OFFICE OF THE COMMISSIONER OF CUSTOMS (IMPORT

OFFICE OF THE COMMISSIONER OF CUSTOMS (IMPORT)

JAWAHARLAL NEHRU CUSTOM HOUSE, SHEVA,

�DIST RAIGAD, MAHARASHTRA.

F.No.S/22-Gen-125 /2005 A (M)

��

DT:�� 09.09.2005

STANDING ORDER NO.�� 41/2005

��Sub : Monitoring of Export obligation under Export

Promotion Schemes.

��Monitoring of export obligation under Export Promotion

Schemes viz. DEEC, DFRC & EPCG etc. has been matter of grave concern for the

department.� The export obligation under such a scheme is required to be monitored from time

to time.�

2. ��Chapter 4 of Foreign Trade Policy 2004-09 & Handbook of

Procedures Vol. I deals with the Duty Exemption and Remission� Schemes.� Para 4.1.3 of

Foreign Trade Policy mentions that an Advance Licence is issued to allow duty free import of

inputs, which are physically incorporated in the export product (making normal allowance for

wastage).� In addition, fuel, oil, energy, catalysts etc, which are consumed in the course of their

use to obtain the export product is also allowed under the scheme.

3. ��Further, duty free import of mandatory spares upto 10% of CIF value

of licence, which are required to be exported / supplied with the resultant product are allowed to

be imported under Advance Licencing Scheme.�� Advance Licences are issued on the� basis

of inputs and� export items reflected under� Standard Input � Output Norms (SION).��

However, they can also be issued on the basis of adhoc norms or self declared norms as per Para

4.7 of Handbook of Procedure.� Advance Licences are issued for duty free import of inputs as

defined in Para 4.1.1 subject to actual user condition.�� 4.1.5 of the Policy mentions that an

Advance Licence and / or material imported there under shall not be transferable even after

completion of export obligation.�

4. ��The period for fulfillment of export obligation under Advance

Licence is prescribed in Handbook of Procedure (Vol. I) . Para 4.22 of the Handbook of

Procedures stipulates the export obligation, its period and its extension.� The period of

fulfillment of export obligation under an Advance Licence shall commence from the date of

issuance of licence.� The export obligation shall be fulfilled within a period of 24 months

except in the case of goods supplied under Advance Licence for Deemed Exports / Advance

Licence to the projects / turnkey projects in India/abroad where the export obligation must be

fulfilled during the contracted duration of execution of the project/turnkey project.

However, in case of Advance Licences for drugs, which have been issued against a

specific export order and with pre-import condition the period of fulfillment of export obligation

shall commence from the date of import of the first consignment and should be fulfilled within a

period of 6 months.

5. �� Para 4.22.1 mentions that the request for extension in export

obligation period may be made in the form given in Appendix-10G.� The regional licensing

authority shall grant one extension for a period of six months from the date of expiry of the

original export obligation period to the licensee subject to payment of 2% of the duty saved on

all the unutilized imported items as per licence; Request for a further extension of six� months

may be considered by the regional licensing authorities subject to payment of composition fee of

5% of the duty based on all the unutilized imported items as per licence.� However, any further

extensions beyond 36 months upto a period of 48 months from the date of issue of the Advance

Licence or the duration of the contracted project� (in the case of Advance licence for Deemed

Exports) or on the lapse of any other extension(s) granted by Licensing Authority is permitted on

payment of the composition fee of 2% per month of duty saved.� For all the three cases of

export obligation extension specified above, the composition fee on the duty saved on all the

unutilized imported items would be computed with reference to the actual exports and imports

made by the licence holder.� Within two months from the date of expiry of the period of

obligation, the licence holder shall submit requisite evidence in discharge of the export

obligation in accordance with paragraph 4.25 of the Handbook.�� However, in respect of

shipments, where six months period for realization of foreign exchange has not become due, the

licensing authority shall not take action for non submission of bank certificate of exports and

realization provided the other document substantiating fulfillment of EO have been furnished.

6. ��Para 4.25 of Policy stipulates fulfillment of export obligation.� The

licence holder shall furnish following documents in support of having fulfilled the export

obligation: -

For physical exports :-

i) ��Bank Certificate of Exports and Realization in the form given at

Appendix � 22 of Foreign Inward Remittance Certificate (FIRC) in the case of direct

negotiation of documents or Appendix-22B in case of offsetting of export proceeds.

However, realization 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 exporter bank.

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

22.

ii) ��EP copy of the shipping bill(s) containing details of shipment

effected.

iii) ��A statement of export giving details of shipping bill wise exports

indicating the shipping bill number, date, FOB value as per shipping bill and description of

export product.

iv) ��A statement of imports indicating bill of entry wise item of imports,

quantity of imports and its CIF value.

