Procedures Governing Operation of Units in Special Economic Zones (SEZs) - Reg - Customs - 092/2000

Circular No. 92 /2000-Cus. 20 th November, 2000. F.NO. 305/66/2000-FTT Government of India Ministry of Finance Department of Revenue Sub: Procedures Governing Operation of Units in Special Economic Zones (SEZs) - Reg. I am directed to invite your attention to the above mentioned subject and to state that the provisions of Export and Import Policy and Handbook of Procedures relating to the SEZ Scheme have since been amended vide notification No.39(RE-00)/1997-20002 and Public Notice No.37(RE-00)/1997-2002 both dated 19-10-2000 of Government of India, in the Ministry of Commerce (Directorate General of Foreign Trade). As the amendments in the Policy and Handbook relating to SEZ scheme are quite exhaustive, it has been considered necessary to issue fresh notifications in supersession of the earlier ones. As such, two notifications (No.137/2000-Cus 92/2000-CE) have been issued on 19-10-2000 in supersession of notification Nos. 79/2000-Cus and 41/2000-CE, both dated 26-5-2000. Copies of these notifications are enclosed for reference. 2. The SEZ scheme envisages a simple and transparent policy and procedures for the promotion of exports with minimum paper work. The scheme is detailed under paragraphs 9.30 to 9.43 of the Exim Policy and paragraphs 9.41 to 9.46 of Handbook of Procedures (Vol-1). The most important feature of the scheme is that the SEZ area shall deemed to be a foreign territory for the purpose of duties and taxes. Therefore, goods supplied to SEZ from the Domestic Tariff Area (DTA) will be treated as deemed exports and goods brought from SEZ to DTA will be treated as imported goods. It may be seen from paragraph 9.30 of the EXIM Policy that in any SEZ, goods may be imported/procured from DTA duty free for the purpose of manufacture of goods and services, production, processing, assembling, trading, repair, reconditioning, re-engineering, packaging or in connection therewith and export thereof. The notifications referred to above have been issued to implement the above Policy provisions. It may be seen that the duty-free import facility is not applicable to prohibited goods under the EXIM Policy. The details of other salient features of the scheme are given below:- Import and Export: 3.1 The SEZ units may import and export through port, airport, land customs station, ICD, CFS, courier mode (as per courier rules) and post parcel. The software development units may import and export through data communication and telecommunication links. So far as exports through data communication and telecommunication links is concerned, the procedure and practice being followed in case of EPZ/STP units may be adopted for SEZ units. As for imports of software through above modes, the units may be asked to file the Bill of Entry within 24 hours of such import alongwith bank attested invoice and other relevant documents for obtaining notional 'out of charge'. The documents such as invoice etc. in respect of such import shall be routed through banks. The Director of the STP/Development Commissioner of SEZ shall certify the value of such software. Further, in case of such software imports, instructions issued by RBI, if any, may be followed. 3.2 In case of imports, the Bill of Entry with specially stamped endorsement as "SEZ Cargo" shall be filed with the Assistant Commissioner/Deputy Commissioner of Customs in the SEZ for assessment. For procurement of goods from domestic sources by SEZ units, the procedure and practice being followed in case of EPZ units may be adopted. In both cases, i.e. both in respect of imported and domestically procured cargo, the goods may be assessed on the basis of documents furnished by the units. There will be no physical examination of goods and 'out-of-charge' may be given after verifying the marks and numbers on the packages only. 3.3 When the goods imported are required to be sent to a SEZ located at a station away from the place of import, the same may be allowed under normal transit procedure. The unit shall file the Bill of Entry with the Assistant Commissioner/ Deputy Commissioner of Customs in-charge of the SEZ on the basis of the transit document. 3.4 In case of exports, for assessment of Shipping Bill, the procedure as applicable to EPZs shall apply mutatis mutandis in case of SEZs also. There shall be no routine examination of the export consignment by SEZ customs authorities and export may be allowed on the basis of self-certification by the units. Likewise, there will not be any routine examination of the SEZ cargo at the gateway port. However, whether at the Zone or at gateway port or during transit of such cargo, the customs authorities may examine the consignments when there is a specific information/intelligence. For this purpose, the orders of the Assistant Commissioner/Deputy Commissioner of Customs will have to be obtained. Sub-contracting: 4.1 The Assistant Commissioner / Deputy Commissioner of Customs may permit the clearance of goods to DTA without payment of duty for jobwork/further processing on the basis of a bond furnished by the unit. The bond will be discharged as and when the goods are received back after job work/processing. The goods so processed may be cleared from the jobworker's premises for export directly, provided the jobworker is registered with Central Excise and the procedure as applicable to the EPZ is followed. In such cases, the bond will be discharged after the proof of export is produced. Scrap/waste/remnants/rejects generated at the jobworker's premises may be cleared therefrom on payment of applicable customs duty or returned to the SEZ unit. 4.2 The SEZ units may also undertake job-work for export on behalf of DTA units, provided the goods are exported directly from SEZ units. The export document shall be in the name of the DTA unit. 