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7/29/2019 Leb Session 1
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1
Introduction to Foreign Trade
Policy
SESSION 1
LEGAL ENVIRONMENT OF BUSINESS
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Background
Waves of change:
Condition before 90s
New world economic order
Globalisation, Liberalisation of trade and investment
Development of IT & communication
Rule based multilateral trading systems – Uruguay
round
Reduction in M tariffs & removal of non-tariff barriers
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WHY EXPORTS?
Foreign exchange requirement Rapid economic development - High growth rates
have been achieved by many Asian countries
India – since July 1991 – liberalisation,globalisation, privatisation
Promotion of exports treated as a national priority
Trade policy integrated with overall strategy of economic development
Paradigm shift from import substitution –led
growth to export led-growth
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How is it different ?
International trading environment (trade
agreements, policies)
Consumer preferences in different markets
Terms & conditions of biz
Communication and negotiations hold the key
Logistics plays important role
Realising payment against the shipment
Claiming incentives/facilities
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5
Foreign Trade Policy27thAugust 2009 - 31st March 2014
Government of India
Ministry of Commerce and IndustryDepartment of Commerce
Website: http://dgft.gov.in
FOREIGN TRADE POLICY 2009-14
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In India,
the legal framework for regulation of international
trade is mainly provided by the Foreign Trade
(Development And Regulation) Act, 1992 which
replaced the earlier law namely, the Imports &
Exports (Control) Act 1947
6
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The Ministry of Commerce, Government of India,
formulates the Foreign Trade Policy (Export –
Import policy), in terms of section 5 of the
Foreign Trade (Development And Regulation)
Act, 1992
7
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Foreign Trade (Development And Regulation)
Act, 1992
Export (Quality Control and Inspection) Act, 1963
Customs & Central Excise Duties Drawback Rules,
1995
Foreign Exchange Management Act, 1999
Customs and Central Excise Regulations
In India, Legal Framework for foreign trade is
provided by:
8
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Main policy provisions are given in Foreign
Trade Policy : 2009-2014
Covers procedures, agencies & docs required to
take advantage of certain provisions of policy
9
Foreign Trade Policy : 2009-14
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Deals with EXIM of merchandise and services
Policy has been described in the following:
Foreign Trade Policy : 2009-14
Handbook of Procedures - Volume I
Handbook of Procedures - Volume II
ITC (HS) Classification of Import-Export Items
Indian Trade Clarification based on Harmonized System of
Coding 10
Foreign Trade Policy : 2009-14
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Achievements of FTP 2003-2008
11
2003-04 2008EXPORTS USD 63 bn USD 168 bn
Share of global
merchandise trade
0.83% 1.45%
share of global
commercial services
export
1.4% 2.8%
share in goods andservices trade 0.92% 1.64%
*WTO estimates
14 million jobs were created due to increased exports in
the last 5 years
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Short term
to arrest and reverse the declining trend of
exports
to provide additional support to those sectors
which have been hit badly by recession in the
developed world
to achieve 15% annual export growth (US$ 200
bn March 2011)
Objectives of FTP 2009-2014
12
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Short term
to achieve an annual growth of 25% upto 2014
to double India’s exports of goods and services
by 2014
long term
to double India’s share in global trade by 2020
Objectives of FTP 2009-2014
13
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fiscal incentives
institutional changes
procedural rationalizationenhanced market access across the world
diversification of export markets
Strategy for implementation of FTP
14
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Neutralising the incidences of all levies, duties
on inputs used in exports
Duties/levies should not be exported
Avoiding skewed duty structure and ensuring
that India's domestic sectors are not
disadvantaged in FTA/RTA/PTA that India enters
into
15
Strategy for implementation of FTP
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Identifying and nurturing special focus area for
generating employment in semi-urban and rural
areasFacilitating technological and infrastructural
upgradation of all sectors of Indian Economy,
especially through import of capital goods & equipment
16
Strategy for implementation of FTP
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Revitalising Board of Trade by redefining its role,giving it due recognition & inducting experts on
FTP
Activating India's embassies as key players for
trade intelligence and enquiry dissemination by
linking commercial wings of the embassies throughan electronic platform
17
Strategy for implementation of FTP
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under advance authorization scheme, a
minimum of 15% value addition on imported
inputs has been stipulated
diversification of products and markets through
enhancement of incentive rates in particular
product group and market
Additional resources have been made available
under the Market Development Assistance
Scheme and Market Access Initiative Scheme. 18
Strategy for implementation of FTP
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for market expansion
Comprehensive Economic Partnership Agreement
with South Korea
Trade in Goods Agreement with ASEAN w.e.f. 1.1.10
Mercosur Preferential Trade Agreement
Promotion of Brand India through more than six
‘Made in India’ shows across the world
Technological upgradation : promoting imports of
capital goods under EPCG at 0% duty19
Strategy for implementation of FTP
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‘Towns of Export Excellence’ and units located
therein have been granted additional focused
support and incentives. high level coordination committee in the
Department of *Commerce facilitates X’s by
creating synergies in the line of credit extended
through EXIM Bank for new & emerging markets
20
Strategy for implementation of FTP
*committee = Ministry of External Affairs + Department of Economic Affairs + EXIM Bank + R.B.I.
