Eligibility

9.1

Units undertaking to export their entire production of goods and services may be set up under the Export Oriented Unit (EOU) Scheme, Export Processing Zone (EPZ) Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP) Scheme. Such units may be engaged in manufacture, services, trading, development of software, agriculture, including agro-processing, aquaculture, animal husbandry, bio-technology,floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granites and may export all products except prohibited items of exports in ITC (HS).

Importability Of Goods

9.2

An EOU/EPZ/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 manufacture, services, trading or in connection therewith, provided they are not prohibited items of imports in the ITC (HS). However, import of basmati paddy/brown rice shall be prohibited. 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.

The duties on import/procurement from DTA of goods, including capital goods, are only deferred.

EOU/EPZ/EHTP/STP units may procure goods required by it for manufacture, services, trading or in connection therewith, without payment of duty, from bonded warehouses in the DTA set up under the Policy.

STP/EHTP/EPZ may import, without payment of duty, all types of goods for creating a central facility for use by software development units in STP/EHTP/EPZ. 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, floriculture, horticulture, pisciculture, viticulture, poultry or sericulture may import without payment of duty only such goods as are permitted to be imported duty free under a Customs Notification issued in this behalf.

Second Hand Capital Goods

9.3

Second hand capital goods may also be imported.

Goods

9.4

An EOU/EPZ/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/EPZ/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 Earning as a Percentage of Exports (NFEP) and Minimum Export Performance (EP)

9.5

The unit shall be a net foreign exchange earner. The minimum Net Foreign Exchange earning as a Percentage of Exports (NFEP) as per paragraph 9.29 and the minimum Export Performance (EP) shall be as specified in Appendix I of the Policy. Items of manufacture for export specified in the Letter of Permission (LOP)/Letter of Intent (LOI) alone shall be taken into account for calculation of NFEP and EP.

Legal Undertaking

9.6

The unit shall execute a legal undertaking with the Development Commissioner concerned and in the event of failure to fulfil the performance, as stipulated in Appendix-I, it would be liable to penalty in terms of the legal undertaking or under any other law for the time being in force.

Approvals

9.7

Applications for EOU /EPZ/EHTP/STP units, satisfying the conditions mentioned in para 9.37 of the Hand Book of Procedures (Vol-I) may be given approval within fifteen days by the concerned Development Commissioner of the EPZ.

Other Cases

9.8

In other cases, approval may be granted by the Board(s) of Approval (BOA) set up for this purpose or Secretariat for Industrial Assistance within 45 days, as the case may be.

DTA Sales

9.9

The entire production of EOU/EPZ/EHTP/STP units shall be exported subject to the following:

a. Unless specifically prohibited in the LOP/LOI, rejects may be sold in the domestic tariff area (DTA), on prior intimation to the customs authority. Such sales shall be counted against DTA sale entitlement under para 9.9(b) of the Policy. Sale of rejects shall be subject to payment of duties as applicable to sale under para 9.9(b).

b. DTA sale up to 50% of the FOB value of exports may be made subject to payment of applicable duties and fulfillment of minimum NFEP prescribed in Appendix 1 of the Policy. No DTA sale shall be permissible in respect of motor cars, alcoholic liquors and such other items as may be stipulated by Director General of Foreign Trade by a Public Notice issued in this behalf.

c. Deleted

d. Deleted

e. EOU/EPZ/EHTP/STP units may be permitted to sell finished products which are either freely importable under the Policy, or against other import licenses, in the DTA, over and above the levels permissible under sub paragraph (b) above, against payment of full duties, on annual basis, provided they have achieved the stipula ted NFEP and export performance.

f. Deleted

g. 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.

h. Items included as by-products in the LOP/LOI may be sold in the DTA on payment of applicable duty.

Note:-

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

 Other Supplies In DTA

9.10

The following supplies in DTA shall be counted towards fulfillment of export performance and NFEP:

1. Supplies effected in DTA in terms of paragraph 10.2 of the Policy. 
2. Supplies effected in DTA against payment in foreign exchange.
3. Supplies to other EOU/EPZ/SEZ/EHTP/STP units provided that such goods are permissible for procurement in terms of paragraph 9.2 of the Policy.
4. Supplies made to bonded warehouses set up under paragraph 11.14 of the Policy and/or under section 65 of the Customs Act.
5. Supply of goods against special entitlement of duty free import of goods.
6. Supply of goods to defence and internal security forces, foreign missions/diplomats provided they are entitled for duty free imports of such items in terms of general exemption notification issued by Ministry of Finance.

Export Through Status Holder

9.11

An EOU/EPZ/EHTP/STP unit may export goods manufactured by it through a merchant exporter/status holder recognised under this Policy or any other EOU/EPZ/EHTP/STP unit.

