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EPCG Scheme 
The scheme allows import of capital goods for pre production, production and post production (including CKD/SKD thereof as well as computer software systems) at 5% Customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme to be fulfilled over a period of 8 years reckoned from the date of issuance of licence.
However, in respect of EPCG licences with a CIF value of Rs.100 crore or more, the same export obligation shall be required to be fulfilled over a period of 12 years. The capital goods shall include spares, jigs, fixtures, dies and moulds. EPCG licence may also be issued for import of components of such capital goods required for assembly or manufac-
turer of capital goods by the licence holder. Second hand capital goods upto 10 years old may also be imported under the EPCG scheme.

5.1a
Spares for the existing plant and machinery may also be imported under the EPCG scheme subject to an export obligation equivalent to 8 times of duty saved to be fulfilled over a period of 8 years reckoned from the date of issuance of licence.

Eligibility  5.2
The scheme covers manufacturer exporters with or without supporting manufacturer(s)/ vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers.

Conditions for import of Capital Goods   5.3

Import of capital goods shall be subject to Actual User condition till the export obligation is completed.

Export Obligation  5.4
The following conditions shall apply to the fulfilment of the export obligation:-

  • The export obligation shall be fulfilled by the export of goods capable of being manufactured or produced by the use of the capital goods imported under the scheme. The export obligation may also be fulfilled by the export of same goods, for which EPCG licence has been obtained, manufactured or produced in different manufacturing units of the licence holder/specified supporting manufacturer (s)/ vendor(s). The export obligation under the scheme shall be, over and above, the average level of exports achieved by him in the preceding three licensing years for same and similar products except for categories mentioned in Handbook (Vol.1). Alternatively, export obligation may also be fulfilled by exports of other goods manufactured or service provided by the same firm/company which has the EPCG licence. However, in such cases, the additional export obligation imposed under EPCG scheme shall be over and above the average exports achieved by the unit in preceding three years for the substitute products/services. This facility shall only be available to manufacturer exporters/ service provider.
  • The export obligation under the scheme shall be, in addition to any other export obligation undertaken by the importer, except the export obligation for the same product under Advance Licence, DFRC, DEPB or Drawback scheme.

5.5.1
Any firm/company registered with BIFR or any firm/ company acquiring a unit, which is under BIFR shall be allowed EO extension as per the rehabilitation package prepared by the operating agency subject to subsequent approval of BIFR. However, in cases where the rehabilitation package does not specify the EO extension period, a time period upto 12 years reckoned from the date of issue of licence would be permitted on merits of the case for fulfilment of export obligation.
Similarly, small-scale SSI units shall also be entitled for similar facility as per the rehabilitation scheme of the concerned State government. However, in cases where the State rehabilitation scheme does not specify the EO extension period, a time period upto 12 years reckoned from the date of issue of licence would be permitted on merits of the case for fulfillment of export obligation

5.5.2

In the case of EPCG licences issued to agro units in the agri export zones, a period of 12 years reckoned from the date of issue of the licence would be permitted for the fulfilment of export obligation.

Indigenous Sourcing of Capital Goods and benefits to Domestic Supplier  5.6
A person holding an EPCG licence may source the capital goods from a domestic manufacturer instead of importing them. The domestic manufacturer supplying capital goods to EPCG licence holders shall be eligible for deemed export benefit under paragraph 8.3 of the Policy.

Benefits to Domestic Supplier  5.7
In the event of a firm contract between the EPCG licence holder and domestic manufacturer for such sourcing, the domestic manufacturer may apply for the issuance of Advance Licence for deemed exports for the import of inputs including components required for the manufacturer of said capital goods. The domestic manufacturer may also replenish the inputs including components after supply of capital goods to the EPCG licence holders.

Fixation of Export Obligation  5.7a

In case of direct imports, the export obligation relating to the EPCG licence shall be reckoned with reference to the duty saved value on the CIF value of capital goods (including spares, jigs, fixtures, dies and moulds) actually imported. In case of domestic sourcing, the export obligation relating to EPCG shall be reckoned with reference to the notional Customs duties saved on the FOR of capital goods (including spares, jigs, fixtures, dies and moulds).

5.8
Service provider in Agri export zone shall have the facility to move or shift the capital goods within the zone provided he maintains accurate record of such movements. However, such equipments shall not be sold or leased by the licence holder.

Eligibility  6.1

Units undertaking to export their entire production of goods and services, except permissible sales in the DTA, as per this Policy, may be set up under the Export Oriented Unit (EOU) Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP) Scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering, and rendering of services. No trading units shall, however, be permitted.