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. 4.3 The Assistant Commissioner/Deputy Commissioner of Customs may also permit removal of moulds, jigs, tool, fixtures, tackles, instruments, hangers, patterns and drawings without payment of duty to the premises of the sub-contractors subject to the condition that such goods are brought back to the unit on completion of the jobwork within the period specified in this behalf. Temporary removal of goods into the DTA: 5. Goods may be taken outside the Zone into the DTA temporarily without payment of duty for the purpose of test, repairs, replacement, calibration, refining, processing, display or any other process necessary for manufacture of final product and return thereof within the period specified in this regard. For this purpose, the unit shall execute a bond with the Assistant Commissioner/ Deputy Commissioner of Customs. On receipt of the goods back in the SEZ unit, the bond shall be discharged. In case of failure of the unit to bring back the goods within the prescribed period, the unit shall be liable to pay applicable customs duty on such goods. Temporary removal of goods into another SEZ/EOU/EPZ/EHTP/STP unit: 6. The Assistant Commissioner/Deputy Commissioner of Customs may permit clearance of goods to another SEZ/EOU/EPZ/EHTP/STP unit without payment of duty for repairs, processing, testing or display and return thereof within the period specified in this regard. Goods may also be sent to SEZ/EPZ/EOU/EHTP/STP units for the purposes of manufacture and export therefrom subject to maintenance of proper accounts by both the receiving and supplying units. For the above purposes, the unit shall execute a bond with the Assistant Commissioner/Deputy Commissioner of Customs. The bond shall be discharged on receipt of the goods back in the SEZ or after they have been properly accounted for by way of exports. In case of failure of the unit to bring back the goods within the prescribed period or failure to account for the goods, the unit shall be liable to pay applicable customs duty on such goods. Gem and Jewellery units in SEZ: 7. The provisions/facilities referred to in paragraphs 4 to 6 above shall not apply to the gem and jewellery units in SEZ. However, these units can receive plain gold, plain silver, plain platinum jewellery from DTA in exchange of gold/silver/platinum of same purity and quantity in weight as that of gold/silver/platinum jewellery as the case may be. The unit shall not be eligible for any wastage or manufacturing loss against exchange of such machine-made or hand-made plain jewellery. The DTA unit exchanging the gold/silver/platinum jewellery with the units in SEZ shall not be allowed any deemed export benefits. The units may also be permitted to take out gold, silver or platinum for job-work in the DTA. This is subject to the condition that they will bring back the jewellery finished or semi-finished, including studded jewellery containing quantity and purity equal to the gold/silver/platinum so taken out within 30 days. However, no diamonds, precious stones and semi-precious stones shall be allowed to be taken out of the zone for sub-contracting. As in the case of exchange of gold/silver/ platinum for jewellery of equal quantity and purity, the DTA unit supplying jewellery against job-work shall not be entitled for deemed export benefits and the said unit in the Zone shall not be eligible for wastage or manufacturing loss against such jewellery. 8. Further, the Assistant Commissioner of Customs or Deputy Commissioner of Customs may allow: i. the items of gem and jewellery to be taken out temporarily into DTA without payment of duty for the purpose of display and to be returned thereafter; ii. personal carriage of gold/silver/platinum jewellery or precious or semi-precious stones or beads and articles as samples upto US$ 1,00,000 for export promotion tours and temporary display or sale abroad subject to the condition that the exporter would bring back the jewellery or the goods or its sale proceeds within 45 days from the date of departure through normal banking channel; iii. export of jewellery including branded jewellery for display and sale in the permitted shops setup abroad, or in the showroom of their distributors or agents provided that items not sold abroad within 180 days, shall be re-imported within next 45 days; iv. gem and jewellery units to remove parts tools of machine temporarily without payment of duty for the purpose of repair and return thereof. v. gem and jewellery manufactured in the SEZ to be taken out to the retail outlets or showrooms set up in the departure lounge at international airports for sale to a tourist, as defined in the Baggage Rules, 1998, leaving India. vi. gem and jewellery manufactured in the SEZ to be sold to a foreign-bound passenger and to be transferred to the retail outlets or showrooms set up in the departure lounge or Customs warehouse at international airports for being handed over to the said passenger for the purpose of export. vii. Removal of moulds, tools, patterns, and drawings into the DTA for jobwork without payment of duty and to be returned to the unit thereafter. The procedure and practice being followed in case of EPZ units may be adopted while allowing clearances of items mentioned at (i) to (vii) above. 