CORPORATE REPORTING & TAXATION PROJECT WORK

“Tax benefits for Export Oriented Units,SMEs and Infrastructure Development”

Submitted to: Prof. F. A Khan

Submitted by: Deepika Taneja(FT-IB-09-105) Preety Sharma (FT-09-801) Isha Jain (FT-FS-09-101)

ACKNOWLEDGEMENT
We, firstly, express our deepest gratitude to our faculty Prof. F.A. Khan for his invaluable guidance because of the belief that before outcome, source and stimulus deserve the appreciation. We, whole heartedly, convey our sincere thanks to him, for his constant encouragement and support throughout our course, especially for the useful suggestions given for carrying out the project. We would also like to thank the organizations (mentioned in the project) for putting up the valuable information on their websites, which really helped us in our project.

horticulture. The EOUs are required to achieve the minimum NFEP (Net Foreign Exchange Earning as a Percentage of Exports) and the minimum EP (Export Performance) as per the provisions of EXIM Policy. packing materials. viticulture. prescribe several conditions to be fulfilled by the beneficiaries keeping in view the objective of the Scheme and to prevent abuse. poultry. aquaculture. governed by the provisions of Chapter 9 of the Export and Import (EXIM) Policy. Volume-I ( HOP). floriculture. Over the years the Scheme has undergone various changes and its scope also expanded substantially as compared to the initial Scheme.5 million or 3 times the CIF value of imported capital goods. services. horticulture. raw materials. 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. interunit transfer. They also provide various flexibilities in the matter of taking out the materials for jobwork. only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free. As for instance. poultry. consumables. The EOU scheme is. pisiculture. agriculture including agro-processing. Under this scheme. The purpose of the scheme was basically to boost exports by creating additional production capacity. The NFEP and EP varies from sector to sector. repair.5 crore and above are required to achieve positive NFEP and export US$ 3. viticulture. In the case of EOUs engaged in agriculture. The Customs exemption notifications for import & related Central Excise exemption notification when the goods are procured from local manufacturing units. re-engineering including making of gold/silver/platinum jewellery and articles thereof. sericulture and granite quarrying. components. development of software. floriculture. bio-technology. sericulture and granites. Even the goods appearing in the restricted list of the EXIM Policy (1997-02) are permitted to be imported.Introduction Export Oriented Unit Scheme The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31st December 1980. spares and various other specified categories of equipments including material handling equipments. However. the units are allowed to import or procure locally without payment of duty all types of goods including capital goods. Working in Customs Bond is one of the essential prerequisite-there being few exceptions. which was basically for manufacturing sector with certain minimum value addition in terms of export earnings. trading. the goods prohibited for import are not permitted. the units undertaking to export their entire production of goods are allowed to be set up. pisciculture. remaking. the units with investment in plant and machinery of Rs. required for export production or in connection therewith. at present. Under the EOU scheme. 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. 1997-2002 and Chapter 9 of the Handbook of Procedures. reconditioning. These units may be engaged in the manufacture. animal husbandry. . The EOUs can export all products except prohibited items of exports in ITC (HS). animal husbandry.

in the case of EOUs located in port cities/towns or within the municipal limits of port cities/towns. the work is handled by jurisdictional Commissioner of Customs. extension of the time limit is granted in all cases unless there is malafide and diversion of duty free materials. The EOUs are licensed to manufacture goods within the bonded premises for the purpose of export. For other goods. it is for the unit to decide whether to continue under. NFEP is calculated cumulatively for a period of 5 years from the commencement of commercial production according to a prescribed formula. which can be extended further by the Commissioner / Chief Commissioner of Customs. which is extendable to another five years by the Development Commissioner. as per specified territorial jurisdiction as indicated in the Export and Import Policy. As per the policy. who supervise the functioning of the EOUs and eight Export Processing Zones/Special Economic Zones in the country. The work relating to EOUs is handled by the staff of jurisdictional Commissioner of Central Excise. the warehousing period is one year. However. In all. On an application being made by the unit. After approval of the application and issuance of Letter of Permission. On completion of the bonding period. of the scheme. Ministry of Commerce and includes the Chairman. Monitoring and Administrative Control: The EOUs basically function under the administrative control of the Development Commissioner of the Export Processing Zones. dated 2-11-2000. there are seven Development Commissioners at Mumbai. or his nominee as a member. As on 31-32001. dated 31-82000 and 87/2000-Cus. who work under the control of Central Board of Excise & Customs. The provisions of the Customs and Central Excise law in respect of the EOUs are administered by the Commissioners of Customs and Central Excise. whichever is higher. for 5 years. The imported capital goods are allowed to be warehoused for a period of 5 years. Seaport. set up under the Ministry of Commerce. three copies of the application in the prescribed form are required to be submitted to the Development Commissioner.whichever is higher. the period of bonding is initially for five years. Chennai. a green card is issued to the unit. approval of the Board of Approval (BOA) is required.B. the applicant is required to execute a legal undertaking with the Development Commissioner/Designated Officer concerned within the prescribed time period. Vizag. Noida and Calcutta. Cochin. (Reference Board’s Circular Nos. whose jurisdiction has been notified by the Ministry of Commerce. minimum NFEP has to be ‘positive’ and minimum EP for 5 years is US$ 1 million or 3 times the CIF value of imported capital goods. In the case of . On the policy front. Gandhidham. Applications for setting up of Electronic Hardware Technology Park/Software Technology Park units are submitted to the officer designated by the Ministry of Information Technology for this purpose. or to opt out. all decisions relating to the EOUs are taken by the Board of Approvals (BOA). there are about 1350 EOUs functioning in the country.) For setting up of an EOU. 72/2000-Cus.C. For electronics hardware sector. The Development Commissioners of the EPZs/SEZs are the Licensing Authorities in respect of units under the EOU Scheme. C.E. On execution of legal undertaking. The BOA is chaired by the Secretary. In certain cases.

