Promotion Council for EOUs & SEZ Units
(Ministry of Commerce and Industry,
Govt. of India)
Bhikaiji Cama Bhawan, Bhikaiji Cama Place, New Delhi-110066
Tel : 011-26167042/ 26165805/26166185 Fax : 011-26165538
Email : firstname.lastname@example.org
CIRCULAR NO.7 DATED 20.10.04
L. B. Singhal
SUB : DEPARTMENT OF REVENUE CIRCULAR
NO. 54/2004-CUS DATED 13TH OCTOBER 2004 REGARDING IMPLEMENTATION
OF CHANGES BROUGHT ABOUT IN THE FOREIGN TRADE POLICY
: WAIVER OF FILING GR FORMS FOR EXPORT OF VALUE BELOW US$
25,000 UNDER FOREIGN EXCHANGE MANAGEMENT REGULATIONS
I have issued EPCES Circular No. 1 dated
31-8-2004 wherein I had highlighted the changes brought
about in the EOU/SEZ Scheme in the Foreign Trade Policy
announced on 31-8-2004. Subsequently I had issued Circular
No. 2, dated 24-9-2004 wherein I had informed about the
issuance of Notifications of Department of Revenue implementing
some of the changes brought about in these Schemes in the
Foreign Trade Policy.
Now Department of Revenue has issued Circular
No. 54/2004-Cus dated 13-10-2004 wherein these changes brought
about in the Foreign Trade Policy and the Department of
Revenue notifications have been explained in details. A
copy of the Circular is enclosed for ready reference. In
addition to the changes implemented by Department of Revenue
vide issuance of notifications earlier as explained by EPCES
Circular No. 2 dated 29-9-2004, now by this Circular, Department
of Revenue has implemented following 2 manor provisions
of Foreign Trade Policy:-
(i) Exemption from requirement of Bank
Guarantee for import as well as job work
Paragraph 19 of this Circular has explained
that it has been decided to exempt EOUs/EHTP/STP units,
which are in existence for the last 3 years with unblemished
track record and have export turnover of Rs. 5 crore or
above, from furnishing Bank Guarantee or surety along with
B-17 Bond, or for sending goods for job work. Please also
refer to Paragraph 6.12 (f) of Foreign Trade Policy.
It is a major change which has been brought
about in the Foreign Trade Policy and implemented now by
the Department of Revenue. In all the Open Houses organized
by EPCES at Kandla, Kolkata and Cochin, EOUs has raised
this issue as this was leading to transaction cost. With
the exemption from bank guarantee it will help in reducing
transaction cost of the EOUs considerably.
(ii) Exemption from Service Tax
Paragraph 6.1( c) of Foreign Trade Policy
provides that EOUs shall be exempted from the Service Tax.
Now Paragraph 4 of Circular No. 54/2004-Cus dated 13-10-2004,
explains that EOUs have been extended the facility of Cenvat
Credit. Accordingly Paragraph 5 of this Circular explains
that EOUs can also take credit of the Service Tax borne
by them which will in effect provide them relief from Service
Tax. It may be recalled that Department of Revenue had issued
Notification No. 18/2004-CX(NT) dated 6-9-2004 wherein Cenvat
Credit facility was extended to EOUs. This notification
was circulated by me vide EPCES Circular No. 2 dated 24-9-04.
Paragraph 6 & 7 of Circular No. 54/2004-Cus dated 13-10-2004
may also be seen regarding utilization of Cenvat Credit
(iii) Fast Track Clearance Scheme
Foreign Trade Policy has introduced Fast
Track Clearance Scheme under Paragraph 6.39.1 to 6.39.13
of the Handbook of Procedures. This has not been implemented
by Department of Revenue. Paragraph 21 of this Circular
says that the scheme is under review.
This is for your information please.
Circular No. 54 /2004-Cus
F. No.305/70/2004-FTT(Pt II)
Government of India
Ministry of FinanceDepartment
Central Board of Excise & Customs
Dated 13th October 2004
All Chief Commissioner of Customs,
All Chief Commissioners of Central
Chief Departmental Representative
All Commissioners of Central Excise,
All Commissioners of Customs,
Webmaster @ cbec.gov.in.
Sub: Foreign Trade Policy (FTP) announced
on 31.8.2004- Amendment of notifications relating to EOU
and Gems and Jewellery Export Promotion Schemes- Reg.
I am directed to invite your attention
to the new Foreign Trade Policy (FTP), 1st September, 2004-
31st March, 2009, brought into effect from 1.9.2004 .The
New Foreign Trade Policy and Handbook of Procedures (HOP)
Vol I, 2004-2009, replace the old Exim Policy and Handbook
of Procedures 2002-2007. In the new Foreign Trade Policy
and HOP certain changes have been introduced relating to
EOU/EHTP/STP Schemes and Gem and Jewellery Export Promotion
Scheme. To implement the changes amendments have been made
in the notifications governing duty free import/ procurement
of goods and DTA sale of goods by EOU/EHTP/STP . Amendments
have also been made in the notifications relating to Gem
and Jewellery Schemes. In this regard notification Nos 87/2004-Cus
and 46/2004-CE, both dated 6-9-2004, may please be referred
to. Important features of the amendments are discussed below:
(i) Procurement & Supplies of Spares and consumables
2. In the notification No. 52/2003
Customs, dated 31st March, 2003, governing duty free import
of goods by EOU/EHTP/STP, there was a provision allowing
duty free import of spares and consumables by the unit for
the purpose of supplying the same along with the capital
goods manufactured by the unit (Ref: para 10 of the notification).
