EPCES has been receiving a large number of queries.
Though such queries are responded immediately to the sender,
few interesting and oft-repeated queries
are reproduced here.
Q. We are 100% EOU registered with NSEZ, Noida. We are manufacturing Guar Gum Powder and exporting the same to USA, Russia, China, European Countries and others. We use indigenous agro based raw material i.e. Guar Seed for our product. We are not importing anything from oversea. We want to know that whether Duty Entitlement Passbook Scheme is available to us or not.
DEPB benefits for export of guar gum powder is available to other DTA units. Our query is whether DEPB benefits are available to our 100% EOU which uses 100% indigenous raw material (Agricultural produce) available at NIL rate of duty.
Ans. Benefit of DEPB is not available for exports from 100% EOU because units under EOU/SEZ Units are entitled for duty free import of raw material/procurement from domestic market. DEPB intends to reimburse the duty back. Since these units are entitled for duty free import/procurement, they are not entitled for DEPB benefits irrespective of the facts that your unit is procuring 100% indigenous raw material.
Q. Ours is 100% EOU which had been started functioning in the year 2002 from the month of November. Our FOB value so far crosses 30 crores from the beginning till date. Any possibility to get Star status? or any such kind? Please clarify to come out of EOU status. Are any other benefits?
Ans. You can avail the benefit of recognition as a star exporter. As per the present provision given in Chapter 3, paragraph 3.5.2 of the Foreign Trade Policy, exporters are given recognition as a 1 star export house, 2 star export house, 3 star export house, 4 star export house and 5 star export house etc. The eligibility criteria is:- (1) One Star Export House -15 crore (2) Two Star Export House - 100 crore (3) Three Star Export House - 500 crore (4) Four Star Export House -1500 crore (5) Five Star Export House – 5000 crore.
For getting yourself recognized as a status holder you have to make application to the concerned Development Commissioner only. Hence please get in touch with the concerned Development Commissioner.
Q. We are manufacturers and exporters of Granite products since 2001. We have recently registered our unit as 100% EOU with MEPZ, Chennai. Our unit is a tiny unit with an annual turnover of around Rs.1 crore. In our area we are the only 100% EOU. The excise authorities have intimated us for paying cost recovery charges, which will be around Rs 1 lakh. How it is possible for us to bear such a huge amount. Kindly let us know if there is any provision regarding savings in cost recovery charges for tiny units.
Ans. As regards cost recovery charges the cost recovery charges is to be paid but the same can be shared amongst all the EOUs if one Cost Recover Officer is discharging duties in more than one EOU. However, you can opt for the system of payment of Merchant Overtime instead of cost recovery charges. Your attention is invited to Deptt. Of Revenue Circular No. 68/98-cus dated 7-9-98, Circular No. 5/2002-customs dated 17-1-02 and Circular No. 101/2003-Customs dated 5-12-03. These circulars are available on the CBEC website www.cbec.gov.in
Q. Does minimum investment criteria of Rs. 1 crore include afreight and the ancillary expenses ; cost of equipment, machinery and tanks which are used for storage of raw material stock and material in process; and equipment used for QC of raw material and finished goods ?
Ans. All the 3 items as stated by you probably will not be included in the criteria of minimum investment of 1 crore. Investment criteria of 1 crore is essential for plant and machinery i.e. capital goods required for manufacturing the product in the EOU. Hence freight, ancillary expenses material in processing etc certainly could not be included. Equipment machinery and tank which you have stated would depend on how they are related with the manufacturing process in particular unit and depending upon the case to case basis. The Development Commissioner will finalize whether this machinery will form a part of the manufacturing.
Q. In case an EOU is procuring raw material from the indigenous market and then selling the product in the DTA then what is the amount of duty they are required to pay?
Ans. In case an EOU making a product by procuring 100% raw material indigenously, then such product can be sold in the domestic market on payment of excise duty. Department of Revenue Notification No. 8/97-CE dated 1-3-97, may please be seen. However I must be ensure that raw material consumables etc is sourced 100% indigenously. Because in the past certain textile units which had used 100% indigenous raw material but used imported consumables, which was less then even 1%, even then Department of Revenue had asked such units to pay customs duty instead of excise duty.
