Change of location/expansion:

To permit change of location from the place mentioned in the LOP/LOI to another and/or include additional location, under the same Customs Circle, provided that:
(a) no change in other terms and conditions of the approval is envisaged.
(b) the new location is within the territorial jurisdiction of the DC.
(c) the new location is at a warehousing station declared by the custom authorities; and
(d) other locational, zoning, land-use or environmental conditions are also complied with.
Extension of validity of LOP/LOI: To extend the validity period of LOP/LOI by three years, beyond the initial validity period of the LOP/LOI (except in case where there is a restriction on initial period of approval, like setting up oil refinery projects).
The Development Commissioner may also cancel LOP/LOI/IL wherever warranted.
Change in NFEP/EP: To approve proposals for revision of NFEP/EP upward or downward upto to the minimum NFEP/EP as prescribed in Appendix 1 of the EXIM Policy and also subject to the provisions of paragraph 9.21 of this Handbook. If such revision is sought before completion of the approved five year period, the revised norms shall be applicable for the remaining bond period only.
Import of Office equipment: To permit import/procure from indigenous sources office equipment not exceeding 20% of the total value of capital goods installed, provided the value of imported capital goods and office equipment does not exceed US $ 20 million.
Merger of two or more EOU/EPZ units: to permit merger of two or more units into one unit provided the units fall within the jurisdiction of the same DC and the same Commissioner of Central Excise and Customs.
Exports to Russian Federation against repayment of State Credit: To permit exports to Russian Federation against payment in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer subject to currency balancing, i.e hard currency outgo on import of raw materials, components and consumables, used in the goods exported, against rupee payment is at least made up by equivalent export to the hard currency area. The currency balancing condition shall be fulfilled over a period of one year and a letter of undertaking obtained from the exporting unit that in the event of its failure to achieve currency balancing by the end of the year, it shall be liable to pay applicable duties on the imported inputs used in the manufacture of the goods so exported.

Permission may be granted by the Development Commissioner to export to RPA on quarterly basis in advance subject to currency balancing on the basis of projections given by the unit.
Import of DG sets and space
Development Commissioners may permit import/ procurement of DG sets without any limitation in regard to the capacity of DG sets for meeting the power requirement of the unit. For import/ procurement of spares for DG sets, the procedure as applicable to import/ procurement of spares for other capital goods shall apply.
(xiii) Development Commissioner has been delegated with powers of adjudication under Section 13 read with Section 11 of Foreign Trade (Development & Regulation) Act, 1992 in respect of EOU/EPZ/SEZ units as mentioned in Gazette Notification No. SO. 194(E) dated 6.3.2000.
Eviction of EPZ unit under Public Premises Eviction Act:
In case the rent on the plot/built up premises allotted to EPZ units is in arrears or if the plot/shed is not utilised for the purpose for which the same has been allotted, the Development Commissioner shall have the power to get the premises vacated under the Public Premises Eviction Act.
Development Commissioner has been authorised to do valuation of exports declared on SOFTEX form by the units located in Export Processing Zones as per RBI A.D. (M.A Series) Circular No. 35 dated 25.11.1999.
Development Commissioner has been authorised to issue eligibility certificates for grant of employment visa to low level foreign technicians to be engaged by EOU/EPZ/SEZ units as per Ministry of Home Affairs' letter No. 25022/7/99-F.1 dated 20.9.1999.

9.38 Miscellaneous Conditions

Proposals involving investment of more than Rs. 200 crores :
Proposals involving investment of more than Rs. 200 crores are to be considered by the Special Board of Approvals in the Ministry of Commerce and Industry. Such applications will be forwarded by the DC to the Ministry of Commerce and Industry (EP Section) for processing.
Sector specific conditions : The approval of proposals for setting up of EOUs for the manufacture and export of cotton yarn, tea, rice, meat, granite and petroleum products would be subject to the conditions mentioned in Appendix-16 F.
Foreign investment into EOU/EPZ/EHTP/STP shall be governed by the guidelines on the subject.

9.39

Debonding of capital goods imported as second hand shall not be allowed under EPCG scheme. Moreover, no debonding on payment of applicable duties shall be allowed in respect of second hand capital goods imported on or after 1.4.99 for a period of at least 3 years from the date of imports.

9.40 Net Foreign Exchange Earning as Percentage of Exports (NFEP)
Net foreign exchange earning as a percentage of exports (NFEP) under EOU/EPZ/SEZ/EHTP/ STP schemes, as provided in paragraph 9.29 of the Policy, shall be calculated according to the following formula:
A - B
NFEP= --------- x 100,
A . Where NFEP is Net Foreign Exchange Earning as a Percentage of Export is the FOB value of exports by the EOU/EPZ/EHTP/STP unit; and

B . Is the sum total of the CIF value of all imported inputs, the CIF value of all imported capital goods, and the value of all payments made in foreign exchange by way of commission, royalty, fees, dividends, interest on external borrowings during the first five year period or any other charges. "Inputs" mean raw materials, intermediates, components, consumables, parts and packing materials.

Note-I:
(1) If any input is obtained from another EOU/EPZ/EHTP/STP unit, the value of such input shall be included under B.
(2) If any capital goods imported duty free is leased from a leasing company, received free of cost and/or on loan basis or transfer, the CIF value of the capital goods shall be included or excluded, as the case may be, pro-rata, under B for the period it remains under bond.
(3) For annual calculation of net foreign exchange as a percentage of exports, 1/5^th value of imported capital goods and lumsum payment of foreign technical know-how fee shall be included under B above.
(4) In the case of projects where the investment in land, building, plant and machinery exceeds Rs.200 crores, the value of the capital goods shall be amortised over a period of seven years; i.e. in such cases, only 5/7^th of the CIF value of the imported capital goods shall be included under B.

9.41 SEZ Policy

The Policy pertaining to Special Economic Zones (SEZs) is given in chapter 9 of the Policy.

9.42 Domestic Sales

SEZ units may sell the goods in the DTA on the basis of self-certification and with prior intimation to the Development Commissioner in writing giving the quantity and value of the goods being cleared into the DTA along with a certificate indicating the foreign exchange inflow and outflow cumulatively up to the end of the previous year.

9.43 Self Certification

All activities of the SEZ unit, unless otherwise specified, will be on the basis of self-certification.

9.44 Maintenance of Accounts

A SEZ unit shall maintain proper account, financial year-wise, of all foreign exchange inflow by way of exports and other receipts, all foreign exchange outflow on account of imports, payment of dividend, royalty, fees etc., consumption and utilisation of the materials and sale in the DTA. The unit shall submit regularly quarterly statement to the Development Commissioner/Customs, in this regard in the format prescribed at Appendix 16H. For high value items such as gem and jewellery, computer hardware a monthly statement shall be submitted as prescribed in Appendix 16H to the Development Commissioner/ Customs.

9.45 Other provisions

The provisions of paragraph 9.1, 9.2, 9.4, 9.5, 9.6, 9.7, 9.8, 9.10. 9.13, 9.14, 9.15, 9.16, 9.17, 9.18, 9.19, 9.20, 9.24A, 9.24B, 9.28, 9.29, 9.29A, 9.32, 9.33, 9.34, 9.35, 9.36, 9.37, 9.38, 9.39 and 9.40 will also apply to SEZ units.

Note: In the case of units under EHTP/STP schemes, necessary approvals/permission under relevant paragraphs of this Chapter shall be granted by the officer designated by the Ministry of Information Technology for the purpose instead of the Development Commissioner of EPZ and by the Inter-Ministerial Standing Committee (IMSC) instead of BOA.

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