Export and Import of Goods  6.2

  • An EOU/EHTP/STP unit may export all goods and services except items that are prohibited in ITC (HS). Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) shall be subject to fulfillment of the conditions indicated in the ITC (HS).
  • An EOU/EHTP/STP unit may import without payment of duty all types of goods, including capital goods, as defined in the Policy, required by it for its activities as mentioned in paragraph 6.1 above or in connection therewith, provided they are not prohibited items of imports in the ITC (HS). The units shall also be permitted to import goods required for the approved activity, including capital goods, free of cost or on loan from clients.
  • Deleted
  • STP/EHTP/EOU may import/procure from DTA without payment of duty specified goods for creating a central facility for use by software development units in STP/EHTP/EOU. The central facility for software development can also be accessed by units in the DTA for export of software.
  • An EOU engaged in agriculture, animal husbandry, aquaculture, floriculture, horticulture, pisciculture, viticulture, poultry or sericulture may import/procure all types of goods, without payment of duty, required by it for its activities or in connection therewith as available to other EOUs. However, such units may be permitted to take only specified goods for use outside the bonded area.
  • Deleted
  • EOU gem and jewellery units may also source gold/silver/platinum through the nominated agencies.
  • EOU/EHTP/STP unit, other than service units, may also export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer subject to RBI clearance, if any.

Second Hand Capital Goods  6.3
Second hand capital goods may also be imported duty free without any age limit.

Leasing of Capital Goods  6.4
An EOU/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/EHTP/STP unit and the domestic/foreign leasing company shall jointly file the documents to enable import/procurement of the capital goods without payment of duty.

Net Foreign Exchange Eearnings (NFE)  6.5
EOU/EHTP/STP unit shall be a positive net foreign exchange earner. Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively for a period of five years from the commencement of production.

Letter of Permission/ Letter of Intent and Legal Undertaking  6.6 

  • On approval, a Letter of Permission (LOP)/Letter of Intent (LOI) shall be issued by the Development Commissioner to EOU/EHTP/STP unit. The LOP shall have an initial validity of 3 years for commencement of production. Its validity may be extended by another 3 years, beyond initial validity, by the competent authority. However proposals approved prior to 1.4.2002 shall be considered on case to case basis by the BOA.
  • LOP/LOI issued to EOU/EHTP/STP units by the concerned authority would be construed as a licence for all purposes.
  • The unit shall execute a legal undertaking with the Development Commissioner concerned. Failure to ensure positive NFE or to abide by any of the terms and conditions of the LOP/LOI/IL/LUT 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 there under without prejudice to action under any other law/rules and cancellation or revocation of LOP/LOP/IL.

Application and Approvals  6.7

  • Only project having a minimum investment of Rs.1 crore and above in building, plant and machinery shall be considered for establishment under EOU scheme. Minimum investment should take place on coming into production of the unit. (This shall, however, not apply to existing units and units in EHTP/STP/ handicrafts/ agriculture/ floriculture/ acqua-culture/ animal husbandry/ information technology, services and such other sectors as may be decided by the BOA).
  • Applications for setting up of units under EOU scheme 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), shall be approved or rejected by the Units Approval Committee within 15 days as per the criteria indicated in Appendix 14-I of Handbook (Vol-I)
  • In other cases, approval may be granted by the Board of Approval (BOA) set up for this purpose as indicated in Appendix 14-I of Handbook (Vol-I)
  • Proposals for setting up EOU requiring industrial licence may be granted approval by the Development Commissioner after clearance of the proposal by the Board of Approval and Department of Industrial Policy and Promotion within 45 days on merits.

DTA Sale of Finished Products/ Rejects Waste/ Scrap/ Remnants and By-products  6.8
The entire production of EOU/EHTP/STP units shall be exported subject to the following:

