Indian Fiscal Budget 1997-98: EXIM POLICY 1997-2002
UNITS INEXPORT PROCESSING ZONES (EPZ),
ELECTRONIC HARDWARE TECHNOLOGY PARK UNITS (EHTP) AND SOFTWARE TECHNOLOGY PARK UNITS (STP)
9.1Units undertaking to export their entire production of goods may be set up under the Export Oriented Unit (EOU) Scheme, Export Processing Zone (EPZ) Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP). Such units may be engaged in manufacture, production of software, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture. Units engaged in service activities may also be considered.Commensurate with the policy to give a special thrust to export of computer software, such units would be encouraged to be set up under any of the aforementioned export oriented schemes. Software units may undertake exports using data communication links or in the form of physical exports (which may be through courier service also), including export of professional services.
Importability of goods
9.2An EOU/EPZ/EHTP/STP unit may import free of duty all types of goods, including capital goods, required by it for manufacture, production or processing provided they are not prohibited items in the Negative List of Imports. However, import of Basmati paddy/ brown rice shall be prohibited.STP/EHTP/EPZ may import free of duty all types of goods for creating a central facility for use by software development units in STP/EHTP/EPZ Software units shall also be permitted to import capital goods on loan from clients for specified period for executing specified projects.An EOU engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry or sericulture may import free of duty only such goods as are permitted to be imported duty free under a Customs Notification issued in this behalf.
Second hand Capital goods
9.3Second-hand capital goods may also be imported in accordance with the provisions contained in Chapter 5.
Leasing of Capital goods
9.4An EOU/EPZ/EHTP/STP unit may, on the basis of a firm contract between the parties, source the capital goods from a domestic/foreign leasing company. In such a case, the EOU/EPZ/EHTP/STP unit and the domestic/foreign leasing company shall jointly file the import documents to enable import of the capital goods free of duty.
Net Foreign Exchange Earning as a percentage of exports (NFEP) and export obligation.
9.5The Unit shall be a net foreign exchange earner. The level of foreign exchange earning as a percentage of exports (NFEP) as defined in paragraph 9.29 shall be as specified in Appendix 1 of the Policy. Items of manufacture for export specified in the Letter of Permission/Letter of intent alone shall be taken into account for calculation of net foreign exchange earning as a percentage of exports and discharge of export obligation. However, for STP units export obligation norms as notified would apply.Notwithstanding the above, electronic hardware units shall be allowed to be set up without stipulation of a positive net foreign exchange earning as a percentage of exports.
9.6The unit shall execute a legal undertaking with the Development Commissioner concerned and in the event of failure to fulfil the obligations stipulated in the letter of approval/ intent, it would be liable to penalty in terms of the legal undertaking or under any other law for the time being in force.
9.7Project applications satisfying the conditions mentioned in the appropriate press note of the Ministry of Industry may be given automatic approval within 15 days by the Development Commissioner of the EPZ concerned. In the case of EOUs, such approval may be granted within 15 days by the Secretariat of Industrial Assistance(SIA).
other cases, approval may be granted by the Board(s) of Approval
(BOA) set up for this purpose or Secretariat for Industrial
Assistance, as the case may be.
9.9The entire production of EOU/EPZ/EHTP/STP Units shall be exported subject to the following:
(a)Rejects upto 5% of the value of production may be sold in the Domestic Tariff Area (DTA). Sale of rejects above 5% may be approved by the Development Commissioner concerned in consultation with the local customs authority. These sales shall be subject to payment of applicable duties.
(b)25% of the production in value terms may be sold in the DTA subject to payment of applicable duties. DTA sale shall be subject to fulfilment of minimum net foreign exchange earning as a percentage of exports prescribed in Appendix 1 of the Policy. No DTA sale shall be permissible in respect of motor cars, alcoholic liquors, and such other items as may be stipulated by Director General of Foreign Trade by a Public Notice issued in this behalf.
