Customs Circular No. 38 dated 1^st July 2002

I am directed to invite your attention to the new Export and Import Policy and Handbook of Procedures, 2002-07 announced by the Ministry of Commerce and Industry on 31-3-2002. The new five-year Export and Import Policy and the Handbook of Procedures (HOP) replace the old Export and Import Policy and Handbook of Procedures, 1997-2002. In the new EXIM Policy & HOP, several changes have been introduced in the provisions relating to EOU/ EPZ / EHTP/ STP/ SEZ schemes. To implement the changes, amendments have been made in the notifications governing duty free import / procurement of goods by the EOUs and units in EPZ/ EHTP/ STP/ SEZ vide notification Nos.64/ 2002-Cus, dated 24-6-2002 and 35/ 2002-CE, dated 24-6-2002. A copy each of the notifications is enclosed for easy reference. Introduction of new EXIM Policy & HOP has also necessitated amendments in the existing circulars/ instructions and the same has been made wherever necessary. The salient features of the changes are explained below:

(i)     General:

2.     Under the previous Exim Policy and HOP, the EOU/ EPZ/ EHTP/ STP and SEZ schemes were covered under Chapters 9 and 9A respectively. In the new EXIM Policy and Handbook of Procedures, Vol.I, 2002-07, the EOU/ EPZ/ EHTP/ STP and SEZ schemes have been placed under Chapters 6 & 7 respectively.

3.     In the existing notifications relating to EOU/ EPZ/ STP/ EHTP/ SEZ Schemes, at several places, references have been made to various paragraphs of the old EXIM Policy and HOP. Consequent to the re-numbering of Chapters and Paragraphs in the new EXIM Policy & Handbook, these notifications were required to be amended suitably so as to reflect the new Chapter and Paragraph numbers. Further, in these notifications, references have been made to the Export and Import Policy, 1997-2002 and Handbook of Procedures, 1997-2002. The same required correction, as the old Policy and HOP have been replaced by the new EXIM Policy and Handbook of Procedures, Vol.I, 2002-07.

4.     Accordingly, notification Nos. 3/ 88-Cus, dated 14-1-88; 277/ 90-Cus, dated 12-12-90; 138/ 91-Cus, dated 22-10-91; 140/ 91-Cus, dated 22-10-91; 95/ 93-Cus, dated 2-3-93; 96/ 93-Cus, dated 2-3-93; 103/ 93-CE, dated 27-12-93; 126/ 94-Cus, dated 3-6-94; 133/ 94-Cus, dated 22-6-94; 177/ 94-Cus, dated 21-10-94; 196/ 94-Cus, dated 8-12-94; 53/ 97-Cus, dated 3-6-97; 58/ 2000-Cus, dated 8-5-2000; 137/ 2000-Cus, dated 19-10-2000; 126/ 94-CE, dated 2-9-94; 136/ 94-CE, dated 10-11-94; 1/ 95-CE, dated 4-1-95; 2/ 95-CE, dated 4-1-95; 10/ 95-CE, dated 23-2-95; 8/ 97-CE, dated 1-3-97; 20/ 97-CE, dated 11-4-97; 13/ 98-CE, dated 2-6-98; 37/ 2000-CE, dated 8-5-2000; 52/ 2000-CE, dated 19-10-2000, 28/ 2001-CE, dated 16-5-2001 and 20/ 2002-CE, dated 1-3-2002 governing duty free import/ procurement of goods by EOUs and units in EPZ/ STP/ EHTP/ SEZ have been suitably amended so as to align them with the new EXIM Policy and HOP.

(ii)    Trading units:

5.     Under the old EXIM Policy, there was a provision for setting up of the trading units under EOU/ EPZ schemes. The provision for setting up of trading units under EOU/ EPZ schemes has been deleted in the new EXIM Policy, 2002-07. Para 6.1 of the new Policy specifically provides that no trading unit shall be permitted to be set up under the EOU/ EPZ scheme.

6.     To implement this change, notification Nos. 133/ 94-Cus, dated 22-6-94; 53/ 97-Cus, dated 3-6-97; 126/ 94-CE, dated 2-9-94 and 1/ 95-CE, dated 4-1-95 governing duty free import/ procurement of goods by EOUs and units in EPZ have been suitably amended so as to disallow duty free import/ procurement of goods by trading units under the EOU/ EPZ Scheme.

(iii)   Procurement of goods from International Exhibitions held in India:

7.     Paragraphs 6.2 & 7.2 of the new EXIM Policy, 2002-07 provide that the units under EOU/ EPZ/ STP/ EHTP / SEZ schemes may procure goods without payment of duty from international exhibitions held in India.

