duty free import authorisation. duty free import authorisation [dfia] new scheme introduced foreign...

Duty Free Import Duty Free Import AuthorisationAuthorisation

Duty Free Import Authorisation [DFIA]Duty Free Import Authorisation [DFIA]

New Scheme introduced

Foreign Trade Policy Provisions:

Scheme : A Duty Free Import Authorisation is issued to allow duty free import of inputs which are used in the manufacture of the export product (making normal allowance for wastage), and fuel, energy, catalyst etc. which are consumed or utilised in the course of their use to obtain the export product. However, the Director General of Foreign Trade, by means of Public Notice, may in public interest, exclude any product(s) from the purview of this scheme. This scheme will come into force from 1st May, 2006.


Entitlement:

The Authorisation shall be issued on the basis of inputs and export items given under Standard Input and Output Norms (SION). The import entitlement shall be limited to the quantity mentioned in SION.

Duty Free import of mandatory spares upto 10% of the CIF value of Authorisation which are required to be exported/ supplied with the resultant product may also be allowed under the scheme.

Such Authorisation can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s):


Entitlement:

Such Authorisation can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s):

i) for Physical exports (including exports to SEZ); and/ or

ii) for Intermediate supplies; and /or

iii) to the main contractor for supply of goods to the categories mentioned in paragraph 8.2 (b), (c), (d), (e), (f), (g), (i) and (j) of the Policy;

for import of inputs required in the manufacture of goods. In addition, in respect of supply of goods to specified projects mentioned in paragraph 8.2 (d), (e), (f), (g) and (j) of the Policy, a DFIA can also be availed by the sub-contractor of the main contractor to such project provided the name of the sub contractor(s) appears in the main contract.


Entitlement:

Such Authorisation can also be issued for supplies made to United Nations Organisations or under the Aid Programme of the United Nations or other multilateral agencies and paid for in free foreign exchange.

A manufacturer exporter or a merchant exporter tied up with the supporting manufacturer can apply for the Authorisation under the Scheme. Before affecting exports under scheme, an applicant is required to file an application to the Regional Authority.

Such Authorisation shall be initially issued with actual user condition and shall be exempted from payment of basic custom duty, additional customs duty, education cess, anti-dumping duty and safeguard duty, if any.


Import Items:Prohibited items of imports mentioned in ITC(HS) shall not be imported under the Authorisation issued under the Scheme.

Duty Free procurement from domestic market will be available as in case of advance Authorisation scheme against ARO/ invalidation letter/back to back inland letter of credit etc.

Provisions of paragraph 4.1.13 of FTP shall be applicable for the DFIA holder.


Value Addition: A minimum 20% value addition shall be required for issuance of such Authorisation except for items in gems and jewellery sector for which value addition as given in paragraph 4A.2.1 of the Handbook of Procedures (Vol.1) and items for which higher value addition is prescribed under Advance Authorisation Scheme shall be applicable.

Export Obligation:Procedure related to fulfillment of Export Obligation under the scheme and the time period allowed to fulfil it has been laid down in chapter 4 of Handbook of Procedure, Vol. I


Transferability:

Once export obligation has been fulfilled, request for transferability of the Authorisation or the inputs imported against it may be made before the Regional Authority. Once, transferability is endorsed, the Authorisation holder will be at liberty to transfer the duty free inputs, other than fuel and any other item(s) notified by DGFT for this purpose.


Transferability:However, in respect of Standard Input Output Norms, which are subject to “actual user” condition or for import of fuel under the general norms or where Standard Input Output Norms allow import of Acetic Anhydride, Ephedrine and Pseudo Ephedrine, DFIA shall be issued with actual user condition for these inputs and no transferability shall be allowed for these inputs even after fulfillment of the export obligation. Transfer of items that are restricted for imports or the DFIA for such items shall be allowed under the DFIA scheme only against a specific import licence for that item.

However, for fuel, the import entitlement may be transferred only to the companies which have been granted Authorisation to market fuel by the Ministry of Petroleum & Natural Gas.


CENVAT Facility:No CENVAT credit facility shall be available for inputs either imported or procured indigenously against the Authorisation.

Drawback Facility:The drawback shall be available in respect of any of the duty paid material, whether imported or indigenous, used in the goods exported, as per the drawback rate fixed by Ministry of Finance. The drawback shall, however, be restricted to the duty paid materials mentioned in the application.


Provisions under Handbook of Procedures Voli. I

Application:An application in ‘Aayaat Niryaat Form’ with the import entitlement as per SION, along with documents prescribed in the application form, shall be submitted to the Regional Authority concerned.

In case of export of gold /silver / platinum jewellery and articles thereof, the quantity, wastage and the value addition norms shall be as prescribed in paragraph 4A of the Policy and Handbook of Procedure(vol.1).

Applications, where Acetic Anhydride, Ephedrine and Pseudoephedrine is required as an input for import and prescribed in SION, shall be filed with the Regional Authorities concerned.


Application:Copies of such applications shall also be simultaneously endorsed to the Drug Controller of India, Nirman Bhawan, New Delhi, Narcotics Commissioner, Central Bureau of Narcotics, Gwalior and the respective Zonal Director of the Narcotics Control Bureau, alongwith a declaration that the applicant will maintain the prescribed records and also submit the prescribed returns.

Duty free import of spices (covered by Chapter 9 of the ITC(HS) Classifications of Export & Import items, 2004-09) for export under DFIA scheme shall be permitted only for value addition purposes like crushing/grounding/sterilization or for manufacture of oils and oleoresins and not for simple cleaning, grading, re-packing etc.


Application: The Regional Authority, while issuing the DFIA for the import of Acetic Anhydride, Ephedrine and Pseudo- ephedrine, shall endorse a condition that before effecting imports, NOC shall be obtained from the Narcotics Commissioner of India, Central Bureau of Narcotics, Gwalior and shall also endorse a copy of the Authorisation to the Drug Controller, Nirman Bhawan, New Delhi and the concerned Zonal Director of the Narcotics Control Bureau.