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zero duty EPCG scheme and incentives for
production and export of ‘green products’
e-trade project : to reduce transaction cost andinstitutional bottlenecks
Additional ports/locations are being EDI
enabled
21
Strategy for implementation of FTP
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single window mechanism : Inter-Ministerial
Committee has been estd. to resolve trade
related grievances
22
Strategy for implementation of FTP
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Schemes to Encourage X
SERVED FROM INDIA SCHEME (SFIS)
FOCUS MARKET SCHEME (FMS)
VISHESH KRISHI AND GRAM UDYOG YOJANA (VKGUY)
FOCUS PRODUCT SCHEME (FPS)
Scheme for Assistance to States for Developing
Export Infrastructure and Allied Activities (ASIDE)
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Policy initiative
SPECIAL FOCUS INITIATIVES
Market Diversification
26 new countries have been included within the ambit
of Focus Market Scheme. The incentives provided under Focus Market Scheme
have been increased from 2.5 % to 3 %.
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Support to status holders additional duty credit scrip @ 1 % of the FOB of
past export shall be granted for specified productgroups including leather, specific sub sectors in
engineering, textiles, plastics, handicrafts and juteHandlooms Duty free import entitlement of specified trimmings
and embellishments is 5% of FOB value of exportsduring previous financial year
No custom duty on Machinery & equipment for ETP
Duty free import of old pieces of hand knottedcarpets on consignment basis for re-export afterrepair is permitted
Policy initiative
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Handicrafts
Duty free import entitlement of tools, trimmings andembellishments is 5 %of FOB value of exports duringprevious financial year.
No custom duty on Machinery and equipment for ETP
All handicraft exports would be treated as special Focus
products and entitled to higher incentives. Leather and Footwear Duty free import entitlement of specified items is 3 % of
FOB value of exports of leather garments during precedingfinancial year.
Re-export of unsuitable imported materials such as rawhides & skins and wet blue leathers is permitted.
Re-export of unsold hides, skins and semi finished leathershall be allowed from Public Bonded warehouse at 0% of the applicable export duty.
Policy initiative
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General Provisions Regarding EXIM
Free EXIM unless regulated
Can X gifts of value < Rs. 5L in a licensing year
All X contracts and invoices shall be
denominated either in freely convertible
currency or Indian rupees but X proceeds shall
be realised in freely convertible currency
Units in SEZ shall be exempted from service tax
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General Provisions Regarding EXIM
For all goods and services exported from India,
services received / rendered abroad, where ever
possible, shall be exempted from service tax
new grievance redressal mechanism has been
put in place to facilitate speedy redressal of
grievances of trade and industry
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1. *Stability of Policy
2. Liberalised Exports & Imports
3. Imports of capital goods
4. Export Promotion Capital Goods scheme
5. Duty Exemption/Remission Scheme
6. *Import of Replacement of Goods
7. *Export and Import of Free Trade Samples8. *Replacement of Defective Goods
9. *Export of Goods after Repairs
10. *Export of Imported Goods
Main Provisions : FTP 2004-09
29
Main pro isions FTP 2004 09
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2. Liberalised Exports & Imports
Main provisions : FTP 2004-09
Provides for liberalised EXIM
Also provides for Restrictions based on
protection of
a. Public morals
b. Human, Animal or Plant life or health
c. Patents, Trademarks, Copyrights
d. National Treasures (art, history, etc.)
e. Prevention of use of prison labour
f. Conservation of exhaustible natural resources
30
Main provisions FTP 2004 09
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2. Liberalised Exports & Imports
Main provisions : FTP 2004-09
EXPORT of various items can be classified into
four categories
A. Prohibited
B. Restricted
C. State Trading Enterprise
D. Free with terms and conditions
31
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Can’t be exported!!!
