Customs STPI

CUSTOMS & STPI

PROCESSES & PROCEDURES – AN OVERVIEW

Company Confidential

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CONTENTS

Introduction to 100% EOU Benefits to 100% EOU Process for Customs bonding of Premises

– STPI Approval– Customs Approval

• Custom Bonding License• B-17 Bond

Conditions of Duty Free Imports Types of Duty Free Imports Procedures for Duty Free Imports

– STPI Approval (Import Certificate)– Customs Approval (Procurement Certificate)

Procurement of Goods indigenously under CT-3 Procedure. Temporary Removal of Goods Inter-Unit Transfer Re-export for Repair/Replacement De-bonding of Capital Goods De-bonding of Bonded warehouse. Supervision of EOUs by Customs/Central Excise. Recovery of Duty Foregone under EOU Scheme.


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Introduction to 100% EOU

The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31st December 1980.The purpose of the scheme was basically to boost exports by creating additional production capacity. It was introduced as a complementary scheme to the Free Trade Zones/Export Processing Zone (EPZ) scheme introduced in the sixties which had not attracted many units due to locational restrictions. The exporters showed willingness to set up units with long term commitment to exports under Customs bond operations provided they had the freedom to locate them in places of their choice and given most of the benefits as provided to units set up in the Zones.

Over the years the scheme has undergone various changes and its scope also expanded substantially as compared to the initial scheme, which was basically for manufacturing sector with certain minimum value addition in terms of export earnings. The EOU scheme is, at present, governed by the provisions of EXIM Policy and Handbook of Procedures (HOP).


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Benefits to 100% EOU

EOU set up under new EOU scheme has no locational restrictions as compared to FTZ/EPZ.

The units are allowed to import or procure locally without payment of duty for all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith.

Even goods appearing in the restricted list of the EXIM Policy are permitted to be imported.


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Customs bonding of Premises

The premises of EOU are approved as a Customs bonded warehouse under the warehousing provision of the Customs Act. The manufacturing and other operations are carried out under customs bond and the unit bearing appropriate charges for officers on cost recovery basis. The EOUs are required to execute a multipurpose bond with surety/security with jurisdictional Customs/Central Excise officers.


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STPI Approval

1. Submit the Application Form (3 sets) along with following documents

• Demand Draft of Rs. 2,500/- Payable at Software Technology Parks of India (STPI)

• Project Report of the Company• Name & Address of the Promoter / Director• Brief Resume of the Promoters• Memorandum & Articles of Association (which includes Software Exports /

ITES in object clause)• Copy of Board Resolution to start 100% EOU under STP scheme and person

authorized to sign documents)• Form 18.• Partnership Deed• PAN/ITR of the Company• PAN, Passport, Driving License, Ration Card, IT Return, Photograph and

Bank Account Detail of Promoters/ Directors• Importer Exporter Code• Presentation of the Project (Soft/ Hard Copy) (2 Copies)

2. After getting approval letter submit Acceptance Letter to Addl. Director,STPI within 30 days.


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STPI Approval – cont…..

3. The unit has to submit Legal Agreement on Rs. 100/- Stamp Paper together with following :

• Service Charges• Signature Verification of authorized signatory.• Proof of having separate Bank Account.• Board of Director Resolution for Authorized signatory,

maintaining Distinct Identity and for maintaining separate Book of Accounts.

• Letter indicating the Web-site of the company and official e-mail ID for correspondence.

4. Application for Attestation of Blue Print & List of Capital Goods.

5. Four Copies of Blue Print of the Permission to the Custom Bonded.

6. Copy of Lease Deed/ Rent Deed.7. List of Capital Goods Ind./ Imp. To the Custom Bonded.


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Customs Approval

Customs Private Bonded Warehousing License:• Application (In duplicate)• Copy of STPI Approval• Copy of Acceptance of legal agreement• Copy of Green card• Balance sheet of P/L Account• B-17 Bond• Bank Guarantee • Memorandum of Articles of Association• Floor Plans• Attestation of tentative list of capital goods• Insurance of Capital goods/ Undertaking in this regard• Board Resolution • Copy of PAN• IEC (Import Export Code)• List of Directors• Registered Lease deed/Allotment letter.