8.     To implement this change, notification Nos. 138/ 91-Cus, dated 22-10-91; 140/ 91-Cus, dated-22-10-91; 95/ 93-Cus, dated 2-3-93; 96/ 93-Cus, dated 2-3-93; 126/ 94-Cus, dated 3-6-94; 133/ 94-Cus, dated 22-6-94; 196/ 94-Cus, dated 8-12-94; 53/ 97-Cus, dated 3-6-97; 58/ 2000-Cus, dated 8-5-2000 and 137/ 2000-Cus, dated 19-10-2000 governing duty free import/ procurement of goods by EOUs and units in EPZ/ EHTP/ STP/ SEZ have been suitably amended so as to allow EOU/ EPZ/ STP/ EHTP/ SEZ units to procure goods without payment of duty from international exhibitions held in India.

(iv)   Contract Farming by Agriculture EOUs:

9.     In paragraph 6.2(f) of the EXIM Policy 2002-07, a new provision has been incorporated so as to allow contract farming by the EOUs in agriculture and horticulture sector. Under this provision, the Export Oriented Units in agriculture and horticulture may import/ procure duty free the goods specified in Appendix 14 B of the Handbook and take out the same to the fields of contract farmers for production or in connection therewith and bring back the produce for exports.

10.   To implement the above change, notification Nos. 126/ 94-Cus, dated 3-6-94 & 136/ 94-CE, dated 10-11-94 governing duty free import/ procurement of goods by agriculture and horticulture EOUs have been suitably amended so as to allow these EOUs to import/ procure some additional micro irrigation items and to take out specified duty free imported/ procured goods for use in the farms/ fields of contract farmers and bring back produce to the EOUs for exports, subject to fulfilment of the conditions stipulated in the notification. The notification may be perused for details.

(v)    Inter-Unit Transfer:

11.   Prior to 31-3-2002, i.e under the old Policy, 1997-2002, the EOUs and EPZ/ STP/ EHTP/ SEZ units were allowed to transfer or give on loan imported/ domestically procured duty free raw materials to another EOU/ EPZ/ STP/ EHTP/ SEZ unit. In the new EXIM Policy, this provision is not there and now the facility of inter-unit transfer of raw materials is available within the Zone only. However, manufactured goods/ capital goods can be transferred from one EOU/ EPZ/ STP/ ETHP/ SEZ unit to another or given on loan to another EOU/ EPZ/ STP/ ETHP/ SEZ unit.

12.   To implement this change, notification Nos. 138/ 91-Cus, dated 22-10-91; 140/ 91-Cus, dated 22-10-91; 95/ 93-Cus, dated 2-3-93; 96/ 93-Cus, dated 2-3-93; 126/ 94-Cus, dated 3-6-94; 133/ 94-Cus, dated 22-6-94; 53/ 97-Cus, dated 3-6-97; 137/ 2000-Cus, dated 19-10-2000; 126/ 94-CE, dated 2-9-94; 1/ 95-CE, dated 4-1-95; and 52/ 2000-CE, dated 19-10-2000 have been suitably amended so as to specifically provide that only the goods manufactured by EOU/ EPZ/ STP/ EHTP/ SEZ units or imported / locally procured capital goods will be allowed to be transferred or given on loan to another EOU/ EPZ/ STP/ EHTP/ SEZ unit.

(vi)   Exchange of Gold/ Silver/ Platinum against jewellery:

13.   Hitherto, Gem & Jewellery EOUs and EPZ/ SEZ units were allowed to receive plain gold/ silver/ platinum jewellery from DTA against exchange of gold/ silver/ platinum of the same purity and quantity in weight as that of the said jewellery. In the new EXIM Policy, 2002-07, as a measure of procedural simplification, it has been provided that jewellery could be received against exchange of equivalent quantity of gold/ silver/ platinum, as the case may be, contained in the said jewellery.

14.   To implement the change, notification Nos. 3/ 88-Cus dated 14-1-88; 277/ 90-Cus, dated 12-12-90; 177/ 94-Cus, dated 21-10-94 & 137/ 2000-Cus, dated 19-10-2000, have been suitably amended so as to allow gem and jewellery EOU/ EPZ/ SEZ units to receive jewellery from the DTA units against exchange of equivalent quantity of gold/ silver/ platinum, as the case may be, contained in the said plain gold/ silver/ platinum jewellery.