a number of Customs and Central Excise notifications have been issued by the Ministry of Finance.90.94 and 136/94-CE. Pisciculture etc. dated 41-1995. production. Horticulture. Gold. to be determined by the Commissioner of Customs or Central Excise having jurisdiction-guided by CBEC in areas of doubt. or his nominee is a member of the IMSC. In case of units in Aquaculture. dated 4-1-1995. Software technology products for export. Aquaculture for export. The manufacturing and other operations are carried out under customs bond and the unit bearing appropriate charges for officers on cost recovery basis.Notification Nos.10. (Reference Board’s Circular No. The notifications are as under:  General activity of manufacture.E.Notification Nos. Floriculture.Notification Nos.3. 126/94-Cus dated 3.6. capital goods and office equipment etc. 15/95-Cus.94 and 10/95-CE. 140/91 Cus.Notifications No. dated 23-2-1995) Customs and Central Excise Notifications relating to EOU Scheme: To enable EOUs to import / procure locally their requirement of raw materials.6. duty free.Notification Nos. These notifications specify the different categories of items allowed to be imported / procured duty free as well as the conditions thereof. Appropriate inter Ministerial liaison is maintained for ensuring uniformity as far as possible in the Exim Policy provisions and the provisions built in the relevant Customs & Central Excise notifications.91 and 1/95-CE. C.B. The EOUs are required to execute a multipurpose bond with surety/ security with jurisdictional Customs/ Central Excise officers. Granite quarrying etc exemption from bonding is given for administrative reasons with certain other safeguards being put in place to check that duty free benefits where availed are not abused. the policy decisions are taken by the Inter Ministerial Standing Committee (IMSC) set up under the Ministry of Information Technology and the same are implemented through its Designated Officers.      . dated 23-2-1995. 196/94 Cus dated 8. Electronic hardware products for export. Floriculture. dated 4-1-1995. packaging of products and service activities for export.97 and 1/95-CE. 277/90-Cus dated 12.Notification Nos. The availability of any benefit under Customs or Central Excise Acts or the notifications issued thereunder has.units engaged in manufacture of electronic hardware and software. 96/93 Cus. dated 22. silver and jewellery products for export. Chairman.12. Customs Bonding of EOUs: The premises of EOU are approved as a Customs bonded warehouse under the warehousing provisions of the Customs Act. 53/97 Cus dated 3. for export. dated 2.93 and 1/95-CE.C. however. dated 8-12-1995.12.

goods taken into Domestic Tariff Area for job work/ repair/ display etc but not brought back etc. However. The bond is executed with the jurisdictional Assistant Commissioner of Customs/Central Excise in charge of the unit. The importer is required to maintain a proper account of the import. movement of duty-free goods for job work and return.      The importer is required to abide by the terms and conditions of the Letter of Permission/Letter of Intent /Industrial Licence issued to the unit. duty-free import/procurement from the indigenous sources as per relevant notification and warehousing/storage in the unit. Granite Quarrying units. 6/98-CE ( NT) dated 2-3-1998. the sector specific customs / excise duty exemption notification(s) have certain additional conditions. are required to be utilized within a period of one year or within such period as may be extended by the Customs authorities.  The goods are required to be imported into the EOU premises directly. The importer is required to achieve minimum NFEP/export performance as per the provisions of EXIM Policy. transhipment of import /export goods between port of import/export and units' premises. Granite quarrying for export– Notification No. dated 8-5-2000 and 37/2000-CE. agriculture and allied sector units are allowed to supply /transfer the capital goods and the inputs in the farms/fields with prior permission of Customs.e B-17 bond undertaking themselves to fulfil the conditions stipulated in the exemption notification of EOU scheme. except capital goods and spares. consumption and utilisation of all imported/locally procured materials and exports made and submit them periodically to the Development Commissioner/ Customs. dated 8-5-2000. The unit is also required to execute a B-17 bond with surety/ security with jurisdictional Customs/ Central Excise officers and take out a licence under section 58 of the Customs Act. the unit is required to get their premises customs bonded. The format of the bond is prescribed vide notification No. The bond covers the activities which include. However. B-17 Bond: All the EOUs are required to execute a single all purpose bond i. Prior to undertaking import / local procurement duty free. 58/2000-Cus. which are also required to be followed by the units. General Conditions of Duty free Import: The facility of duty free import (extending exemption both from basic & countervailing duty) is subject to certain general conditions in accordance with the EXIM Policy . inter alia. 1962. temporary clearance for repair and display . The goods. This bond is taken to take care of the interests of revenue arising out of goods lost in transit.

(Reference Board’s Circular Nos. dated 8-12-1998. dated 24-5-2000). Import and Export Procedure : With regard to clearance of import cargo. such goods are required to be either destroyed or cleared into DTA on payment of full customs duty. On the export side. the container is allowed clearance. 66/98-Cus. Surety or security equivalent 5% of the bond amount in the form of bank guarantee is required to be given by the EOUs. it does not cover the differential duty amount against advance DTA sale for which a separate bond is to be executed.) Goods Imported /Exported and Found Defective: Subject to grant of GR Waiver by the RBI the EOUs are allowed to make free replacement of the goods exported by them earlier and found defective. 63/97-Cus. dated 10-9-1999) . 42/98-Cus. 14/98-Customs. such defective. Star Trading House.in exhibitions. and Export House are allowed the facility of self-sealing of their export containers. (Board’s Circular Nos. After examination (percentage check only). damaged or otherwise unfit by the overseas buyer. In case the supplier of such goods does not insist for re-exportation. dated 10-3-1998. eligible for fast track or green channel clearance through the Customs. Re-warehousing certificate is to be submitted to the Assistant Commissioner/Deputy Commissioner in charge of the port of import within 90 days of the issue of procurement certificate. AR-3A and CT-3 etc. testing/approvals etc. The imported cargo so cleared and brought into the unit’s premises are examined by the jurisdictional Customs/Central Excise officials. As for sealed containers. The units are also allowed to re-import part consignment/full consignment in case of failure of the foreign buyer to take delivery. The EOUs are also allowed to receive free replacement of the goods imported and found defective. the units having status of a Super Star Trading House. 76/99-Cus. and transfer from one warehouse to another. dated 21-11-1997. dated 17-11-1999. However. and 50/2000-Cus. 14/98-Cus dated 10-3-98 and 90/98-Cus. the EOU cargo is not examined at the gateway port. defective goods are required to be re-exported subsequently. In case of loose cargo. Trading House. Clearance of import consignments is allowed at the gateway port/ Aircargo Complexes on the strength of procurement certificate issued to the EOU by the jurisdictional Assistant Commissioner/Deputy Commissioner. However. the EOUs are placed in a special category. the seal number and container number are verified with the Bill of Lading. However. In general. such damaged. the goods are allowed to be used for export production. dated 19-6-1998. and movement of goods against AR-4. to the country. dated 15-9-98. damaged or otherwise unfit for use goods are required to be brought back subsequently. (Reference Boards Circular 60/99-Cus. 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. marks & numbers on the packages are verified. If the seal is found intact. damaged or otherwise unfit for use prior to re-export of the same..