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B-17 Bond

All the EOUs are required to execute a single all purpose bond i.e. B-17 bond undertaking themselves to fulfill the conditions stipulated in the exemption notification of EOU scheme. This bond is taken to take care of the interests of revenue arising out of goods lost in transit, goods taken into Domestic Tariff Area (DTA) for job work/ repair/ display etc but not brought back etc.

The bond is taken for an amount equal to 25% of the duty forgone on the sanctioned requirement of capital goods plus the duty forgone on raw materials required for 3 months. Surety or security equivalent 5% of the bond amount in the form of bank guarantee is required to be given by the EOUs


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Conditions of Duty Free Imports

The facility of duty free import (extending exemption both form basic &countervailing duty) is subject to certain general conditions in accordance

with the EXIM Policy and these are summed up as follows:

– The goods are required to be imported into the EOU premises directly. However, Granite Quarrying units, agriculture & allied sector units are allowed to supply/transfer the capital goods and the inputs in the farms/fields with permission of Customs.

– Prior to undertaking import/local procurement duty free, the unit is required to get their premises customs bonded. The unit is also required to execute a B-17 bond with surety/security with jurisdictional Customs/Central Excise officers and take out a license under Section 58 of the Customs Act, 1962.

– The goods, except capital goods and spares, are required to be utilized within a period of one year or within period as may be extended by the Customs Authorities.

– The importer is required to maintain a proper account of the import, consumption and utilization of all imported , produced materials and exports made and submit them periodically to the Development Commissioner/Customs Officers.

– The importer is required to achieve minimum NFEP/export performance as per the provisions of the EXIM Policy.

– The importer is required to abide by the terms and conditions of the Letter of Permission/Letter of Intent/Customs bonding license issued to the unit.


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Types of Duty Free Imports

Outright Loan Basis Free of Cost Lease Basis


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Procedures for Duty Free Imports

STPI Approval (Import Certificate)

– Approved units under STP scheme may import all types of goods including capital goods required by it for carrying on its approved software export activities (as per Foreign Trade Policy). Such goods may be imported either on outright purchase basis or free of cost or on loan basis from the client without payment of custom duty.

– Capital goods are defined as any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services.

– Items permitted for import:• Capital goods shall include the following and their spares:

– DG sets, captive power plants, transformers and accessories and consumables and spares for all above.

– Pollution control equipment– Quality assurance equipment– Un-interrupted power supply system (UPS), special racks for storage,

storage systems, modular furniture, computer furniture, anti-static carpet, tele-conference equipment, servo control system, air-conditioners, panel for electrical.

– Security systems– Raw material for making capital goods within the unit.

• Raw material components, consumables, intermediates, spares and packing materials.


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STPI Approval (Import Certificate) – Cont…..

– Prototypes and technical samples for existing product(s) and product diversification, development or evaluation.

– Drawings, blue prints, charts, microfilms and technical data.– Office equipments, including EPABX, fax machines, video

projection system, computers, laptop, server. – Spares and consumables for the above items.– Any other item with the prior approval of the IMSC.– In respect of STP units only, such items as are relevant to the

approved activity of manufacture of the STP unit shall be allowed at the discretion of the Director, STPI.(Please refer the current Foreign Trade Policy for list of Capital Goods).

Procedure:– Units intending to import equipment goods duty free under the

scheme need to comply with the following requirements:– (i) A list of equipments/ goods proposed to be imported should be

attested by STPI and submitted to Customs and Central Excise Department (if not already done at the time of obtaining custom bonding license).

– (ii) Copy of custom bonding license valid as on date.– (iii) Application in the prescribed form along with the supporting

documents to be submitted to STPI and an import clearance certificate obtained from STPI for the import of each individual consignment.


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STPI Approval (Import Certificate) – Cont…..