This import was restricted to 1.5 % of the ex-factory value
of the goods manufactured for export during the preceding
year. In the new FTP, [Ref: para 6.2 (h)], the unit has
been allowed to procure spares and consumables upto 1.5%
of FOB value of exports. The value of such spares and consumables
will not to be considered towards calculation of NFE (Net
Foreign Exchange) for computation of DTA sale entitlement.
To implement this provision, notification No 52/2003-Custom,
dated 31.3.2003, has been amended suitably.
3. In the notification governing duty free
procurement of goods by EOUs from indigenous sources, there
was no provision for procurement of such spares and consumables
from domestic sources. Notification No. 22/2003-CE dated
31-3-2003, governing duty free procurement of goods by EOUs
from indigenous sources, has accordingly been amended so
that units can procure these spares etc from indigenous
(ii) Extension of CENVAT credit to EOUs.
4. At present, EOUs ( including STP/EHTP
units) are allowed to import as well as procure goods from
domestic tariff area without payment of duty. Therefore,
there was no necessity for extending CENVAT credit facility
to them . However, some EOUs have to procure their
raw materials on payment of duty also. As a trade facilitation
measure, it has been decided to allow EOUs (including STP/EHTP
units) an option either to procure the goods from DTA without
payment of duty under CT-3 procedure or to procure the goods
on payment of duty and avail CENVAT credit. The credit could
be utilized by them as per the Cenvat Credit Rules, 2004,
including payment of duty on their DTA sales .
5. The EOUs can also take credit
of the Service Tax borne by them which will in effect provide
them relief from Service Tax [para 6.1© of the FTP].
6. For availing CENVAT Credit, the procedure
and provisions as specified in CENVAT Credit Rules, 2004
, will apply. However, as regards job work , the EOU/EHTP/STP
shall not be allowed to send the goods directly to the job
worker without bringing the goods to the units ( as the
goods will then not acquire the status of EOU goods) and
will be governed by Boards existing Circulars on this
issue relating to EOU/EJHTP/STP
7. Rule 17 of the Central Excise Rules,
2002, has been amendment suitably by notfn no 18/2004-CE(NT)
dated 6.9.2004, to allow EOU/EHTP/STP units to pay duty
through Cenvat credit. .
(iii) DTA Sale by EOU/EHTP/STP Units.
8. Under the present dispensation, in case
of DTA sale of goods manufactured by EOU/EHTP/STP, if basic
customs duty and CVD are both nil on similar
goods when imported, no duty is payable by the EOU as per
proviso to section 3(1) of the Central Excise Act, 1944.
Similar goods manufactured in DTA suffer duty on inputs
(as CENVAT Credit is not available in such cases) whereas
the EOU/EHTP/STP avail the facility of duty free inputs.
This puts the DTA units manufacturing similar goods at a
comparative disadvantage. In order to remove this anomaly,
a new provision, i.e paragraph 6.8 (j), has been introduced
in the FTP providing that in case of DTA sale of goods manufactured
by EOU/EHTPSTP, where basic duty and CVD, both. are nil
[either tariff rate or effective rate], such goods would
be treated in the same manner as non-excisable goods manufactured
by an EOU. In other words, when such goods are cleared into
DTA, duty foregone on inputs utilized for production of
such goods will have to be paid (as in the case of non-excisable
goods vide para 6 of notfn no 22/2003-CE dated 31.3.2003
and para 3 of notfn no 52/2003-Cus dated 31.3.2003 )
9. For implementation of the said provision,
notification Nos. 22/2003-CE dated 31.3.2003 and 52/2003-Cus
dated 31.3.2003, governing duty free domestic procurement
and import of goods, respectively, by EOUs and EHTP/STP
units, have been amended .
(iv) Supply from one EOU/EHTP/STP to
10. In the new FTP, a new provision, by
way of paragraph 6.13(c), has been introduced providing
that the goods supplied by one EOU/EHTP/STP to another EOU/EHTP/STP
shall be treated as imported goods for the receiving
unit for the purpose of payment of duty on DTA sale.
11. The rationale behind this proposal
is that the supply of goods from one EOU/EHTP/STP to another
EOU/EHTP/STP amounts to fulfillment of export obligation
for the supplying unit. Thus, it is considered as deemed
export for the supplying unit and deemed import(para
6.10.2 of the HOP) for the receiving unit. Normally, EOU
effecting DTA sale are required to pay duty in terms of
proviso to section 3(1) of Central Excise Act, 1944, which
is equivalent to aggregates of duties of customs leviable
on similar imported goods. However, under notification No.
