1 CUSTOMS DUTY CHAPTER 1 - BASIC CONCEPTS. 1) Features of Customs Duty a) b) c) d) e) f) g) Customs Duty levied as per rates specified in Custom Tarrif CTA 1975 Export – Taking goods to a place outside India Import – Bringing goods from place outside India Out of India means beyond 12 Nm Indian customs waters – 12 Nm to 24 Nm. Customs duty is on goods Goods include h) i) j) Vessels, Aircrafts & Vehicles Stores Baggage Currency Negotiable Instruments Any other movable property Customs Duty is for Import & Exports Dutiable goods are those which are chargeable to duty & on which duty has not been paid Imported goods Brought in India From place outside India Not cleared for home consumption k) Export goods Taken out of India To place outside India Customs is payable on Re-import, free replacements and free supplies. l) 2) Important Definitions A) Goods Customs duty is on „goods‟ as per section 12 of Customs Act. The duty is payable on goods belonging to Government as well as goods not belonging to Government „Goods‟ included (a) Vessels, Aircrafts and Vehicles (b) Stores (c) Baggage (d) Currency and negotiable instruments and (e) Any other kind of movable property. 2 B) Dutiable Goods „Dutiable goods‟ as any goods which are chargeable to duty and on which duty has not been paid. Thus, goods continue to be „dutiable‟ till they are not cleared from the port. However once goods are assessed even at „Nil‟ rate of duty, they no more remain „dutiable goods‟ Export goods as well as imported goods can be „dutiable goods‟ if imported goods or export goods are not chargeable to duty, they will not be „dutiable goods‟ Imported Goods Any goods brought in India from a place outside India, but does not include goods which have been cleared for home consumption. Thus, once goods are cleared by customs authorities from customs area, they are no longer „imported goods‟ Export Goods „Export Goods‟ means any goods which are to be taken out of India to a place outside India. Goods brought near customs area for export purpose will be „Export Goods‟ Indian Customs Waters „Indian Customs Waters‟ means the waters extending into the sea up to the limit of contiguous zone of India. Contiguous zone of India comes immediately after territorial waters. The outer limit of contiguous zone is 24 nautical miles from the nearest point of basic line . Thus, area beyond 12 nautical miles and upto 24 nautical miles is „contiguous zone of India‟. The Central Government has powers to take measures in this area for security of India and immigration, sanitation, customs and other fiscal matters. Thus, „Indian Customs Waters‟ extend up to 12 nautical miles beyond territorial waters. Significance of definition of „Indian Custom Waters‟ is as follows – Customs officers has powers to arrest a person in India or within Indian customs waters (section 104) Customs officer has powers to stop and search any vessel in India or within the Indian Customs waters, (section 106). If such vessel does not stop, it can be fired upon .If a vessel does not stop, it can be confiscated (section 115 (1) (c) ) A vessel which is within Indian customs waters or which has been in Indian Customers Waters can be confiscated which is constructed or fitted in any manner for purpose of concealing goods. (section115(1) (a) ) Thus powers of customs officers extend up to 12 nautical miles beyond territorial waters. C) D) E) 3 F) Territorial Waters Territorial water extend up to 12 nautical miles from the base line on the coast of India and include any bay, gulf, harbour, creek or tidal river. (1 nautical mile = 1.1515 miles = 1.853 Kms) Sovereignty of India extends to the territorial waters and to the seabed and subsoil underlying and the air space over the waters. G) Exclusive Economic Zones „Exclusive Economic Zone‟ extends to 200 nautical miles from the baseline. In this zone, the coastal state has exclusive right to exploit if for economic purposes like constructing artificial is lands (for oil exploration, power generation etc.) Fishing, mineral resources and scientific research . However, other countries have right of navigation and over – flight rights. Other countries can lay submarine cables and pipelines with consent of Indian Government. Such consent may be declined for protecting interest of India. 3) Types of Custom Duties. i) Basic Customs Duty Basic customs duty is levied under section 12 of customs Act. Normally, it is levied as a percentage of value of goods imported. The rates vary for different items, but general rate on non-agricultural goods at present is 10% [ w .e. f. 1-3-2007] ii) Additional Customs Duty U/S 3(1) (CVD) Additional customs duty‟ is often called „Countervailing Duty‟ (CVD). This duty is equal to excise duty levied on a like product manufactured or produced in India. If like article is not produced or manufactured in India, the excise duty that would be livable on that article had it been produced in Indian is the base. If the product is livable with different rates, then highest rate among those rates is to be considered. The duty is livable on value of goods plus customs duty payable. iii) Education Cess On Customs Duty An education cess of customs has been imposed on imported goods w.e.f. 9-7-2004. The cess is 2% of the aggregate duty of customs. However, education cess will not be payable on Special CVD (SAD). Safeguard duty under countervailing duty, anti dumping duty, SAH education cess, Education cess itself on imported goods. 