  • Unless specifically prohibited in the LOP, rejects may be sold in the Domestic Tariff Area (DTA) on payment of duties as applicable to sale under paragraph 6.8(b) on prior intimation to the Customs authorities. Such sales shall be counted against DTA sale entitlement under paragraph 6.8(b). Sale of rejects upto 5% of FOB value of exports shall not be subject to achievement of NFE.
  • Units, other than gems and jewellery units, may sell goods/ services upto 50 % of FOB value of exports, subject to fulfillment of positive NFE on payment of applicable duties. Sales made to a private bonded warehouse set up under the policy shall also be taken into account for the purpose of arriving at FOB value of exports by EOUs provided payment for such sales are made from EEFC account. No DTA sale shall be permissible in respect of motor cars, alcoholic liquors, tea (except instant tea) and books or by a packaging/ labeling /segregation/ refrigeration unit and such other items as may be notified from time to time.
  • Gems and jewellery units may sell upto 10% of FOB value of exports of the preceding year in DTA subject to fulfillment of positive NFE as prescribed in the Policy. In respect of sales of plain jewellery, the recipient shall pay concessional rate of duty to the Customs in Indian rupees as applicable to sale from nominated agencies. In respect of studded jewellery, duty shall be payable in Indian rupees as notified by Customs.
  • Scrap/ waste/ remnants arising out of production process or in connection therewith may be sold in the DTA as per the Standard Input-Output norms notified under the Duty Exemption Scheme on payment of duties as applicable under paragraph 6.8 (b) within the overall ceiling of 50% of FOB value of exports. Such sales shall not, however, be subject to achievement of positive NFE. Sale of waste/scrap/remnants by units not entitled to DTA sale or sales beyond the DTA sale entitlement, shall be on payment of full duties.
  • There shall be no duties/taxes on such scrap/waste/ remnants in case the same are destroyed with the permission of Customs authorities.
  • EOU/ EHTP/ STP units may be permitted to sell finished products which are freely importable under the Policy in the DTA against payment of full duties provided they have achieved the positive NFE as per the Policy.Such sales may also be permitted in exceptional cases without achievement of positive NFE.
  • For services, including software units, sale in the DTA in any mode, including on-line data communication, shall be permissible up to 50% of FOB value of exports and/or 50% of foreign exchange earned, where payment for such services is received in free foreign exchange.
  • By-products included in the LOP may also be sold in the DTA subject to achievement of positive NFE on payment of applicable duties within the overall entitlement of paragraph 6.8(b). Sale of by-products by units not entitled to DTA sales or beyond the entitlements of paragraph 6.8 (b) shall also be permissible on payment of full duties.

Note: In the case of units manufacturing electronics hardware and software, the NFE and DTA sale entitlement shall be reckoned separately for hardware and software.

Other Supplies in DTA  6.9

The following supplies effected from DTA to EOU/EHTP/STP units will be counted for the purpose of fulfilment of positive NFE:

  • Supplies effected in DTA in terms of Chapter 8 of the Policy
  • Supplies effected in DTA against payment from the Exchange Earners Foreign Currency (EEFC) Account of the buyer in the DTA or against foreign exchange remittance received from overseas.
  • Supplies to other EOU/EHTP/STP/SEZ units provided that such goods are permissible for procurement in terms of paragraph 6.2 of the Policy.
  • Supplies made to private bonded warehouses set up under Chapter 2 of the Policy and/or under Section 65 of the Customs Act.
  • Supply of goods against special entitlement of duty free import of goods.
  • Supplies of goods and services to such organizations which are entitled for duty free import of such items in terms of general exemption notification issued by the Ministry of Finance
  • Supply of services (by services units) relating to exports paid for in free foreign exchange or for such services rendered in India Rupees which are otherwise considered as having been paid for in free foreign exchange by RBI.
  • Supplies of Information Technology Agreement (ITA-1) items and notified zero duty telecom/electronic items.

Export through status holder  6.10
An EOU/EHTP/STP unit may export goods manufactured/software developed by it through a merchant exporter/status holder recognized under this Policy or any other EOU/EHTP/STP/SEZ unit.

Samples  6.11

Procedure for export/supply of samples by EOU/EHTP/STP units is given in Appendix 14-I of Handbook Vol-I.

Entitlement for supplies from the DTA   6.12

a) Supplies from the DTA to EOU/EHTP/STP units will be regarded as "deemed exports" and the DTA supplier shall be eligible for the relevant entitlements under chapter 8 of the Policy besides discharge of EP if any, on the supplier. Notwithstanding the above, EOU/ EHTP/ STP units shall, on production of a suitable disclaimer from the DTA supplier, be eligible for obtaining the entitlements specified in chapter 8 of the Policy. For the purpose of claiming deemed export duty drawback, they shall get Brand Rates fixed by the DGFT wherever All Industry Rates of Drawback are not available. In addition the EOU/EHTP/STP units shall be entitled to the following:-

  • Reimbursement of Central Sales Tax.
  • Exemption from payment of Central Excise Duty on all goods as per entitlement under Paragraph 6.2 of the Policy.
  • Reimbursement of Central Excise Duty paid on bulk tea procured from licenced auction centres by Development Commissioner of concerned Zone so long as levy on bulk tea in this regard is in force.
  • Reimbursement of Duty paid on fuels procured from domestic oil companies, by the Development Commissioner of the concerned Zone as per the rate of Drawback notified by the Directorate General of Foreign Trade from time to time.

b) Supplier of precious and semi-precious stones, synthetic stones and processed pearls from DTA to EOU shall be eligible for grant of Replenishment Licenses at the rates and for the items mentioned in the Handbook (Vol.1).The entitlements under paragraph (a) (i) and (ii) above shall be available provided the goods supplied are manufactured in India.

