NTF NO. 28/2003, DT. 28/01/2004

Re-import of goods repaired abroad - Export of Gifts, Spares & repaired goods - DFCE
S.O. (E)- In exercise of powers conferred under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 read with Paragraph 1.1 of the Export and Import Policy, 2002-2007, as amended from time to time, the Central Government hereby makes the following amendments in Exim Policy, 2002-07 (as amended upto 31.3.2003):-

1. Paragraph 2.22 pertaining to “Re-import of goods repaired abroad” stands corrected to read as under:

Capital goods, equipments, components, parts and accessories, whether imported or indigenous, except those restricted for export in the ITC(HS) Classification of Export & Import items, 2002-2007, may be sent abroad for repairs, testing, quality improvement of up-gradation or standardization of technology and re-imported without a licence/certificate/permission

2. Paragraph 2.32 pertaining to the “Export of Gifts” is amended as under:

Goods, including edible items, of value not exceeding Rs.5,00,000/- in a licensing year, may be exported as gift. However, items mentioned as restricted for exports in ITC(HS) shall not be exported as gift, without a licence/certificate/permission.

3. Paragraph 2.33 pertaining to “Export of Spares” stands corrected to read as under:

Warranty spares, whether indigenous or imported, of plant, equipment machinery, automobiles or any other goods, except those restricted for export in the ITC(HS) Classification of Export & Import items, 2002-2007, may be exported alongwith the main equipment or subsequently but within the contracted warranty period of such goods subject to approval of RBI.

4. Paragraph 2.38 pertaining to “Export of repaired goods” stands corrected to read as under:

Goods or parts, except those restricted for export in the ITC(HS) Classification of Export & Import items, 2002-2007, thereof on being exported and found defective, damaged or otherwise unfit for use may be imported for repair and subsequent re-export. Such goods shall be allowed clearance without a licence/certificate/permission and in accordance with customs notification issued in this behalf.

5. Attention is invited to Para 3.7.2.1 of Exim Policy relating to Duty Free Credit Entitlement for Status Holders. The Scheme was announced as part of the initiatives taken in the Exim Policy announced on 31st March 2003 with the specific objective of accelerating the incremental growth in exports and to facilitate India emerging as a major base for sourcing different products and services for the rest of the world. It was recognised that status holders would continue playing a significant and increasing role for boosting exports particularly from the small-scale sector, as most of the small scale units would not be in a position to directly access the international market. In view of this, duty free import entitlement @ 10% of the incremental growth in value of exports was allowed, subject to the condition of eligibility on actual user condition, which could be passed on to supporting/associate manufacturers/job worker for ultimate production. Since the Scheme was intended to be a specific incentive for fast growing status holders, the benefits would be available w.e.f 1st April 2004.

Being a new initiative, a large number of representations have been received from Trade Associations/ Export Promotion Councils as well as the individual exporters seeking clarifications on various points relating to the implementation of the Scheme. At the same time, Government has received reports that some Status Holders are trying to increase their export turnover by taking credits for the export of others without putting any significant efforts in increasing exports. Such diversion/enhancement of exports merely to increase benefits under the Scheme in this manner would not lead to the intended objectives of incremental growth in exports. Such transactions amount to misuse of the Scheme. In view of this, on both these counts it has become essential to lay down specific norms for the implementation of the Scheme.

In the said Export and Import Policy,-

In Chapter-3, in paragraph 3.7.2.1., after sub-paragraph (vii), the following notes shall be inserted, namely:-

“Note 1.- For the purpose of calculating the value of exports, the following exports shall not be taken into account, namely:-

(i) Re-export of imported goods or exports made through transshipment;

(ii) Export turnover of units operating under SEZ/EOU/EHTP/STPI Schemes or products manufactured by them and exported through DTA units;

(iii) Deemed exports (even when payments are received in Free Foreign Exchange) and payment from EEFC account

(iv) Service exports

(v) Supplies made by one status holder to another status holder;

(vi) Export performance made by one status holder on behalf of other status holder will not be eligible for entitlement under the scheme.

(vii) Supplies made or export performance effected by a non-status holder (Merchant exporter/Manufacturer with any export performance in 2003-04) to a status holder if the applicant as well as the non status holder have less than 25 per cent incremental growth over their respective previous years direct export turnover.

(viii) The exports made by an applicant within a group and the group to which it belongs has individually less than 25 per cent incremental growth of export.

Note—2. - The incremental growth of exports by an exporter shall not, directly or indirectly, be transferred to any other exporters.”