4 iv) Secondary & Higher Education Cess.[S.A.H.] In addition to existing education cess, an education cess of 1% of the total duties of customs has been imposed on imported goods. SAH education cess will not be payable on (a) Special CVD or SAD (b) Safeguard duty (c) Countervailing duty (d) Anti dumping duty (e) Education cess (f) SAH education cess itself v) Additional duty under section 3(3) In addition to CVD further additional duty can be levied by Central Government to counter balance excise duty livable on raw materials, components etc. similar to those used in production of such article This levy has use when goods manufactured indigenously is exempt from excise duty. In such case, the indigenous manufacture will be loser to the extent of duty paid on inputs. This duty paid on his inputs is lost as final product is exempt from duty . This becomes additional cost to indigenous manufacturer. On the other hand, the imported goods do not have to pay CVD as the product is exempt from duty. The foreign supplier has not paid any excise duty on his inputs. He gets cost advantage to that extent. Section 3(3) is intended to offset such cost advantage to foreign supplier. vi) Additional Duty Under Section 3(5) (Special CVD – SAD) This duty is in addition to any other duty imposed under Customs Act or any other law The Additional Duty U/S 3(5) can be imposed by issuing a notification. Such tax cannot exceed 4% of value of that article. Purpose of the additional duty is to counter balance sales tax, VAT, local tax or other charges leviable on articles on its sale, purchase or transaction in India. The obvious intention is to provide level field to manufacturers in India who are manufacturing similar goods. Hence, it is termed as „special “CVD” or „SAD‟(Special Additional Duty) Value of article for purpose of levy of this additional duty is Assessable Value determined + (ii) Basic customs duty payable. CVD payable u/s 3(1) + (iii) Additional duty payable u/s 3(3) However, „value‟ will not include following : (a) Additional Duty payable u/s 3(5) (b) Safe guard duty payable u/s 8(B) and 8 (C) (c) Countervailing duty payable u/s 9 (d) Anti dumping duty u/s 9(A) SAD has been imposed on all imported goods w.e.f. 1-3-2006 @ 4%, (i) (ii) 5 vii) Protective Duties Tariff Commission has been established under Tariff Commission Act, 1951. If the Tariff Commission recommends and Central Government is satisfied that immediate action is necessary to protect interest of Indian Industry. Protective customs duty at the rate recommended may be imposed under section 6 of Customs Tariff Act. viii) Countervailing Duty on Subsidized Goods If a country or territory pays any subsidy (directly or indirectly) to its exporters for exporting goods to India, Central Government can impose Countervailing duty up to the amount of such subsidv. ix) Anti Dumping Duty on Dumped Articles Often, large manufacture from abroad may export goods at very low prices compared to prices in his domestic market. Such dumping may be with intention to cripple domestic industry or to dispose of their excess stock. This is called „dumping‟ and is an unfair trade practice. In order toavoid such dumping and to protect domestic industry, Central Government can impose, under section 9A of Customs Tariff Act, anti-dumping duty, if the goods are being sold at less than its normal value. Levy of such antidumping duty is permissible as per WTO agreement. Anti dumping action can be taken only when there is an Indian Industry producing „Like Articles‟ x) Safeguard Duty Central Government is empowered to impose „safeguard duty‟ on specified imported goods if Central Government is satisfied that the goods are being imported in large quantities and under such condition that they are causing or threatening to cause serious injury to domestic industry. Such duty is permissible under WTO agreement. The only condition under WTO is that it should not discriminate between imports from different countries having Most Favored Nation (MFN) status. Safeguard duty is a step in providing a need based protection to domestic industry for a limited period, with ultimate objective of restoring free and fair competition. Safeguard duty is targeted at remedying or preventing serious injury to domestic industry with a view to making it competitive and to enable it to stand on its own. Government has to conduct an enquiry and then issue a notification. (Section 8 B (1) of Customs Tariff Act.)The duty, once imposed, is valid for four years, unless revoked earlier. This can be extended by Central Government, but total period of „safeguard duty‟ cannot be more then ten years. (section 8B (4)). The duty is in addition to any other customs duty being imposed on the goods. (section 8 B (3)). 