Other Entitlements  6.13
Other entitlements of EOU/EHTP/STP units are indicated in the Appendix 14-I of Handbook (Vol-I).

Inter Unit Transfer  6.14

  • Transfer of manufactured goods from one EOU EHTP/STP unit to another EOU/EHTP/STP/ SEZ unit will be allowed.
  • Deleted
  • Capital goods may be transferred or given on loan to other EOU/SEZ/EHTP/STP units with prior permission of the concerned Development Commissioner and Customs authorities.

Sub-Contracting  6.15

  • EOU/EHTP/STP unit, including gem and jewellery units, may on the basis of annual permission from the Custom authorities, subcontract production process in DTA, which may also involve change of form or nature of goods, through job work by units in the DTA. These units may also subcontract upto 50% of the overall production of previous year in value terms for job work in DTA with the permission of the Customs authorities. Subcontracting of both production and production process may also be undertaken without any limit through other EOU/EHTP/ STP/SEZ units on the basis of records maintained in the unit.Subcontracting of part of production process may also be permitted abroad with the approval of the Development Commissioner.
  • EOU may, on the basis of annual permission from the Customs authorities, undertake job work for export, on behalf of DTA exporter, provided the goods are exported directly from EOU and export document shall jointly in the name of DTA/EOU. For such exports, the DTA units will be entitled for refund of duty paid on the inputs by way of Brand Rate of duty drawback.
  • Scrap/waste/remnants generated through job work may either be cleared from the job worker’s premises on payment of applicable duty or destroyed in the presence of Customs/ Excise authorities or returned to the unit. Destruction shall not apply to gold, silver, platinum, diamond, precious and semi precious stones.
  • Sub-contracting/exchange by gems and jewellery EOUs through other EOUs or SEZ units or units in DTA shall be as per procedure indicated in Appendix 14-I of Handbook (Vol-I).

Sale of Un-utilised Material  6.16

  • In case an EOU/EHTP/STP unit is unable, for valid reasons, to utilize the goods and services, imported or procured from DTA, it may be transferred to other EOU/SEZ/EHTP/STP units or disposed off in the DTA on payment of applicable duties and submission of import licence by DTA unit, wherever applicable or exported. Such transfer from EOU/EHTP/STP unit to another such unit would be treated as import for the receiving unit.
  • Capital goods and spares that have become obsolete/surplus, may either be exported, transferred to another EOU/EHTP/STP/SEZ or disposed of in the DTA on payment of applicable duties. The benefit of depreciation, as applicable, will be available in case of disposal in DTA. No duty shall be payable in case capital goods, raw material, consumables, spares, goods manufactured, processed or packaged, and scrap/ waste/ remnants/rejects are destroyed within the Unit after intimation to the Custom authorities or destroyed outside the Unit with the permission of Custom authorities. Destruction as stated above shall not apply to gold, silver, platinum, diamond, precious and semi precious stones.

Reconditioning Repair and Re-engineering  6.17
EOU/EHTP/STP units may be set up with the approval of BOA to carry out reconditioning, repair, remaking, testing, calibration, quality improvement, up-gradation of technology and re-engineering activities for export in freely convertible foreign currency. Such units may import goods of any origin for the above activities. The provisions of paragraphs 6.8, 6.9,6.10,6.11, 6.12, 6.14 and 6.15 shall not, however, apply to such activities.

Replacement/ Repair of imported/ Indigenous Goods  6.18

  • The general provisions of the Policy relating to export of replacement/repair of goods would also apply equally to EOU/EHTP/STP units, save that, cases not covered by these provisions shall be considered on merits by the Development Commissioner.
  • The goods sold in the DTA and found to be defective may be brought back for repair/ replacement, under intimation to the concerned jurisdictional Customs/Excise authorities.
  • Goods or parts thereof on being imported/ indigenously procured and found defective or otherwise unfit for use or which have been damaged or become defective after import/ procurement may be returned and replacement obtained or destroyed. In the event of replacement, the goods may be brought back from the foreign suppliers or their authorized agents in India or indigenous suppliers. However destruction shall not apply to precious and semi precious and precious metals.

Approval Period  6.19
LOP/LOI shall be valid for a period of 5 years from the date of commencement of production. This period may be extended further by the Development Commissioner concerned for period of 5 years at a time.