However in respect of the following items, the exporter shall be required to give declaration with regard to technical characteristics, quality and specification in the shipping bill. The Regional Authority while issuing DFIA shall mention the technical characteristics, quality and specification in respect of such inputs:


Application: :Alloy steel including Stainless Steel, Copper Alloy, Synthetic Rubber, Bearings, Solvent, Perfumes/ Essential Oil/ Aromatic Chemicals, Surfactants, Relevant Fabrics, Marble, Articles made of polypropylene, Articles made of Paper and Paper Board, Insecticides, Lead Ingots, Zinc Ingots, Citric Acid, Relevant Glass fibre reinforcement (Glass fibre, Chopped / Stranded Mat, Roving Woven Surfacing Mat), Relevant Synthetic Resin (unsaturated polyester resin, Epoxy Resin, Vinyl Ester Resin, Hydroxy Ethyl Cellulose), Lining Material.

Exports made against the Government of India/EXIM Bank Line of Credit would be entitled for benefits under the DFIA Scheme. Further, exports made under Deferred Payment/ Suppliers Line of Credit Contract backed by ECGC Cover would also be entitled for the benefit under the Scheme.


DFIA for applicants with multi units:Transfer of any duty free material imported or procured against non-transferable DFIA from one unit of the company to another unit of the same company for manufacturing purpose shall be done with the prior intimation to the jurisdictional Excise Authorities with a clear understanding that no benefit of CENVAT shall be claimed on such transferred inputs. In case of non-excisable company/products, the units should maintain a proper record of the same. However to avail the facility, all such units should be available in the IEC certificate and follow the rules and regulations of Central Excise for jobwork.


DFIA for Free of Cost and Paid Material:An exporter may apply for a DFIA for import of items as per SION, some or all of which may also include items that are supplied free of cost.

In such cases, for calculation of value addition, the notional value of free of cost inputs along with value of other duty-free inputs shall be taken into consideration. However, if all the inputs are supplied free of cost, the exporter shall also have the option to follow the provision prescribed in paragraph 4.2.7 of the Policy.


DFIA for Free of Cost and Paid Material:In such cases, a specific endorsement shall be made on the exchange control copy of the DFIA disallowing remittances for the material being supplied free of cost. All inputs imported shall be utilised in the manufacturing of the product except the wastage.

The value addition in the case of such DFIAs would be computed by adding the notional value of the free of cost material to both the CIF value of imports and FOB value of exports.

Financial Powers The financial powers under DFIA scheme shall be same as Advance Authorisation.


Description of a DFIA:

A DFIA shall specify:(a) the names and description of items to be imported and exported / supplied;

(b) the quantity of each item to be imported or wherever the quantity cannot be indicated, the value of the item shall be indicated. However, if in Standard input output norms, the quantity and value of individual inputs is a limiting factor, the same shall be applicable.

(c) the aggregate CIF value of imports; and

(d) the FOB/FOR value and quantity of exports/ supplies.


Exports in Anticipation of DFIA:Exports/supplies made from the date of EDI generated file number for a DFIA, may be accepted towards discharge of export obligation. Shipping/Supply document(s) should be endorsed with the File Number or the Authorisation Number to establish co-relation of the exports/supplies with the authorisation issued. If the application is approved, the authorisation shall be issued based on the input-output norms in force on the date of receipt of the application by the Regional Authority in proportion to the provisional exports/ supplies already made till any amendment in the norms is notified. For the remaining exports, the Policy/ Procedures in force on the date of issue of the authorisation shall be applicable.


Exports in Anticipation of DFIA:The exports/supplies made in anticipation of the grant of a DFIA shall be entirely on the risk and responsibility of the exporter.

The conversion of duty free shipping bills to drawback shipping bills may also be permitted by the Customs Authorities in case the application for a DFIA is rejected or modified by the Regional Authority.

Port of Registration: The DFIA shall be issued for the purpose of import and export through port(s) as specified in paragraph 4.19 of this Handbook.


Acceptance of BG/LUT:At the time of issue of the non transferable DFIA, the acceptance of the undertaking given by the applicant to the Regional Authority concerned in the form given in ‘Aayaat Niryaat Form’ will be endorsed on the reverse of the DFIA.

Note: - No BG/LUT will be required where the specified export obligation has been fulfilled before making any import. In case of partial fulfillment of export obligation before effecting any imports, the BG/ LUT may be reduced proportionately.


Enhancement/ Reduction In the Value of DFIA:In respect of a DFIA, the Regional Authority concerned (as per their financial powers) may consider a request for enhancement/ reduction in the CIF value, FOB value, quantities of import or export of the certificate, provided the value addition after such amendment does not fall below the stipulated minimum value addition (as per the policy and the procedure laid thereunder) and provided there is no change in the inputoutput norms and the Policy under which the authorisation was issued.

The request for pro-rata enhancement in value and quantity may be made either before or after exports. In such cases where there is a change in the SION prior to the export of the said product, the pro-rata enhancement shall be given after calculating the entitlement on the revised SION.


Enhancement/ Reduction In the Value of DFIA:The application for the enhancement/ reduction in the value or quantity of the authorisation shall be made in ‘Aayaat Niryaat Form’ of the Handbook of Procedure (Vol. 1).

Export Obligation period and its extension:The period of fulfillment of export obligation and its extension shall be governed as per the provision contained in paragraph 4.22 of this Handbook. However, any extension beyond 36 months from the date of issuance of the authorisation shall not be allowed.

Revalidation of DFIA:Facility of revalidation shall be available to the DFIA holder as per the provision contained in paragraph 4.23 of this Handbook.