Q. Are Status Holder EOUs required to execute B-17 Bond with or without bank guarantee? If without, then what about the bank guarantees issued prior to the changes in the Foreign Trade Policy ? Should the bank guarantee be cancelled already executed ?
Ans. As per Paragraph 6.12(f) of the Foreign Trade Policy, the Units will not be required to furnish bank guarantee at the time of import or going for job work in DTA, where the unit has (i) a turnover of Rupees 5 crores or above, (ii) the unit is in existence for at least three years and (iii) unit is having an unblemished track record.
The instructions to this effect has also been issued by Department of Revenue Circular No. 54/2004-Cus dated 13/10/2004 which has vide paragraph 19 of this circular implemented this provision of the FTP. A copy of DoR circular has already been circulated to all EPCES Members vide EPCES Circular No. 7 dated 20/10/04. Hence all the EOUs are required to execute B-17 Bond but EOUs which comply with the conditions as given in Paragraph 6.12(f) of FTP read with DoR circular No. 54/2004-Cus are not required to execute bank guarantee alongwith B-17 Bond. Other units are required to submit bank guarantee alongwith B-17 Bond. Units which have already executed Bank Guarantee should approach the concerned central excise authoirites for getting their bank guarantee released, in case the unit meets with the stipulated conditions so that they execute only the B-17 Bond.
Q. Can DTA sales under Para 6.8(a) of FTP against specific permission from the Zonal Development Commissioner at concessional rate of duty be carried out by Segregation units during the validity of their LOP as manufacturers?
Ans. No DTA sale at concessional duty is permissible under Paragraph 6.8(a) of FTP in respect of the packaging / labeling / segregation / refrigeration unit / compacting / micronisation / pulverization / granulation /conversion of mono-hydrate form of chemical to anhydrous form or vice-versa and such other items as may be notified from time to time.
Q. Kindly let us know if there are any FTWZ created so far in India
Ans. No FTWZ has been created so far in India. However M/s Infrastructure Lease & Financial Services Ltd (IL&FS) is going to set up FTWZ at 6 places in India along with M/s Mineral & Metals Trading Corporation (MMTC). Their proposals for setting up FTWZ at Kandla and Noida have already been approved by Board of Approvals.
Q. Can you be so kind as to elaborate if an AEZ unit can procure from an EOU and whether the same can be treated as deemed export by the supplying EOU even when AEZ unit has not provided EOU with EPCG licience.
Ans. Supplies from EOUs to a domestic unit, including a unit located in AEZ, can be counted for export performance only if these supplies are covered under Paragraph 6.9 of the Foreign Trade Policy.
Q. Our Unit has successfully commenced the new E.O.U. and we have regular export orders in hand as per our operations and capacity. In most of the export orders we manufacture the complete order in our plant, which is well equipped for the range offered by us.
However in some of the orders buyer insist us some small quantities of auxiliary items, which we do not manufacture and have to buy from outside sources. These bought out items may comprise not more that 10-20% of the order value. We need to supply these bought out items in the original packing with the original trade names to ensure proper documentation and labeling.Therefore it has become necessary for us to buy some finished products for exporting them in the same name and form, with out any change, along with the main consignment.
We request you to please advise us the formalities/permissions required in this regard
Ans. No trading activity is allowed in the EOU. Hence it will not be possible for you to bring the bought-out items in the EOU and supply the same to your buyers.
Q. Initially we had the LOI / L. O. P. for 10 years i.e. from 1992 - 2002. Later we got an extension for 5 years from the Development Commissioner Mumbai for the period 2002 - 2007.
We propose to continue as 100 % E.O.U. for further 5 years. In this connection, please advice regarding the Foreign Trade Policy And Procedure to get the extension for next 5 years.