For deemed exports

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 a copy of ARE-3 duly signed by the

jurisdictional excise authorities certifying the items of supply, its quantity, value and date of such

supply, can be furnished in lie� of the excise attested invoice(s) or statement of invoices as

given above.�

ii) ��Payment certificate from the project authority in the form given in

Appendix-12A.� In the case of Advance Licence for Intermediate Supplies / deemed exports,

supplies to the EOUs/EHTPs/STPs/BTPs, documentary evidence from the bank substantiating

the realization of proceeds from the Licence holder or EOUs/EHTPs/STPs/BTPs, as the case

may be, through the normal banking channel, shall be furnished in the form given at Appendix-

22A.

however, realization of proceeds shall not be insisted upon, it 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 exporter�s bank.

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

22A.

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 imports,

quantity of imports and its CIF value.

7. ��5.1 EPCG Scheme

The scheme allows import of capital goods for pre production, production and post production

(including CKD/SKD thereof as well as compute software systems) at 5% Customs duty subject

to an export obligation and equivalent to 8 times of duty saved on capital goods imported under

EPCG scheme to be fulfilled over a period of 8 years reckoned from the date of issuance of

licence.� Capital goods would be allowed� 5% of duty for exports of agricultural products

subject to fulfillment of export obligation equivalent to 6 times of duty saved over a period of 12

years from the date3 of issue of licence.

However, in respect of� EPCG licence with a duty saved of Rs 100 Crores or more, the same

export obligation shall be required 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� CENVATTed.

The capital goods shall include spares (including refurbished/reconditioned spares), tools, jigs,

fixtures, dies and moulds.� EPCG licence may also be issued for import of components of such

capital goods required for assembly or manufacture of� capital goods by the licence holder.

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

scheme.�

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

for the same existing and new plant and machinery may also be imported under the EPCG

scheme.

However, import of motor cars, sports utility vehicles/all purpose vehicles shall be allowed only

to hotels, travel agents, tour operators or tour transport operators whose total foreign exchange

earning in current and preceding three licencing years is Rs. 1.5 crores.� However, the parts of

motor cars, sports utility vehicles/all purpose vehicles such as chassis etc.� cannot be imported

under the EPCG Scheme.

��Import of capital goods shall be subject to Actual user

condition till the export obligation is completed.

8. ��5.4 ��Export Obligation � Para 5.4 of Foreign Trade

Policy lays down the provision for fulfillment of export obligation.

The following conditions shall apply to the fulfillment of the export obligation :-

(i) ��The export obligation shall be fulfilled by the export of goods capable

of being

manufactured by the use of the capital goods imported under the scheme.

The export obligation may also be fulfilled by the export of same goods, for which EPCG license

has been obtained, manufactured or produced in different manufacturing units of the license

holder/specified supporting manufacturer(s).

When capital goods are imported for pre/post production or license is taken for import of spares

the license 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.

The import of capital goods for creating storage and distribution facilities� for products

manufactured or services rendered by the EPCG license holder would be permitted under the

EPCG scheme.

The export obligation under the scheme shall be, over and above, the average level of exports

achieved by him in the preceding three licensing years for same and similar products except for

categories mentioned in Handbook (Vol. 1).

Alternatively, export obligation� may also be fulfilled by exports of other good(s) manufactured

or service(s) provided by the same firm/company or group company/ managed hotel which has

the EPCG license.

However, in such cases, the additional export obligation imposed under EPCG scheme shall be

over and above the average exports achieved by the unit/company/group company/ managed

hotel in preceding three licensing 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).

The incremental exports to be fulfilled by the license 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 licencee can also opt for the re-fixation of the balance export obligation based on 8 times of

the duty saved amount� for the CIF value in proportion to the balance Export obligation under

the scheme. The guidelines for the re-fixation of export obligation is given in Para 5.19 of the

Handbook (Vol. 1).

The aforesaid facilities shall only be available to manufacture exporters/service provider on all

the licences where export obligation period including extended export obligation period valid on

the date of application. In this regard, exports made only on or after submission of application for

alternate item and / or re-fixation of the export obligation based on duty saved amount will be

taken into account for fulfillment of export obligation.

(ii) ��The export obligation under the scheme shall be, in addition to any other

export

obligation under taken by the importer, except the export obligation for the same product under

Advance Licence, DFRC, DEPB or Drawback scheme.

(iii) ��The export obligation can also be fulfilled by the supply of ITA-1 items to

the DTA, provided the realization is in free foreign exchange.

(iv) ��Exports shall be physical exports. However, deemed exports as specified in

paragraph 8.2 (a), (b) , (d), (f), (g) & (j) of Policy shall also be counted towards fulfillment of

export obligation along with the usual benefits under paragraph 8.3 of the Policy.

Royalty payments received in freely convertible currency and foreign exchange received for

R&D services shall also be counted for discharge under the EPCG scheme.� Payment received

in rupee terms for the port handling services, in terms of Chapter 9 of the Foreign Trade Policy

shall also be counted for export obligation discharge under the Scheme.

5.9.1 ��Monitoring of Export obligation.

The licence holder shall submit to the licensing authority, report on the progress made in

fulfillment of export obligation against the licence issued to him.� The report shall be submitted

in the form given in Appendix-9A.� The periodicity of the report shall be year wise.�

Licensing authorities shall issue Export Obligation Discharge Certificate.� The licensing

authority may issue partial EO fulfillment certificate to the extent of EO fulfilled in a particular

year.