Re-export of goods imported under DFIA Scheme:Goods imported against transferable DFIA, which are found defective or unfit for use, may be re-exported, as per the guidelines issued by the Department of Revenue. In such cases 95% of the CIF value debited against DFIA for the export of such goods, shall be generated by the concerned Commissioner of Customs in the form of a authorisation, containing the amount generated and the details of the original DFIA.

Based on the certificate, a fresh DFIA shall be issued by the concerned Regional Authority.

The fresh DFIA, so issued, shall have the same port of registration and shall be valid for a period equivalent to the balance period available on the date of import of such defective/ unfit goods.


Monitoring of Export Obligation:The Regional Authority, with whom the undertaking is executed by the DFIA holder, shall maintain a proper record in a master register indicating the starting and closing dates of obligation period and other particulars to monitor the export obligation.

Within two months from the date of expiry of the period of obligation, the certificate holder shall submit requisite evidence in discharge of the export obligation in accordance with paragraph 4.25 of this Handbook.

However, in respect of shipments where six months period (one year in case of status certificate holder) for realisation of foreign exchange has not become due, the Regional Authority shall not take action for non submission of bank certificate of exports and realisation provided the other document(s) substantiating fulfillment of Export Obligation have been furnished.


Monitoring of Export Obligation:In case the Authorisation holder fails to complete the export obligation or fails to submit the relevant information/ documents, the Regional Authority shall take action by refusing further authorisations, enforce the condition of the authorisation and undertaking and also initiate penal action as per law.

Fulfillment of Export Obligation:The Authorisation holder shall furnish the following documents in support of having fulfilled the export obligation:-


Fulfillment of Export Obligation:A. For physical exports:-

(i) Bank Certificate of Exports and Realisation in the form given at Appendix-22A or Foreign Inward Remittance Certificate (FIRC) in the case of direct negotiation of documents or Appendix –22B in case of offsetting of export proceeds. However, realisation of export proceeds shall not be insisted if the shipments are made against;

(a) confirmed irrevocable letter of credit or

(b) bill of exchange is unconditionally Avalised/ Co-Accepted/ Guaranteed by a bank and the same is confirmed by the exporters bank.


Fulfillment of Export Obligation:A. For physical exports:-

(ii) The stipulations at (a) or (b) above must be certified by the bank in column 14/15 of Appendix- 22A.

(iii) EP copy of the shipping bill(s) containing details of shipment effected or bill of export in case of export to SEZ.

A statement of exports giving details of shipping bill wise exports indicating the shipping bill number, date, FOB value as per shipping bill and description of export product

A statement of imports indicating bill of entry wise item of imports, quantity of imports and its CIF value.


Fulfillment of Export Obligation:B. For deemed exports (including intermediate supplies):(i) A copy of the invoice or a statement of invoices duly signed by the unit receiving the material and their jurisdictional excise authorities certifying the item of supply, its quantity, value and date of such supply.

However in case of supply of items which are non excisable or supply of excisable items to a unit producing non excisable product(s), a project authority certificate (PAC) certifying quantity, value and date of supply would be acceptable in lieu of excise certification.

However, in respect of supplies to EOU/EHTP/ STP/BTP, the supplier has the additional option to furnish a copy of ARE-3/CT-3 form duly signed by the jurisdictional excise authorities/Bond Officer certifying the item of supply, its quantity, value and date of such supply in lieu of the excise attested invoice (s) or statement of invoices as given above.


Fulfillment of Export Obligation:B. For deemed exports (including intermediate supplies):(ii) Payment certificate from the project authority in the form given in Appendix-22C. In the case of supplies to EOUs/ EHTPs/ STPs / BTPs, deemed exports (including Intermediate Supplies), documentary evidence from the bank substantiating the realisation of proceeds from the Authorisation holder or EOUs/EHTPs/ STPs/ BTPs or the Project Authority, as the case may be, through the normal banking channel, shall be furnished in the form given at Appendix-22B. However realisation of proceeds shall not be insisted upon if the shipments are made against:

(a) confirmed irrevocable inland letter of credit or (b) inland bill of exchange is unconditionally Avalised/ Co- Accepted/ Guaranteed by a bank and the same is confirmed by the exporters bank.

The stipulations at (a) or (b) above must be certified by the bank in column 5/6/7 of Appendix- 22B.


Fulfillment of Export Obligation:B. For deemed exports (including intermediate supplies):

(iii) A statement of supplies giving details of supply invoices and indicating the invoice number, date, FOR value as per invoices and description of product.

(iv) A statement of imports indicating bill of entry wise item of import, quantity of import and its CIF value.


Maintenance of proper accounts of the inputs

The original DFIA holder shall maintain a true and proper account of consumption and utilisation of duty free imported / domestically procured goods against each authorisation as prescribed in Appendix-23. These records are required to be sent to the concerned Regional Authority(ies) along with the request for bond waiver/ redemption/ discharge of export obligation/ transferability. Such records should be preserved for a period of at least three years from the date of redemption.


Redemption In case the export obligation has been fulfilled, the Regional Authority shall redeem the case.

After redemption, the Regional Authority shall forward a copy of the redemption letter indicating the shipping bill number(s), date(s), FOB value in Indian rupees as per shipping bill(s) and description of export product to the Customs Authority at the port of registration. Such details shall also be placed by the Zonal Offices in their website immediately after issuance of the export obligation discharge/ redemption letter / ‘No Bond Certificate’ and by DGFT HQr in DGFT website on monthly basis for the Customs Authority to access it from the website.

Before discharging BG/LUT against Physical Exports, the Customs shall verify that the details of the exports as given in the “Redemption Certificate”, are as per their records. However before discharging BG/LUT against Intermediate Supplies and Deemed Exports, the Customs shall verify the details of the supplies from the Central Excise authorities/Bond Officer.


Redemption Ordinarily, redemption of BG/LUT shall not preclude the customs authority from taking action against the Authorisation holder for any misrepresentation, mis-declaration and default detected subsequently.