Procedure to apply for Import Certificate:

– Application as per the standard application Format.– Original Shipping Invoice/Commercial Invoice (In Duplicate)– If the equipment is imported on Loan or Free of cost the

invoice should clearly state: "Material is sent on Loan or Free of Cost basis and the value is for custom purpose only".

Other Conditions:– If the importation is on Loan basis, the maximum period of

loan is 24 months only.– Import of second-hand Capital Goods is permitted by STPI.– The capital goods to be imported are less than seven years

old, a Self Declaration Form has to be attached with the import request letter.

– The Capital goods to be imported are more than seven years old a Chartered Engineer's Certificate has to be accompanied with the request letter.

http://www.stpp.soft.net/document/importcertificateapp.pdf


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Customs Approval (Procurement Certificate)

For the purpose of import, the Procurement certificate is required. This is required for import of goods at Nil rate of duty under Notification No. 52/2003-Cus dated 31.03.2003.

Procedure to obtain Procurement Certificate:– Application in the prescribed format.– Import Certificate (3 Copies)


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Procurement of Goods indigenously under CT-3 Procedure.

The EOUs can procure goods from DTA without payment of Central Excise duty subject to following of Chapter X procedure of erstwhile Customs/Central Excise Rules, 1944. Such procurement from DTA is against CT-3, which is issued by the Superintendent of Customs/Central Excise in charge of the EOU. Such goods are required to be brought directly from the manufacturer/warehouse into the unit’s premises under AR-3A and examined by the designated officer. After examination of such goods, one copy of AR-3A is sent by registered post to the jurisdictional Central Excise authorities as a Re-warehousing certificate in token of receipt of the goods in the unit. To avoid separate permission every time, the EOUs are issued pre-authenticated CT-3 in booklet form and against such pre-authenticated CT-3, the EOUs are allowed to procure capital goods, raw materials, consumables, etc. Goods procured from DTA and found to be defective can be returned to the manufacturer under Chapter X procedure of erstwhile Central Excise Rules, 1944.


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Temporary Removal of Goods

The EOUs, Software Technology Park Units or Electronic Hardware Technology Park Units engaged in development of software are allowed to remove imported laptop computers and video projection system out of the bonded premises temporarily without payment of duty with prior permission of the jurisdictional Customs/Central Excise officers.


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Inter-Unit Transfer

An EOU is allowed to transfer imported or manufactured goods to another EOU/EPZ/STP/EHTP/SEZ unit. The officers in charge of the EOU supplying the material and the EOU receiving the material are expected to keep a watch on the movement of material between the EOUs. The rewarehousing certificate on transfer of the goods from one EOU to another is obtained by post and is crosschecked occasionally with the Superintendent in charge of the other unit to see whether the goods have been actually received in the unit or not. In case of non-receipt of rewarehousing certificate and similarly, non-receipt of proof of export from the proper officer within 90/180 days, the duty is demanded from the sending unit.


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Inter-Unit Transfer – Cont…..

PROCEDURE FOR SHIFTING/TRANSFER OF IMPORTED CAPITAL GOODS

STP Units are permitted to shift imported Capital Goods for following reasons:

1. Shifting for Repair 2. Shifting for Demonstration/Execution of Project/Training3. Shifting for Sub-Contracting 4. Shifting in case of Change/Expansion of Location of STP operations5. Inter Unit transfer (100% EOU & 100% EOU) permanently.6. Movement of Laptop computer & Video Projector systems.

Procedure to apply for permission for shifting/transfer of CapitalGoods : In case of (i) to (v) as above.

1. Application as per standard Format with the reasons for shifting along with the shifting 2. invoice. If the shiftingis done to a place other than a Private Bonded Warehouse, it 3. Should be clearly indicated in the invoice.4. Copy of STPI Import Certificate with attested Invoice5. In case of (i), copy of letter from service/repair center for acceptance of Repair & Return.6. In case of (ii),a copy of request for Demonstration / Training/Execution of Project.7. In case of (iii), a copy of letter from Sub-contractor requesting for the equipment for the 8. execution of job work.9. In case of (v), a no objection certificate should be obtained by the receiver from the 10. concerned Directorate of Development Commissioners.

http://www.stpp.soft.net/document/transferofcg.pdf


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Inter-Unit Transfer – Cont…..