6 In case of imports from any developing country, safeguard duty can be imposed if import from that country exceeds 3%. If the Article originates from more than one developing countries and if imports from each developing country is less than 3%, safeguard duty can be imposed if imports from all such developing countries taken together exceeds 9% of total imports of that Article in India [proviso to section 8 B(1) of Customs Tariff Act as amended w.e.f. 13-7-2006] xi) NCCD of Customs Duty A „National Calamity Contingent Duty‟ (NCCD) of customs has been imposed vide section 134 of Finance Act, 2003, On pan masala, chewing tobacco and cigarettes. Further, NCCD of customs of 1% has been imposed on PFY, motor cars, multi utility vehicles and two wheelers. NCCD of Rs 50 per ton is imposes on domestic crude oil. For purpose of calculation of NCCD, value will be same as calculated for purpose of CVD u/s 3(2) of Customs Tariff Act. xii) Export Duty Since Government activity encourages export, there is export duty on very few products. Articles on which export duty is leviable are given in second schedule to customs Tariff. At present, 25% export duty is imposed on luggage leather, 15% Export Duty is levied only on hides, skins and leather, and duty of 10% is levied on snake skins and lamb skins. Export duty has been imposed on the following w.e.f. 1-3-2007 – (1) Iron ores (whether in form of lumps or fines ) and concentrates, all sorts @ Rs. 300 per metric tonne. (2) Chromium ores (whether in form of lumps or fines) and concentrates, of all sorts @ Rs. 2,000 per metric tone There is no export duty on any other product. xiii) Cess on Imports Cess is levied on indigenous manufactured goods like sugar, Tea, Jute, Beedis, automobiles, Tobacco, Coffee, Rubber , Paper and paper board, iron ore, limestone and dolomite, manganese ore, chrome ore and coking and non-coking coal. This is recoverable as excise duty. If these are imported, corresponding cess will be payable 7 CHAPTER 2 - IMPORTS PROCEDURE To be followed by person –in charge of conveyance 2) Arrive at customs port / air port only Submit import manifest to customs authorities within 12 hours of arrival Furnish list of stores on ship to be landed Keep excess stock under customs seal Start unloading only after customs authorities grant “Entry Inwards” 1) To be followed by Importer Submit following documents Bill of entry Invoice Packing list GATT declaration form Importer‟s / Cha‟s Declaration Import license Certificate of country of origin L/C & bank draft Insurance documents Technology literature Test report DEPB (Original) Split up of value of spares, components & machinery Documents submitted by importer are checked & assessed by customs officials & then goods are cleared Date of presenting B.E. is relevant & rate of duty as applicable on this date is considered for calculating duty Heavy demurrage is payable of goods are not cleared from port within 3 days. 8 CHAPTER 3 - EXPORT PROCEDURE 1) To be followed by person - in charge of conveyance Vessel is granted „Entry Outward‟ Loading can start only after this permission Shipping bill duly passed by customs Officer is handed over to him Export Manifest / Export report in the prescribed form should be submitted before departure. Report should be declared as true by him. 2) To be followed by Exporter Obtain business identification no. (bin) From director general of foreign trade (DGFT) Open current A/C with designated bank for crediting duty drawback claims. If export is under DEPB, advance license etc. same should be registered at custom station. Submit shipping bill / Airway bill /Bill of export Assess goods for duty even if no duty payable Make appropriate declarations in prescribed Forms for : (a) Drawback claim (d) DEPB Scheme (b) DEEC Scheme (c) Adv. License (e) ARE –1 Declaration Complete excise formalities for export Follow prescribed procedures & submit necessary papers for claiming duty drawback Prepare & submit prescribed forms by RBI to enable RBI to ensure that export proceeds are received in India through proper banking channel only Prepare / Submit following documents (a) (c) (e) (g) (i) Commercial invoice Certificate of Origin Insurance Policy Declaration of value GR / SDF form for RBI (b) (d) (f) (h) (J) Packing list Pre-shipment Insp. Report L/C Excise are – 1 form Letter showing Bin No. 9 CHAPTER 4 - COURIER , POST & BAGGAGE 1) IMPORT & EXPORT THROUGH COURIER A) i) ii) iii) iv) v) vi) vii) viii) ix) x) xi) Import Permitted by air from specified air ports & land custom Station. by land Maxm. Wt. allowed is 70 Kg. / Package Goods covered by any other Acts are not permitted Animals & its parts, Plants, Perishables, Stones, Gold, Silver, Chemicals, Publications containing incorrect Indian boundaries are not allowed Life savings drugs are allowed Courier must be Registered with commissioner of customs Free gifts & samples up to Rs. 10,000 per consignment allowed Gem / Jwellery up to Rs. 25 lakhs per consignment allowed. Courier bags are kept separately & dealt with as per directions of commissioner of customs He has to submit specified declaration & „Courier Bill of Entry‟ in prescribed form Goods must be cleared by courier within 30 days of import otherwise they are