(c)However, an EOU/EPZ unit in agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, viticulture and sericulture may, in accordance with the DTA sale guidelines notified in this behalf, sell upto 50% of the production in value terms in the DTA subject to positive net foreign exchange earning.
(d) The electronics hardware products may be sold in the DTA on the following basis:-
Net Foreign Exchange earnings as a percentage of exports Permissible sale in the DTA (i) Less than 15% NIL (ii) 15 - 25% Upto 30% of the production invalue terms of the electronic items, including components manufactured in the unit. (iii) More than 25% Upto 40% of the production in value terms, of electronic items including components manufactured in the units;
(e)EOU/EPZ units may be permitted to sell finished products, which are freely importable under the Policy, in the DTA, over and above the levels permissible under sub paragraph (b) and (c) above against payment of full duties, provided they have achieved on an annual basis, the stipulated NFEP and export obligation.
(f)Electronic hardware units in EOU/EPZ EHTP shall have an alternative facility to sell one half of the value of their production on an annual basis, in the domestic market and export the other half of production, in value terms, without any minimum foreign exchange earning stipulation, on payment of applicable duties as specifically notified for this facility. Units desirous of availing this facility shall exercise a one time option in this regard. Such units shall not be eligible for DTA sale facility provided for in paragraph 9.9 (d).
For software units, sale in the DTA in any mode, including data communication, shall be permissible upto 25% of their production in value terms.
Note: In the case of units manufacturing electronic hardware and software, the net foreign exchange earning as a percentage of exports and DTA sale entitlement shall be reckoned separately for hardware and software.
9.10The following supplies shall also be counted towards fulfilment of the export obligation:
(a)Supplies effected in DTA in terms of paragraph 10.2 of the Policy;
(b)Supplies effected in DTA against payment in foreign exchange;
(c)Supplies to other EOU/ EPZ/EHTP/STP units provided that such goods are permissible for procurement in terms of paragraph 9.2 of the Policy.
Exports through Export House/ Trading House/ Star Trading House/ Super Star Trading House
EOU/EPZ/EHTP/STP unit may export goods manufactured by it through
a merchant exporter/ Export House/ Trading House/ Star Trading
House/ Super Star Trading House recognised under this Policy or
any other EOU/EPZ/EHTP/STP unit. This permission extends only to
the marketing of the goods by the merchant exporter/ Export
House/ Trading House/ Star Trading House/ Super Star Trading
House 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 net foreign exchange earning and export obligations as
well as any other obligation relating to the imports and exports
as prescribed shall continue to be discharged by the
EOU/EPZ/EHTP/STP unit concerned.
9.12EOU/EPZ/EHTP/STP units may, with the permission of the concerned customs authority:
(a)Supply or sell in the DTA, samples of goods produced by EOU/EPZ/EHTP/STP units for display/market promotion, upto 1% of the value of previous years export or maximum of Rs. 1 lakhs in case of new units going into production, on payment of applicable duties. Such samples may also be allowed to be removed from the unit on furnishing a suitable undertaking to the customs authority for return of such goods. This does not affect the eligibility under para 9.9.
(b) Bring back for repair the goods sold in DTA but found defective.
(c)Transfer goods to DTA for repair/replacement, testing or calibration and return.
Benefits for supplies from the DTA
(a) Supplies from the DTA to EOU/EPZ/EHTP/STP units will be regarded as "deemed exports" and, besides being eligible for the relevant benefits under para 10. 3 of this Policy, will be eligible for the following benefits:
(i)Refund of Central Sales Tax;
(ii)Exemption from payment of Central Excise Duty on capital goods, components and raw materials;
(iii)Discharge of export obligation, if any, on the supplier.