(vii)   Service Units under EOU/ SEZ scheme

15.   Under EOU/ EPZ/ SEZ Scheme, service sector units are allowed to be set up for export of services out of India. In this connection, a doubt has been raised as to whether duty free import/ procurement facility should be allowed to EOUs/ EPZ/ SEZ units, which do not export services out of India but render such services in India, the payment of which is received in Indian Rupees. After consideration of the matter, it has been decided that the duty free import/ procurement facility would be allowed only to those service sector units which export services out of India and receive payment in freely convertible foreign currency and not to those units which render such services within the territory of India for which payment is received in Indian rupees. Accordingly, notification Nos. 53/ 97-Cus, dated 3-6-97; 137/ 2000-Cus, dated 19-10-2000; 1/ 95-CE, dated 4-1-95 & 52/ 2000-CE, dated 19-10-2000 have been suitably amended so as to exclude their applicability to service sector units, which do not export services out of India and receive payment in freely convertible currency.

(viii)  New Central Excise Rules, 2002

16.   In the exemption notifications providing for duty free procurement of goods from indigenous sources by EOU/ EPZ/ STP/ ETHP/ SEZ units, there were references to the provisions and Chapter of erstwhile Central Excise Rules, 1944. Now the Central Excise Rules, 1944 have been replaced by the Central Excise Rules, 2002. Further, new rules prescribing a procedure for remission of duty on goods used for special industrial purposes i.e. Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 have been framed in place of Chapter X of erstwhile Central Excise Rules, 1944.

17.   In the light of this change, notification Nos. 126/ 94-CE, dated 2-9-94; 136/ 94-CE, dated 10-11-94; 1/ 95-CE, dated 4-1-95; 10/ 95-CE dated 23-2-95; 37/ 2000-CE dated 8-5-2000 & 52/ 2000-CE dealing with EOU/ EPZ/ STP/ EHTP/ SEZ Schemes have been suitably amended so as to align them with the provisions of the new Central Excise Rules.

(ix)   Reduction in the rate of Penal Interest from 24%/ 20% to 15%

18.   Under notifications governing EOU/ EPZ/ EHTP/ STP/ SEZ schemes, the penal rate of interest (applicable in case of default, non-fulfillment of NFEP/ EP etc.) prescribed was 20%/ 24%. In the Finance Act, however, the penal rate of interest chargeable under the Customs Act, 1962 and Central Excise Act, 1944 have been reduced from 24% to 15%.

19.   Account has been taken of this change and notification Nos. 138/ 91-Cus, dated 22-10-91; 140/ 91-Cus, dated 22-10-91; 95/ 93-Cus, dated 2-3-93; 96/ 93-Cus, dated 2-3-93; 126/ 94-Cus, dated 3-6-94; 133/ 94-Cus, dated 22-6-94; 196/ 94-Cus, dated 8-12-94; 53/ 97-Cus, dated 3-6-97; 58/ 2000-Cus, dated 8-5-2000; 137/ 2000-Cus, dated 19-10-2000; 126/ 94-CE, dated 2-9-94; 136/ 94-CE, dated 10-11-94; 1/ 95-CE, dated 4-1-95; 10/ 95-CE, dated 23-2-95; 37/ 2000-CE, dated 8-5-2000 & 52/ 2000-CE, dated 19-10-2000 have been suitably amended so as to reduce the penal rate of interest from 20%/ 24% to 15%.

(x)    Disposal of Broken Diamonds in DTA by Gem & Jewellery Units

20.   Under the erstwhile Exim Policy, 1997-2002, paragraph 9.31 had provided that gem and jewellery EOU/ EPZ units may re-export the imported goods and export domestically procured goods, including goods generated out of partially processing/ manufacture. Besides, supply of unsuitable / broken cut and polished diamonds, rough diamonds, precious and semi-precious stones upto 5% of the value of imported or indigenously procured goods to the DTA was permitted on payment of appropriate duty against the valid REP/ GEM REP/ Diamond Imprest Licenses. In the new Policy, this provision has not been included.

21.   Taking note of this change, notification No. 20/ 97-CE, dated 11-4-1997 governing DTA sale of jewellery at a concessional rate of duty has been suitably amended so as to delete the provision regarding DTA sale of unsuitable broken/ cut/ polished diamond, rough diamonds precious and semi-precious stones etc. at a concessional rate of duty.

(xi)   Amendment in the List of Goods Allowed to be Imported/ Procured Duty Free by the Units Operating under EOU/ EPZ/ STP/ EHTP Scheme.