disposed of by customs authorities. Export Permitted from specified air ports & land customs station Courier must file a statement before departure of any flight in prescribed form along with “Courier Shipping Bill” Free gifts Rs. 25,000 & samples Rs. 50,000 can be exported Export by EOU / SEZ / EHTP / STP units through authorized courier is permitted Export of Gem / Jwellery Rs. 25 lakhs per consignment is allowed Goods must be exported within 7 days from customs area otherwise they are disposed of by customs authorities. B) i) ii) iii) iv) v) vi) 2) IMPORT & EXPORT BY POST A) i) ii) Import Post parcels are allowed to pass from port / Air Port to foreign parcel Deptt. Without payment of custom duty. Post master hands over to principal appraiser customs a) Memo of parcels from each country of origin b) Parcel bill or sender‟s declaration c) Customs declaration & dispatch notes d) Any other information required Post bags opened under supervision & control of principal appraiser customs Packets containing dutiable goods are presented to customs appraiser iii) iv) 10 v) vi) vii) viii) Parcels opened by him are distinctly sealed & after assessment handed over to post master Post master hands over the parcels to the addressee on receipt of custom duty from him Gifts up to Rs. 10,000 can be imported without payment of custom duty Post parcels with customs duty less than Rs. 100 are exempted from custom duty. Export Goods must be covered by a declaration in a prescribed form Export of Indian / Foreign currency is not allowed unless accompanied by permit issued by RBI Goods up to Rs. 25,000 can be exported as a gift Export of purchases by foreign tourists allowed on submitting proof that payment was received in foreign exchange. B) i) ii) iii) iv) 3) A) BAGGAGE RULES Baggage includes – i) Dutiable goods imported by Passengers Member of a crew In his baggage ii) Unaccompanied baggage if dispatched previously or subsequently within prescribed period. Baggage does not include Motor vehicles, alcoholic drinks & goods imported their courier Articles imported under imported license for himself or for others Following are general prohibitions i) Indian / Foreign currency (above RBI limits ) ii) Narcotic drugs iii) Domestic pets (If not as per health regulations ) iv) Exoctic Birds, wind orchids, wild life v) Endangered species vi) Ivory vii) Reptile skins viii) Antiques There are 2 Channels i) Green Channel – Person not having any dutiable goods can pass through this. However if found carrying dutiable goods. Goods are confiscated & he is prosecuted. ii) Red channel – Person having dutiable goods pass their this & submit declaration. Baggage checked by customs officer & appropriate duty is charged at 35% + 2% E.C. & 1% SAH. Education Cess. There is no SAD & CVD B) C) 11 D) Exemptions allowed for import through Baggage Person transferring his residence to India is eligible to bring his personal & household articles to India without duty Bona fide baggage accompanying passenger is exempted from customs duty This includes personal effects, wearing apparel & toilet requisites Laptop computer brought as baggage by person over 18 years of age (other than member of crew is fully exempt from customs duty Gold brought as baggage by a passenger of Indian origin or a person holding Indian passport. The duty is only Rs. 100 per 10 gms. For import of gold bars bearing manufacturer‟s or refiner‟s engraved serial number and weight expressed in metric units and gold coins. In case of other gold, including tola bars and ornaments (but excluding ornaments studded with stones or pearls), the duty is Rs. 250 per 10 10 gms. Up to 10 kg. gold can be brought by each eligible passenger Silver brought as baggage by a passenger of Indian origin holding Indian passport up to 100 kg. is chargeable to duty of Rs. 500 per kg. (plus education cess @ 2% and SAH education cess of 1% of duty), if the person was staying abroad for over six months. Duty has to be paid only in convertible foreign currency. No CVD is payable. Silver can be brought in any form, including medallions, coins and jewellary, except foreign currency coins and jewellery studded with stones or pearls. Out of the period of 6 months. Short visits up to 30 days are permitted, if the concession was not availed in such short visit. Customs duty is not payable if amount of duty is equal to or less than Rs. 100 A passenger of 10 or more year of age is allowed general free allowance of Rs. 25,000, if the Indian Resident is returning from country other than Nepal, Bhutan, Myanmar or China . This allowance is also available to foreign citizens residing in India, after stay of more than three days. This allowance cannot be pooled with General Free Allowance of other passengers e.g. husband and wife bringing one item of Rs. 50,000 will not be permitted duty free. This General Free Allowance is not applicable to un-accompanied baggage. The limit of Rs. 25,000 is reduced as follows –(a) Rs. 12,000 for passengers after stay abroad of three days or less(b) If the passenger is up to 10 years of age and is returning from country other than Nepal, Bhutan, Myanmar or China, the allowance