Prohibited
32
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Can be exported only against a valid export
licence or subject to such conditions as may be
specified for a particular item in *ITC(HS)
Classification
Export Licence is granted against confirmed
export order only
Restricted
33*Indian Trade Clarification based on Harmonized System of Coding
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Items can be exported by designated agencies
of Central/State govt.
E.g. STC, IOC, MMTC, etc.
State Trading Enterprise
34
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Certain items are free to export
No licence is required.*
*Subject to conditions like
a) Minimum export price
b) Registration with export promotion council
c) Registration of export contracts, etc.
Free with terms & conditions
35
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Items which don’t fall in any category can
be exported without any restriction!!!
36
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Import policy has also divided the various
items of IMPORT into 4 categories
a. Prohibited
b. Restricted
c. Canalised
d. STE
37
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Can’t be imported
BEEF, IVORY, etc.
Prohibited
38
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Prohibited items
• All forms of wild life including their parts and products except Peacock Tail
Feathers, including handicrafts made thereof and manufactured articles,and shavings of Shed Antlers of Chital and Sambhar subject to conditions.
• Exotic birds
• wild orchids, as well as plants as specified
• Beef
• Human skeletons
• Tallow, fat and/or oils of any animal origin excluding fish oil• Wood and wood products in the form of logs, timber, stumps, roots, barks,
chips, powder, flakes, dust, pulp and charcoal except sawn timber madeexclusively out of imported teak logs/timber subject to conditions
• Chemicals included in Schedule 1 of the Chemicals Weapons Conventionof the United Nations
• Sandalwood in any form, but excluding fully finished handicrafts made outof sandalwood and machine finished sandalwood products
• Red Sanders wood in any form, whether raw, processed or unprocessed aswell as any product made thereof.
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Restricted items
• Cattle, Camel
• Chemical fertilizers
• Dress materials/readymade garments fabrics/textileitems with imprints of excerpts or verses of the HolyQuran
• Hides and skins
• Viscose staple fibre (Regular), excluding high
performance viscose staple fibre• Silk worms, silkworm seeds and silk worm cocoons
• And the list goes on and on …
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Items can be imported only through
designated agencies of GOI
Canalised
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Canalised items
Petroleum products
Mica waste
Mineral ores , concentrates and compounds
Niger seeds
Onions
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Import of items is permitted by STE
Solely in accordance with commercial
considerations including PRICE, QUALITY,
AVAILABILITY, MARKETABILITY,
TRANSPORTATION, ETC.
Items – wheat, rice, urea, petrol, diesel, etc.
State Trading Enterprise
44
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Exporter is required to obtain exportlicence for each order in case of export of
restricted item
Exporter should take into account the
impact on delivery schedule before
agreeing on delivery dates.
45
Main provisions : FTP 2004-09
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3. Imports of capital goods
Main provisions : FTP 2004 09
Today, no licence required, just pay import duty
a firm can import second hand capital goods
w/o any import licence, no age restriction
Minm value of 2nd hand plant & m/c = 25 cr.
46
Main provisions : FTP 2004-09
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4. Export Promotion Capital Goods scheme
Main provisions : FTP 2004 09
To enable cost competitiveness, GOI introduced
EPCG scheme
Firms now pay only *5% custom duty Capital goods includes :
a) New as well as second hand capital goods
b) Computer software systems
c) Spares, jigs, dies, fixtures & moulds
d) Components of capital goods
e) Spares of existing plant & machinery
47*subject to fulfillment of export obligation
Main features of EPCG scheme
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Following firms can import at 5% duty
1 Manufacturer Exporters, 2 Merchant Exporters
and 3 Service providers
Common service providers in towns of export
excellence, e.g. Tirupur, Panipat, Ludhyana
Retailers having minimum area of 1000 sq.mt.