Levy of Central Excise Duty on Goods Produced or Manufactured by EOUs and Cleared into Domestic Tariff Area: In terms of section 3 of the Central Excise Act. Thus. 1962 or under any other law for the time being in force on like goods produced or manufactured outside India. Valuation of Goods Sold in DTA: Section 3 of the Central Excise Act.99 and Board’s instructions dated 25-7-2001 issued from F. After examination of such goods. alcoholic liquor. The invoice is used both as a transport document and also as a document for determining the assessable value. 1944 provides that the valuation of goods manufactured in the EOU and cleared into DTA is to be done in accordance with the provisions of the Customs law. 30. Goods procured from DTA and found to be defective can be returned to the manufacturer under Chapter X procedure of erstwhile Central Excise Rules. To avoid separate permission every time. 305/121/2001-FTT) DTA sale: The EOUs ( other than gems & jewellery units) are allowed to sell goods (including rejects and byproducts) manufactured by them in DTA upto 50% of FOB value of exports on payment of concessional duty subject to achievement of prescribed NFEP. 01. However. raw materials. which is issued by the Superintendent of Customs/Central Excise in charge of the EOU. dt.07. tea (except instant tea). Such procurement from DTA is against CT-3. when the invoice price of the goods under assessment is in the nature of transaction value. ( Reference Board’s Circular No. The EOUs are allowed to remove the goods into DTA on a invoice. 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. consumables etc. Such goods are required to be brought directly from the manufacturer /warehouse into the unit's premises under AR3A and examined by the designated officer. 268/35/92-CX-8 dated 17-8-94 and Circular No. 330/46/97-CX dated 20-8-97). the EOUs are allowed to procure capital goods. the excise duty leviable on goods manufactured in an EOU/EPZ unit and cleared into Domestic Tariff Area is the amount equal to the customs duty leviable under section 12 of the Customs Act. 1944. 1944. (Board’s Circular No. if imported into . 23/84-CX-6 dated 29-5-84 and Instructions issued vide File No. the EOUs are issued pre-authenticated CT-3 in booklet form and against such pre-authenticated CT-3. dt.1991 and 504/70/99 CE.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 the Chapter X procedure of erstwhile Central Excise Rules. books etc. The EOUs can pay the duty by depositing the same in an authorized bank or the duty can also be debited from the Personal Ledger Account if an account current is maintained. such invoice value can be accepted. 1944. the DTA sale facility is not available for certain products such as motor car. 24/91-CX-8. No.12.

Waste and Scrap.13/98-CE. dated 4. under notification No. As for DTA clearance of goods manufactured by the EOUs which are not excisable (e. in case of these units. (Reference: Notification No. Goods Manufactured from Indigenous Materials in 100% EOUs A concessional duty has been prescribed for goods sold in DTA which are manufactured entirely out of indigenous materials. Sales beyond 50% attract full duties. which have failed to achieve the prescribed NFEP. Further. trimmings and tailor cuttings arising in the course of manufacture of readymade garments are fully exempt from excise duty when cleared into DTA by EOUs.India. the same are allowed to be sold in DTA on payment of concessional rate of duty within overall limit of 50% of FOB value of exports without insisting on achievement of prescribed NFEP. On fulfillment of NFEP (Net Foreign Exchange Earnings as Percentage of Exports) the EOUs other than gem and jewellery units.: The DTA clearance of by-products and rejects on concessional rate duty is not allowed to the EOUs. byproducts and services in DTA upto 50% of FOB value of exports at a concessional rate of duty in an amount equal to 50% of Customs duties. However. it is allowed on payment of full duty. etc. special concessions are available for certain products. (Reference: notification No.2/95-CE. Rejects. In case of waste/scrap/remnants. the duty charged is the effective rate of excise duty which is leviable on like goods manufactured & cleared by DTA units.14 or a trading unit set up under paragraph 9. In such cases. In such cases. are allowed to sell goods including rejects (upto 5% of FOB value of exports). This is subject to the condition that the percentage . dated 2-6-98).12. It may be noted that the words "FOB value of exports" refers to physical exports only. the value of deemed exports made by the unit is not considered while determining the FOB value of exports. the EOUs are liable to pay full duty.8/97-CE dated 1-3-97).21 of the EXIM Policy are taken into account for the limited purpose of arriving at FOB value of exports by EOU/EPZ units provided payment for such sales are made from EEFC accounts. However. Therefore. which have gone into production of such non-excisable goods cleared into DTA. is recovered. As per instance. the measure of excise duty leviable on goods manufactured in EOU/ EPZs is worked out exactly in the same manner as applicable to imported goods.1. scrap. In case of sale of scrap/waste/remnants beyond this limit.1995). Thus.93 rags. if such goods manufactured by a DTA unit are fully exempt from excise duty or are chargeable to ‘nil’ rate of duty. DTA clearance of finished goods is not allowed even on payment of full duty.g. cut flowers) the duty on inputs and consumables etc. Special Concessions for Certain Waste products and Other Goods Cleared from 100% EOUs : Apart from the above general concessions. Non-excisable Goods. (Reference: Notification No. dated 27. procured/imported duty free under exemption notifications. the sales made to private bonded warehouses set up under paragraph 11. Clearance of Byproducts. the EOUs are required to pay 30% of each of duties of customs leviable on similar imported goods.103/93-CE. waste.