is Rs. 6,000 if a person is returning after stay of more than 3 days & Rs. 3,000 it has stay was 3 days or less, (c) If the passenger is returning from Pakistan by land route, as specified in Annexure IV of baggage Rules, the general free allowances is Rs. 6,000 for passengers above 10 years and Rs. 1,500 for passengers up to 10 years. Of age. 12 An Indian Resident or foreigner residing in Indian of Age 10 or more is entitled to lower rate of General free allowance of Rs. 6,000 if he is returning form Nepal, Bhutan, Myanmar or China after stay of more than 3 days, by route other than land route. Passenger up to 10 years returning from these countries after stay of more than 3 days is entitled to General Free Allowance of Rs. 1,500. There is no duty on personal effects. There is no general free allowance if a person is returning from these countries after stay of three days or less. There is no free allowance if passenger returns by land route from these countries, even if his stay abroad was more than 3 days. If the passenger is returning from Pakistan by land route the general free allowance is Rs. 6,000 for passengers above 10 years and Rs. 1,500 for passengers up to 10 years of age. An Indian passenger who was engaged in his profession abroad for over three months is allowed to import following duty free goods as additional allowance (a) Used household articles up to Rs. 12,000 ( e.g. linen, utensils, tableware, kitchen appliances, an iron etc. ) (b) Professional equipment like portable equipments, apparatus and appliances required in such profession, up to Rs. 20,000. The limit will be increased to Rs. 40,000 if he was abroad for over 6 months. [The allowance is in addition to General Free Allowance ] This exemption of professional equipment is only for carpenters, plumbers welders, masons and the like and not for items of common use like cameras, type writer, cassette – recorder, computers, word processor etc. If the passenger was residing abroad for over one year, jewellery can be imported duty free up to Rs. 10,000 in case of gentleman passenger and Rs. 20,000 in case of lady passenger. A person who was working abroad and is returning to India on termination or work and who was staying abroad for at leas 365 days out of previous two years, is eligible to certain concessions. This is termed as „mini TR‟ i.e. „Mini Transfer of Residence‟. He is entitled to bring personal effects and household articles up to Rs. 75,000 duty free [ The limit was Rs. 30,000 upto 28-2-2002]. This allowance is in addition to General Free Allowance. The conditions are (a) These should be in possession of himself or his family and used for at least six months, (b) He shall be allowed to avail himself of this exemption only once in three years, (c) Items in Annex I, Annex II or Annex III to Baggage Rules are not allowed under this rule, (d) Goods should be contained in his bona fide baggage. 13 Exemption to Baggage of Tourists – Following are the exemptions – (a) Used personal effects of tourist and travel souvenirs are allowed duty free. Personal effects should be for personal use of the tourist and these goods, other than consumed should be re-exported when tourist leaves India for foreign destination. (b) Tourists of Indian Origin (even if holding foreign passport ) other than those coming from Pakistan by land route as specified in Annexure IV of Baggage Rules, are entitled to General Free Allowance in addition to „ personal effects „. (c) Foreign Tourists are permitted to bring articles up to Rs. 8,000 for making gifts. This can include up to 200 cigarettes or 50 cigars or 250 gms of tobacco and up to two liters of alcoholic liquor or wine. Duty will have to be paid for gifts over the value of Rs. 8,000 (Rs. 6,000 if they are coming from Pakistan) (d) Tourists of Pakistani origin or foreign tourists coming from Pakistan or tourists of Indian origin coming from Pakistan, by land route as specified in Annexure IV of Baggage Rules, are entitled to bring used personal effects and travel souvenirs are allowed duty free. Personal effect should be for personal use of the tourist and these goods, other than consumed, should be re-exported when tourist leaves India for foreign destination. In addition, articles up to value of Rs. 6,000 for making gifts are permitted duty free. (e) Tourists of Nepalese origin coming from Nepal or of Bhutanese origin coming from Bhutan are not entitled to any exemption. Import by foreign experts – Foreign experts assigned to India under various UN schemes etc. are permitted to bring various articles, including VCR, video camera and Air – conditioners. These are exempt from customs duty on obtaining certificate of undertaking from the expert. Duty will be paid by concerned ministry / department. 