Further the Regional Authority shall also take action against the certificate holder in case of non-submission of Appendix 23, duly filled in, as stipulated in Paragraph 4.30 of Handbook, Vol.I or for any misrepresentation, misdeclaration and default detected subsequently in the details declared and furnished in Appendix 23. An endorsement to this effect shall be made by the Regional Authority in the redemption certificate.

The cancellation/ redumption of BG/LUT would be undertaken by the Customs within 30 days of issue of EODC /bond waiver by the Regional Authority.


Regularisation of Bonafide default(a) The cases of a bonafide default in fulfillment of export obligation may be regularised by the Regional Authority in the manner prescribed in paragraph 4.28 of this Handbook.

Transferability of the DFIAOnce the export obligation is fulfilled and the required documents as stipulated in paragraph 4.68 of this Handbook has been furnished, the Regional Authority shall make the authorisation transferable subject to the conditions stipulated for this scheme. However the restricted item endorsed in the authorisation shall be allowed to be transferred only against a separate import licence/permission issued as per Foreign Trade Policy and the procedure laid thereunder.

Customs Notification No. 40/2006 Customs Notification No. 40/2006 Dtd. 01.05.2006Dtd. 01.05.2006

Exempts materials imported into India against a Duty Free Import Authorisation

In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts materials imported into India against a Duty Free Import Authorisation issued in terms of paragraph 4.4.1 and 4.4.2 of the Foreign Trade Policy (hereinafter referred to as the said authorisation) from the whole of the duty of Customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and from the whole of the additional duty, safeguard duty and anti-dumping duty leviable thereon, respectively, under sections 3,8 and 9A of the said Customs Tariff Act, subject to the following conditions namely :-

Customs Notification No. 40/2006 Customs Notification No. 40/2006 Dtd. 01.05.2006Dtd. 01.05.2006i) that the description, value and quantity of materials

imported are covered by the said authorisation and the said authorisation is produced before the proper officer of customs at the time of clearance for debit:

Provided that in respect of resultant product specified in paragraph 4.55.3 of the Hand Book of Procedures (Vol.I) of the Foreign Trade Policy, the materials permitted in the said authorisation or a duty free import authorisation for intermediate supply, as the case may be, shall be of the same quality, technical characteristics and specifications as the materials used in the said resultant product.

Provided further that in respect of the said resultant product the exporter shall give declaration with regard to the quality, technical characteristic and specifications of materials used in the shipping bill;


ii) that where import takes place after fulfilment of export obligation, the shipping bill number(s) and date(s) and quantity and Free on Board (FOB) value of the resultant product are endorsed on the said authorisation:

Provided that where import takes place before fulfilment of export obligation, the quantity and FOB value of the resultant product to be exported are endorsed on the said authorisation;

iii) that the importer at the time of clearance of the imported materials executes a bond with such surety or security and in such form and for such sum as may be specified by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, binding himself to pay on demand an amount equal to the duty leviable, but for the exemption contained herein, on the imported materials in respect of which the conditions specified in this notification have not been complied with, together with interest at the rate of fifteen percent per annum from the date of clearance of the said materials :

Provided that bond shall not be necessary in respect of imports made after the discharge of export obligation in full;


iv) that the imports and exports are undertaken through seaports at Mumbai, Kolkata, Cochin, Magdalla, Kakinada, Kandla, Mangalore, Marmagoa, Chennai, Nhava Sheva, Paradeep, Pipavav, Sikka, Tuticorin, Visakhapatnam, Dahej, Mundhra, Nagapattinam, Okha, Bedi (including Rozi-Jamnagar), Muldwarka, Porbander, Dharamatar and Vadinar or through any of the airports at Ahmedabad, Bangalore, Bhubaneswar, Mumbai, Kolkata, Coimbatore, Delhi, Hyderabad, Jaipur, Chennai, Srinagar, Trivandrum, Varanasi, Nagpur, Cochin, Rajasansi (Amritsar) and Lucknow (Amausi) or through any of the Inland Container Depots at Agra, Bangalore, Coimbatore, Delhi, Faridabad, Gauhati, Guntur, Hyderabad, Jaipur, Jallandhar, Kanpur, Ludhiana, Moradabad, Nagpur, Pimpri (Pune), Pitampur (Indore), Surat, Tirupur, Varanasi, Nasik, Rudrapur (Nainital), Dighi (Pune), Vadodara, Daulatabad (Wanjarwadi and Maliwada), Waluj (Aurangabad), Anaparthy (Andhra Pradesh), Salem, Malanpur, Singanalur, Jodhpur, Kota, Udaipur, Ahmedabad, Bhiwadi, Madurai, Bhilwara, Pondicherry, Garhi Harsaru, Bhatinda, Dappar (Dera Bassi), Chheharata (Amritsar), Karur, Miraj, Rewari, Bhusawal, Jamshedpur, Surajpur, Dadri, Tuticorin, Kundli, Bhadohi, Raipur, Mandideep, Durgapur and Babarpur or through the Land Customs Station at Ranaghat, Singhabad, Raxaul, Jogbani, Nautanva (Sonauli), Petrapole, Mahadipur, Nepalganj Road, Dawki, Agartala, Sutarkhandi, Amritsar Rail Cargo and Attari Road or Special Economic Zone as specified in the notification issued under section 76A of the Customs Act, 1962 (52 of 1962).