53.02 are fully exempted if produced or manufactured by EOU and allowed to be sold in India. To work out the total quantum of duty payable on goods cleared into DTA. 103/93CE. scrap or sweepings are also allowed clearance into DTA on payment . In case of sale of plain gold jewellery. dated 1-3-1997. dated 11-4-1997). Vol. 5703. 58. each of the duty leviable on import of like goods is worked out first and thereafter. dated 18-7-1998. Norms for scrap/ waste material for export products under EOU have been prescribed in Appendix 41 of the Handbook of Procedures. taken together is collected as excise duty on such goods produced by EOUs units when cleared into the DTA.01. In addition to the above. 20/98-CE.2. dated 18-7-1998). the units are allowed to pay concessional rate of duty. under notification No. the waste of fish or crustaceans.2001) Clearance of Waste/ Scrap/ By products in DTA: The EOUs are allowed to clear waste and scrap in Domestic Tariff Area on payment of concessional rate of duty or full rate of duty as explained in detail in paragraph 22. 7/2001-Cus. 58. (Reference: Notification No. Further.of waste material in the form of rags. guar meal manufactured wholly from indigenous guar seeds falling under chapter heading 23. unsuitable/broken cut and polished diamonds. Also.10. 20/97-CE.02. certain specified textile items are allowed to pay concessional duty in case of DTA sales of such items by EOUs. 2/95-CE. 50% of the amount of each duty so calculated. under notification No. ( Reference: notification No.10 are fully exempt from payment of duty if manufactured by EOUs and cleared into DTA.9(b) of Exim Policy. plain silver jewellery.9(b) of the Exim Policy: The manner of calculation of duty leviable on goods cleared in Domestic Tariff Area in terms of paragraph 9. dust or sweepings generated in the unit is allowed to be forwarded to the Government Mint or Private Mint for conversion into standard gold bars and return thereof to the unit subject to the observance of procedure laid down by the Commissioner of Customs. (Reference: Board’s Circular No. cotton waste falling under heading 52. 6/97-CE. In case of gem & jewellery EOUs.01.02. 1997-2002 read with notification No.12. the units are allowed to sell upto 10% of FOB value of exports of the preceding year in DTA subject to fulfillment of NFEP as prescribed under the Export and Import Policy.06 or 6305. 7/2001-Cus. dated 4-1-1995 has been laid down in Board’s Circular No. dated 6. trimmings and tailor cuttings does not exceed the percentage fixed in this regard by the Board of Approval. (Reference notification No. ( Reference: Notification No.07. castor oil cake manufactured from the indigenous castor oil seeds on indigenous plant and machinery falling under chapter heading 23. 58.20. The said dust. Manner of Calculation on Duty of Goods Cleared in Domestic Tariff Area under Paragraph 9. 6/97-CE. precious and semi precious stones or dead stock in DTA. dated 27-12-1993). rough diamonds. mollusks or other aquatic invertebrates falling in chapter heading 05.01 and yarn of jute and goods of jute. manufactured from wholly indigenous raw materials headings 53. 20/98-CE. dated 1-3-1997) In case of Gems and Jewellery EOUs. scrap. studded gold jewellery. I . dated 6-2-2001. 5702.

Duty is not charged if the goods are destroyed with the permission of Customs. Likewise. The permission for such DTA sale is given by the jurisdictional Assistant Commissioner /Deputy Commissioner of Customs/ Central Excise as the case may be. in case the unit is unable for valid reasons to utilize the goods. These products cannot be preserved for a longer period. obsolete/surplus capital goods and spares can either be exported or disposed of in the DTA on payment of applicable duties. These sealed samples are not normally examined again before " let export" is given if the seals are found intact and not tampered. 22/98-Cus. (Board’s Circular No. 10 lakhs in the case of new unit going into production on payment of applicable duties. Clearance of Samples : The EOUs are allowed to supply or sell in DTA samples of goods produced by them for display or market promotion upto 1% of the previous year’s exports or maximum of Rs. dated 27-3-1998 and 52/99-Cus. There are circumstances (especially in case of floriculture units) when the units do not find the goods exportable/marketable for various reasons such as malformation. The packages containing such samples are sealed in the presence of the Customs officer and are handed over to the representative of the courier company authorised by the Commissioner of Customs for presentation to the Customs at the port of export. dust or sweepings. Samples of the sweepings/dust are taken at the time of clearance and sent to mint for assaying. vegetables and agricultural products have a very short shelf life and are prone to malformation. dated 20-8-1999). imported or procured duty free in DTA on payment of duty on the value at the time of import/procurement and at rates in force on the date of payment of such duty.of applicable customs duty on the gold content in the said scrap. damage. Clearance of Personal Computers : The EOUs are allowed to remove personal computers not exceeding two in number for installation in their registered/administrative offices located in DTA subject to the following of the procedure prescribed in this regard. The EOUs are allowed to send samples abroad through the courier. The representative of the courier company later hands over the proof of export to the jurisdictional Assistant/ Deputy Commissioner. (Reference Board’s Circular Nos. as applicable. injury. is allowed in such cases. injury. The assessment is finalized when the reports are received from the mint. damage. Destruction of Flowers/Horticulture Products : Flowers. the procedure prescribed for sub-contracting is required to be followed. The units are also allowed to take out samples into DTA without payment of duty on returnable basis for the purpose of display/market promotion. . The benefit of depreciation. In such cases. infection etc.41/99-Customs dated 30-6-99) Sale of Surplus/ Unutilized Goods : The EOUs are allowed to sell surplus/unutilized goods.