22.   Under the erstwhile Handbook of Procedures, 1997-2002, para 9.8 had specified the list of goods, which were allowed to be imported / procured duty free by the units operating under EOU/ EPZ/ STP/ EHTP Schemes. Now under new Exim Policy, para 6.2 of the HOP incorporates the said list. In this list, some changes have been made. The changes made are:

23.   To implement these changes, notification Nos.138/ 91-Cus, dated 22-10-91, 140/ 91-Cus, dated 22-10-91, 95/ 93-Cus, dated 2-3-93, 96/ 93-Cus dated 2-3-93, 133/ 94-Cus, dated 22-6-94, 53/ 97-Cus, dated 3-6-97, 126/ 94-CE, dated 2-9-94 and 1/ 95-CE, dated 4-1-95 have been suitably amended so as to modify the list of goods allowed to be imported/ procured locally duty free by EOU/ EPZ/ STP/ EHTP units.

(xii)  DTA Sale of Power.

24.   References have been received from the trade and industry that EOUs and units in EPZ/ STP/ EHTP/ SEZ should be allowed to sell the surplus power generated in the captive power plant/ diesel generating sets in Domestic Tariff Area or to transfer it to other EOU/ EPZ/ STP/ EHTP/ SEZ units. The request has been made on the ground that sometimes power generated by the above-stated units exceeds their requirements and the units have no means either to store the surplus power or to use otherwise. This is due to the fact that captive power plants/ DG sets purchased by the units are of certain fixed capacity and they produce power, which is at times in excess of the requirement of the units. Also, in case of break down in production, the power generated by the captive power plants/ DG sets becomes surplus.

25.   Considering the shortage of power in the country, it has been decided to allow the EOU/ EPZ/ STP/ EHTP/ SEZ units to sell or transfer their surplus power in DTA or to other EOU/ EPZ/ STP/ EHTP/ SEZ units, which would be beneficial to both supplying and receiving units. More important, it would achieve optimum utilisation of surplus power. Thus, it has been decided that EOU/ EPZ/ STP/ EHTP/ SEZ units can be allowed to sell surplus power in DTA on payment of duty on consumables and raw materials used for generation of power so sold on the basis of norms worked out for raw materials and consumables used, as may be approved by the Board of Approvals. The proposal for sale of surplus power received in the office of the Development Commissioner would be examined in consultation with the State Government including State Electricity Boards. The norms for production of unit of power that may be finalized would be reported to Department of Commerce for consideration of the same by the Board of Approvals. The units may also sell the surplus to other EOU/ EPZ/ STP/ EHTP/ SEZ units without payment of duty. However, the quantity of consumables and raw materials used for generation of power so transferred to another EOU/ EPZ/ STP/ EHTP/ SEZ units as quantified and approved by the Board of Approvals shall be accounted for by the supplying as well as receiving units for the calculation of NFEP/ NFE.

26.   To implement the above decision, notification Nos. 138/ 91-Cus, dated 22-10-91, 140/ 91-Cus dated 22-10-91, 95/ 93-Cus, dated 2-3-93, 96/ 93-Cus, dated 2-3-93, 133/ 94-Cus, dated 22-6-94, 55/ 97-Cus, dated 3-6-97, 137/ 2000-Cus, dated 19-10-2000, 126/ 94-CE, dated 2-9-94, 1/ 94-CE, dated 4-1-95 & 52/ 2000-CE dated 19-10-2000, governing duty free import/ procurement of goods by EOUs and units in EPZ/ STP/ EHTP/ SEZ units have been suitably amended vide notification No.65/ 2002-Cus and 36/ 2002-CE both dated 25�6-2002. The surplus power so sold in DTA by EOUs and units in EPZ/ STP/ EHTP may be adjusted against the DTA sale entitlement of the units in terms of value.

(xiii)  DTA Sale of Gold Dust/ Scrap/ Wastage by Gem & Jewellery Units in SEZ.

27.   Under the EOU/ EPZ scheme, dust/ scrap & sweeping of gold arising during the course of manufacturing process are allowed to be cleared into DTA on payment of duty as specified in the notification No.80/ 97-Cus dated 21-10-97 on the gold content in the said dust/ scrap and sweeping. It has been requested by the trade to incorporate a similar provision under the SEZ scheme.

28.   To implement this, notification No.137/ 2000 has been suitably amended vide notification No.65/ 2002-Cus, dated 25-6-2002. so as to allow clearance of dust/ scrap and sweeping of gold into DTA on payment of duty as specified in the notification No.80/ 97-Cus dated 21-10-97 on the gold content in the said dust/ scrap and sweeping

29.   Wide publicity may be given to the above changes by issue of a Public Notice in this regard. Difficulties, if any, faced in the implementation of the above instructions, may be brought to the notice of the Board at an early date.

Kindly acknowledge receipt of this Circular.