2.20

Execution of Bank Guarantee/Legal Undertaking for advance licence and EPCG licence:

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. 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 (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).
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.	Legal Undertaking (LUT)
4.	Other Manufacturer Exporter not covered under 1, 2 & 3 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,orRegistered 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.
5.	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.
6.	Merchant Exporter, all types of Proprietorship and Partnership firms (Other than Status Holders/PSUs)	Bond supported by Bank Guarantee to the extent of 100% of the duty saved
7.	Service providers other than those in category 1 above.	Bond supported by Bank Guarantee to the extent of 100% of the duty saved

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. 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 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 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.

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 Sl no. 2,3 and 4 above, the licencee would be required to submit the Export Performance Certificate issued by Jurisdictional Superintendent of Central Excise where the factory is located. As per the relevant Customs Circular, the Jurisdictional Superintendent of Central Excise will issue Export Performance Certificate even in respect of units which are not in Central Excise Control. 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.

(Para 2.20 has been amended vide PN. NO. 53(RE-03), DT. 27/02/2004)

[OLD -
2.20

Before clearance of goods through customs, the importer shall execute a legal undertaking (LUT)/Bank Guarantee (BG) with the customs authorities in the manner as may be prescribed by them. However, in case of indigenous sourcing, the licence/certificate/permission holder shall furnish BG/ LUT to the licensing authority before sourcing the material from the nominated agencies or indigenous supplier.

All Status holders/Public Sector Undertakings (PSU’s) shall also be required to furnish Legal Undertaking in the form given in Appendix-21A. Manufacturer exporter registered with excise authority with export of Rs.1 crore and above in preceding year and who has not been penalised under the Customs Act, Excise Act, Foreign Trade (Development and Regulation) Act, 1992 and FERA shall be required to furnish Legal Undertaking in the form given in Appendix-21A. Other Manufacturer exporters shall be required to furnish bond supported by Bank Guarantee to the extent of 25% of Excise duty saved. Merchant exporters (other than Status Holders/PSU’s) shall be required to furnish bond supported by Bank Guarantee to the extent of 100% of excise duty saved on the items which they intend to procure indigenously in lieu of direct imports. However in cases of nil excise duty on the items of indigenous procurement, the Bank Guarantee furnished would be for 25% of the basic customs duty on the said product.

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

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