Exit from EOU Scheme  6.20

  • Subject to the approval of the Development Commissioner, EOU/EHTP/STP units may opt out of the scheme. Such exit from the scheme shall be subject to payment of duties of Customs and Excise and the industrial policy in force at the time of exit.
  • If the unit has not achieved the obligations under the scheme, exit from the scheme, shall also be subject to penalty as may be imposed by the competent authority.
  • In the event of a gem and jewellery unit ceasing its operation, gold and other precious metals, alloys, gem and other materials available for manufacture of jewellery, shall be handed over to an agency nominated by the Ministry of Commerce and Industry (Department of Commerce) at the price to be determined by that agency.
  • An EOU//EHTP/STP unit may also be permitted by the Development Commissioner, as a one time option, to exit from the scheme on payment of duty on capital goods under the prevailing EPCG Scheme, subject to the unit satisfying the eligibility criteria under that Scheme and standard conditions indicated in Appendix 14-I of Handbook (Vol-I).

Conversion  6.21

  • Existing DTA units, may also apply for conversion into an EOU/EHTP/STP unit, but no concession in duties and taxes would be available under the scheme for plant, machinery and equipment already installed.
  • The existing EHTP/STP units may also apply for conversion/merger to EOU unit and vice-versa. In such cases the units will continue to remain in bond and avail the permissible exemption in duties and taxes as applicable under the relevant scheme.

Monitoring of NFE  6.22
The performance of EOU/EHTP/STP units shall be monitored by the Units Approval Committee as per the guidelines given in Appendix 14-I of Handbook (Vol-I).

Export through Exhibitions/Export Promotion Tours /Export through show rooms abroad/Duty Free Shops.   6.23
EOUs/EHTP/STP may :

  • Export of goods for holding/ participating in exhibitions abroad with the permission of Development Commissioner.
  • Personal carriage of gold/ silver/ platinum jewellery, precious, semi-precious stones, beads and articles.
  • Export of goods is also permitted for display/sale in the permitted shops set up abroad.
  • Display/sell in the permitted shops set up abroad or in the show rooms of their distributors/agents.
  • Set up show rooms/retail outlets at the International Airports.

Personal Carriage Of Import / Export Parcels Including Through Foreign bound Passengers  6.24
Import/ export through personal carriage of gem and jewellery items may be under-taken as per the procedure prescribed by Customs. The export proceeds shall, however, be realized through normal banking channel. Import/export through personal carriage for units, other than gem and jewellery units, shall be allowed provided the goods are not in commercial quantity.

Export /Import by Post /Courier  6.25
Goods including free samples, may be exported/imported by airfreight or through Foreign Post Office or through courier, subject to the procedure prescribed by Customs.

6.26
Deleted

Administration of EOUs/Power of Development Commissioner  6.27

Details of administration of EOUs and Power of Development Commissioner are given in Appendix 14-I of Handbook (Vol.1).

Revival of Sick units  6.28

Subject to a unit being declared sick by the appropriate authority, proposals for revival of the unit or its take over may be considered by the Board of Approval.

Fast Track Clearance  6.29

A fast track clearance procedure for EOUs having status holder certificate under the Policy shall be notified separately.

Eligibility  7.1
Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.
Goods going into the SEZ area from DTA shall be treated as deemed exports and goods coming from the SEZ area into DTA shall be treated as if the goods are being imported.
SEZ units may be set up for manufacture of goods and rendering of services, production, processing, assembling,trading, repair, remaking, reconditioning, re-engineering including making of gold/ silver/ platinum jewellery and articles thereof or in connection therewith.

Export and Import of Goods.  7.2

  • SEZ units may export goods and services including agro-products, partly processed jewellery, sub-assemblies and component. It may also export by-products, rejects, waste scrap arising out of the production process.
  • SEZ units, other than trading/service unit, may also export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer, subject to RBI clearance, if any. SEZ unit may import without payment of duty all types of goods, including capital goods, as defined in the Policy, whether new or second hand, required by it for its activities or in connection therewith, provided they are not prohibited items of imports in the ITC(HS). Goods shall include raw material for making capital goods for use within the unit. The units shall also be permitted to import goods required for the approved activity, including capital goods, free of cost or on loan from clients.
  • SEZ units may procure goods required by it without payment of duty, from bonded warehouses in the DTA set up under the Policy and from International Exhibitions held in India.
  • SEZ may import, without payment of duty, all types of goods for creating a central facility for use by software development units in SEZ. The Central facility for software development can also be accessed by units in the DTA for export of software.
  • Gem & Jewellery and Jewellery units may also source gold/ silver/ platinum through the nominated agencies.
  • SEZ units may also import/procure goods from DTA without payment of duty for setting up of units in the Zone.

Leasing Of Capital Goods  7.3
SEZ 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 SEZ unit and the domestic/ foreign leasing company shall jointly file the documents to enable import/procurement of the capital goods without payment of duty.