(b)EOU/EPZ/EHTP/STP units shall, on production of a suitable disclaimer from the DTA suppliers, be eligible for obtaining the benefits specified in paragraph 10.3 (b) and (c) of the Policy. For this purpose, they shall get Brand Rates fixed by the DGFT. Such supplies would, however, be eligible for benfits specified in subparagraph (a) above.
benefits stated under paragraph 9.13(a) and (b) shall be
available provided the goods supplied are manufactured in the
Benefits for EOU/EPZ/ Units
(a) Concessional Rent: The units set up in the EPZs will be eligible for concessional rent for lease of industrial plots and standard design factory (SDF) buildings/sheds allotted for the first three years at the following rates:
(i)For Plots: The concession will be 75% for the first year, 50% for the second year and 25% for the third year if production had commenced in the first year or the second year. The concession will not be available for the third year if production had not commenced by the end of the second year;
(ii)For SDF buildings/sheds: The concession will be 50% for the first year and 40% for the second year if production had commenced in the first year. The concession will be 25% for the third year if production had commenced in the first year. The concession will not be available if production had not commenced by the end of the first year;
(b)Tax Holiday: EOUs and EPZ units will be exempted from payment of corporate income tax for a block of five years in the first eight years of operation;
(c) FOB value of export of an EOU/ EPZ 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;
(d) 100% Foreign Equity: Foreign equity upto 100% is permissible in the case of EOUs and EPZ/EHTP/STP units.
(e) The EOU/ EPZ units will be entitled to the benefits including grant of Special import licences, in terms of paragraph 14.4 of the Policy. In addition, EOU/EPZ units, except telecommunication and electronics units which will be covered by paragraph 11.9 of the Handbook (Vol.1), which achieve atleast 25% higher or more than the stipulated export obligation, would be eligible for additional Special Import Licence of 2% of the f.o.b. value of such exports, in accordance with the procedure specified in this behalf.
(f)Software units will 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.
(a)Transfer of manufactured goods from one EOU/EPZ/EHTP/STP unit to another EOU/ EPZ/EHTP/ STP unit will be allowed. However, it would be eligible to be considered as export by the recepient unit only when the transfer goods undergo further processing/manufacture.
(b)Goods imported by an EOU/EPZ/EHTP/STP unit may be transferred or given on loan to another EOU/EPZ/EHTP/STP unit which shall be duly accounted for, but not counted towards discharge of export obligation.
(c)The unit will report the transactions in terms of sub-paragraph (a) and (b) above to the Development Commissioner concerned. However, any capital goods transferred or given on loan under para 9.16(b) above shall require prior permission of Development Commissioner.
EOU/EPZ/EHTP/STP units may be permitted to sub-contract part of
their production process through job work by units in the DTA or
other EOU/EPZ/EHTP/STP units. Requests in this regard will be
permitted by the Development Commissioner on the basis of factors
such as fixation of input and output norms, and will be finally
processed by customs authority on furnishing of undertaking by
the concerned units. EOU/EPZ/EHTP/STP units using predominantly
indigenous raw materials (i.e 90% or more) may be permitted to
sub-contract part of their product for jobwork in DTA or to other
Sale of Imported Materials
case an EOU/ EPZ/EHTP/STP unit is unable, for valid reasons, to
utilise the imported goods, it may re-export or dispose them in
the DTA on payment of applicable duties and submission of import
licence, by the DTA unit, wherever applicable. Supply from one
EOU/EPZ/EHTP/STP unit to another such unit would also be treated
as import under this para.9.19 Imported machinery/capital goods
that have become obsolete may be disposed of, subject to payment
of customs duties on the depreciated value thereof.
Disposal of scrap
or disposal in the DTA of scrap/waste/remnants arising out of
production process may be permitted on payment of duty/taxes
applicable on such scrap/waste/remnants. Percentage of such
scrap/waste/remnants shall be fixed by the respective Board of
Approval. However, there shall be no duties/taxes on such
scrap/waste/remnants in case the same are destroyed with the
permission of the customs authority.
Private bonded Warehouses
9.21Private bonded warehouses may be set up in EPZs for the purposes enumerated hereinafter. Such warehouses need not conform to the requirements of paragraph 9.5 above but shall be subject to such conditions as may be stipulated by the BOA. The provisions of paragraphs 9.9, 9.10, 9.11, 9.16, 9.17 and 9.18 of this Chapter shall not apply in such cases.