9. ��Changes brought out in EPCG Scheme under Foreign Trade Policy

2004-2009 :- A number of amendments has been made in the EPCG Scheme.� These

amendments, inter alias, are as follows:

��An option has been allowed to the importer to pay CVD in

cash.� Para 5.1 of the new Policy provides that in case CVD is paid in cash, the incidence of

CVD would not be taken for computation of net duty saved provided the CENVAT credit of

CVD has not been taken.

��In respect of capital goods imported for technological

upgradation the export obligation has been reduced to six times of the duty saved.

��In case of a sick unit as notified by the Board for Industrial and

Financial Reconstruction or where a rehabilitation scheme is announced by the concerned State

Government in respect of sick units for their revival, extension of the export obligation period as

per rehabilitation package or upto 12 years where such rehabilitation period is not specified, has

been permitted.�

��The provision relating to block-wise fulfillment of export

obligation has been amended vide paragraph 5.8 of the Handbook and two blocks have been

prescribe ed for fulfillment of export obligation.� Hitherto, there were four blocks for

fulfillment of export obligation.

��The EPCG Scheme allows import of capital goods to service

providers in the Port Handling sector with the benefit that the export obligation may also be

fulfilled by earning of such service charges in Indian rupees which are otherwise considered as

having been paid for in free foreign exchange by the Reserve Bank of India.� It may be noted

that this facility has been extended to the service providers in major seaports where the service

charges are regulated in terms of Tariff Authority for Major Ports (TAMP) Act under which the

major ports are statutorily bound to receive payments from service users only in Indian

currency.� The service providers in ICDs/CFS/Air Cargo Terminals/Land Customs Stations,

etc. are, therefore, not entitled to the aforesaid benefit of fulfilling export obligation from

earnings in Indian currency.� Notification No. 97/2004-Cus., dated 17.9.2004 has been issued

to operationalise the EPCG Scheme under the Foreign Trade Policy.

10. ��By the amendments to the Policy and Procedures w.e.f. 1.4.2000, new 5%

duty EPCG scheme has been introduced.� This scheme has been given effect to, by Notification

No. 49/2000-Cus., dated 27.04.2000.� Under this scheme, the importer of capital goods has to

export resultant products of FOB value equivalent to eight times the duty saved, within a period

of eight years.� This period is divided into four blocks of two years as is the case with zero duty

scheme under Notification No. 29/97-Cus.� Under the new scheme, only basic duty is payable

and additional duty as well as special additional duty are wholly exempt. Both manufacturers as

well as service providers can opt for this scheme.� The new scheme allows installation of

machinery in the premises of vendors or supporting manufacturers, contract farmers for export of

agricultural products and also in the premises of service providers.

��This notification enumerates capital goods, capital goods in

CKD/SKD condition, components required for manufacture of capital goods by the importer and

spare parts not exceeding 20% of the value of above goods.

11. ��The DEEC/EPCG section shall maintain proper record/register indicating

starting and closing dates of export obligation period and particulars to monitor export-

obligations.� The register shall also indicate the extension of export obligation period granted if

any by the licensing authorities.

EPCG Scheme requires that where export obligation of a particular block is not fulfilled,

the importer shall within three months of the expiry of block period pay the duties in respect of

imported capital goods along with a interest @ 15% p.a. proportionate to the un-fulfilled export

obligation from the date of clearance of capital goods.� The duty payable should be computed

by excluding the EPCG exemption.� The block period is reckoned from the date of issue of

EPCG licence.� In case of un-fulfilled export obligation for a particular block if the importer

has not paid the duty and interest in time, a show cause notice demanding the duty and interest

will be issued to the importer.

12. ��Similarly in case of DEEC, the Appraising Group will monitor the export

obligation, whether the same has been fulfilled� within the time limit stipulated under Foreign

Trade Policy and Advance Licence issued by the Licencing authorities. Sometimes, in certain

deserving cases, the export-obligation period is extended by the licencing authorities, such as

endorsement shall also be made in the Register maintained in the Group. In cases, where the

export obligation is not fulfilled within the time-limit/extended time-period, the Appraising

Group shall issue the demand-cum-show cause notice interalia demanding duty and interest. The

export obligation in respect of all the licences shall be regularly monitored.

13. ��The bank guarantees being executed with the deptt. contain automatic

renewal clause having clear commitment from the bank to renew the same from time to time at

their own till the case is finally decided by the Customs. Despite above conditions, the bank

guarantees invariably mention a time limit for validity/expiry� of the bank guarantee, therefore,

a letter should be sent to the bank one month in advance from the date of expiry period to extend

the bank guarantee.

14. ��Export Obligation Discharge Certificate (EODC) received from the

licensing authorities shall be placed in the file and if the export obligation as specified in the

licence, Foreign Trade Policy and respective Customs notifications is fulfilled, the bond/bank

The officers shall follow above instructions scrupulously without fail.

Sd/-

(NAJIB SHAH)

COMMISSIONER OF CUSTOMS

(IMPORT)

Attested by :

( S.A. USMANI )

JOINT COMMISSIONER OF CUSTOMS

APPRAISING MAIN