Net Foreign exchange Earning (NFE)  7.4

SEZ unit shall be a positive net foreign exchange earner. Net Foreign exchange Earning (NFE) shall be calculated cumulatively for a period of five years from the commencement of commercial production according to the formula given in Paragraph 7.4 of the Handbook (Vol-I).

Monitoring of performance  7.5

The performance of SEZ units shall be monitored by a committee comprising of Development Commissioner and Customs. The Committee shall be headed by the Development Commissioner. It will also see that the wastage/manufacturing loss on gold/ silver/platinum jewellery and articles are within the overall percentage prescribed in Appendix- 14 L of Handbook (Vol-I). In case of higher wastage/ manufacturing loss, the committee shall satisfy itself of the reasonableness of the same.
The performance of SEZ units shall be monitored as per the guidelines given in Appendix-14 E of Handbook (Vol-I).

Legal Undertaking  7.6

The unit shall execute a legal undertaking with the Development Commissioner concerned and in the event of failure to achieve positive foreign exchange earning it shall be liable to penalty in terms of the legal undertaking or under any other law for the time being in force.

Approvals and Applications  7.7

Applications for setting up of SEZ units, satisfying the conditions mentioned in paragraph 7.19 of the Handbook (Vol.1) may be given approval by the concerned Development Commissioner of SEZ. In other cases, approval may be granted by the Board of Approvals (BOA) as notified and indicated at Appendix 14 –B of Hanbook (Vol-I).
Proposal requiring industrial License may be considered by the Board of Approval on case to case basis.

DTA Sales and Supplies  7.8

SEZ unit may sell goods, including by-products, and services in DTA in accordance with the import policy in force, on payment of applicable duty. DTA sale by service/trading unit shall be subject to achievement of positive NFE cumulatively. Similarly for units undertaking manufacturing and services/ trading activities against a single LOP, DTA sale shall be subject to achievement of NFE cumulatively. The following supplies effected in DTA by SEZ units will be counted for the purpose of fulfilment of positive NFE:

  • Supplies effected in DTA in terms of Paragraph 8.3 of the Policy.
  • Supplies made to bonded warehouses set up under the Policy and/or under Section 65 of the Customs Act. 
  • Supplies to other EOU/EPZ/SEZ/ EHTP/ STP units provided that such goods are permissible for procurement by units in terms of paragraph 7.2 of the Policy.
  • Supplies against special entitlement of duty free import of goods
  • Supplies of goods to defence and internal security forces, foreign missions/diplomats provided they are entitled for duty free import of such items in terms of general exemption notification issued by the Ministry of Finance.
  • Supply of services (by services units) relating to exports paid for in free foreign exchange or for such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by RBI.
  • Supplies of Information Technology Agreement (ITA-I) items, provided that the items are manufactured in the unit and attract zero rate of basic customs duty.

Entitlement for Supplies from the DTA  7.9
Supplies from the DTA to SEZ units shall be eligible for the following:
   DTA supplier shall be entitled for :-

  • Relevant entitlements under paragraph 8.3 of the Policy.
  • Discharge of Export performance, if any, on the supplier.

   SEZ units shall be entitled for:-

  • Reimbursement of Central Sales Tax
  • Exemption from payment of Central Excise Duty on all goods eligible for procurement as per paragraph 7.2 of the policy. Reimbursement of Central Excise Duty, if any, paid on bulk tea procured by SEZ units so long as levy on bulk tea in this regard is in force.
  • Reimbursement of Duty paid on fuels or any other goods procured from DTA as per the rate of drawback notified by the Directorate General of Foreign Trade from the date of such notification.
  • Supplier of cut and polish diamonds, precious and semi-precious stones, synthetic stones and processed pearls from Domestic Tariff Area to the units situated in SEZ shall be eligible for grant of Replenishment Licenses at the rates and for the items mentioned in Appendix-13 of the Handbook (Vol. I).
  • The entitlements under paragraphs (I) and (II) (i) and (ii) above shall be available provided the goods supplied are manufactured in India.

Export Through Status Holder  7.10
SEZ unit may also export goods manufactured by it through a merchant exporter/ status holder recognized under this Policy or any other EOU/ EPZ/ SEZ/ EHTP/ STP unit.

Inter-unit Transfer  7.11

  • Transfer of manufactured goods, including partly processed/semi-finished goods from one SEZ unit to another SEZ/ EOU/ EPZ/ EHTP/STP unit will be allowed.
  • Goods imported/procured by an SEZ unit may be transferred or given on loan to another unit within the same SEZ which shall be duly accounted for, but not counted towards discharge of export performance.
  • Transfer of goods in terms of sub-paras (a) and (b) above within the same SEZ shall not require any permission but the units shall maintain proper accounts of the transaction.
  • Capital goods imported/ procured may be transferred or given on loan to another SEZ/ EOU/ EPZ/ EHTP/ STP unit with prior permission of the Development Commissioner concerned.
  • Other Entitlements:Other entitlements of SEZ units are indicated in the Handbook (Vol-1).