Samples

9.12

EOU/EPZ/EHTP/STP units may, on the basis of records maintained by them, and on prior intimation to custom authority: 

1. Supply or sell samples in the DTA for display/market promotion; and  

 

2. Transfer goods to DTA for repair/ replacement, testing or calibration, quality testing and R & D purpose. 

Entitlement For Supplies From The DTA

9.13

1. Supplies from the DTA to EOU/EPZ/EHTP/ STP units will be regarded as "deemed exports" and, besides being eligible for the relevant entitlements under paragraph 10.3 of this Policy, will be eligible for the following:

i. Reimbursement of Central Sales Tax;

ii. Exemption from payment of Central Excise Duty on capital goods, components and raw materials; and

iii. Discharge of EP, if any, on the supplier.

9.14

The entitlements stated under paragraph 9.13 (a) and (b) shall be available provided the goods supplied are manufactured in the country.

Other Entitlements

9.15

Other entitlements of EOU/FPZ/EHTP/STP units are indicated in the Handbook (Vol-I)

Inter Unit Transfer

9.16

a) Transfer of manufactured goods from one EOU/EPZ/ EHTP/STP unit to another EOU/EPZ/EHTP/STP unit will be allowed.

b) Goods imported/procured by an EOU/EPZ/ EHTP/STP unit may be transferred or given on loan to another EOU/EPZ/EHTP/STP unit which shall be duly accounted for, but not counted towards discharge of export performance.

Sub Contracting

9.17

1. The EOU/EPZ/EHTP/STP units may, on the basis of annual permission from the Assistant Commissioner of Customs, sub-contract part of their production process in DTA, which may also involve change of form or nature of the goods, through job work by units in the DTA. These units may also sub-contract up to 50% of production for job work in DTA with the permission of Assistant Commissioner of Customs. Sub-contracting of both production and production process may also be undertaken through other EOU/EPZ/EHTP/STP units on the basis of records maintained in the unit.
2. EOU/EPZ units may undertake job-work for export, on behalf of DTA units, with the permission of Assistant Commissioner of Customs, provided the goods are exported direct from the EOU/EPZ 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. 

However, gem and jewellery units shall be governed by the provisions of chapter 8 of the Policy.  

3. The scrap/wastes/remnants generated at the job worker's premises may be either cleared from the job worker's premises on payment of duty or returned to the supplying unit.

Un-Utilised Material

9.18

In case an EOU/EPZ/EHTP/STP unit is unable, for valid reasons, to utilize the goods, it may dispose them in the DTA on payment of applicable duties and submission of import license, by DTA unit, wherever applicable, or export. Supply from one EOU/EPZ/EHTP/STP unit to another such unit would also be treated as import under this paragraph.

9.19

Capital goods and spares that have become obsolete/surplus may either be exported with the prior permission of the Development Commissioner or disposed of in the DTA subject to 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 Assistant Commissioner of Customs.

Disposal Of Scrap/ Waste/ Remnants

9.20

Scrap/waste/remnants arising out of production process or in connection therewith may be sold or disposed of in the DTA on payment of applicable duties or exported. However, there shall be no duties/taxes on such scrap/waste/ remnants in case the same are destroyed with the permission of Customs authority.

Units

9.21

Trading units may be set up subject to achievement of positive NFEP and export performance as prescribed in Appendix-I. Setting up of trading units for diamond, gem & jewellery items shall be governed by the provisions of Chapter 8 of the Policy.  

The provisions of paragraphs 9.9, 9.10, 9.11, 9.12, 9.13, 9.16 and 9.17 of this chapter shall not apply to trading units.  

Trading units may import/procure from domestic tariff area all type of goods without payment of customs/excise duty for the purpose of exports or supply to other EOU/EPZ/EHTP/STP units or against valid advance licenses or specific duty free import entitlements.  

The trading units may also undertake re-packing, labeling, minor processing etc. for which they shall be eligible for duty free procurement of packing, labeling materials etc. and the required capital goods in connection with their operations.  

Trading units may also procure goods without payment of duty from other EOU/EPZ/EHTP/STP units for exports.

Reconditioning Repair And Re-Engineering

9.22

EOU/EPZ/EHTP/STP units may be permitted to import goods of any origin to carry out reconditioning, repair, testing, calibration, quality improvement, up-gradation of technology and re-engineering activities for export in freely convertible foreign currency. The provisions of paragraphs 9.5, 9.9, 9.10, 9.11, 9.12, 9.13 and 9.16 of this chapter shall not, however, apply to such activities.

Replacement/Repair Of Goods

9.23

1. The provisions of paragraph 11.9 and 11.11 of the Policy relating to export of replacement/repaired goods would also apply equally to EOU/EPZ/EHTP/STP units, save that, cases not covered by the provisions of paragraph 11.9 and 11.11 will be considered on merits by the Development Commissioner. 
2. The goods sold in the DTA and found to be defective may be brought back for repair/ replacement with the specific permission of the Development Commissioner.

Indigenous Goods

9.24

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 or destroyed and replacement thereof or the same goods after repairs, may be brought back from the foreign suppliers or their authorised suppliers in India/indigenous suppliers.