such as. Similarly. duty is not charged from the EOUs. The scrap/waste/remnants generated at the job worker’s premises can be either cleared from the job worker’s premises on payment of duty or returned to the supplying unit. cancellation of flights etc. the flowers and floriculture products deposited in the warehouse of the airlines at the international airports for the purpose of exports are not exported owing to various reasons. the unit is required to follow the Receipt Challan/ Despatch Challan ( RCDC) procedure. The EOUs are also allowed to remove moulds. In such cases. instruments. such as. The approval for sub-contracting abroad is accorded by the Board of Approval.31/2001-Cus. value of the goods. fixtures. The unit is required to execute a suitable bond for sub-contracting of goods abroad and is . For sub-contractual work performed outside. the unit must have DTA sale entitlement under the scheme. duty forgone on the goods and the period within which the goods will be received back. tackles.infection by pest and diseases etc. Clearance of Goods Manufactured by EOUs against Advance Release Order (ARO) or Sub-Contracting : The EOUs. The goods sent for job-work abroad are required to be returned to the unit for final processing/manufacturing before exports. delay in flights. the units are required to take annual permission from the Customs authorities and are required to furnish information. The DTA sale is allowed against documents as are used for DTA sale by EOUs in the manner as if the goods cleared from the unit itself. the goods after completion of sub contractual work are received back in the unit on the basis of Receipt Challan. processes to be carried out on sub-contract basis and the name. other g than Gem & Jewellery units. and the units have to resort to forced destruction of flowers. at the time of removal of goods. such as. Sub-contracting of both production and production process are also allowed to be undertaken through other EOU/EPZ/EHTP/STP/SEZ units on the basis of records maintained by the unit. (Reference Board’s Circular No. These units may also sub-contract up-to 50% of production for jobwork in DTA. are allowed to sub-contract part of their production process in DTA. hangers and patterns and drawings to the premises of sub-contractors subject to the condition that they are brought back to the bonded premises of EOU on completion of the job work within a stipulated period. dated 24-5-2001). tools. the units are allowed to sell such flowers and floriculture products in DTA on payment of applicable duty. The EOUs are allowed to sub-contract part of the production process abroad. the unit prepares Despatch Challan giving information. In such cases. The unit is required to bring permission from the concerned Development Commissioner for such DTA sale and shall clear the goods on payment of duty assessed by the concerned Assistant Commissioner/ Deputy Commissioner in charge of the cargo. For such DTA sales. Under this procedure. Exports from job worker’s premises are allowed in cases where the job workers are registered with the Central Excise department. address of the subcontractor etc. At times. jigs. After getting the permission. vegetables etc. A sample of goods exported is sent to the EOU for checking whether the goods supplied by it are utilised by the job worker in the export product. name & address of job worker.

As mentioned earlier. upgradation of technology and re-engineering activities for export in freely convertible foreign currency provided such repairs. This is subject to the condition that the finished goods are exported directly from the EOU and export documents are made in the name of the DTA unit. The EOU is not eligible for any wastage or manufacturing loss against such jewellery. Temporary Removal of Goods : The EOUs. On export of such goods manufactured by EOUs on behalf of the DTA unit. Reconditioning etc. the DTA unit is entitled to refund of duty paid on the inputs by way of brand rate of duty drawback. 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.required to account for the goods including waste/rejects in the manner as prescribed by the Commissioner of Customs/ Central Excise in this behalf. quality improvement. To help utilize the idle capacity. the duty is demanded from the sending unit. Inter-unit transfer : An EOU is allowed to transfer imported or manufactured goods to another EOU/EPZ/STP/EHTP/SEZ unit.: The EOUs are permitted to import goods of any origin to carry on re-conditioning. In case of non-receipt of rewarehousing certificate and similarly. repair. 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 subject to following the prescribed procedures. reengineering etc. non-receipt of proof of export from the proper officer within 90/180 days. testing. 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. Repair. the gem & jewellery EOUs are not allowed to subcontract the production or production process in DTA. such gem & jewellery EOUs are allowed to receive plain gold/silver/platinum jewellery from DTA against exchange of gold/silver/platinum of the same purity & quantity in weight as that of the jewellery. are carried out in Customs bonded premises and the final goods are not sold within the country. The DTA units supplying such jewellery against exchange of gold/silver/platinum are not entitled for deemed export benefits. . However. reconditioning. calibration. the EOUs are allowed to undertake job work for export on behalf of DTA units.

