Sub : Changes in EOU/SEZ Scheme in the Annual Supplement to Foreign Trade Policy announced by Hon’ble Commerce & Industry Minister.

Five year Foreign Trade Policy was announced by Shri Kamal Nath ji, Hon’ble Commerce & Industry Minister on 30-8-3004. In the Foreign Trade Policy many substantive changes were brought in the EOU Scheme and the new Chapter of Free Trade Warehouse Zone was introduced. These changes were explained vide EPCES Circular No. 1 dated 1-7-2004. Most of these provisions relating to EOU and SEZ Scheme have already been implemented. Annual Supplement for 2005-2006 to this FTP was released by Hon’ble Commerce & Industry Minister today. In the Annual Supplement some more changes have been brought about in the EOU/SEZ Scheme.

A. EOU SCHEME

i) Paragraph 6.2(f) of the FTP has been amended. Gems & Jewellery units obtaining gold/silver/platinum from the nominated agencies have been permitted to export gold/silver/platinum jewellery within 90 days from the date of release. This time period was 60 days earlier. Hence the time period under this paragraph has been increased from 60 days to 90 days.

ii) Paragraph 6.6(d) of the FTP has been amended. Paragraph 6.6(d) prescribed the minimum investment of Rs. 1 crore. This paragraph further prescribes certain sectors which are exempted from the requirement of investment of Rs. 1 crore on plant and machinery. The last line of this paragraph had stated that “sector-wise investment criteria shall be fixed by Board of Approvals”. This sentence has been deleted. This sentence was creating a bit of confusion. The deletion of this sentence has removed the ambiguity and now units in handicrafts/agriculture/floriculture/aquaculture/animal husbandry/ information technology, services, brass hardware, handmade jewellery are exempted from investment criteria of Rs. 1 crore in plant and machinery.

iii) Paragraph 6.8(d) has been amended. Now this paragraph prescribes that “rejects within an overall limit of 50%” may be sold in the DTA on payment of duties as applicable to sale under paragraph 6.8(d) on prior intimation to customs authorities. This change is basically clarificatory in nature.

iv) Paragraph 6.8(k) of the FTP has been amended. As per the amendments in case of new EOUs advance DTA sale will be allowed not exceeding 50% of its estimated export for the first year except the pharmaceutical units where this will be based on its estimated exports for the first 2 years. Hence underlined sentence has been added now and accordingly pharmaceutical units are entitled for advance DTA sale based on estimated export for first 2 years.

v) Paragraph 6.11(c )(iii) has been deleted. This paragraph had provided reimbursement of central excise duties/additional excise duty paid on bulk tea procured from Licence Auction Centres. This has been probably done as additional excise duty on tea has been abolished in the Budget.

vi) Paragraph 6.11(c )(v) has been amended. Existing paragraph has provided “exemption from payment of service tax”. This paragraph has been amended to read as “cenvat credit on service tax paid”. It may be recalled that in the FTP supplies from DTA to EOU were exempted from service tax. However DoR had issued a circular stated that service tax will have to be paid and a cenvat credit can be taken against the service tax. Accordingly now the provision in the FTP has also been amended.

vii) Paragraph 6.12(c) of the FTP has been deleted. Paragraph 6.12(c) had provided that OBUs will extend credit to EOUs on the same terms and conditions as extended to units in SEZs. However, RBI did not issue guidelines for implementing this provisions. FTP has deleted this provision.

viii) Paragraph 6.13(b) of the FTP has been amended. Now EOUs have been allowed to transfer capital goods or give on loan to other EOU/EHTP/STP /BTP/SEZ units with prior intimation to the concerned DC and Customs authorities. Earlier prior permission of the DC was required. Hence instead of prior permission of the DC now the capital goods can be transferred under prior intimation only.

ix) Paragraph 6.14(b)(i) has been amended. In the last FTP it was provided that EOU can undertake job work for export on behalf of DTA exporters and they shall be entitled for duty paid on the inputs by way of All Industry Rate of Duty Drawback/brand rate of duty drawback. Now the words All Industry Rate of Duty Drawback have been deleted and the units will have to claim only Brand Rate of Duty Drawback This change is certainly not in accordance with the spirit of the Government which emphasized on reduction in transaction cost.

