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Customs Circular No. 59/2004 dated 21.10.2004 

Sub: Foreign Trade Policy, 2004-2009 – Changes made in Advance License, DFRC, EPCG, and DEPB Schemes, etc. – reg.

           

 The Foreign Trade Policy for the period 2004-09 has come into force with effect from the 1^st September, 2004. In this Policy certain new schemes have been introduced for service providers, status holders, agriculture and floriculture sector. Amendments have also been made in the existing DEPB, DFRC, EPCG and DEEC Schemes. The details of the new schemes introduced and changes made in the existing schemes are as follows.

 

2.       Sector specific provisions:

 

(i)       Agriculture [Para 1 B.1(i)].

         

To boost export of agricultural products, several facilities have been extended under the Policy which include, interalia, (i) exemption from Bank Guarantee (BG) to units in Agri Export Zone (AEZ) under EPCG Scheme and (ii) allowing capital goods imported under EPCG Scheme to be installed anywhere in AEZ.  It may be noted that in terms of paragraph 2.27.1 of the Foreign Trade Policy, the exporters who have an export turnover of Rs 5 crore in current or preceding financial year and having a good track record of three years of exports are exempt from furnishing a B.G.. Therefore, exemption from BG to the units in AEZ under EPCG Scheme would be available only to the units which have an export turn over of Rs.5 crore or more in the current or preceding licencing year and which have an unblemished track record for the last three years. In respect of other categories of importers in Agri Export Zone the norms prescribed under Circular No. 58 /2004-Cus, dated 21.10.2004 would apply.  As for capital goods imported under EPCG Scheme, installation would be allowed anywhere in AEZ. Notification No. 97/2004-Cus, dated 17.9.2004 may be referred to for details. Further, verification requirements as stipulated from time to time in respect of goods imported under EPCG Scheme would mutatis mutandis apply in case of goods imported by AEZ unit. It has been specified in notification No. 97/2004-Customs, dated 17.9.2004  that the importers have to maintain accurate records of movement of capital goods within the AEZ.

 

(ii)     Handlooms [Para 1 B.1(ii)].

         

The facilities extended to this sector include, interalia, (a) duty free import entitlement of specified trimmings and embellishments at 5% of FOB value of exports made during the previous financial year; and (b) duty free import of old pieces of hand knotted carpets on consignment basis for re-export.  To give effect to the Policy provision at (a) above, S.No.167 of notification No. 21/2002-Cus has been amended suitably vide notification No. 89/2004-Cus, dated 10.9.2004. As for the provision at (b) above, notification Nos.134/94-Cus, dated 22.6.1994 and 158/95-Cus, dated 14.11.1995 should take care of such situations.

 

(iii)    Handicrafts [paragraph 1 B. 1 (iii)].

         

The facilities extended to this sector include, interalia, (a) duty free import entitlement of trimmings and embellishments at 5% of the FOB value of exports made during the previous financial year; (b) authorizing the Handicraft Export Promotion Council to import trimmings, embellishments and consumables on behalf of those exporters for whom direct import may not to be viable; and (c) CVD exemption on import of trimmings, embellishments and consumables.  For implementing the above provisions, S. No. 114 and the condition relating thereto in notification No.21/2002-Cus have been amended suitably.

 

(iv)    Leather and Foot-wear [paragraph 1 B.1(v)]

         

The facilities extended to this sector include, interalia, (a) duty free import entitlement of specified items at 5% of FOB value of exports made during the preceding financial year;  (b) duty free entitlement for the import of trimmings, embellishments and components for footwear (leather as well as synthetic), gloves, travel bags and handbags at 3% of FOB value of exports made during the previous financial year; (c) basic customs duty exemption on machinery and equipment for Effluent Treatment Plants; (d) CVD exemption for lining and inter-lining material; and (e) CVD exemption for raw, tanned and dressed fur skins falling under Chapter 43.  To implement the provisions at (a), (b) and (d) above, suitable amendments in S. No. 167, 167A and 168 and condition relating thereto in notification No.21/2002-Cus have been made. As regards the provision at (c), a new entry S. No. 463 has been inserted in notification No.21/2002-Cus. As regards (e), raw, tanned and dressed fur skins have been exempted from excise duty. A new entry S. No.304 has been inserted in notification No. 6/2002-CE for this purpose.  

 

3.       Vishesh Krishi Upaj Yojana

 

          A new Scheme namely, Vishesh Krishi Upaj Yojana has been incorporated in the Policy at Paragraph 3.8 to promote export of fruits, vegetables, flowers etc. Under the Scheme, the exporters of such products are entitled for duty credit scrip equivalent to 5% of the FOB value of exports for each licensing year commencing from 1.4.2004. The goods imported under the Scheme are freely transferable. Duty credit may be used for import of inputs or goods including capital goods as may be notified. It has also been provided that additional customs duty / excise duty paid in cash or through debit under Vishesh Krishi Upaj Yojana may be adjusted as CENVAT credit or as duty drawback. The exemption notification for implementation of this Scheme will be issued in due course.