Sub- Contracting  7.12
SEZ unit, may subcontract a part of their production or production process through units in the DTA or through other SEZ/EOU/EPZ/ EHTP/ STP, with the permission of Customs authorities. Subcontracting of part of production process may also be permitted abroad with the approval of the Board of Approval.
Subcontracting by SEZ gems and jewellery units shall be subject to following conditions :-

  • Goods, finished or semi-finished, including studded jewellery, containing quantity and purity equal to the gold/ silver/platinum so taken out, shall be brought back to the Zone within 30 days. Further, no diamond, precious or semi-precious stones shall be allowed to be taken out of the Zone for sub-contracting.
  • Receive plain gold/silver/platinum jewellery from DTA in exchange of equivalent quantity of gold/silver/ platinum, as the case may be, contained in the said jewellery.
  • SEZ units shall not be eligible for wastage or manufacturing loss against the jewellery received from DTA after processing as mentioned in (i) and against exchange of gold/silver/platinum as mentioned in (ii) above.

The DTA unit undertaking job work or supplying jewellery against exchange of gold/silver/platinum shall not be entitled to export benefits.

  • All units, including gem and jewellery, may sub-contract part of the production or production process through other units in the same SEZ without permission of Customs authorities subject to records being maintained by both the supplying and receiving units.
  • SEZ units other than gems and jewellery units may be allowed to undertake job-work for export, on behalf of DTA exporter, provided the finished goods are exported directly from SEZ units. For such exports, the DTA units will be entitled for refund of duty paid on the inputs by way of Brand Rate of duty drawback.
  • Scrap/ waste/ remnants generated through job work may either be cleared from the job worker’s premises on payment of applicable duty or returned to the unit.

De-bonding  7.13
SEZ unit may be debonded with the approval of the Development Commissioner. Such debonding shall be subject to payment of applicable Customs and Excise duties on the imported and indigenous capital goods, raw materials etc. and finished goods in stock. In case the unit has not achieved positive NFE, the debonding shall be subject to penalty, that may be imposed by the adjudicating authority under Foreign Trade (Development and Regulation) Act, 1992.
SEZ unit may also be permitted by the Development Commissioner, as one time option, to debond on payment of duty on capital goods under the prevailing EPCG Scheme, subject to the unit satisfying the eligibility criteria of that Scheme and standard conditions, as per Para 7.13 of the Handbook (Vol-I).

Export through Exhibitions/ Export Promotion Tours/ Export of branded jewellery/ Export through show rooms abroad / Duty Free Shops  7.14
SEZ gem and jewellery, units shall be entitled for the following:

  • Export of gold/ silver/ platinum jewellery and articles thereof, for holding/ participating in exhibitions abroad with the permission of Development Commissioner.
  • Personal carriage of gold/ silver/ platinum jewellery, precious, semi-precious stones, beads and articles.
  • Export of jewellery and branded jewellery, is also permitted for display/sale in the permitted shops set up abroad.
  • Display/ sell in the permitted shops set up abroad or in the show rooms of their distributors/ agents.
  • Set up show rooms/retail outlets at the International Airports for sale of jewellery.

Personal carriage of Export/ Import parcel  7.15
Personal carriage of gems and jewellery export parcels by foreign bound passengers and personal carriage gems and jewellery, import parcels by an Indian or foreign national may be permitted as per the conditions given in paragraph 7.15 of the Handbook (Vol.1).

Export by post / courier  7.16

Gold/silver/platinum jewellery and articles thereof may be exported by airfreight or through Foreign Post Office or through courier.

Disposal of Rejects/ Scrap/ Waste/ Remnants  7.17

Rejects/ scrap/ waste/ remnants arising out of production process or in connection therewith may be sold in the DTA on payment of applicable duty. No duty shall be payable in case scrap/waste/ remnants/ rejects are destroyed within the Zone after intimation to the Custom authorities or destroyed outside the SEZ with the permission of Custom authorities. Destruction as stated above shall not apply to gold, silver, platinum, diamond, precious and semi precious stones.

Replacement/ Repair of Goods  7.18
The general provisions of Policy relating to export of replacement/ repaired goods shall apply equally to SEZ units, save that, cases not covered by these provisions shall be considered on merits by the Development Commissioner.