14 CHAPTER 5 - EXEMPTION & REMISSION OF DUTY 1) EXEMPTION : Exemption in duty is granted in following ways a) Government issues notification in the public interest and exemption is granted on items specified in notification after condition are fulfilled as per notification & W.E.F. date mentioned thereto b) Imports for Exports by FTZ, 100% EOU, Advance license, Job Work etc. Specified imports for projects Preferential rates for imports from specified countries Lower rate in case of agreement by Govt. with some country c) d) e) 2) REMISSION : a) b) Remission means waiver of duty In following cases duty is remitted i) Goods lost, Destroyed or Pilfered after unloading but before clearance for home consumption ii) If importer abandon goods because Goods are deteriorated Duty is very high. 15 CHAPTER 6 - OTHER PROVISIONS IN CUSTOMS 1) WAREHOUSING a) Imported goods can be kept without payment of duty b) Pay customs duty & take goods out of warehouse c) Available to – Traders & Direct Importers d) Opened at warehousing Stn. Approved by customs e) Public & private warehouses f) Bond is required from importer for movement of goods from customer‟s port to warehousing Stn. g) Period of warehousing–1 year & further 6 months by permission of commissioner & with permission of chief commissioner & unlimited period h) Capital goods by E.O.U. – 5 Yrs. Warehousing Other goods by E.O.U. - 3 Yrs. Warehousing i) Warehouse is under physical control of customs officer & clearance can be only with his permission j) If goods are damaged during warehousing no duty is payable k) Goods can be cleared from warehouse only after paying custom duty l) Importer must pay rent & other charges if not paid warehouse keeper can sell goods after giving notice to importer & with permission of customs officer m) Owner of warehoused goods can relinquish title of goods any time before home clearance. He has to pay rent & other charges. He does not have to pay duty n) With permission of customs officer warehoused goods can be dealt in any of the following wary : Mfg. & other operation for export or for home consumption Inspect goods Separate damaged / deteriorated goods Sort goods Change containers Show goods for sale Take sample of goods. CUSTOMS HOUSE AGENT (C.H.A.) a) Appointed by company to complete customs formalities and obtain clearance from port b) He must have license c) C.H.A. is responsible for all Acts. Of his employee d) To become customs house agent prescribed examination must be passed e) Employee of customs house agent is given I. card f) License fee is Rs. 5,000 g) License cannot be transferred h) Customs house agent must obtain authorization from cos. For which he is working . i) Customs house agent has to execute bond in prescribed form j) If rules & regulations are not followed (Frameed by customs ) his license is cancelled or suspended. 2) 16 3) EXPORT ORIENTED UNDERTAKINGS ( E.O.U. ) EOU can import inputs and capital goods without payment of customs duty. They can procure indigenous inputs and capital goods without payment of excise duty. Their final product should be normally exported, but they are allowed to sale part of their production within India, which is termed as „DTA‟ sales i.e. sale in Domestic Tariff Area. EOU units have to follow provisions of Customers Act. Excise Act Income Tax Act. Foreign Exchange Management Act. EOU can be set up at various places in India declared as „warehousing stations‟. There are over 300 such places. Only project having an investment of not less than 100 lakhs and above in building and plant and machinery shall be considered for establishment under EOU scheme. One crore investment criteria does not apply to units engaged in service sector, Software Technology Park(S.T.P.), Electronics Hardware Technology Park (E.H.T.P.), I.T. sector handicrafts etc. The EOU unit may be engaged in manufacture of goods, including repair, reengineering, and rendering of services. However, trading units are not permitted. Special provisions have been made for EOU units for gold/ silver / platinum jewellery, agriculture, aquaculture, floriculture, horticulture, poultry, granites etc. EOU / SEZ / STP / EHTP / BTP unit can be set up with 100% foreign investment, except in few sectors where compulsory licensing is required. 100% foreign investment is sectors like arms and ammunition, explosives, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes, cigars and manufactured tobacco substitutes is not permitted. In some sectors, there is sectoral cap. The units should have positive Net Foreign Exchange Earning. (NFE). Net Foreign Exchange Earning shall be calculated cumulatively in block of five years, starting from commencement of production NFE = A – B, where A = FOB value of exports, B is the sum total of CIF value of all imported inputs and capital goods and all payments (like commission, royalty, fees, dividend, interest of borrowings) made in foreign exchange In case of EOU units, the whole factory is treated as a bonded warehouses. The bonding period is three years for raw materials, consumable and spares. However, for capital goods, the bonding period is 5 years. Bonding period of three years means inputs / consumable should be consumed for manufacture of export product within three years. If not, application for extension should be made. This period can be reduced by commissioner if goods are likely to deteriorate. 