9. In case of gem jewellery units, scrap, dust or sweepings generated in the unit may be allowed to be forwarded to the Government Mint or Private Mint for conversion into standard gold bars and return thereof to the Zone subject to the observance of procedure laid down by the Customs. The said dust, scrap or sweepings may also be allowed clearance into DTA on payment of applicable customs duty on the gold content in the said scrap, dust or sweepings. Samples of the sweepings/dust shall be taken at the time of clearance and sent to mint for assaying. The assessment may be finalized when the reports are received from the mint. Inter-Unit transfer 10. Inter unit transfer of goods amongst units in a SEZ shall not require any permission, but the supplying and receiving units shall maintain proper accounts of the transaction. Duty remission on destruction of goods: 11.1 A provision has been made in the notifications that duty would not be levied on capital goods, raw materials, components, waste or scrap etc. if these goods are destroyed in the presence of the Customs authorities. The notifications may be referred to for details. This provision will, however, not apply to gold, silver, platinum, diamond, precious stones and semi-precious stones. 11.2 The officers supervising destruction may ensure that goods are destroyed fully rendering them unfit for further use and give certificate to that effect. After destruction of capital goods, raw materials, components, waste or scrap etc., if the remains have scrap value, the same may be cleared by the unit in DTA on payment of duty applicable to scrap. DTA Sale: 12.1 The Assistant Commissioner/ Deputy Commissioner of Customs may permit sale of finished goods including by-products and services and waste/scrap/remnants/rejects etc. in the DTA on payment of applicable customs duty and in accordance with the Export-Import Policy in force. However, where such finished goods (including rejects, waste and scrap materials) are not excisable, customs duty equal in amount to that leviable on the inputs imported/indigenously procured under the notifications and used for the purpose of manufacture of such finished goods, which would have been paid but for the exemption under the said notifications, shall be payable at the time of clearance of such finished goods. In case of service sector SEZ units, the rendering of services in DTA may be allowed subject to the condition that the unit has achieved the positive NFEP, cumulatively, at the time of rendering such service in DTA as specified in the Policy. This would mean that service units will not be eligible for making DTA sale if the NFEP is not positive cumulatively at any point of time. Further, it may be noted that if any of such services are taxable under provisions of Chapter V of Finance Act, 1994, then rendering of such services in DTA shall be subject to payment of service tax as per the provisions of Finance Act, 1994. 12.2 The DTA clearance referred to in paragraph 12.1 above shall not be available to the trading units. However, the trading units in the SEZ may be allowed to clear the imported/indigenously procured goods in the DTA without payment of duty to other SEZ/EOU/EPZ/EHTP/STP units. Further, they may be allowed to clear the said goods without payment of duty, if such clearance is against Advance Licences or special duty free entitlements. Disposal of obsolete goods: 13. The units may be allowed to dispose of obsolete or unusable capital goods, spares and other goods in the DTA on payment of applicable customs duty. Such disposal shall, however, be subject to the conditions of Import Policy in force. In case of capital goods, clearance may be allowed on payment of applicable customs duty on the depreciated value thereof and at the rate in force on the date of payment of such duty. In case of other goods (including empty cones, bobbins, containers suitable for repeated use) clearance shall be allowed on payment of applicable customs duty on the value at the time of import and at rates in force on the date of payment of such duty. However, no duty shall be charged on clearance of used packing materials such as cardboard boxes, polyethylene bags of a kind unsuitable for repeated use. Paragraph 5 of the notifications may be referred to for further details. Valuation of Goods Cleared into DTA: 14 . Under the SEZ scheme, the goods cleared from the Zone will be treated as imported goods. Therefore, in case of DTA clearances, though the duty charged will be central excise duty, this duty will be equal to the aggregate of all duties of customs. In other words, the SEZ units will have to pay full customs duty (applied duty) on their DTA clearances. In view of this, in case of sale/clearance of goods referred to in the preceding paragraphs, the valuation will be made as per the provisions of the Customs Act, 1962 and the Customs Valuation Rules, 1988. Further, the DTA sales will be subjected to the same assessment and examination procedure as applicable to imported goods. Licences, wherever applicable, will have to be produced before clearing the goods into DTA. Maintenance of Accounts. 