Customs Notification No. 40/2006 Customs Notification No. 40/2006 Dtd. 01.05.2006Dtd. 01.05.2006Provided that the Commissioner of Customs may, by special order or by a Public Notice and subject to such conditions as may be specified by him, permit import and export from any other seaport/airport/inland container depot or through any land customs station;

v) that the export obligation as specified in the said authorisation (both in value and quantity terms) is discharged within the period specified in the said authorisation or within such extended period as may be granted by the Regional Authority by exporting resultant products, manufactured in India which are specified in the said authorisation and in respect of which facility under rule 18 (rebate of duty paid on materials used in the manufacture of resultant product) or sub-rule 2 of rule 19 of the Central Excise Rules, 2002 or CENVAT credit under CENVAT credit rules, 2004 in respect of materials imported/procured against the said authorisation has not been availed :

Provided that an Advance Intermediate authorisation holder shall discharge export obligation by supplying the resultant products to the exporter in terms of paragraph 4.1.3 (ii) of the Policy;


vi)that the importer produces evidence of discharge of export obligation to the satisfaction of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, within a period of thirty days of the expiry of period allowed for fulfilment of export obligation, or within such extended period as the said Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, may allow;

vii)that exempt materials shall not be disposed of or utilised in any manner, except for utilisation in discharge of export obligation, before the export obligation under the said authorisation has been discharged in full;

viii)that where the Bond filed under condition (iii) against the said authorisation has not been redeemed by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, the unutilised material may be transferred to any other manufacturer for processing under actual user condition after complying the central excise procedure relating to job work;


ix) that in relation to the said authorisation issued to a merchant exporter,-

the name and address of the supporting manufacturer is specified in the said authorisation and the bond required to be executed by the importer in terms of condition (iii) shall be executed jointly by the merchant exporter and the supporting manufacturer binding themselves jointly and severally to comply with the conditions specified in this notification; and

exempt materials are utilised in the factory of such supporting manufacturer for discharge of export obligation and the same shall not be transferred or sold or used for any other purpose by the said merchant exporter until the export obligation specified in condition (v) has been discharged in full.


2. After discharge of export obligation as specified in condition (v) of paragraph 1, the Regional Authority shall permit transfer of the said authorisation and/or the goods imported under it subject to such conditions as may be specified.

3. Where the materials are found defective or unfit for use, the said materials may be re-exported back to the foreign supplier within three years from the date of payment of duty on the importation thereof :

Provided that at the time of re-export the materials are identified to the satisfaction of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, as the materials which were imported.


Remarks:

1. It’s a good scheme permits duty free import plus transferability. Would fetch a better consideration compared to DFRC & shall also avoid payment of Special CVD (4%) under Sr. No. 1 of Customs Notification 20 Dtd. 01.03.2006. Relevant extract is reproduced below:


S. No.

Chapter, heading, sub-

heading or tariff item of the First

Schedule

Description of goods Standard rate

(1) (2) (3) (4)

1. Any Chapter All goods which are exempt from the whole of the duty of customs leviable thereon or in case of which “Free” or “Nil” rates of duty of Customs are specified in column (4) under the First Schedule of the Customs Tariff Act, 1975 (51 of 1975) and which are also exempt from the whole of additional duty of customs leviable thereon under sub-section (1) of section 3 of the said Act, or on which no amount of the said additional duties of customs is payable for any reason.

Nil

Table

Table


Remarks:

Notification No. 40/2006 has been released on 01.05.2006 to operationalise Duty Free Import Authorisation Scheme.

Notification provides for not availing the facility of Rule 18 or Sub-Rule (2) of Rule 19 or CENVAT Credit against the material procured indigenously. This specific provision means that in respect of raw materials covered by the Authorisation, Central Excise Duty has to be paid and rebate or CENVAT has not to be availed.

The transferability is subject to discharge of obligation in full and the discharge of obligation must be confirmed by Deputy Commissioner or Commissioner of Customs. In other words, the unutilised material can be transferred only if export obligation has been completed.


Remarks:The actual user condition has been defined very carefully. Para (vii) of the Notification states as under:Quote(vii) that exempt materials shall not be disposed of or utilised in any manner, except for utilisation in discharge of export obligation, before the export obligation under the said authorisation has been discharged in full; Unquote

In other words, material imported against DFIA can not be utilised for any domestic manufacturing if the export obligation has not been discharged in full (100%).

To summarise, the Notification does not leave any ambiguity with reference to CENVAT Credit or Actual User Condition.

Duty Remission Duty Remission SchemeScheme

Duty Remission SchemeDuty Remission Scheme

The Duty Remission Scheme enables post export replenishment/ remission of duty on inputs used in the export product.

Duty Remission scheme consist of:(a) Duty Entitlement Passbook Scheme [DEPB]. (b ) Duty Drawback Scheme

Earlier DFRC Scheme is now discontinued w.e.f. 01.05.2006.

Duty Remission SchemeDuty Remission Scheme

DEPB is towards neutralization of basic customs duty on the inputs. DEPB, per se, is duty credit instrument and therefore allows import of any permissible input irrespective of the fact whether the same input has been utilized in the export product or not. DEPB is, therefore, more flexible in nature.

Both DEPB are transferable instruments and hence they are equally easy to operate.

Duty Entitlement Duty Entitlement Passbook SchemePassbook Scheme

Duty Entitlement Passbook Duty Entitlement Passbook Scheme [DEPB] Scheme [DEPB]

The objective of DEPB is to neutralise the incidence of Customs duty on the import content of the export product. The neutralisation shall be provided by way of grant of duty credit against the export product.

The DEPB is valid for a period of 24 months.


The credit under DEPB may also be utilised for payment of customs duty on any item which is freely importable

The additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as CENVAT Credit or Duty Drawback


Transferable DEPB will be issued only where the payment received or shipment is made against

confirmed irrevocable letter of credit or bill of exchange is unconditionally Avalised/ Co-Accepted/ Guaranteed by a bank and the same is confirmed by the exporters bank and certified by the bank in the relevant Bank certificate of export and Realisation.

In other cases, Non-transferable DEPB will be issued. Once the export proceeds received, the same DEPB shall be made transferable.

Checklist Checklist WHILE PREPARATION OF APPLICATION

Whether product is covered under DEPB rate list.

Product group and Sr. No.