 

4.       Target Plus Scheme

 

4.1     The existing duty free credit entitlement certificate scheme for status holders (paragraph 3.7.2.1 of the earlier Policy) has been replaced by a new scheme called the “Target Plus Scheme”. The eligibility criterion under the scheme is minimum export turnover of  Rs. 10 Crores. Exporters who have achieved a quantum growth in exports would be entitled to duty free credit based on incremental exports substantially higher than the general actual export target fixed. Rewards will be granted based on a tiered approach. For incremental growth of over 20%, 25% and 100%, the duty free credits would be 5%, 10% and 15% of FOB value respectively of the incremental exports. The duty credit can be used for import of any inputs, capital goods including spares, office equipment, professional equipment and office furniture. The duty credit is for own use and not transferable. It has been specifically provided that agricultural products except as may be notified, shall not be permissible for import under the Scheme.  It has also been provided that additional customs duty / excise duty paid in cash or through debit under this Scheme may be adjusted as CENVAT credit or as duty drawback.

 

4.2     The modalities for implementation of the Scheme are being worked out and the notification will be issued in due course.

 

5.       Served from India Scheme.

 

5.1     The Duty Free Credit Entitlement Certificate (DFCEC) Scheme for service providers (paragraph 3.8 of the earlier Policy) has been replaced by “Served From India” Scheme (paragraph 3.6.4 of the new Policy). Individual service providers who earn foreign exchange of at least Rs.5 lakhs, and other service providers who earn foreign exchange of at least Rs.10 lakhs will be eligible for a duty credit entitlement of 10% of total foreign exchange earned by them. In the case of stand-alone restaurants, the entitlement shall be 20%, whereas in the case of hotels and tourism sector it shall be 5%. Duty credit entitlement under this scheme may be used for import of capital goods including spares, office equipment and professional equipments, office furniture and consumables provided it is a part of mainline business of the certificate holder. Further, in case of hotel and stand alone restaurants, the duty credit entitlement may also be used for import of food items and alcoholic beverage.

 

5.2     Notification No.92/2004-Customs, dated 10.9.2004 has been issued to give effect to the scheme.

 

6.       DEPB Scheme

 

6.1     One significant amendment made in DEPB Scheme is that additional customs duty paid through debit under DEPB shall be allowed to be availed as CENVAT credit or duty drawback. Hitherto, the additional customs duty paid through debit under DEPB was not being allowed as CENVAT credit or duty drawback. To give effect to this policy decision, a provision has been made in the notification governing the imports under DEPB Scheme, viz., notification No. 96/2004-Customs, dated 17.9.2004. However, it may be noted that this facility would be available only in respect of the licences issued under the new Foreign Trade Policy. Licences issued under the previous Policies would be governed by the provisions of earlier Policies.

 

7.       EPCG Scheme

 

7.1     A number of amendments has been made in the EPCG Scheme. These amendments, inter alia, are as follows:

 

(i)     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.

 

(ii)   In respect of capital goods imported for technological upgradation the export obligation has been reduced to six times the duty saved.

 

 (iii) 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. Paragraph 5.5.1 of the Policy may be referred to for details.

 

(iv)  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 prescribed for fulfillment of export obligation. Hitherto, there were four blocks for fulfillment of export obligation.

 

7.2     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 sea ports 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.

 

 7.3    Notification No.97/2004-Cus, dated 17.9.2004 has been issued to operationalise the EPCG Scheme under the Foreign Trade Policy. 

 

8.   DFRC Scheme 

 

8.1     An amendment has been made in the DFRC Scheme to allow transfer of import entitlement of canalized fuel to canalizing agencies authorized by the Ministry of Petroleum and Natural Gas. There is no other significant change in the DFRC Scheme.

 

8.2     Notification No.90/2004-Cus, dated 10.9.2004 has been issued to operationalise the DFRC Scheme under the new Foreign Trade Policy. 

 

9.       Deemed Exports

 

9.1     Chapter 8 of the Foreign Trade Policy deals with  deemed exports. The new Policy provides for exemption from the Terminal Excise Duty where supplies are made against International Competitive Bidding. Hitherto, the terminal excise duty was refundable in all cases of deemed exports.

 

9.2     Accordingly, the excise duty has been exempted on all goods which are otherwise fully exempt from basic customs duty and CVD when imported and where supplies are made against International Competitive Bidding. A new entry at S. No 301 of notification No. 6/2002-CE has been inserted to this effect.

 

10.       Import of second hand capital goods

 

Import of second hand capital goods, including refurbished/reconditioned spares, shall be allowed. Hitherto, import of second hand capital goods of more than 10 years old was restricted.

 

11.     Execution of BG/LUT

 

 It has been provided in paragraph 2.27.1. of the Foreign Trade Policy that all the exporters having export turnover of at least Rs 5 crores in the current or preceding financial year and having a good track record of exports for last three years will be exempted from furnishing a BG for any of the Schemes under the Policy and may furnish a LUT in lieu of BG. In this connection, Circular No.58 /2004-Customs, dated 21.10.2004 may be referred to for details.

 

12.     Settlement of cases of failure of discharge of Export Obligation

 

The new Foreign Trade Policy also provides for regularization of export obligation default cases and settlement of customs duty and interest thereof through Settlement Commission with a view to providing assistance to firms who have defaulted under the Policy for reasons beyond their control and also to facilitate the merger, acquisition and rehabilitation of sick units. This would come into effect after an amendment in the Customs Act, 1962 is made in this regard.

 

13.         A suitable Trade Notice and Standing Order may be issued for the guidance of the trade and staff. Difficulties faced, if any, in implementation of the Circular may be brought to the notice of the Board at an early date.

 

14.         Receipt of this Circular may please be acknowledged.

 

Yours faithfully

 

(P. K. Mohanty)

Joint Secretary (Drawback)

F. NO. 605/40/2004-DBK