Shifting/transfer of Laptop computers or Video Projection Systems: The STP units are permitted to take out Laptop or Video Projections Systems cleared duty free outside the bonded area for carrying out official work. The unit requires to take permission from STPI & Customs for the same. Procedure to apply for permission to take Laptop computers or Video Projection Systems Application as per standard Format indicating details of name of Employee, Designation Sr. No. of the Laptop Or video projector, BOE No. & date. The letter / should be signed by authorized signatory and it should be with the stamped with official seal. with following enclosures

(i) Copy of Import certificate along with attested Invoice issued by STPI. Conditions:

In case, equipment is shifted permanently from one STP unit to another STP/EPZ/EOU unit the value of Capital Goods would be credited & debited correspondingly between the transferor & the transferee.

If the unit is operating at multiple locations & frequency of shifting the bonded items are more, then unit can obtain blanket permission from the STPI. The Blanket Approval will be given for period of one year. The unit has to make a request letter asking for blanket permission giving location addresses and floors occupied for STP operations & a copy of the latest amended bonded warehouse license should be enclosed with the covering letter.

http://www.stpp.soft.net/document/laptopcomputers.pdf


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Re-export for Repair/Replacement

STP units are allowed to Re-export the capital goods imported in situations explained below

a) Re-export of CG for Replacement: Goods or parts thereof on being imported & found defective as otherwise unfit for use or which have been damaged after import may be exported , and goods in replacement thereof may be supplied free of cost by the foreign supplier.

b) Re-export of CG imported on Loan: Capital Goods imported for specific project/period of time can be re-exported with the permission of The Director, STPI.

c) Re-export of CG for Repair & Replacement: Capital Goods imported for a project if found defective the same may be re-exported for repair & return.

d) Procedure for Certification of Re-export of Capital Goods

• Application as per the standard format supported by Re-export invoice for Repair and Replacement.

• Application as per the standard format supported by Re-export invoice for loanbasis

• Copy of STPI approval for initial import with attested invoice.• Copy of Letter from original supplier for acceptance for Repair & Return or for

Replacement.

http://www.stpp.soft.net/document/reexportrepandreplc.pdf

http://www.stpp.soft.net/document/cgreexport.pdf


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De-bonding of Capital Goods

PROCEDURE FOR DEBONDING OF EQUIPMENT

STP units are permitted to de-bond the equipment as per the following norms:– In case an STP unit is unable , for valid reasons to utilize the Imported

goods/Indigenous items, it can re-export or dispose them in DTA on payment of applicable duties & submission of import license by the DTA unit , wherever applicable.

– STPI will permit the De-bonding of the equipment after 3rd year of operations provided the unit has met its Export Obligation. On the basis of the STPI approval, customs will charge Customs Duty on depreciated cost of the equipment. The depreciated norms notified from the customs from time to time.

– STPI can permit de-bonding of equipment even before 3 years, which have become technologically obsolete. However, units will have to pay Customs Duty as per norms of customs. Application for the same is to be made to STPI giving details/reasons for obsolescence and other details similar to that of De-bonding of equipment.

Documents Required:– A request letter from the Company as per format along with details of Goods to be

debonded ( format )– Copy of original import certificate and enclosures issued at the time of procurement.

Annexure giving details of Bill of Entry No. and date, bond no. and date, description of goods, Qty and assessable value as per the bill of entry duly signed by authorized signatory and company stamp.

– Copy of original invoice along with Bill of entry in case of imports.– Copy of bond register.