The purpose for which such warehouses may be set up for the following purposes:
(i). Imports, stock and sale of goods:
Imports may be permitted to meet the requirements of EOU/EPZ units. Items importable in accordance with this Policy may also be imported and sold in the DTA subject to compliance with the Policy for such clearance in the DTA and on payment of applicable duties at the time of effecting such sales.
(ii). Trading, including re-export after re-packing/labelling:
Imports may be permitted for re-export in freely convertible foreign currency for activities such as re-packing and labelling.
Reconditioning, repair and re-engineering
units may be permitted to carry out reconditioning, repair and
re-engineering activities for exports in freely convertible
currency. The provisions of paragraphs 9.5, 9.9, 9.10, 9.11, 9.13
and 9.17 of this Chapter shall not, however, apply to such
Replacement/ Repair of exported goods.
provisions of paragraph 11.9 of the policy relating to export of
replacement/repair goods would also apply equally to EOU/EPZ/
units, save that, cases not covered by the provision of paragraph
11.9 will be considered on merits by the Development
Replacement/ Repaired of imported goods.
or parts thereof, on being imported, and found defective or
otherwise unfit for use or which have been damaged after import
may be returned, and goods in replacement thereof may be imported
from the foreign suppliers.
Period of Bonding
bonding period for units under the EOU Scheme shall be 5
years.This period may be extended to 10 years in case of products
requiring significant captial investment and infrastructural
support. On completion of the bonding period, it shall be open to
the unit to continue under the scheme or opt out of the scheme.
Such debonding shall, however, be subject to the industrial
policy in force at the time the option is exercised. Where the
unit opts to continue, the Development Commissioner concerned
will extend the bonding period and determine the net foreign
exchange earning as percentage of exports and the export
obligation to be achieved during the extended period.
to the approval of Development Commissioner, EOU/ EPZ units may
be debonded on their inability to achieve export obligation, net
foreign exchange as percentage of export prescribed or other
requirements. Such debonding shall be subject to penalty, if any,
that may be imposed and payment of duties of customs and excise
applicable at the time of debonding.9.27An EOU/EPZ unit may also
be permitted, as a one time option to debond on payment of duty
on capital goods, under the 10% duty regime of the EPCG Scheme,
subject to the unit undertaking the export obligation applicable
under the said scheme. Request for debonding under zero duty
regime of EPCG scheme may be considered on merits subject to the
unit satisfying the eligibility criteria and such conditions as
may be specified by the BOA. Debonding in either case shall be
subject to payment of duties of customs and excise on other goods
applicable at the time of debonding.
DTA units may also apply for conversion into an EOU but no
concession in duties and taxes would be available under the
scheme for plant, machinery and equipment already installed.
Existing DTA units, having an export obligation under the EPCG
scheme, may also apply for conversion into an EOU. On such a
conversion, the export obligation under the EPCG scheme will be
met concurrently from the exports by the unit as an EOU.
Net Foreign Exchange Earnings as a Percentage of exports (NFEP)
9.29Net Foreign Exchange Earning as a percentage of export (NFEP) shall be calculated annually and cumulatively for a period of five years from the commencement of commercial production according to the following formula:
A - B NFEP = ----- where B NFEP is Net Foreign Exchange Earning as a percentage of exports, A is the FOB value of exports by the EOU/EPZ/EHTP unit; and B is the sum total of the CIF calue 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 years period or any other charges. "Inputs" mean raw materials, intermediates, components, consumables, parts and packing materials.
1. If any input is obtained from another EOU/ EPZ/EHTP/STP unit, the value of such input shall be included under B.
any capital goods imported duty free is leased from a leasing
company, the CIF value of the capital goods shall be included
annual calculation of net foreign exchange, as a percentage of
exports, 1/5th value of imported capital goods shall be included
under B above.
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 5/7th of the CIF value of the imported capital
goods shall be included under B.
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 Department of Electronics for the purpose instead of Development Commissioner of EPZ and by the Inter- Ministerial Standing Committee (IMSC) instead of BOA.
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