Rule 42 - Procedure for sub-contracting in Domestic Tariff Area or in a Unit in other Special Economic Zones or in Export Oriented Unit or in Electronic Hardware Technology Park unit or in Software Tech........ - Special Economic Zones Rules, 2006

42. Procedure for sub-contracting in Domestic Tariff Area or in a Unit in other Special Economic Zones or in Export Oriented Unit or in Electronic Hardware Technology Park unit or in Software Technology Park Unit or Bio-technology Park Unit or sub-contracting abroad .- (1) A Unit may take goods, including finished goods requiring further processing or semi-finished or semi-processed goods, including studded jewellery or inputs to the sub-contractor's premises - (i) for subcontracting any production process; or (ii) part of the production, without payment of duty, subject to following conditions, namely:- (a) the Unit shall wherever possible apply for the permission at the time of project approval itself and based on such initial approval, the Specified Officer shall permit sub-contracting of part of production process(es) or part of the production; (b) where the permission has not been taken at the time of project approval or a new permission is sought, the unit shall file an application containing the name and address of the subcontractor(s), 2 [ Goods and Services Tax ] registration number in the case of the Domestic Tariff Area sub-contractor, if registered, and details of the processes to be carried out or quantum of production sought to be carried out at the sub-contractor's premises and self certified input output ratio for the said processes; (c) after examination of details under sub clause (b), the Specified Officer may grant annual permission for sub-contracting any production process or sub-contracting part of the production, as the case may be; (d) the Unit, removing raw materials, consumables excluding fuel and components, imported or domestically procured without any processing, for sub-contracting into the Domestic Tariff Area, shall furnish bank guarantee to Specified Officer to cover the duty foregone on such materials being taken out for sub-contracting: Provided that bank guarantee shall not be required by a unit whose turnover is rupees one crore or above or where the unit is in the Special Economic Zone for more than a period of two years with an unblemished track record; (e) the Specified Officer or the Authorized Officer may make random checks either at the job worker's premises or after receipt of goods from the job worker at the Special Economic Zone gate for the purpose of verification of goods which were sent and received: Provided that where the precious metal in bullion form, having marking of fineness or purity or make or serial number is taken out of the Special Economic Zone for sub-contracting, appraisement of precious metals shall not be mandatory; (f) a Unit shall remove the goods under serial numbered challans preauthenticated by the owner or Managing Director or working partner or the company secretary or by any person duly authorized in this behalf by the company or firm, as the case may be and complete description of goods shall be provided on the challan; (g) the authorized officer at the Special Economic Zone gate shall note down the identification marks of the goods for verification of the goods when received back after subcontracting: Provided that where sensitive items are sent out for sub-contracting, based on the risk profile or past performance of the unit, sample may be drawn and retained by the Specified Officer, if required: Provided that for gem and jewellery Units, there shall be no requirement for drawal of samples; (h) the goods sent out for sub-contracting shall be returned to the Unit within one hundred and twenty days from the date of removal or within such period as may be extended by the Specified Officer for reasons to be recorded in writing for granting such extension; 1 [ Provided that in case of a gems and jewellery unit, the finished goods requiring further processing or semi-finished goods, including precious metals, taken outside the Special Economic Zone for subcontracting by the unit shall be brought back into the unit within twenty-eight days. ] 7 [ Provided further that in case of gems and jewellery unit, the semi-finished goods, precious metals and any other raw material (excluding diamonds or precious and semi-precious stones or lab grown diamonds) taken outside the Special Economic Zone for sub-contracting of studding by the unit shall be brought back into the unit within forty-five days; ] (i) in case of failure by the Unit to bring back the goods after subcontracting within the period under sub clause (h), action shall be taken by the Specified Officer to