Port of registration

Declaration about present market value

Time period for filling of application

Application fees (Mode of payment – on Electronic Fund Transfer mode) EFT transaction status, BID number (Proof of successful transaction)

Each application must relate to exports made from one Custom House only. There is no limit on the number of shipping bills which can be filed through EDI mode in a single application.


Original Export Promotion copy of S/Bills containing of

DEPB Sr. No.

Product group

Description of export product

Date of shipment

Signature and stamp by Exporter/CHA on shipping bill

Signature and stamp by Customs authority on shipping bill

Endorsement of let export date on shipping bill


Original Bank Certificate of export and realization containing of

Invoice No. and Date

Shipping Bill No. and Date

Description of export product

Bills amount i.e. CIF/C & F/FOB (In foreign exchange)

Freight amount as per Bill of Lading/Freight memo

Insurance amount as per insurance Company’s bill/receipt

Commission/Discount paid/payable

Whether the export is in freely convertible currency or Indian rupees

FOB Value/ FOB Value actually realized in free foreign exchange/Rupees


Original Bank Certificate of export and realization containing ofDate of realization of export proceedsGR/PP/SDF Form No BRC No. and DateSignature and seal by the Bankers with codeSignature and seal by the ExporterName of the applicant on the reverse side of the BRC’sEndorsement of Let export date on the reverse side of the BRC’sEndorsement of Date of export on the reverse side of the BRC’sEndorsement of Discount paid/payable, if any

In case of application is received after the expiry of the last date for submission but within six months from the last date of, imposition of a late cut @10% on the entitlement.


In case of Loss of Export Promotion copy of DEPB Shipping Bill

Claim within a period of six months from the date of release of duplicate copy of Shipping bill, supporting by

Duplicate copy of shipping bill issued by the customs authority in lieu of original.

An application fee equivalent to 2% of DEPB entitlement. No fee shall be charged when the shipping bill is lost by Govt. agencies and a documentary proof to this effect is submitted.

Affidavit about the loss of shipping bills.

An undertaking to surrender it immediately to the concerned licensing authority, in case the same is found subsequently.

Indemnity Bond



Claim within a period of six months from the date of release of duplicate copy of Shipping bill, supporting by

Duplicate copy of shipping bill issued by the customs authority in lieu of original.An application fee equivalent to 2% of DEPB entitlement. No fee shall be charged when the shipping bill is lost by Govt. agencies and a documentary proof to this effect is submitted.

Contd……..



Affidavit about the loss of shipping bills.An undertaking to surrender it immediately to the concerned licensing authority, in case the same is found subsequently.Indemnity Bond

If a provisionally assessed DEPB shipping bill is lost, the time period for filing an application for DEPB shall be six months from the date of release of the finally assessed shipping bill.

Checklist Checklist In case of Loss of Bank certification of export and realization

Claim within a period of six months from the date of realization, supported by

Duplicate copy of Bank certificate issued by bank authority in lieu of original loss.An application fee equivalent to 2% of DEPB entitlement.Affidavit about the loss of Bank certificate.An undertaking to surrender it immediately to the concerned licensing authority, in case the same is found subsequently.Indemnity Bond

If both the documents have been lost, then the procedure laid down for claiming both as mentioned above should be followed.

Checklist Checklist POST SUBMISSION OF ONLINE APPLICATION

Creation of file number (Electronically generated)

POST – RECEIVING OF ONLINE APPLICATIONChecking details on the authorisationValidity PeriodValue of the entitlementEndorsement of notification pertaining to the authorisationPort of registrationExport product group and serial no.Transferable/Non transferable endorsementProduct group

Export Promotion Export Promotion Capital Goods Capital Goods SchemesSchemes

Export Promotion Capital Goods Export Promotion Capital Goods Schemes [EPCG]Schemes [EPCG]

This scheme allows import of capital goods and spares at concessional rate of duty [@5% of Customs Duty] coupled with export obligation equivalent to 8 times the duty saved amount to be completed in 8 years.

This scheme helps modernization of industry, technological upgradation of existing machinery and also adds to export earnings of the country.


Where duty saved amount is Rs, 100 crore or more, EO is to be fulfilled over a period of 12 years.

In case CVD is paid in cash on imports under EPCG, the incidence of CVD would not be taken for computation of net duty saved provided the same is not Cenvated.


Imports under EPCG:The capital goods, including

spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds. components required for assembly or manufacturer of capital goods by the Authorisation holder.

Second hand capital goods without any restriction on age may also be imported under the EPCG scheme.


Imports under EPCG:

Import of Restricted items of imports mentioned under ITC(HS) shall only be allowed to be imported under the Scheme after approval from the Import Licensing Committee.


Imports under EPCG:Import of spares:

Spares (including refurbished/ reconditioned spares), tools, spare refractories, catalyst & consumable

for the existing plant and machinery imported/to be imported under the Scheme can also be allowed.

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 Authorisation.



The application shall contain list of plant/ machinery installed in the factory/ premises of applicant, duly certified by Chartered Engineer or Jurisdictional Central Excise Authorities.EPCG Authorisation must indicate the following:

Name of plant/machinery for which spares are required.Value of duty saved allowed under the Authorisation.Description of product to be exported with value of export obligation as per the Policy.



At the time of final redemption of export obligation Authorisation holder will have to submit certificate from the Independent Chartered Engineer confirming the use of spares in the installed capital goods on the basis of stock & consumption register maintained by Authorisation holder.


Eligibility:The scheme covers manufacturer exporters with or without supporting manufacturer(s)/ vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers.

Conditions for import of Capital Goods:Import of capital goods is subject to Actual User condition till the export obligation is completed.


Incentives for Fast Track Companies:In cases where the Authorisation holder has fulfilled 75% or more of the export obligation under the Scheme (including average level of exports) in half or less than half the original export obligation period specified in the Authorisation, the remaining export obligation is condoned and the Authorisation redeemed by the licensing authority concerned.


Indigenous Sourcing of Capital GoodsA person holding an EPCG Authorisation may source the capital goods from a domestic manufacturer instead of importing them.