17 The warehousing period can be up to five years in case of capital goods intended for use in EOU unit. The warehousing period can be up to five years in case of capital goods intended for use in EOU unit. The EOU units have to execute a bond in form B – 17 which is all purpose bond covering liability both of Central Excise & Customs. The Superintendent of Central Excise will give a certificate in prescribed form giving details of bond, name of input an its chapter number etc. Goods will be permitted to be cleared from customs without payment of duty on strength of this certificate. Re-warehousing certificate from assistant / Deputy Commissioner, CE should be submitted to customs authorities within 90 days. Otherwise, duty demand will be raised. Goods manufactured in EOU should e normally exported. However, since export market is often fluctuating and uncertain, these units are allowed to sell part of their products in DTA (Domestic Tariff Area ) i.e. within Indian, in terms of Foreign Trade Policy. As per proviso to section 3(1) of Central Excise Act. in case of sale by EOU units, duty payable in case of DTA sale shall be equal to aggregate duties of customs which would be payable under Customs Act, if the goods are imported in to India. 4) SPECIAL ECONOMIC ZONES (S.E.Z.) China has made spectacular economic progress in recent years. Exports from China are growing at phenomenal speed. It was found that one major reason for growth in exports was due to „Special Economic Zones‟ development by China. These are huge areas of thousands of hectares, where raw materials and capital goods can be imported without any duty and final product is exported. Excellent infrastructure is provided in these SEZs. India has also decided to introduce concept of SEZ in India. SEZ are like a separate island within country. These are treated as if they are outside India for customs purposes. Goods can be brought in SEZ without payment of customs duty or excise duty. Supplies to SEZ from other parts of India are treated as „ exports‟ and are entitled to all export benefits. On the other hand, supplies from SEZ unit to any person outside SEZ is treated as „import‟ by that person ad normal customs duty is payable. SEZ have full freedom of operations within SEZ and all facilities of import and export are provided within the zone itself. SEZ are grown engines that can boost manufacturing, augment exports and generate employment. private sector has been associated with the development of SEZs. More than 100 SEZs have been approved and are in various stages of development . SEZ and SEZ units will be exempt from all taxes like customs duty, excise duty, Central sales Tax, State Vat, Incomes tax etc. Supplies to SEZ from DTA (Domestic Tariff Area ) will be „export‟ by DTA. Supplies from SEZ to unit in DTA will be „export‟ by SEZ and „ Import‟ by DTA unit. 18 Goods manufactured in SEZ are „ excluded excisable goods‟ and no excise duty is payable on them In order to encourage development and growth of SEZ, Special Economic Zones Act, 2005 was passed by parliament in May 2005. Basic purpose of the Act is smooth and hassle free operations in SEZ and a „Single Window Clearance‟ for setting up an SEZ or a unit in SEZ . Major provisions of the Act have been made effective w.e.f. 10-2-2006. SEZ rules have also been notified on the same date. Central Government has liberal policy for setting up such zones. SEZ can be set up in public, private, joint sector or by Central Government or State Government, Jointly or severally[section 3(1) of Act] Developer of such SEZ can allocate fully develop plots to entrepreneurs on purely commercial basis. Developer of SEZ can provide services like water, electricity, security, restaurants, recreation etc. He can also develop township adjacent to SEZ. Thus, integrated township plus manufacturing facilities will be provided in SEZ. Proposal to establish a SEZ will be approved by Board of Approvals (BOA). The SEZ are expected to have world class infrastructure for efficient manufacturing and service activities. Multi-product SEZs should have an area of 1,000 hectares or more. Minimum 35% area shall be earmarked for processing. Remaining 65%/ 75% area will be available for developing residential and commercial areas. Sector specific SEZ can be as small as 10 hectares, out of which 50% should be for processing and balance can be for residential and commercial areas. SEZ for Free Trade and Warehousing (FTW)shall have an area of 40 hectares or more with a built up area of not less than one lakh square meters. An entrepreneur can set up a manufacturing unit is SEZ. Normally, all his production will be exported. He should have positive NFE (Net Foreign Exchange Earnings]. 