23/2003-Central Excise, dated 31.3.2003, it has been provided
that the units, manufacturing goods out of wholly indigenous
material, are allowed to clear such goods in DTA on payment
of normal excise duty i.e. the duty which any manufacturer
located in DTA pays on similar goods . If supplies from
EOU unit A to EOU unit B is deemed
export for A, then it should be deemed
import for B and B should
not be entitled to exemption notification which is based
on use of only indigenous raw materials.
12. To implement this provision, notification
No. 23/2003-CE dated 31.3.2003, governing DTA sale of goods
on payment of concessional rate of duty by EOUs and EHTP/STP
units, has been suitably amended by inserting an Explanation
II in the notification.
(v) Disposal of Left Over Material /Fabrics
into DTA on Payment of Duty on Transaction Value instead
of Value Declared at the Time of Import
13. In the new FTP, in paragraph 6.15 (c),
it has been provided that in the case of textile sector,
disposal of leftover material/fabrics up to 2% of CIF value
or quantity of import, whichever is lower, shall be allowed
on payment of duty on value determined as per customs valuation
rules, subject to the certification of Central excise/Customs
Officers that these are leftovers.
14. To implement this, notification No.
52/2003-Cus, dated 31.3.2003 and 22/2003-CE dated 31-3-2003,
governing duty free import and procurement, respectively,
by EOU/EHTP/STP, have been suitably amended providing that
the prescribed percentage of textile materials or textile
fabrics shall be treated as goods manufactured in the EOUs
and duty shall be charged accordingly i.e on transactional
value as per Customs Valuation Rules. Earlier, inputs
or raw materials, cleared as such (whether leftover or not)
were required to pay duty foregone on them (i.e. at the
original cif value, for imports, and purchase price for
domestic procurements). Now a limited quantity of leftovers
can be cleared at transaction value. It may be noted that
the exemption is limited to the specified quantity of textile
materials and textile fabrics only. In other words, concession
would not be available to, say, zip fasteners, though used
in the textile sector.
(vi) Rate of Depreciation Applicable
to Capital Goods
15. Hitherto, EOUs (including EHTP/STP
units) were allowed to clear /debond capital goods in DTA
on payment of duty at the depreciated value. The rate of
depreciation for computer and computer peripheral was 20%
per annum and for other capital goods, it was 10% per annum.
However, there was no upper limit of depreciation and depreciation
upto 100% was allowed.
16. In case of SEZ units, different graded
rates of depreciation have been prescribed. The SEZ Rules,
2003, provide for graded rate of depreciation. It has been
decided to allow depreciation to EOU/EHTP/STP on the lines
of SEZ units.
17. To implement this, notification Nos.
52/2003-Cus, and 22/2003-CE, both dated 31.3.2003 have been
(vii) Duty free import of consumables
by Gem and Jewellery units.
18. Earlier, notification No. 41/99-Customs,
dated 28.4.1999 provided for duty free import of specified
consumables, when imported against Replenishment Licence
referred to in paragraph 8.88 of the earlier Hand Book of
Procedures, upto 1% of FOB value of preceding financial
year of exports of Gem and Jewellery or cut and polished
diamonds. In the new FTP [para 1B.1(iv)(c)], a provision
has been incorporated for enhancing this duty free import
entitlement of consumables for metals other than gold/ platinum
from 1% to 2% of FOB value of exports during the previous
financial year. To implement this the provisions of notification
No. 41/99-Cus dated 28.4.1999 have been amended so as to
increase the duty free entitlement from 1% of FOB to 2%
of FOB in case of export of silver jewellery, while keeping
the entitlements same for gold/platinum jewellery and cut
and polished diamonds.
(ix) Waiver from Bank Guarantee
19. The EOU/EHTP/STP are required to execute
B-17 bond and furnish surety or security along with the
B-17 bond. The units are also required to furnish bank guarantee
for sending goods for job-work. It has been decided to exempt
units, which are in existence for last three years with
unblemished track record and have export turnover of Rs
5 crore or above, from furnishing bank guarantee or surety
along with B-17 Bond or for sending goods for job work [also
refer para 6.12(f) of the FTP].
(x) Free Trade and Warehousing Zones
20. Chapter 7A of the Foreign Trade Policy
has introduced a concept of Free Trade and Warehousing Zones.
Since these Zones will operate on the same lines as Special
Economic Zones (SEZs) , no separate instructions are being
issued for their implementation.
(xi) Other provisions of the FTP relating
to EOU and Gem and Jewellery Schemes
21. Amendment to Para 4.4.2 relating to
reduction in carat from 0.50 to 0.25 under the Gem and Jewellery
Scheme and paras 6.39.1 to 6.39.13 of the HOP relating to
Fast Track clearances for EOUs, are under review and
its implementation may be deferred till a final view is
communicated by this Ministry.
22. Wide publicity may please be given
to these instructions by way of issuance of Public Notice.
23. Hindi version will follow.
( Ranjit Kumar)
Sr. Technical Officer (FTT)
Telephone No 23093859
Copy for information to :
1. PS to Chairman and Members of the CBEC
2. To all sections of the Board Office
3. To all Directorates under CBEC
4. Joint Secretary (EP), Ministry
5. Directorate General of Foreign