Note-3 - Government reserves the right in public interest, to specifiy the export products, which shall not be eligible for calculation of incremental growth/ entitlement. Similarly, the government may also notify the list of goods, which shall not be allowed for imports under the scheme.

Note-4 – These guidelines will be applicable to the exports made on or after 1.04.2003.

Note-5 - The entitlement will be in terms of duty credit.

Note 6.- The export of the following products and categories of products would not be permitted for counting entitlement under the Duty Free Entitlement Certificate for Status Holders.

a. Rough, uncut and semi polished diamonds

b. Gold, silver in any form including plain jewellery thereof

c. Food grains sourced from central pool maintained by FCI

d. Items exported under free shipping bills

Note 7.- The following items would not be allowed for imports under Duty Free Credit Entitlement Certificate for Status Holders:

Agricultural products, which fall under Chapters 1-24 of ITC (HS) Classification of Export and Import items

(Above Note No. 6 & 7 has been inserted vide NTF. NO. 38/2003, DT. 21/04/2004 - Correction )

6. The sub paragraph 3 of "paragraph 3.8 pertaining to the “duty free credit entitlement for service providers” shall be amended to read as under:

Service provider ( other than hotels) shall be entitled to duty free imports equivalent to 10% of the average foreign exchange earned by them in preceding three licensing years. However, hotels (one star and above), heritage hotels, stand-alone restaurants approved by Department of Tourism, Govt. of India and other service providers in tourism sector registered with Department of Tourism, Govt. of India shall be entitled for duty free imports equivalent to 5% of the average foreign exchange earned by them in preceding three licensing years. For one & two star hotels and stand- alone restaurants, the foreign exchange earned through international credit cards only shall be taken into account for the entitlement under the scheme. The duty free entitlement shall be used for import of any capital good including spares, office equipment(s) & professional equipment(s), office furniture(s) & consumables. However agriculture, dairy products, motor cars, sports utility vehicles and all purpose vehicles would not be allowed to be imported against this entitlement .

The entitlement and the goods shall be non transferable and would be available only to those service providers, who have a total foreign exchange earning of over Rs.30 Lakhs in the preceding one/two/three licensing years.

7. Paragraph 4.1.6 pertaining to the Advance Licence is amended as under:-

The facility of advance licence shall also be available where all or some of the inputs are supplied free of cost to the exporter. In such cases, for calculation of value addition, the notional value of free of cost inputs alongwith value of other duty free inputs shall be taken into consideration. However, if all the inputs are supplied free of cost, the applicant shall have the flexibility to opt for the provisions of paragraph 4.2.7 of the Policy.

8. Paragraph 4.1.7 A pertaining to the Advance Licence for Annual Requirements” is amended as follows:-

Advance Licence can also be issued on the basis of annual requirement for physical exports, intermediate supplies or deemed exports.

Export House, Trading House, Star Trading Houses and Super Star Trading Houses shall be entitled for Advance Licence for annual requirement. However, if the status holders are holding the certificate as merchant exporter, they are also entitled to the Advance Licence for Annual Requirement provided they agree to the endorsement of the name(s) of the supporting manufacturer(s) on the relevant licence.

The entitlement under this scheme shall be upto 200% of the FOB/FOR value of export in the preceding licensing year. Such licence shall have positive value addition.

9. Paragraph 4.2.3 and 4.2.4 pertaining to Duty Free Replenishment Certificate is amended as follows:-

4.2.3: DFRC shall be issued only in respect of products covered under the Standard Input Output Norms as notified by DGFT. However, in respect of Standard Input Output Norms which are subject to “actual user” condition or where the input(s) is allowed with prior import condition or for import of fuel under the general norms, DFRC shall be issued with actual user condition for these inputs.

In cases where Standard Input Output Norms allow import of Acetic Anhydride, Ephedrine and Pseudo Ephedrine , DFRC shall be issued provided these items are specifically deleted from the list of import items.

(Please refer CIR. NO. 42/2003, DT. 27/07/2004 for above Para 4.2.3)

4.2.4: DFRC shall be issued for import of inputs as per SION as indicated in the shipping bills. The validity of such licences shall be 18 months. DFRC and or the material(s) imported against it shall be freely transferable. However, DFRC with actual user condition or the material(s) imported against it shall not be transferable.

10. Paragraph 4.2.7 is amended as under:

4.2.7: Import of goods, including those mentioned as restricted in ITC(HS) but excluding prohibited items, supplied free of cost, may be permitted for the purpose of jobbing without a licence/certificate/ permission as per the terms of notification issued by Department of Revenue from time to time.