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De-bonding of Capital Goods- Cont…

PROCEDURE FOR DEBONDING OF OBSOLETE EQUIPMENT

STPI can permit de-bonding of equipment even before 3 years, which have become technologically obsolete. However, units will have to pay Customs Duty as per norms of customs. Application for the same is to be made to STPI giving details/reasons for obsolescence and other details similar to that of De-bonding of equipment.

Procedure to apply for Debonding of Obsolete Equipment :

– Application as per the standard format of obsolete items & permission todebond the equipment.

– Annexure giving details of Bill of Entry No. & Date, Bond No & date,Description of goods, Qty & value signed by authorized signatory & company stamp.

– STPI import certificate along with attested Invoice.

http://www.stpp.soft.net/document/debondingofcg.pdf


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De-bonding of Bonded warehouse.

An EOU may debond into a normal DTA unit subject to the approval of the Development Commissioner and following prescribed procedure & fulfilling the laid down conditions. Such de-bonding is subject to penalty, if any, that may be imposed and payment of duties of customs and excise applicable at the time of de-bonding. The standard conditions of de-bonding, as indicated in the handbook of procedures provide, amongst other conditions, that the applicable customs and central excise duty would be paid on imported and indigenous capital goods, finished goods, raw materials, consumables, components, etc. in stock. Further, the unit in question continues to be treated as an EOU till the date of final de-bonding order.

The duty payable in terms of the relevant notifications by the units seeking de-bonding is as under:1. Semi-finished and finished goods lying in stock at the time of de-bonding

can be cleared on payment of the excise duty equal to aggregate duties of Customs payable on similar imported goods.

2. Capital goods, material handling equipments, office equipment and captive power plants can be cleared on payment of an amount equal to the customs duty leviable on such goods on the depreciated value thereof and at the rates in force on the date of payment of such duty.


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Cont…

2. Goods including containers suitable for repeated use other than those at (2) above can be allowed clearance on payment of customs duty on their value at the time of import and at the rate of duty in force on the date of payment of such duty.

3. Used packing material such as cardboard boxes, polyethylene bags of a kind unsuitable for repeated use can be cleared without payment of duty.

– At the time of de-bonding, the EOUs are entitled for depreciation on imported/indigenous capital goods. The rate of depreciation on capital goods have been specified and in case of the computer and computer peripherals, accelerated rate of depreciation have been provided for.

– In the event of gem and jewellery unit ceasing its operation, gold and other precious metals, alloys, gem and other materials available for manufacture of jewellery are handed over to a nominated agency (nominated by the Department of Commerce) at a price determined by that agency.


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Supervision of EOUs by Customs/Central Excise.

Operational flexibility has been provided to EOUs by amendment of “Manufacture and Other Operations in Warehouse Regulations, 1966”. The EOUs no longer carry out manufacturing operations under physical supervision of Customs officers. The procedure for locking of the warehouse, control over the issue of the imported goods etc. has been abolished. All the movements from and to the unit like clearance of raw materials/component to the job workers premises, return of goods from the job-worker’s premises, clearance to other EOUs, export and sale in DTA are allowed to be made by the unit subject to maintenance of the records. Physical control over the EOUs has, thus, been replaced by Record Based Control.

As physical control has been abolished greater stress is given on proper maintenance of prescribed records & accounts (Annexure-A & B) and non-maintenance of accounts by the units is viewed seriously. The cost recovery officers/the officers incharge of EOUs are required to scrutinize/examine the accounts/records of the units and transaction undertaken by the unit at least once in a month. The cost recovery officer has to ensure that all movements of goods are recorded in the proper register. The Chief Commissioner is empowered to order special audit of the unit by Cost Accountant nominated by him in this regard. Cost Audit is employed as a tool to check the correctness of raw materials, quantity used, finished goods produced or other such situation.


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Recovery of Duty Foregone under EOU Scheme.

Under EOU scheme, the units are required to achieve minimum NFEP and Export Performance as stipulated in the EXIM Policy. In case of failure to achieve the minimum NFEP and EP, the duty forgone under the EOU scheme along with interest is recoverable from the units. Further, the duty is recoverable from the units in case of non receipt of imported/indigenously procured goods in the factory premises after import/indigenously procured goods including capital goods within the prescribed time limit. The duty is also recoverable on goods removed for job working/display/testing/quality testing, but not received back in the unit within the specified period of time.