Period Of Bonding

9.25

The initial bonding period for units under the EOU/EHTP/STP Schemes shall be 5 years. This period may be extended further by the Development Commissioner concerned for periods of 5 years at a time.

Debonding

9.26

Subject to the approval of the Development Commissioner, EOU/EPZ/EHTP/STP units may be debonded. Such debonding shall be subject to penalty, if any, that may be imposed and payment of duties of Customs and Excise applicable at the time of debonding. Debonding shall be subject to the industrial policy in force at the time of debonding.

9.27

An EOU/EPZ/EHTP/STP unit may also be permitted by the Development Commissioner, as a one time option, to debond on payment of duty on capital goods under the prevailing EPCG Schemes, subject to the unit satisfying the eligibility criteria and standard conditions, as per Appendix 16-C of the Handbook (Vol-I).

Conversion

9.28

1. 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. Existing DTA units having an export commitment under the EPCG scheme may also apply for conversion into an EOU/EHTP/STP unit. On such a conversion, the export commitment under the EPCG scheme will be subsumed in its exports as an EOU/EHTP/STP unit. 
2. 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.

Net Foreign Exchange as a Percentage of Exports (NFEP)

9.29

Net foreign exchange earning as a percentage of exports (NFEP) shall be calculated annually and cumulatively for a period of five years from the commencement of commercial production according to the formula given in the Handbook (Vol-I)

Zone (SEZ)

9.30

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 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. 

In any SEZ, goods may be imported, procured from DTA, without payment of duty 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. 

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.

Approvals

9.31

All proposals for setting up of units in SEZ will be approved by the Development Commissioner. Specific approval will be granted for (a) manufacturing, (b) trading, including re-packing, labelling, minor processing, (c) reconditioning, repair, re-engineering etc. and (d) for service activity.

Positive Foreign Exchange Earning

9.32

SEZ unit, including gem and jewellery unit, shall achieve positive NFEP annually and cumulatively as per paragraph 9.29 of the Policy.  

Trading SEZ units shall achieve a turnover of US$ 1 million in 5 years.

Minimum Investment

9.33

The minimum investment in building, plant and machinery by a unit in Special Economic Zone shall be Rs. 50.00 lakhs. This would, however, not apply to existing EPZ units converting into SEZ scheme.

Re-Packing, Minor Processing

9.34

Units set up in SEZ for trading, including labelling, re-packing, minor processing, may import or procure goods from DTA or from other SEZ/EOU/EPZ units without payment of duty for physical exports or sale to other SEZ/EOU/EPZ units or against Advance Licences and special duty free entitlements. Paragraphs 9.36, 9.38 and 9.39 shall not apply to trading SEZ units.

Reconditioning Repair And Re-Engineering

9.35

Goods may be imported or procured locally for physical export in freely convertible foreign currency after reconditioning, repair or re-engineering. Paragraphs 9.36, 9.38 and 9.39 shall not apply to such units.

Sale In DTA

9.36

SEZ unit may sell goods, including by-products, and services in DTA in accordance with the import policy in force, subject to achievement of positive NFEP, annually and cumulatively, and on payment of applicable duty.  

No DTA sale shall be permitted to trading SEZ unit. 

Sale/Disposal Of Rejects/ Waste/ Scrap/ Remnants In DTA

9.37

Scrap/waste/remnants/rejects 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 Customs authorities or destroyed outside the SEZ with prior permission of the Custom authorities.

Subcontracting

9.38

SEZ unit may subcontract a part of their product or production process in the DTA with the permission of custom authorities.  

No subcontracting shall be permissible for gem and jewellery units.

Gem and Jewellery units may be 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. The DTA units supplying such jewellery against exchange of gold/silver/platinum shall not be entitled for deemed export benefits. The SEZ unit shall not be eligible for wastage or manufacturing loss against such jewellery.

Inter-Unit Transfer

9.39

Inter-unit transfer of goods amongst SEZ units shall not require any permission but the units shall maintain proper account of the transaction.

Self-Certification

9.40

All activities of the SEZ unit, unless otherwise specified, will be through self-certification procedure and shall be monitored by a committee headed by the Development Commissioner and consisting of officials of the Zone and Customs.

of Other Provisions

9.41

Paragraphs 8.21, 8.28, 9.2, 9.3, 9.4, 9.6, 9.7, 9.8, 9.10(a), 9.11, 9.12, 9.13, 9.14, 9.15, 9.17, 9.18, 9.19, 9.23, 9.24, 9.26 and 9.27 of the Policy shall apply to SEZ units.

Administration Of SEZ

9.42

SEZ shall be under the administrative control of the Development Commissioner.

Transitional Arrangements

9.43

An existing EPZ unit will have the following options: 

1. 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 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
2. In case an existing EPZ decides not to opt for (a) above, it can either convert into an EOU or de-bond. In both the cases the unit shall physically move out of the SEZ.