5) DUTY DRAWBACK Manufacturers or processors can avail „ duty drawback‟ Here, the excise duty and customs duty paid on inputs and service tax paid on input services is given back to the exporter of finished product by way of „ duty drawback‟ Drawback, in relation to any goods manufactured in India and exported, means the rebate of duty or tax, as the case may be, chargeable on any imported materials or excisable materials used or taxable services used as input services in manufacture of such goods. Incidence of un-rebated service tax and Fringe Benefit Tax (FBT) will be factored in various duty neutralization and remission schemes. No drawback is available on other taxes like sales tax and octroi. Drawback – When not eligible 19 If sale proceeds of export goods are not received within time stipulated by RBI [This provision does not apply to goods supplied from DTA unit to SEZ unit.] (ii) If no customs / excise duty is paid on the inputs or service tax is not paid on input services (iii) If imported inputs were obtained under Advance License (DEEC scheme) without payment of duty (iv) If importer avails DEPB or DFRC (v) Goods manufactured under Customs Bond or Excise Bond where inputs were obtained without payment of duty (vi) Goods manufactured by EOU or a unit in Special Economic Zone (as they obtain inputs without payment of duty ) (vii) If Cenvat was claimed on indigenous inputs. [In such case, excise portion of duty drawback will not be available ] (viii) In case of negative value addition – i.e. selling price of exported goods is less than value of imported goods i.e. foreign exchange spent on import of raw material is more than FOB value of exports. (ix) Jute batching oil used in manufacture of jute yarn, twist, twine etc. (x) Packing materials used in manufacture of jute yarn, jute fabrics and jute manufacture. (xi) Where specific rates are provided, drawback will not be paid if it is less than 1% of FOB. Value of the product, unless drawback claim per shipment is over Rs. 500 (xii) If wholesale market price of goods in India is less than the amount of drawback due. (xiii) Exports to Nepal / Bhutan. However, exports to Nepal are eligible if payment is received under hard currency i.e. dollars, euro, Yen British pounds etc. (xiv) No drawback of sales tax, Octroi or other taxes – drawback is of customs and Central Excise duties only. (xv) Export of alcoholic liquor, cigarettes, cigar and pipe tobacco: as stores, to foreign going vessel of less than 200 tons. (xvi) If goods exported by vessel of less than 1,000 tons: unless certificate is submitted that sale proceeds in foreign currency have been received and goods have landed at destination within three months. (xvii)If drawback is less than Rs. 50 (i) 6) DEEMED EXPORTS India gets foreign aid from World Bank, Asia Development bank etc. for various prestigious projects in India for which global tenders are invited and India gets aid in foreign currency. Indian manufacturers and suppliers of services from India have to quote in competition with foreign suppliers. Evaluation of bids is done without considering customs duty. Since the supply of goods and service are for projects financed with free foreign exchange, these suppliers are treated as 20 „Deemed Exports‟. Similarly, supplies to EOU units and supplies against annual advance authorization are also „deemed exports‟ These are so called because the goods and services do not leave the country. Suppliers of goods and services get payment in Indian rupees and not in foreign currency. Following are treated as Deemed exports a) Supply of goods against Advance Authorization or Advance Authorization for Annual Requirement / DFRC / DFIA. b) Supply of goods to units located in EOU, STP, BTP or EHTP. c) Scheme or supply of capital goods to holder of authorization under EPCG scheme. d) Supply of goods to projects or turnkey contracts financed by multilateral or bilateral agencies against international competitive bidding. e) Supply of capital goods to fertilizer plants. f) Supply of goods to any project where import is permitted at zero customs duty and supply is make against international competitive bidding. g) Supply of goods to power projects and refineries. h) Supply of marine freight containers by EOU if the containers are exported within 6 month. i) Supply to goods funded by UN Agencies and j) Supply of goods to nuclear projects through competitive bidding (need not be international competitive bidding ) Benefits of deemed exports are available to manufacturer exporter only for supply of goods manufactured in India, and not to merchant exporters. Benefits to Indian Supplier The supplier are in India and supplier gets payment in Indian rupees. However, the Indian supplier is entitled to get following benefits. Refund of excise duty paid on final product. No excise duty is payable while clearing goods from factory against CT – 3 form to EOU. The Indian manufacturer is not required to reverse Cenvat credit availed on inputs. No Excise Duty is payable if supply is made against International Competitive Bidding. If Cenvat has been availed, only customs duty paid on inputs / components will be allowed as deemed duty drawback In respect of supplies made against advance authorization / DFRC / DFIA against „ deemed export‟ the supplier is entitled to Advance Authorization / DFRC / DFIA for intermediate supplies The DTA unit can import inputs duty free under this authorization. Advance Authorization for intermediate supply / deemed export is issued to manufacturer – exporter for material required for manufacture of goods to be supplied under deemed export. Materials can be imported for deemed exports under Advance Authorization for Deemed Exports without payment of customs duty.