Apart from recovery of duty forgone, the law also provides for taking penal action where any 100% EOU is found to have indulged into any fraudulent activities eg. Clandestine removal of production into DTA without payment of duties, diversion of duty free materials in transit to the unit after customs clearance or after receipt etc., not only the offending goods can be seized and confiscated, but even units penalized heavily/prosecuted.


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Annexure – A (Bonding Records)

•STPI LOP No.•LOP date•LOP Value•LOP Validity•Green Card No.•Green Card date•Green Card Validity•Customs License No.•Customs License date•Customs License Validity•B-17 Bond Acceptance No.•B-17 Bond Acceptance date•B-17 Bond Value•B-17 Bond Validity•Bank Guarantee No.•Bank Guarantee issuance bank•Bank Guarantee date•Bank Guarantee Value•Bank Guarantee Validity


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Annexure – B (Import Records)

Inward/Outward material registers for bonded items. Rewarehousing Register (Unit wise) Bond Register. Supervision charges register (MOT Register) Records of import and indigenous procurements (monthly and annually) File records of imports (Outright, Indigenous, Loan Basis, bond to bond,

inter unit):– Rewarehousing certificate (copy)– Bill of Entry/Bill of lading (Original importer’s copy)– Commercial Invoice and Packing list (copy)– Customs forwarding letter (copy)– STPI and Customs approval (copy)

File records of re-export (loan basis and repair/replacement)– Rewarehousing certificate (copy)– Bill of Entry/Bill of lading (Original importer’s copy)– Commercial Invoice and Packing list (copy)– Customs forwarding letter (copy)– STPI and Customs approval for import (copy)– STPI and Customs approval for re-export.

Insurance details of the bonded capital goods. Material movement registers for movable bonded capital goods. File for debonding of capital goods. File for duty paid on the debonding of capital goods.


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Do’s & Don’ts

DO's– The development / production of the unit under the

scheme shall be carried on in a customs bonded area.– Commencement of production within the gestation

period allowed under the scheme and starting exports. Intimate STPI of the date of commencement of commercial production within 30 days. If commercial production and exports are not commenced within a period of 3 years from the issue of the letter of approval (LOP) given for the establishment of the unit under the Scheme, the LOP LAPSES automatically after the expiry of the said 3 years.

– The unit shall be a net foreign exchange(NFE) earner and NFE should be positive over the period of 5 years.

– The unit shall realise the amounts due for the exports made within 180 days from the date of export, or the due date under the contract, whichever is earlier.


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Do’s & Don’ts…Cont.

– If the unit fails to fulfill the export and other obligations under the scheme, it will be liable to pay the customs duty and excise duty on the goods procured and such other penalties and liquidated damages as may be decided by the Government.

– In case external commercial borrowings are resorted to, necessary permission from Ministry of finance to be obtained.

– In case of import of US controlled items, please comply with the relevant provision vide S.No.9 of the standard condition attached to the letter of approval for 100% EOU.

– Maintain separate accounts for the operation under the scheme.

– Maintain prescribed records and document.


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Do’s & Don’ts…Cont.

– Pay the dues to STPI on time.– Submit the Quarterly / Annual performance reports in

the prescribed form, on time.

DONT's– Please do not utilize the equipment procured duty free

for any activity not covered under the scheme.– Please do not carry on any operation not covered under

the scheme in the customs bonded warehouse premises.– Data circuit is meant exclusively for the purpose of

transmission of data between two designated locations and sub-lease to any company or re-engineering to any other location is strictly prohibited.

– Data circuit should not be used for voice purpose on PSTN, as per the Indian Telecommunications Act.

Thank You

Suresh Bishnoi

Customs STPI

Documents

captive power

video projection

stpi giving

standard format

original importers

annexure giving

customs forwarding

duty free