15. A SEZ unit shall maintain proper account in the format convenient to it and financial year-wise, of all foreign exchange inflow by way of exports and other receipts, all foreign exchange out flow on account of imports, payment of dividend, royalty, fees etc., consumption and utilisation of the materials and sale in the DTA. The unit shall submit regularly quarterly statement to the Development Commissioner and the Customs in this regard in the format prescribed at Appendix 16H of the Hand Book of Procedures. In case of gem and jewellery, a monthly statement shall be submitted as prescribed in the said Appendix 16H to the Development Commissioner and the Customs. Monitoring of activities of SEZ units: 16. Paragraph 9.40 of the EXIM Policy has been amended to provide that all activities of the SEZ unit, unless otherwise specified, will be through self-certification procedure and shall be monitored by a Committee comprising Development Commissioner and Customs. The Committee shall be headed by the Development Commissioner. It will also see that wastage/manufacturing loss on gold/silver/platinum jewellery and articles are within the overall percentage prescribed in paragraph 8.28 of Handbook (Vol-1). In case of higher wastage/manufacturing loss, the Committee shall satisfy itself of the reasonableness of the same. Penal action in case of default: 17. The Commissioner of Customs may kindly ensure that the Customs officials posted in SEZs do not visit the units for verification of records or even otherwise in routine. However, in case of specific information/intelligence which, prima facie, show that there is fraud, collusion, mis-declaration, suppression of information etc having a bearing on the export performance of the unit or where there is specific information regarding clandestine/unauthorized removal of goods into DTA etc, the Customs officials may visit the units for verification of records, goods etc. so as to initiate proceedings under Customs Act, 1962. The Assistant Commissioner/Deputy Commissioner may keep a watch on the export performance of the units and in the event of non-achievement of positive NFEP within the stipulated period, action may be taken against the units for recovery of the duty and interest. Condition 2 of notification No. 137/2000-Cus. Dated 19.10.2000 and condition 3 of notification No.52/2000-CE dated 19.10.2000 may be referred to for further details. So far as utilization of imported/indigenously procured goods is concerned, the notifications provide that the same shall be utilized within the period of five years. In case of failure to utilize the imported / indigenously procured goods within the period of five years, the unit shall be liable to pay duty on the said unutilized goods along with the interest at the rate of 24% per annum from the date of importation or procurement of the said unutilized goods till the date of payment of such duty. Transitional arrangements:- 18.1 An existing EPZ unit can opt for SEZ scheme. On conversion, its previous obligations as an EPZ unit shall be subsumed by its obligations under the SEZ scheme. The raw materials, components, consumables 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 un-utilised DTA sale entitlements of the unit shall cease to exist from the date of conversion as notified by the Ministry of Commerce and Industry. 18.2 In case an existing EPZ unit decides not to work under the SEZ Scheme, it will have to either debond itself on payment of applicable duties on unutilised raw materials, depreciated value of capital goods and other goods imported / procured locally duty free by such unit or convert itself into an EOU. In both cases, the unit will have to physically move out of SEZ. Bond: 19. The SEZ units may be allowed to operate under a single all-purpose bond. As you are aware at present the bond amount (under B-17 bond) is equal to 25% of the duty foregone on the sanctioned requirement of capital goods plus the duty foregone on raw materials required for three months. Surety or security equivalent to 5% of the bond amount in the form of bank guarantee is required to be given. It has been decided that the SEZ units having a turnover of Rs. 1 crore or more in the preceding financial year may be exempted from the requirement of furnishing security/surety. This facility would not be available to the units against whom offence cases have been proved in a court of law. In case of new units, they will be required to give surety or security till they achieve the turnover of Rs.1 crore. Till the new bond is prescribed, the existing bonding procedure may continue. 20. The Board's Circular No. 51/2000-Cus, dated 26-5-2000 stands superceded by this circular. 21. Wide publicity may be given by issue of a Public Notice in this regard. Difficulties, if any, faced in the implementation of the above changes, may be brought to the notice of the Board at an early date. Kindly acknowledge receipt of this Circular.