Project imports notified by the Central Board of
Excise & Customs wherein basic customs duty
on imports is 10% with a CVD of 16%
Main features of EPCG schemeEligibility of import
48
Main features of EPCG scheme
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8 times the amount of duty saved on import of
capital goods under this scheme
6 times the amount of duty saved in case of
SSI units provided the landed CIF value of
capital goods < 25 lakhs and after inclusion of
goods should be < SSI limit of investment (1Cr.)
Main features of EPCG schemeAmount of Export Obligation
49
Main features of EPCG scheme
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Within 8 years from date of issuance of licence.
Up to 12 years in the following cases:
Amount of duty saved is > 100 crores
EPCG licence holder is a unit under the revival plan of
BIFR (Banking for Industrial and Financial
Restructuring)
Licence holder is in Agri-export zone
Main features of EPCG schemePeriod of Discharge of Export Obligation
50
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Main features of EPCG scheme
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3. Licence holder shall fulfill export obligation over the
specified period in the following proportions
Main features of EPCG schemeDischarge of Export Obligation
Period of export obligation
(8 years)
Minimum export obligation to
be fulfilled
1 to 6th year 50 %
7th and 8th year 50 %
Period of export obligation
(12 years)1 to 10th year 50 %
11th and 12th year 50 %
Export obligation of a particular block of years may be set off by the excess of
export made in the preceding block of year52
Main features of EPCG scheme
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Licence holder may source new capital goods
from domestic leasing company/domestic
manufacturer. No permission of licensing authority is required
under leasing financial arrangement
Licence holder alone shall be responsible for
fulfillment of export obligation
Main features of EPCG schemeLeasing of Capital Goods
53
Main provisions : FTP 2004-09
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p
FTP provides for duty exemption/ remission
scheme + EPCG scheme to augment Indian
export
Exporters can import duty free inputs required
for manufacture of products for export
5. Duty Exemption/Duty Remission Scheme
54
Main features of EPCG scheme
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Should be fulfilled within 24 months from date
of licence
Can be extended by 6 months to composition feeof 2% of duty saved on unutilised imported
items
Can be extended further by 6 months : pay 5%
Main features of EPCG schemePeriod of Export Obligation
55
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SEZ, EOU, STP & EHTP
Schemes
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Schemes For Encouraging Exports
All nations encourage exports…..
….to counter adverse Balance of Trade
Various schemes to encourage exports
Mainly supported and supervised by
Ministry of Commerce
EPC for various categories
57
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Export Incentives for Manufacturer
Indigenous inputs w/o payment of excise duty
No excise charged on final product
Imported inputs w/o payment of customs duty
No export duty on export of final product
Fast finance at concessional interest rates
Exemption from income tax
Exemption from SALES TAX on final product
(refund of CST paid on inputs in certain cases) 58
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WTO STIPULATION
‘No country can give export incentives’
However….goods can be made tax free for export
purposeAll export promotion schemes ensure that inputs
as well as final products are made ‘TAX FREE’
59
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Various schemes – to obtain duty free inputs OR
get refund later
1. Some schemes – unit has to be isolated from
domestic production units
E.g. EOU, STP, EHTP and SEZ
60
Input Duty Relief Scheme
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2. Other schemes –domestic producers are also
entitled to get inputs/capital goods free of taxes
E.g. a) Advance Licence scheme
b) Duty Entitlement Pass Book scheme (DEPB)
c) Duty Free Replenishment Certificate
scheme (DFRC)d) EPCG scheme (Export Promotion Capital
Goods scheme)61
Input Duty Relief Scheme
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e. Rebate of duty on inputs if final product is
exempt from duty
f. Under duty drawback scheme, excise duty paidon inputs is returned as rebate
62
Input Duty Relief Scheme
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Highlights of EOU/SEZ scheme
SEZ unit has to be located within the specified
zones developed, 114 operational, another 500
formally approved
EOU unit can be set up at any of over 300 places
all over India
63
Currently there are 114 SEZs (as of October 2010) operating throughout India in the following states[8]: Karnataka - 18; Kerala - 6;
Chandigarh - 1; Gujarat - 8; Haryana - 3; Maharashtra - 14; Rajasthan - 1; Tamil Nadu - 16; Uttar Pradesh - 4; West Bengal - 2: Orissa -
1.