Removal of moulds. Gem and jewellery units to remove parts & tools of machine temporarily without payment of duty for the purpose of repair and return thereof.     For availing of the above mentioned facilities.A. Generally. The EOUs in gem & jewellery sector are allowed certain special facilities as mentioned below:   The items of gem and jewellery to be taken out temporarily into DTA without payment of duty for the purpose of display and to be returned thereafter.. etc. and drawings into the DTA for jobwork without payment of duty and to be returned to the unit thereafter.R. or in the showroom of their distributors or agents provided that items not sold abroad within 180 days.000 for export promotion tours and temporary display or sale abroad subject to the condition that the exporter would bring back the jewellery or the goods or its sale proceeds within 45 days from the date of departure through normal banking channel. Supervision of EOUs by the Customs/ Central Excise: Operational flexibility has been provided to EOUs by amendment of "Manufacture and Other Operations in Warehouse Regulations. one Customs officer supervises the functioning of four to five units and the cost recovery charges are shared amongst them.00. Chennai. The EOUs pay in advance the cost recovery charges determined for the entire year. Delhi and Mumbai and sold to a foreign-bound passenger are allowed to be transferred to the retail outlets or showrooms set up in the departure lounge or Customs warehouse at international airports for being handed over to the said passenger for the purpose of export. The procedure for locking of the warehouse. patterns.A. contral over the issue of imported goods etc.A.C.Special Provisions Relating to Gems & Jewellery EOUs. Personal carriage of gold/silver/platinum jewellery or precious or semi-precious stones or beads and articles as samples upto US$ 1. Cost Recovery Charges/Cost Sharing Cost recovery charges are the amount recoverable from the EOU on account of the expenses incurred by the Government for the posting of Customs staff at its premises to supervise their operations. Export of jewellery including branded jewellery for display and sale in the permitted shops setup abroad. H. tools. has been abolished.e. prior permission of Assistant Commissioner / Deputy Commissioner is required. . the average pay and allowances including D. Gem and jewellery manufactured in the EOU situated in the municipal limits of Calcutta. The EOUs no longer carry out manufacturing operations under physical supervision of Customs officers. 1966". C. shall be re-imported within next 45 days. The cost of posts created for EOUs has been determined at an amount equivalent to the actual salary and emoluments of the staff deployed i.. All the movements from and to the unit like clearance of raw materials/ component to the job workers premises.

quantity used. clearance to other EOUs. Physical control over the EOUs has. As physical control has been abolished greater stress is given on proper maintenance of prescribed records & accounts and non-maintenance of the accounts by the units is viewed seriously. Joint Monitoring of EOUs: The guidelines for monitoring the performance of EOUs have been laid down in Appendix 16-E of the Handbook of Procedures (Vol. In case of failure to achieve the minimum NFEP and EP. Recovery of Duty Forgone under EOU Scheme and Penal Action for Abuse/ Diversion etc. loss of goods in transit. As per the said guidelines. the law also provides for taking penal action where any 100% EOU is found to have indulged into any fraudulent activities eg. not only the offending goods can be seized and confiscated.return of goods from the job-workers’ premises. Apart from recovery of duty forgone. diversion of duty free materials in transit to the unit after customs clearance or after receipt etc. 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. finished goods produced or other such situation. but even units penalized heavily/ prosecuted. Further. but not received back in the unit within the specified period of time. clandestine removal etc. The Chief Commissioner is empowered to order special audit of the unit by Cost Accountant nominated by him in this regard.I). the duty forgone under the EOU scheme along with interest is recoverable from the units. Besides. export and sale in DTA are allowed to be made by the unit subject to maintenance of the records. : Under EOU Scheme. Cost audit is employed as a tool to check the correctness of raw materials. . unauthorized DTA sale. The idea is to remove all bottlenecks in export promotion efforts while not jeopardizing the interests of revenue. The cost recovery officer has to ensure that all movements of goods are recorded in the proper register. clandestine removal of production into DTA without payment of duties. The duty is also recoverable on goods removed for job working/ display/ testing/ quality testing. been replaced by Record Based Control. the duty is recoverable from the units in case of non receipt of imported/ indigenously procured goods in the factory premises after import/procurement. non accountal of imported/ indigenously procured goods. such joint monitoring gives an opportunity to the Government to discuss and help resolve the problems/difficulties being faced by the EOUs. the units are required to achieve minimum NFEP and Export Performance as stipulated in the Exim Policy. Duty can also be demanded in case of failure to utilize duty free imported/indigenously procured goods including capital goods within the prescribed time limit. the performance of EOUs is to be jointly reviewed by the Development Commissioner and the concerned Customs/Central Excise officers. The purpose of joint review is to ensure that the performance of EOUs are effectively monitored and action is taken against the units which have contravened the provisions of the EXIM Policy/Handbook and the Customs Law/Procedures. thus..

the unit in question continues to be treated as an EOU till the date of final de-bonding order.De-Bonding : An EOU may debond into a normal DTA unit subject to the approval of the Development Commissioner and following of prescribed procedure & fulfilling the laid down conditions. that the applicable customs and central excise duty would be paid on imported and indigenous capital goods. The rate of depreciation on capital goods have been specified and in case of the computers and computer peripherals. gold and other specious metals. consumables. (d) Used packing materials such as cardboard boxes. The standard conditions of de-bonding. polyethylene bags of a kind unsuitable for repeated use can be cleared without payment of duty. amongst other conditions. alloys. finished goods. Goods including containers suitable for repeated use other than those at (b) above can be (c) 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. In the event of a gem and jewellery unit ceasing its operation. . Such de-bonding is subject to penalty. if any. in stock. components etc. Capital goods. Further. as indicated in the Handbook of Procedures provide. accelerated rate of depreciation have been provided for. the EOUs are entitled for depreciation on imported/indigenous capital goods. raw materials. gem and other materials available for manufacture of jewellery are handed over to a nominated agency (nominated by Department of Commerce) at a price determined by that agency. that may be imposed and payment of duties of customs and excise applicable at the time of de-bonding. The duty payable in terms of the relevant notifications by the units seeking debonding is as under: Semi-finished and finished goods lying in stock at the time of de-bonding can be cleared (a) on payment of the excise duty equal to aggregate duties of Customs payable on similar imported goods. office equipment and captive power plants can be cleared on payment of an amount equal to the customs duty leviable on such goods (b) on the depreciated value thereof and at the rates in force on the date of payment of such duty. material handling equipment. At the time of debonding.