The domestic manufacturer supplying capital goods to EPCG Authorisation holders are eligible for deemed export benefits


Benefits to Domestic Supplier: Advance Authorisation for the import of inputs including components required for the manufacturer of said capital goods.

The domestic manufacturer may also replenish the inputs including components after supply of capital goods to the EPCG Authorisation holders.

Export Promotion Capital Goods Export Promotion Capital Goods Scheme [EPCG]Scheme [EPCG]

Fulfillment of Export Obligation:

Export Obligation is 8 times of duty saved amount and it is to be fulfilled over a period of 8 years as specified here below:

Period from the date of issue of Authorisation

Minimum export obligation to be fulfilled

Block of 1st to 6th year 50%

Block of 7th and 8th year 50%


Fulfillment of Export Obligation:

In respect of Authorisations, where duty saved is Rs.100 crore or more, the export obligation shall be fulfilled over a period of 12 years in the following proportion:-

Period from the date of issue of Authorisation

Minimum export obligation to be fulfilled

Block of 1st to 10th year 50%

Block of 11th and 12th year 50%


Export Obligation:EO is to be fulfilled by export of goods which are produced from the capital goods imported under EPCG Authorisation.

Same goods manufactured in different units of Authorisation Holder/Supporting Manufacturer.

Direct and third party exports are considered for fulfillment of EO. If merchant exporter is importer, name of supporting manufacturer is to be indicated in the shipping bill.

Export proceeds to be realized in freely convertible currency except for deemed exports.


Export Obligation:When Capital Goods are imported for pre/ post- production or Authorisation is taken for import of spares, the Authorisation holder shall fulfill the export obligation by export of products manufactured from the plant / project to which the pre/ post- production capital goods/ spares are related.


Export Obligation:Alternatively, export obligation may also be fulfilled by exports of other good(s) manufactured or service(s) provided by the same firm/company or group company which has the EPCG Authorisation.

However, in such cases, the additional export obligation imposed under EPCG scheme will be over and above the average exports achieved by the unit/company/group company in preceding three years for both the original and the substitute product(s) /service (s) even in cases where the average is exempt for the substitute product (s)/ service (s) as given in para 5.7.6 of the Handbook (Vol 1).

Export Promotion Capital Goods Export Promotion Capital Goods Scheme [EPCG]Scheme [EPCG]Export Obligation:

The incremental exports to be fulfilled by the Authorisation holder for fulfilling the remaining export obligation can include any combination of exports of the original product/ service and the substitute product (s)/ service (s). The exporter of goods can opt to get the export obligation refixed for the export of services and vice versa.

The export obligation under the scheme shall be, in addition to any other export obligation undertaken by the importer, except the export obligation for the same product under Advance Authorisation, DFRC, DEPB or Drawback scheme.


Export Obligation:Where the manufacturer exporter has obtained authorisations for manufacture of the same export product both under EPCG or any of the Duty Exemption and Remission Schemes as given in Chapter 4 of the Foreign Trade Policy and physical exports or deemed exports for categories [paragraph 8.2 (a), (b), (d), (f), (g) & (j) of Policy] made under these schemes shall also be counted towards the discharge of export obligation under EPCG Scheme.


Maintenance of Average Export under EPCG:Royalty payments received in freely convertible currency and foreign exchange received for R&D services can be counted for discharge under the EPCG scheme.

The EPCG Authorisation holder would have to maintain the average level of exports equivalent to the average of the exports in the preceding three licencing years for the same and similar products except for exempted categories given in Handbook (Vol 1) during the entire period of export obligation.


Maintenance of Average Export under EPCG:Example: Let us say:

Average Exports – Rs. 20 crores Duty saved amount – Rs. 10 crores

The EO is in addition to maintaining the annual average for the same or similar product. If your average is Rs. 20 crore and duty saved amount is Rs. 10 crore your total obligation would be as under:

a) Average Exports X 8 (20 X 8) b) 8 times the duty saved amount (10 X 8) Total

:::

Rs. 160 croreRs. 80 crore-------------Rs. 240 crore =========

To be completed in 8 years

Every year you will first discharge average and then the additional EO.

For e.g. – please refer following Table.

Year Average to be

maintained

Rs. In crore

Additional export obligation

Rs. in crore

Actual Exports say

Total exports

Rs. in crore

Offered towards annual

average Rs. in crore

Offered towards

additional EO

Rs. in crore

1 20 22 20 2

2 20 25 20 5

20 40 21 20 1

4 20 30 20 10

5 20 31 20 11

6 20 35 20 15

Total

----------120

=======

--------44

======

From this table you will understand that average has to be discharged first and whatever exports you do additionally, those exports would be counted towards discharge of additional EO.

Suppose, you complete entire 240 crore in first six years, you will not be required to maintain annual average subsequently. There is also another provision where if you export 75% of your total exports in 4 years or less than 4 years (including average), you will not have to complete balance 25%. [Please refer para 5.11 of Foreign Trade Policy.]

The following table shows how it can be done:

Year Total exports effected by you say [Rs. in crore]

Calculations

1 30 Average for 4 years (20 X 4) = Rs. 80 crore75% of additional EO = Rs. 60 crore(75% of 80 crore) _____________ Total = Rs. 140 crore ========

2 30

3 30

4 50

-----140====

If your EO is discharged as above, you can redeem your case in the 5th year itself.


Extension of Export Obligation Period:1st Extension up to 2 years –

subject to payment of composition fees of 2% of the total duty saved.

OR an enhancement in EO imposed to the extent of 10% of the total EO.

2nd Extension up to 2 years – subject to condition that 50% of duty payable in proportion to the unfulfilled export obligation is paid by the Authorisation holder to the Customs authorities before an endorsement of extension is made on the EPCG Authorisation by the Regional authorities.