  • The goods sold in the DTA and found to be defective may be brought back for repair/ replacement under intimation to Development Commissioner.
  • Goods or parts thereof on being imported/ indigenously procured and found defective or otherwise unfit for use or which have been damaged or become defective after import/ procurement may be returned and replacement obtained or destroyed. In the event of replacement, the goods may be brought back from the foreign suppliers or their authorised agents in India or the indigenous suppliers.
  • Goods may be transferred to DTA/abroad for repair/ replacement, testing or calibration, quality testing and R & D purpose under intimation to Customs authorities.

Management of SEZ  7.19
SEZ will be under the administrative control of the Development Commissioner. All activities in the zone of SEZ units, unless otherwise specified, shall be through self certification procedure.

Setting up of SEZ in Private/ Joint/ State Sector  7.20
A SEZ may be set up in the public, private, joint sector or by state Government as notified by the Ministry of Commerce and Industry. The existing Export Processing Zones (EPZs) may also be converted into SEZ by the Ministry of Commerce and Industry through issue of a notification.

Samples  7.21

  • SEZ units may, on the basis of records maintained by them, and on prior intimation to Customs authorities:
  • supply or sell samples in the DTA for display/market promotion on payment of applicable duties;
  • Remove samples without payment of duty, on furnishing a suitable undertaking to Customs authorities for bringing the goods back within a stipulated period;
  • Samples, including samples made in wax models, silver models and rubber moulds may be exported on the basis of records maintained by the unit and under intimation to the Custom authorities. Samples may also be exported through courier agencies.

Sale of Un-utilised Material/ Obsolete goods  7.22

  • In case an SEZ unit is unable, for valid reasons, to utilize the goods, including capital goods and spares, it may dispose them in the DTA in accordance with the import policy in force and on payment of applicable duties or export them.
  • Capital goods and spares that have become obsolete/surplus may either be exported or disposed of in the DTA on payment of applicable duties. The benefit of depreciation, as applicable, will be available in case of disposal in DTA.
  • No duty shall be payable if the goods are destroyed with the permission of Customs authorities.
  • SEZ unit may be allowed by Customs authorities concerned to donate imported/ indigenously procured (bought or taken on loan) 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 recognized 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.

Entitlement for SEZ Developer  7.23
Developer of SEZ in the Private/Joint/State sector may import/ procure goods from DTA without payment of duty for the development, operation and maintenance of SEZ.
SEZ developer shall be eligible for the entitlements as provided for in the Income Tax Act for development, operation and maintenance of SEZ.

Transitional Arrangements  7.24

An existing EPZ unit will have the following options:
It can opt for SEZ Scheme under this Chapter. On conversion, its previous obligations as an EPZ unit shall be subsumed by its obligations under the SEZ Scheme. The raw materials, components, consumable and finished goods lying in stock with the unit at the time of conversion shall be taken as its opening balance under the SEZ Scheme. All unutilized DTA sale entitlements of the unit shall cease to exist from the date of conversion as notified by the Ministry of Commerce and Industry
In case an existing EPZ unit decides not to opt for (a) above, it can either convert into an EOU or de-bond. In both the cases, the unit shall     
 
Deemed Exports  8.1

"Deemed Exports" refers to those transactions in which the goods supplied do not leave the country.

Categories of Supply  8.2

The following categories of supply of goods by the main/ sub-contractors shall be regarded as "Deemed Exports" under this Policy, provided the goods are manufactured in India:

  • Supply of goods against Advance Licence/ DFRC under the Duty Exemption /Remission Scheme;
  • Supply of goods to Export Oriented Units (EOUs) or units located in Export Processing Zones (EPZs) or Special Economic Zone (SEZs) or Software Technology Parks (STPs) or Electronic Hardware Technology Parks (EHTPs);
  • Supply of capital goods to holders of licences under the Export Promotion Capital Goods (EPCG) scheme;
  • Supply of goods to projects financed by multilateral or bilateral agencies/funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding in accordance with the procedures of those agencies/funds, where the legal agreements provide for tender evaluation without including the customs duty;
  • Supply of capital goods, including in unassembled/ disassembled condition as well as plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till the stage of commercial production and spares to the extent of 10% of the FOR value to fertiliser plants.
  • supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty coupled with the extension of benefits under this chapter to domestic supplies;
  • Supply of goods to the power and refineries not covered in (f) above.
  • Supply of marine freight containers by 100% EOU (Domestic freight containers–manufacturers) provided the said containers are exported out of India within 6 months or such further period as permitted by the Customs; and
  • Supply to projects funded by UN agencies.
  • Supply of goods to nuclear power projects through competitive bidding as opposed to international competitive bidding.

Benefits for Deemed Exports  8.3
Deemed exports shall be eligible for any/all of the following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to the terms and conditions as given in Handbook (Vol.1):

  • Advance Licence for intermediate supply/ deemed export.
  • Deemed Exports Drawback.
  • Refund of Terminal Excise duty.

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