only 90% of a company’s distributable reserves may be paid as dividends. Additionally. even if DDT is not due on dividend payments. a construction company working on multiple projects in India should consider all relevant factors bespoke to their requirements before structuring their operations. subject to prescribed conditions. Structural considerations for developers Dividends paid by an Indian company are subject to a Dividend Distribution Tax (‘DDT’) of around 17%. it should be noted that introducing a new corporate layer at the Indian level will bring the shares in the Indian operating company within the Indian capital gains tax net. Although transfer pricing regulations are a relatively recent phenomenon. . accounting. Therefore. including a numbers of tax holidays. although Minimum Alternate Tax (MAT) of 11. as in accordance with Indian regulatory provisions. The Government’s strong focus on promoting infrastructure development also extends to tax policy. Transfer pricing regulations were introduced in India in 2001. the authorities have taken an aggressive stance.Tax Benefits for Infrastructure development Infrastructure companies looking to invest in India need to consider a variety of tax issues. Overall tax rates can be relatively high. We have outlined below some of the key areas to consider. While such types of structuring may help the parent company to unlock shareholder value and should not impose any additional levy of DDT. The tax environment for Infrastructure companies investing in India International tax considerations Effective tax structuring into India is vital as this impacts on how attractive a project is to target investors and has a direct influence on the net internal rate of return. there would be an up to 10% cash trap in the Indian operating companies. In February 2008. It is therefore particularly important that international investment opportunities are structured appropriately to take into consideration tax. There is no advance pricing arrangement (APA) yet in India. the Finance Minister announced some relief whereby a dividend paid to a parent company by its subsidiary would not be liable to DDT.33% may be payable on book profits during this period. so the implications of transfer pricing remain somewhat uncertain. many corporates may be considering restructuring their corporate structure so that different business streams have separate Indian operating companies with one common Indian parent. Earlier. so careful tax planning is vital. Following the recent change in DDT. Some of the relevant taxes applicable to E&C companies. corporate had a lean structure with one company having many divisions catering to different businesses. with a number of policy measures and incentives now in place for the construction of infrastructure facilities. regulatory and legal aspects.

A typical EPC contract will have the following scope of work in a single project : • Supply of equipment (offshore and onshore) • Installation/commissioning • Services (offshore and onshore) • Software/technology transfer (offshore and onshore) Under a typical EPC contract. there are various issues that need to be considered such as the Indian External Commercial Borrowings rules. then there maybe significant adverse tax implications. In practical terms in the E&C industry. procurement and construction (EPC) contract. etc. all with differing tax impacts.Entry and exit strategy Holding company location – Appropriate planning in respect of a holding company jurisdiction is necessary to minimise Indian withholding tax and Indian capital gains on the sale of shares in Indian companies. Holding the investment Permanent Establishments – One of the risks with managing investments in India is managing the Indian permanent establishment position. a non-resident contractor performs a multitude of activities. It is therefore important to carefully manage the operations carried out at the Indian level. Engineering. within the range of taxes in India. the execution of projects is undertaken substantially by way of an engineering. activities generally take a long duration to complete. Cash and profits repatriation Profit repatriation – There are various options on repatriating profits from the structure. Offshore supply of goods and services under a composite contract are something of a grey area. including the offshore supplies and services. Onshore supplies and services are normally taxable in India. procurement and construction (EPC) contracts –onshore versus offshore In the E&C industry. such as dividend distributions. The Indian revenue authorities often attempt to bring the entire EPC contract. and hence PE clauses (especially fixed base and service PE) come into play in this industry more often. withholding tax issues on distributions out of India and the availability of a tax deduction for the distribution at the Indian level. Financing – In order to introduce debt into India. Taxability of payments received by foreign companies under EPC contracts has become a matter of great debate and litigation. The scope of work under an EPC contract would include both onshore and offshore activities (see Figure 3). where if the Indian tax authorities successfully argue that there is an Indian permanent establishment of the foreign operations in India. capital reductions. share sale. .

subject to the following conditions: • Principal to principal transaction • Title (i. taking into account the particulars of each project. Now.e. transfer) projects. Such a fund would depend on the life of the project and the concession period could vary widely. operate. Private players are needed to invest in infrastructure projects on the BOOT basis. Further. The infrastructure sector may be eligible for a higher rate of depreciation in book value for BOOT (build. infrastructure companies may benefit from the creation of a sinking fund by such companies for the concession period. the revenue authorities have not accepted the above rulings and the matter is pending before the higher judicial authority. alternatively. the Indian Government is re-examining the existing depreciation policy for such entities. Nonetheless. let’s refer to some articles which throw light on Government’s efforts in the same direction . Higher depreciation In order to make infrastructure projects more attractive for companies and investors. and in the future. depending on the contractual conditions of the specific project.The tax authorities may cite a business connection in India. own. some recent landmark judicial rulings with regard to EPC contracts in India suggest that tax outcomes for each of the components of the contract must be determined independently. risk and ownership) in the offshore supplies passed to the buyer on high seas (outside India) • Sale consideration is received outside India • Sale is at arm’s length Although the above rulings suggest that offshore supply and services may not to be taxed in India. there could be a policy for amortization of the entire expenditure for such companies. E&C companies should take care to structure contracts in a tax efficient manner. These rulings have brought about a general principle that profit from offshore supplies would not be taxable in India. the taxability depends on the specifics of each case. The Government is still examining this proposal and also evaluating whether depreciation should be allowed or. and also note the presumed indivisibility of EPC contracts.