Additionally, more than 500 SEZs are formally approved (as on October 2010) by the Government of India in the following states[9]:
Andhra Pradesh - 109; Chandigarh - 2; Chattisgarh - 2; Dadra and Nagar Haveli - 4; Delhi - 3; Goa - 7; Gujarat - 45; Haryana - 45;
Jharkhand - 1; Karnataka - 56; Kerala - 28; Madhya Pradesh - 14; Maharashtra - 105; Nagaland - 1; Orissa - 11; Pondicherry - 1;
Punjab - 8; Rajasthan - 8; Tamil Nadu - 70; Uttarkhand - 3; Uttar Pradesh - 33; West Bengal - 22.
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Similarly, STP/EHTP unit can be situated
within SEZ or at any place where EOU can
be set up
64
Highlights of EOU/SEZ scheme
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No custom duty on import of capital
goods, raw materials, consumables,
packing material, spares etc.
No excise duty on indigenous inputs
*Second hand capital goods can also be imported.
65
Highlights of EOU/SEZ scheme
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Have to achieve +ve NFE (Net Foreign
Exchange Earnings). NFE = A – B
A= FOB value of exports
B = CIF Value of all imported inputs and
capital goods and all payments made in
foreign exchange.
66
Highlights of EOU/SEZ scheme
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calculated cumulatively for 5 yrs from
commencement of commercial production
All foreign exchange outgo is included*
Requirements of +ve NFE
67
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Capital goods
Raw materials
Consumables and spares
Dividend payable in foreign exchange
Royalty to collaborators
Design and know-how fee
Foreign exchange outgo includes…
68
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Payment to foreign technicians
Training to Indian technicians abroad
Foreign travelInterest paid on ECB / deferred payment credit
Any other payment in foreign exchange.
69
Foreign exchange outgo includes…
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If NFE is not achieved, duty and
interest in proportion to default will
be payable
70
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EOUMinimum investment in plant and
machinery and building = Rs 1 crore. This
should be before commencement of
commercial production
SEZ No such limit
71
Highlights of EOU/SEZ scheme
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A bond in prescribed form has to be executed.
EOUB-17
SEZ Form prescribed in SEZ Rules, 2003
*There is NO physical supervision of customs / excise
authorities over production and clearances, BUT
prescribed records are required to be maintained.
72
Highlights of EOU/SEZ scheme
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EOU Fast Track Clearance Scheme (FTCS) for
clearances of imported consignments
SEZ customs clearance for export and import is
obtained within the zone itself
73
Highlights of EOU/SEZ scheme
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Generally, all final production should be exported,
EXCEPT rejects up to prescribed limit.
74
Highlights of EOU/SEZ scheme
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Sale within India should be on payment of excise
duty = normal customs duty (If imported)
Exceptions
In certain cases, excise duty payable
= 50%/30% of normal customs duty applicable if
goods are imported into India
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Highlights of EOU/SEZ scheme
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SUB-CONTRACTING is allowed subject to
permission on annual basis
JOB WORK for exports is permitted
SAMPLES can be sold / given free within
prescribed limit
UNUTILISED RAW MATERIAL can be disposed of
on payment of applicable duties
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The unit can EXIT (DE-BOND) with
permission of Development Commissioner,
on payment of applicable duties.
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EOU Central Sales Tax (CST) paid on
purchases is refundable. Refund is obtained
from Development CommissionerSEZ Supplier DOES NOT have to pay CST
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Prescribed %age of foreign exchange
earnings can be retained in *EEFC account in
foreign exchange100% foreign equity is permissible, except
in a few cases*
*EEFC A/C – Exchange Earners Foreign Currency Account
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Supplies made to EOU by Indian supplier are
‘deemed exports’ and supplier is entitled to
benefits of ‘deemed export’
Supplies to SEZ are ‘exports’ and all export
benefits are available
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Restrictions under Companies Act on
*managerial remuneration are not
applicableNo restrictions on External Commercial
Borrowings
*20 lakhs/month
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STP / EHTP UNIT
Concept of STP/EHTP is similar to EOU/SEZ.