Ans. Paragraph 6.6(a) of the Foreign Trade Policy provides that once the unit commences production, LOP/LOI issued shall be valid for a period of 5 years for its activities. This period may be extended further by the Development Commissioner for a period of 5 years at a time. Hence after completion of the initial LOP period the unit can approach again to the Development Commissioner for further extension of the LOP for a period of 5 years and EOU can continue operating under the Scheme as long as it wants by taking extension from the Development Commissioner further every 5 years, if it so desires.
Q. We are an 100% EOU situated at Kolkata and persentely procurring HSD and Furnance Oil directely from Indian Oil Rerefinerie at Haldia against CT-3 form and are availing the benefit of exemption of Excise duty.
In light of DGFT Policy Circular No. 37/2005-09 dated 05.12.2005, we would like to know that whether an EOU is entitled to get the benefit of Duty Drawback in addition to benefit of CT-3 for getting exemption from Excise duty on procurement of HSD and Furnace Oil made by them.
Ans. DGFT Circular is quite clear and it clearly clarifies that the Drawback rate fixed by DGFT for furnace oil and high speed diesel take into account the customs duty on crude oil deemed to have been imported by the oil companies. This, however, does not take into account the excise duty paid on the procurement of fuel from the depots of domestic oil companies. Fuels procured from the depots of domestic oil companies on payment of excise duty by EOU/EHTP/STP/BTP will be eligible for reimbursement in the form of terminal excise duty in addition to drawback rates notified by DGFT from time to time provided the recipient unit does not avail CENVAT credit/rebate on such goods. Supplies taken directly from the refineries will continue to get exemption from payment of excise duty under CT3.
Q. Our EOU Unit manufactures coir carpets/mats. It comes under Tariff item 5702.20.90. Part of the raw materials used is imported (without paying duty, being EOU unit) and part indigenous. The product is exempted from Sales Tax and VAT.
We request your help to get clarification regarding duties and taxes applicable when we sell the products to DTA. Your circular No.10 does clarify the situation regarding 4% additional duty, which has to be paid for DTA sales because our goods are exempted from Sales Tax or VAT. What about other duties? We will be grateful for a reply at the earliest.
Ans. The duty structure on sale of goods from EOU to DTA has been changed in the Budget. Please see EPCES Circular No. 10 dated 8-3-2006.
Q. Whether this provision is applicable only in case of imported inputs being used for manufacturing final product.
Ans. Notification No. 22/2006-CE dated 1-3-2006, which I had forwarded vide EPCES Circular No. 9 dated 28-2-2006, clearly shows that this notification has carried out amendment against serial No. 2 of Ministry of Finance Notification No. 23/2003-CE dated 31-3-2003.
Q. That is, in case a manufacturer manufactures goods by using indigenous input, as per existing provision, whether only excise duty will be applicable and no portion of basic customs duty is levied.
Ans. Other provisions of Notification No. 23/2003-CE dated 31-3-2003 have not been changed. Hence if the EOUs are procuring the raw materials 100% from the indigenous sources then they are required to pay excise duty as per the existing provisions. Please see Notification No. 22/2006-CE dated 1-3-2006 again which, I reiterate again, had carried out amendment in serial No. 2 of Notification No. 23/2003-CE.
Q. How much quantum will be available as Cenvat to the buyer in case duty on DTA sale is to be charged by using imported input.
We would also like to get clarification of the following issue which is linked to Textile Industry :-
As per excise provision, the textile mills in domestic tariff area has following two options –
a) Take Cenvat of input and pay duty on final product, or alternatively;
b) No Cenvat of input and in that case no duty is to be paid on final product.
Please inform whether a textile EOU unit can opt for 2nd option i.e. no Cenvat of duty to be paid on basic input and thus, it can clear finished goods in DTA without payment of duty.
Ans. As regards quantum of Cenvat Credit for the supplies affected by EOUs to DTA, this is provided in Rule 3(7)(a) of Cenvat Credit Rules, 2004. This rule would require some change and I have already written to Ministry of Finance. For further clarifications on Cenvat credit, you may please consult Central Excise officers.