Similarly, import of goods for carrying out repairs, re-conditioning, re-engineering, testing etc. shall be allowed as per the terms and conditions of the Customs notification even though the goods may be restricted for imports under the Exim Policy/ITC(HS) Classification of Imports and Exports Book.

11. The last sentence of paragraph 4.3.5 stands deleted.

12. The following sub paragraph is inserted at the end of paragraph 5.1 pertaining to “EPCG Scheme”

Spare refractories, catalyst and consumable for the existing plant and machinery may also be imported under the EPCG scheme . However, import of motor cars, sports utility vehicles/ all purpose vehicles shall be allowed only to hotels, travel agents, tour operators or tour transport operators whose foreign exchange earning in current licencing year or preceding 1/2/3 licencing years is Rs 1.5 crores.

13. Paragraph 5.1 A is amended to read as under:-

5.1 A Spares, spare refractories, catalyst & consumable for the existing plant and machinery may also be imported under the EPCG Scheme subject to an export obligation equivalent to 8 times of duty saved to be fulfilled over a period of 8 years reckoned from the date of issuance of licence.

14. Para 5.4(i) pertaining to “Export Obligation” is amended as under:

(i)The export obligation shall be fulfilled by the export of goods capable of being manufactured or produced by the use of the capital goods imported under the scheme. The export obligation may also be fulfilled by the export of same goods, for which EPCG licence has been obtained, manufactured or produced in different manufacturing units of the licence holder/specified supporting manufacturer (s)/ vendor(s). The export obligation under the scheme shall be, over and above, the average level of exports achieved by him in the preceding three licensing years for same and similar products except for categories mentioned in Handbook (Vol.1). Alternatively, export obligation may also be fulfilled by exports of other goods manufactured or service provided by the same firm/company or group company which has the EPCG licence. However, in such cases, the additional export obligation imposed under EPCG scheme shall be over and above the average exports achieved by the unit/company/group company in preceding three years for the substitute products/services.

The licencee can also opt for the re-fixation of the balance export obligation based on the 8 times of the duty saved amount for the CIF value in proportion to the balance Export obligation under the scheme.

The aforesaid facilities shall only be available to manufacturer exporters/ service provider on all the licences where export obligation period including extended export obligation period valid on the date of application . In this regard, exports made only on or after submission of application for alternate item and/ or re-fixation of the export obligation based on duty saved amount will be taken into account for fulfillment of export obligation.

15. Paragraph 6.6(a) is amended as under:

On approval, a Letter of Permission (LOP)/Letter of Intent (LOI) shall be issued by the Development Commissioner to EOU/EHTP/STP unit. The LOP shall have an initial validity of 3 years for commencement of production. Its validity may be extended by another 3 years, beyond initial validity, by the competent authority. However proposals approved prior to 1.4.2002 shall be considered on case to case
basis by the BOA beyond six years. Standard Format for LOP extension is given in Appendix 14-IMM.

16. Paragraph 6.7(a) is amended as under:

Only project having a minimum investment of Rs.1 crore and above in building, plant and machinery shall be considered for establishment under EOU scheme. Minimum investment should take place on coming into production of the unit. (This shall, however, not apply to existing units and units in EHTP/STP/ handicrafts/ agriculture/ floriculture/ acqua-culture/ animal husbandry/ information technology, services and such other sectors as may be decided by the BOA).

Applications for setting up of units under EOU scheme other than proposals for setting up of unit in the services sector (except R&D , software and IT enabled services, or any other service activity as may be delegated by the BOA), shall be approved or rejected by the Units Approval Committee within 15 days as per the criteria indicated in Appendix 14-I of Handbook (Vol-I).

17. In paragraph 7.7(a), after the word “except”, in bracket, the word “ R & D,” shall be inserted.

18. Paragraph 7.11 (a) shall be substituted as under:

7.11(a) “SEZ units may transfer manufactured goods, including partly processed/semi-finished goods and services from one SEZ unit to another SEZ/EOU/EHTP/STP unit. However, trading units in SEZ may sell/transfer goods imported/procured from DTA to another SEZ/EOU/EHTP/STP unit.”

19. Sub-paragraph 8.2 (f) shall be substituted by the following:

Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty.

20. Paragraph 9.47(iv) is amended as follows:-

Supply of a ‘service’ in India relating to exports paid in free foreign exchange or in Indian Rupees, which are otherwise considered as having been paid for in free foreign exchange by RBI.

This issues in public interest.

(L. MANSINGH)
Director General of Foreign Trade and
Ex-Officio Additional Secretary to the Government of India

File No: 01/94/180/Notification/AM04/PC IV

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