Execution of Bank Guarantee/ Legal Undertaking for Advance Licence and EPCG 2.20

In cases of direct import before clearance of goods through customs, the licence holder shall execute a legal undertaking (LUT)/Bank Guarantee(BG) with the customs authorities in the manner as prescribed by them.

For cases of direct imports, the Licencing Authority shall endorse the following condition on the licence :

"Bank Guarantee/ LUT as applicable to be executed as per relevant Customs Notification/ Circular"

However, in case of indigenous sourcing, the licence/certificate/permission holder shall furnish Bank Guarantee/LUT to the licensing authority as prescribed below before sourcing the material from the nominated agencies or indigenous supplier:-

S. No	Category of Exporter	Relevant provisions of Bank Guarantee/ LUT
1	All Status holders (both merchandise exporter and service providers)/Public Sector Undertaking (PSUs).	Legal Undertaking (LUT).
2	Manufacturer exporter - (Except Proprietorship and Partnership firms) a. Registered with Central Excise authority and b. Having a minimum export turn- over of Rs.1 Crore and above in the preceding year. and c. Having exported during the previous two financial years.	Legal Undertaking (LUT).
(In Sl. No. 2 the words "(Except Proprietorship and Partnership firms)" has been added vide P.N. No.21/2004, DT. 08/11/2004)
3	Manufacturer Exporter a. Registered with Central Excise Authority and b. Having paid Central Excise Duty of Rs.1 Crore or more during the preceding financial year. The exporter must submit a Certificate issued by Jurisdictional Superintendent of Central Excise where the factory is located validating clause (b) above.	Legal Undertaking (LUT).
4	All exporters a. having an export turnover of at least Rupees 5 crore in the preceding licencing year and b. have a good track record and three years of export performance	Legal Undertaking (LUT).
5	Other Manufacturer Exporter not covered under 1, 2 3 & 4 above( except Proprietorships and Partnership firms) a. exporting for last 3 years, or b. exporting in any of the last 3 years and satisfying the following conditions: Registered with Excise Authorities, or Registered with State Sales Tax Authorities; Shall be required to furnish: i. A Central Excise certificate certifying preceding years exports as per customs Circular No.74/2003 dated 21.8.2003, and ii. Registration Certificate and Excise Control Code (E.C.C.) Number issued by Central Excise Authorities or Registration Certificate issued by State Sales Tax Authorities, as the case may be. This provision is not required for category (a) above.	Bond supported by Bank Guarantee to the extent of 25% of duty saved on excise and education cess, if applicable [Deleted- with 15% interest].
6	Manufacturing companies (as distinguished from Proprietorship and Partnership firm, who may also be manufacturers) having not exported in each of the preceding three licencing years but fulfilled the following criterion: I. The company is registered with Central Excise Authorities and has paid Central Excise duty (unless exempted); and II. The company is registered with State Sales Tax Authorities and has paid sales tax (unless exempted); and III. The company furnishes copy of their audited balance sheet; and the minimum investment in plant and machinery must be Rs 50 lakhs.	Bond supported by Bank Guarantee to the extent of 25% of duty saved on excise duty and education cess, if applicable [Deleted- with 15% interest].
7	Merchant Exporter, all types of Proprietorship and Partnership firms (Other than Status Holders/ PSUs and category 4 above)	Bond supported by Bank Guarantee to the extent of 100% of the duty saved on excise and education cess if applicable [Deleted- with 15% interest].
8	Service providers other than those in category 1and 4 above.	Bond supported by Bank Guarantee to the extent of 100% of the duty saved on excise and education cess if applicable [Deleted- with 15% interest].

However, Manufacturer / Merchant Exporters falling under any of the following two categories based on risk profile of the exporter are required to execute bond supported by Bank Guarantee to the extent of 100% of the duty saved amount on excise and education cess if applicable [Deleted- with 15% interest]. This can be prescribed by the Head of the office not being below the rank of Deputy Director General of Foreign Trade by recording the reasons in writing.

a. Have come under the adverse notice of Customs/ DGFT / Central Excise for serious irregularities;

b. Having adverse track record in terms of fulfillment of pending export obligation

In cases where the Excise Duty is nil on the items of indigenous procurement, the Bank Guarantee furnished would be for 25% of the basic Customs Duty [Deleted- with 15% interest] on the same product. The Bank Guarantee and LUT should be valid as per the terms and conditions incorporated in the Appendix-21 & 21A respectively. The validity of the Bank Guarantee/LUT is required to be extended in case of extension in export obligation period. Specific endorsement to this effect shall be made in the licence by the licencing authority.

In respect of categories 3, 4 & 5 above, if the exporter has not exported for all the 3 preceding years, 25% Bank Guarantee condition shall be imposed on the duty saved amount, provided the CIF value does not exceed 200% of the domestic turnover or 200% of FOB/FOR value of supplies of the preceding licensing year, whichever is higher. [OLD- In respect of categories 3 , 4 & 5 above, if the exporter has not exported for all the 3 preceding years, 25% Bank Guarantee condition shall be imposed on the duty saved amount provided the CIF value does not exceed 200% of the domestic turnover or 200% of FOB/FOR value of supplies, whichever is higher. ] Licence beyond 200% entitlement shall be subject to 100% BG on the duty saved amount for the CIF value exceeding 200% entitlement. However the entitlement may be re-credited on production of documentary evidence showing fulfillment of export obligation and realization of export/ supply proceed.

(First sentence of above sub-para has been amended vide P.N. No.21/2004, DT. 08/11/2004)

In all the above cases, the licencee is required to furnish declaration to the effect that they have not been penalized under the Customs Act, Excise Act, Foreign Trade (Development & Regulation) Act, 1992 and FEMA/FERA.

In respect of categories at S No. 2 and 4, the licencee would be required to submit the Export Performance Certificate issued by a Chartered Accountant as per Appendix 23.

However, for import/domestic procurement of car under EPCG scheme, 100% Bank Guarantee will be required to be furnished except in case of status holders/ PSUs who will furnish Bank Guarantee/LUT as per aforesaid conditions

Bank Guarantee exemption/relaxation as mentioned above shall also be available in respect of past licences where licence holder had earlier filed Bank Guarantee but as on date the licence holder is entitled for Bank Guarantee exemption.

In case, the firm has already executed BG/ LUT for the full value of the licence/ certificate/ permission covering the items indigenously procured ,to the Customs and furnishes proof of the same, no BG/ LUT shall be required to be executed with the licencing authority.

(In above para 2.20, wherever the words “with 15% interest” appear, has been deleted vide PN NO. 45/2004, DT. 14/01/2005)