A finance ministry-sponsored study. The Export-oriented Units tax benefits were originally scheduled to expire on March 31. Experts say the proposed extension will enable units in Export-oriented Units to plan better.700 companies operating within the Export-oriented Units. generating manufacturing activity and employment. Gujarat. Kamal Nath had announced that the scheme would be extended till March 31. .428 crore in 2007-08.7 per cent of the total exports (in rupee terms). like the Reliance Industries Ltd’s 33-million-tonne-per-year petroleum refinery in Jamnagar. said a decision on this will probably be finalized only after a new government takes over after the general elections.” said L B Singhal. Extending the scheme will add clarity to these units’ expansion plans. Government sources. This was after a committee headed by National Manufacturing Competitiveness Council headed by V Krishnamurthy had recommended the extension of the tax benefits to Export-oriented Units. followed by engineering companies at about 10 per cent. This benefit is to expire at the end of next fiscal 2009-10. Chemical and pharmaceutical units account for about 18 per cent of the exports from the Export-oriented Units.” said Commerce Minister Kamal Nath at the annual award function of Export Promotion Council for Export-oriented Units and Special Economic Zones (EPCES) here today. 2010.Commerce ministry mulls 3-yr extension of EoU tax breaks The commerce ministry has proposed a three-year extension of tax benefits given to Exportoriented Units (EoUs) in an attempt to encourage export industries at a time when global demand is expected to slump further.54. however. which will lead to additional manufacturing and exports as well as employment. The move will benefit more than 2. Exports by these Export-oriented Units stood at Rs 1. allows manufacturing units in the zones to enjoy 100 per cent income tax exemption on profits from overseas sale and also get to import raw materials duty free. We have taken up the issue of extending the sunset clause by another three years. director general of EPCES. “Export-oriented Units exports have been increasing at an average rate of 20 per cent in the past 10 years. likely to take place after April. 1980. 2009. Sunset clause refers to a law that expires at a specified point of time. conducted by economic think-tank Indian Council for Research on International Economic Relations made a similar recommendation. Mr. about 24. while releasing the foreign trade policy. The Export-oriented Units scheme. Under Section 10(B) of the Income Tax Act. including exporting not less than 50 per cent of their total production. introduced in December. Last year. Export-oriented Units do not need to pay tax on profits provided they fulfill some conditions.

adding such exemptions also lead to tax evasion and avoidance.” revenue secretary Sunil Mitra said in an interview.Export-oriented Units differ from Special Economic Zones (SEZs) in terms of the level and timeperiod of tax breaks to which they are entitled. The revised discussion paper on DTC released recently said profit-linked deductions are distortionary in nature as they create an incentive to inflate profit as well as to transfer profits from a taxable entity to a non-taxable one. “There will be no profit-linked deductions for special economic zones under Direct Taxes Code. “SEZs have their own benefits. SEZs get income-tax breaks for 15 years. units get total income tax exemption on export profits for the first five years. it has been decided not to extend the scope or the period of profit-linked deductions. Experts maintain that the extension of Export-oriented Units benefits will not impact SEZs. The SEZs are governed by the SEZ Act of 2005. but not into SEZs. Mitra said existing SEZs will continue to get residual tax benefits committed under the SEZ Act which came into effect in 2006. They are also exempt from sales tax and excise. which is supervised by the commerce ministry. Both were tight-lipped over the outcome of the meeting. But SEZ developers and units may still get investment-linked tax deductions. After the representations from developers and export promotion bodies. which include a more comprehensive package of tax benefits as well as procedural benefits like single-window clearances. The extension will not have any impact on the zones. Mitra said it is not correct to say units in SEZ cannot get investment-linked deductions. aimed at reforming tax structure in the country. Benefit to SEZs under DTC Finance ministry ruled out any profit-linked tax benefit to special economic zones (SEZs) under the proposed Direct Taxes Code (DTC). Many major developers and export promotion councils have approached commerce ministry to highlight the possible adverse impact of the DTC on SEZ projects. Export-oriented Units are governed by the Foreign Trade Policy. Existing factories can be converted to Export-oriented Units. The developers get 100% income tax exemption for a block of consecutive 10 years of the first 15 years. commerce secretary Rahul Khullar met Mitra on to discuss the issue. “Therefore. There are reports that commerce minister Anand Sharma is likely to meet finance minister Pranab Mukherjee on the issue and Khullar is confident of a compromise solution. . and 50% exemption for the next five years. among other local imposts.” it said. Under the SEZ Act.

We have regretted our ability to accept either the suggestions of Madhya Pradesh or that of Gujarat that they communicated in a letter or the suggestion of the empowered committee.” Mr Sunil Mitra. I have ways to monitor investments. He also ruled out a rethink on the proposal to impose minimum alternate tax (MAT) on book profits of companies at 20 per cent rate. It is much smarter way. The tax breaks for STPI scheme has a sunset for March 31. My biggest worry is that the effective rates of tax for STPI and hardware related units are only about 11-12 per cent. “Investments are easier for me. These distortions have become serious. Profit linked deductions has created aberrations”. The model suggested did not require a Constitutional amendment for GST introduction. 2012. Mr Mitra pointed out that a MAT credit would be available for 15 years. “Our view is that Constitutional amendment is a must for GST. 2011. implying that the tax holiday will end for units on that date. Mr Mitra also felt that STPI scheme should not be compared with the tax regime being provided for special economic zones (SEZs). I have no way to monitor profits. which require a seamless flow of credit to neutralise the cascading effect of taxes. Meanwhile.” he said. said at a CII meeting on DTC here. Nasscom had recently said that there was a case for a one-year extension of the STPI scheme beyond end March 2011 as the Direct Taxes Code (DTC) is likely to come into force from April 1. Revenue Secretary. There is no question of extending it. “I don’t think it is unfair at all. to give SEZ developers one more year and to give SEZ units two years beyond is in my view not fair.Extension of I-T holiday beyond March 2011 for STPI units The Finance Ministry has ruled out extension of income tax holiday beyond March 2011 for software technology park of India (STPI) units. but they should also pay their taxes. Mr Mitra also rued that sometimes “incomprehensible amounts of profits” are being claimed as deduction. which he conveyed through a separate letter. “STPI has its sunset. on goods and services tax (GST). Their suggestions do not enable basic features of GST.” he said. “Even now. he said.” Mr Mitra said. He defended the DTC proposal to replace the profit-linked deductions with the investment linked incentives. They are earning so much money for themselves and the country. “That can only happen if these are profits earned elsewhere within the Group and brought in for deductions or exemptions. .” he noted. We value that. the Centre has rejected the alternative model proposed by both Madhya Pradesh and Gujarat.

pwc.com  www.com .BIBLIOGRAPHY  www.com  www.google.investopedia.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.