x) Paragraph 6.17(a) of the FTP has been amended. The existing paragraph provided that “the general provision of the policy relating to export of replacement/repair of goods under paragraph 2.37 of Policy would also apply equally to EOUs/EHTP/STP/BTP units”. Now this sentence has been amended to read as “the general provision of the policy relating to export/import of replacement/repair of goods would also apply to EOU/EHTP/STP/BTP units.” Accordingly the words “under Paragraph 2.37” have been deleted. This would help as para 2.37 covered only replacement of goods. Import of goods for repair and subsequent re-export were covered under Paragraph 2.38 of the FTP. Hence it seems that now the facility covered under paragraph 2.38 of the FTP also stand extended.

xi) Paragraph 6.18(d) of the Policy has been amended substantially. The procedure of de-bonding of EOUs has been simplified considerably. Now the unit proposing to exit from the EOU Scheme shall intimate the DC and customs and central excise authorities in writing. The unit shall assess the duty liability arising out in de-bonding and submit the details of such assessment to customs and central excise authorities. The Customs and Central excise Authorities shall confirm the duty liability on priority basis. After payment of duty and clearance of all dues the unit shall obtain "No Dues Certificate" from the Customs and Central Excise authorities. On the basis of No dues certificate so issued by the Customs and Central Excise authorities, the unit shall apply to the Development Commissioner for final debonding. In case there is no proceeding pending under FT(DR) Act 1992, the Development commissioner shall issue final debonding order within a period of 7 working days. During the period between "No dues certificate" issued by the Customs and Central Excise authorities and the final debonding order by the Development Commissioner, the unit shall not be entitled to claim any exemption for procurement of capital goods or input. The unit can however, claim Advance License / DFRC / DEPB / Duty Drawback.

xii) Paragraph 6.7(a) of the Handbook of Procedures has been amended. In this paragraph last sentence has been added as “The Granite Sector would also be allowed to take spares upto 5% of the value of the Capital Goods to the quarry site. Hence the transfer of spares to the query site has been permitted for the granite sector. This request was strongly made by granite units in Hyderbad Open House.

xiii) Paragraph 6.29.4 has been added in the FTP. As per this new provision a EOU has been allowed on the basis of the records maintained by them on prior intimation to customs authorities to send samples to other EOUs for display on returnable basis within a period of 30 days. This request had been received from Gem & Jewellery sector and was discussed in the Open Houses. This has been accepted in the FTP.

xiv) As per the highlights released by the DGFT EOUs have been permitted to claim IT exemption in respect of income on export proceeds realized within a period of 12 months from the date of export. It may be recalled that paragraph 6.12(d) of the FTP had permitted EOUs to realize export proceeds within 12 months. However, Section 10B of the IT Act permits IT exemption only if the export proceeds are realized within 6 months. EPCES had represented to Secretary Revenue that Section 10B of the IT Act should be amended. Now in view of the specific highlights hopefully the provisions relating to IT Act would also be amended.

xv) Highlights have pointed out that Advance Licence Holders have been permitted to take goods from EOUs/EHTP/STP/BTP without the requirement of ARO and direct debit of advance licence should be allowed by the Bond Officer to these units. The provision to this extent was already existing in Paragraph 4.1.11 of FTP. Now highlights clearly point out that a detailed procedure in this regard shall be prescribed by the CBEC.

xvi) Paragraph 6.16 of the Handbook of Procedures has been amended. As per the amended provison transfer of power from captive power plants (DG Sets) from one unit of EOU/EHTP/STP/BTP to another is permitted. Earlier transfer of power from DG sets only was allowed and accordingly the word “captive power plant has been added.

B. SEZs

i) Shri Kamal Nath ji, Hon’ble Commerce & Industry Minister, while releasing the FTP specifically announced that the Draft SEZ Act has already been sent to the Cabinet for further discussions. He assured that SEZ Bill will be introduced in this session of Parliament when the Parliament is re-convened.

ii) DoR has issued circular No. 21/2005-Cus dated 6-4-2005 clarifying that supply of goods from DTA to SEZ units during the period 1-4-2003 to 11-5-2004 shall be entitled for DEPB benefits. Through this circular DoR has withdrawn its circular No. 11/2004-Cus dated 5.2.2004. I have already sent a copy of this circular vide EPCES Circular No. 39 dated 7-4-2005.

iii) Paragraph 7.9 (b)(iii) of the FTP has been deleted. This paragraph has provided reimbursement of central excise duties/additional excise duty paid on bulk tea procured from Licence Auction Centres. This has been probably done as additional excise duty on tea has been abolished in the Budget.

iv) Paragraph 7.12(b)(i) has been amended. Accordingly the SEZ units have been permitted to send goods, finished or semi-finished, including studded jewellery to be taken outside the zone for sub-contracting and to be brought back within 90 days. Earlier the time period prescribed was 30 days.