recover the duty on the goods taken out for subcontracting. (2) The Specified Officer may permit the Unit to export the finished goods directly from the sub-contractor's premises subject to following conditions, namely:- (i) the sub-contractor is an Export Oriented Unit or an Electronic Hardware Technology Park Unit or Bio-technologyPark Unit or a Special Economic Zone Unit or a Domestic Tariff Area Unit which is registered 3 [ under Goods and Services Tax ] ; (ii) export of finished goods from the sub-contractor's premises shall be allowed only by way of direct export and not through third party; (iii) sample of goods exported from the sub-contractors premises shall be sent by the sub-contractor in sealed condition, to the Specified Officer for establishing identity of the goods exported with the sample drawn at the time of taking out of the goods to the sub-contractor; (iv) shipping Bill for duty free goods shall be processed at the port of export as in the case of normal export and shipping bill shall be filed in the name of the Unit and sub-contractor; 4 [********] (3) Waste, scrap or remnants generated during processes at the sub-contractor's premises may either be returned to the Unit or may be cleared on payment of 5 [ an amount equal to the duty applicable on imports as if the said waste or scrap or remnants have been cleared by the Unit or may be destroyed at the sub contactor s premises in the presence of jurisdictional Goods and Services Tax Officer if the sub-contractor is a Goods and Services Tax registrant ] : Provided that in case of clearance of waste or scrap at sub-contractor's premises on payment of duty or destruction thereof the same shall be in accordance with the Standard Input Output Norms notified for the Duty Exemption Entitlement Scheme under the Foreign Trade Policy or as fixed by Approval Committee: Provided that where the subcontractor's premises are located abroad, the scrap, waste or remnants generated at the sub-contractors premises may either be returned to the Unit or may be disposed off abroad; (4) A Unit may sub-contract a part of production or production process in another Unit within the same Special Economic Zone subject to the following conditions, namely:- (i) the movement of goods shall be under serially numbered challans and record of such movement of goods shall be maintained by the Unit; (ii) raw material imported or procured by the Unit for manufacture of capital goods may be transferred to another unit for the purpose of manufacture or fabrication of capital goods for use by the Unit which had imported or procured the raw materials. (5) The Developer or a co-developer or on their behalf their contractor, as the case may be, shall follow the same procedure for sub-contracting in Domestic Tariff Area or in a Unit in other Special Economic Zones or in a Export Oriented Unit or in an Electronic Hardware Technology Park Unit or a Software Technology Park Unit as prescribed for sub-contracting by SEZ Units in sub-rules (1) above: Provided that the Bank Guarantee to cover the duty foregone on the materials being sent for sub-contracting shall apply only in case of temporary removal of goods by the contractor. (After sub-rule (4). the following sub-rule has been inserted: vide F.No. 2/633/2006-SEZ dated 16/3/2007) ********** Notes: 1. Inserted vide G.S.R. 585(E) - Dated 12-6-2017 , 2. Substituted vide Notification No. G.S.R. 909(E) dated 19-09-2018 before it was read as Central Excise 3. Substituted vide Notification No. G.S.R. 909(E) dated 19-09-2018 before it was read as with the Central Excise Department 4. Omitted vide Notification No. G.S.R. 909(E) dated 19-09-2018 before it was read as (v) goods for such export shall be removed from the sub-contractor's premises under bond: Provided that in case of subcontracting abroad, the goods shall either be returned to the Unit or may be sold to buyers in that country or any third country. 5. Substituted vide Notification No. G.S.R. 909(E) dated 19-09-2018 before it was read as duty as if the said waste or scrap or remnants have been cleared by the Unit or may be destroyed at the sub-contractor's premises in the presence of jurisdictional Central Excise Officer if the sub-contractor is a Central Excise registrant 6. Inserted vide NOTIFICATION No. G.S.R. 95(E). dated 31-01-2019 7. Substituted vide Notification No. G.S.R. 288(E) dated 08-04-2022 before it was read as, 6 [ Provided further that in case of a gems and jewellery unit, studded gold jewellery, silver jewellery and imitation jewellery, the finished goods requiring further processing or semi-finished goods, taken outside the Special Economic Zone for sub-contracting by the unit, shall be brought back into the unit within forty-five days. ]