In case the firm is still not able to complete the export obligation the duty already deposited will be deducted from the total duty plus interest to be paid for EO default.

Wherever the export obligation period is extended, the Authorisation holder shall be required to maintain average export obligation during the extended period as well.

Exports made on or after the date of receipt of application for EO extension shall only qualify for discharge of EO fulfillment under the Scheme.


Monitoring of Export Obligation:

Progress report on fulfillment of EO is to be submitted by 30th April every year.

Regional authority will issue partial EO Fulfillment Certificate to the extent of EO fulfilled in a particular year.


Maintenance of Records

Every EPCG Authorisation holder will have to maintain, for a period of 3 years from the date of redemption, a true and proper account of the exports/supplies made and services rendered towards fulfilment of export obligation under the scheme.


RedemptionAs evidence of fulfillment of export obligation, the Authorisation holder will have to furnish the following documents;(a) For Physical Exports:

A consolidated statement of exports made in the form given in ‘Aayaat Niryaat Form’, duly certified by a Chartered Accountant and bank evidencing exports and realisation in freely convertible currency or statements of exports in the form given in ‘Aayaat Niryaat Form’ for individual banks duly certified by a Chartered Accountant.

However in case of exports made under irrevocable letter of credit or bill of exchange is unconditionally Avalised/ Co- Accepted/ Guaranteed by a bank and the same is confirmed by the exporters bank, realization of export proceeds would not be insisted upon.

The EPCG Authorisation holder shall submit a copy of the irrevocable letter of credit or the bill of exchange unconditionally Avalised/ Co-Accepted/ Guaranteed by a bank and confirmed by the exporters bank for availing of the benefit of EPCG.


Redemption(b) For Deemed Exports:

(i) Copy of ARO/ Back to Back Inland letter of Credit or Advance Authorisation for Intermediate SuppliesorSupply invoices or ARE 3 duly certified by the Bond Office of EOU concerned showing that supplies have been received;

(ii) The Authorisation holder shall also furnish the evidence of having received the payment through normal banking channel in the form given in Appendix- 22B or a self certified copy of payment certificate issued by the Project authority concerned in the form given in Appendix-22 C.

However in case of exports made under irrevocable inland letter of credit or the inland bill of exchange is unconditionally Avalised/ Co- Accepted/ Guaranteed by a bank and the same is confirmed by the exporters bank, realization of export proceeds would not be insisted upon.


Technological Upgradation of Capital Goods

The EPCG Authorisation holders can opt for the Technological upgradation of the capital goods imported under the EPCG Scheme as per the provisions of Para 5.10 of the Policy.

In case an EPCG Authorisation holder wants to upgrade the existing capital goods imported under the EPCG scheme ,he can opt for the Technological upgradation subject to the following conditions:

(i) The capital goods to be imported must be new and technologically superior to the earlier capital goods. It must be used for the manufacture of the similar product for which the original EPCG Authorisation was issued.


Technological Upgradation of Capital Goods(ii) The export obligation for the new capital goods would be the difference of the sum total of 6 times the duty saved on both the capital goods and the exports already made under the old capital goods.

(iii) The export obligation period would be 8 years from the date of issuance of the new Authorisation.

(iv) The block wise export obligation fulfillment would be as per Para 5.8 of this Handbook.

(v) The average export obligation for the upgraded capital goods would be the same as that of the capital goods being replaced.

The application for technological upgradation of the capital goods would be made in ‘Aayaat Niryaat Form’.


ITC HS code of product to be imported/procured locally.

General exemption notification, if any (For duty structure)

Quantity and value of the capital goods (CIF Value).

Port of registration

Time limit for fulfillment of export obligation (6 times in case of SSI unit or 8 times for Normal)

Details of product to be exported/supply.

Application fees (Mode of payment – on Electronic Fund Transfer mode) - EFT transaction status, BID number (Proof of successful transactions), etc.

Outstanding authorisation details, if any

Checklist Checklist

WHILE PREPARATION OF APPLICATION

Past export performance, if any

Any changes in provisions related to policy and procedures

Justification about import, its end used and establishment of nexus between imports and exports

Customs notification under which the scheme falls.

Declarations

In case of application for spares certification either by Chartered engineer or Jurisdictional central excise authority confirming installation of capital goods for which spares are required.

Checklist Checklist POST SUBMISSION OF ONLINE APPLICATION

Creation of file number (Electronically generated)

POST-RECEIVING THE AUTHORISATIONChecking details on the authorisation

Any specific endorsement by regional authority (BG/LUT, etc)Description, quantity, value of imported and resultant productsEndorsement of notification pertaining to the authorisationPort of registrationDetails of export obligation to be fulfilledDetails of average to be maintained Contd……….

Checklist Checklist POST-RECEIVING THE AUTHORISATION

Checking details on the authorisation

Details of supporting manufacturer/address of the location of capital goodsCurrency areaSignature and seal of officer of the regional authorityIn case of amendments, endorsement of amendment on the authoirsation/ amendment sheet Any specific condition incorporated in condition sheet.Submission of authorisation for registration at portExecution of LUT/Bank Guarantee. In case of local procurement, it should be submitted to regional authority

Checklist Checklist MAINTENANCE OF AUTHORISATION

Monitoring of imports

Endorsement of authorisation number in the shipping bill.

Submission of installation certificate within six months from the completion of imports

Periodical submission of report on the progress made under authorisation.

Segregation or distribution of shipping bills for maintenance of average as well as fulfillment of export obligation

Enhancement / Reduction

Application to be made before or after exports when required. Automatic reduction/enhancement upto 10% is permitted

Checklist Checklist CLUBBING

In case of redemption / regularization, clubbing provisions as per Para 5.18 of HBP Vol. I should be checked.

REDEMPTION OF AUTHORISATIONEndorsement of EPCG authorisation number in the shipping billBank Realisation Certificate

REFERENCE:ITC (HS) Code, Duty Structure and Import Policy notes

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