Administered by Ministry of Information
Technology.STP/EHTP unit can be set up as an EOU unit
anywhere in India or as a SEZ unit at specified
developed locations in India.
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A software development firm qualifies as
STP/EHTP unit.
Can import goods on loan from clients forspecific period.
Can export software electronically or through
physical transport.
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STP / EHTP UNIT
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Activities allowed…..
exports of professional services
development of computer software
data entry and conversion
data processing, analysis and control
data management
call centre services.
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STP / EHTP UNIT
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If your major production is towards sale in DTA
(Domestic Tariff Area), schemes like DEPB* or
DFRC* or Advance License are suitable.
Which Scheme to Choose?
* Duty Entitlement Passbook scheme (DEPB)
* Duty Free Replenishment Certificate scheme (DFRC)
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Schemes like EOU/SEZ are suitable
when the undertaking is predominantly
export oriented
Requirement of imported capital goods
and raw material is high
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EOU vs SEZ
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‘EOU is more flexible than SEZ’
Wide choice of location (EOU unit can be
set up at any place declared as ‘warehousing
station’ under Customs Act) [300 places]
EOU can be set up even within a part of
the factory, thus saving considerable costs.
Even use of common utilities is possible.
EOU vs. SEZ
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EOU vs SEZ
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EOU is more flexible than SEZ
If export orders dry up, conversion of EOU
to DTA unit by exit (de-bonding) is
comparatively very easy.
In case of SEZ, the unit has to be physically
moved out of the zone after exit (de-
bonding).
EOU vs. SEZ
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EOU vs SEZ
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On the other hand
infrastructure available at SEZ unit is much
better than EOU units.
Customs clearance for exports is obtained
within the zone itself, which is convenient.
EOU vs. SEZ
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EOU/SEZ schemes are under Ministry of
Commerce
Basic Policy of EOU : Chapter 6 of Export
and Import Policy 2009-2014
Procedural Aspects : Chapter 6 of
Handbook of Procedures Volume I
Overview of EOU/SEZ scheme
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Prescribed Forms : Appendices to the
Handbook of Procedures
EOU units are closely connected with
Customs Law, Excise Law, Income Tax Act and
Foreign Exchange Management Act
Overview of EOU/SEZ Scheme
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Power
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Power generation/distribution can be set
up in EOU/STP unit.
can supply surplus power to another
EOU/STP/EHTP/SEZ unit.
Can supply surplus power to DTA unit on
payment of duty on consumables and raw
materials used for power generation
Power
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Service Sector
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Duty free imports will be permitted ONLY
to units exporting services and NOT to
domestic service providers
Further, NO trading units are permitted
Each EOU must have its website and e-mail
address.
Service Sector
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PERMISSIBLE CAPITAL GOODS
material handling equipments, captive power
plants, office equipment, tools, prototypes, AC
system, computers, laptops can be brought as'capital goods' IF these are essential in
manufacture of goods
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ANTI-DUMPING DUTY or SAFEGUARD DUTYNot applicable for imports by EOU or SEZ
units, UNLESS it is specifically made
applicable
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CT-3 CERTIFICATEThe EOU/EHTP/STP unit can procure
indigenous material w/o payment of excise
duty.
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EXPORT/IMPORT OF DEFECTIVE
INPUTS/FINAL PRODUCTS
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RETURN OF REJECTED GOODS TO
INDIGENOUS SUPPLIER
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INTER UNIT TRANSFER
Inter unit transfers of manufactured goods
and capital goods from one EOU/SEZ unit
to another EOU/SEZ unit w/o payment of
duty is permitted.
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EOU All d A ti iti
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Besides manufacturing,
(a) Import of goods for service activities
(b) Reconditioning, repairs of imported goods and
return to foreign suppliers
(c) Destruction of waste and rejects with
permission of Asstt. Commissioner even outside
the premises
EOU : Allowed Activities
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SERVICE has also been included as 'export
product' as per EXIM Policy.
EOU Allowed Activities
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Routine procedures by EOU unit
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QUARTERLY AND ANNUAL REPORT
Submit in prescribed form to
Development Commissioner.
Routine procedures by EOU unit
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Maintenance of Separate Accounts
separate accounts and balance sheet of
EOU and Domestic Unit is required to claim
Income tax benefits.
Routine procedures by EOU unit
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