Subject:-    Special Value Based Advance Licensing Scheme for export of ready - made garments -Changes effected in the Handbook of Procedure, Vol. I published on 30.4.95 - Issue of notifications - regarding.

Special Value based Advance Licensing Scheme Introduced in 1992

        A Special Value Based Scheme for exporters of ready-made garments was introduced by Ministry of Commerce vide their Notification No. 39 (N-7) /92-97 dated 27th August, 1992. To give effect to this scheme Notification No. 104/ 93-Customs dated 16th March, 1993 was issued. In this connection attention is invited to Circular NO. 6/93 dated 30th April, 1993 issued from F.No. 605/98/93-DBK. In the revised edition of Handbook of procedure, Vol. I published on 30th March, 1995 the Special Value Based Advance Licensing, Scheme for garment sector has undergone significant changes. Accordingly, Notification No. 104/93-Customs has been amended vide Notification No. 105/95*-Custom dated 2nd June, 1995 to restrict its applicability for import against licences issued on or before 30th April, 1995 under the scheme.

New Scheme 'A' for Garment Sector

2.    The scheme as contained in Appendix XXIIA of Handbook of Procedure, Vol.I issued on 30th April, 1995 has been redesignated as Scheme 'A' and another Scheme designated as Scheme 'B' has also been introduced. Scheme 'S' which is in continuation of the earlier scheme has undergone some changes as under :-

(a)    With the deletion of para 70 from the Exim Policy, exports under the Scheme will now be eligible for drawback wherever admissible. Since no All Industry Rate of drawback has been notified for exports under this scheme, the exporters can claim Brand Rate of drawback for the inputs other than those permitted to be imported duty free under the scheme.

(b)    Earlier trimmings and emblishments listed in the notification were permitted only to the extent of 25% of the value of the fabrics actually imported. The revised scheme permits import of such Trimmings and Emblishments does not exceed 20% of the CIF value of the licence.

(c)    It has been specifically provided that at the time of closure of DEEC Book. the exporter shall satisfy the Licencing Authority that the quantities of fabrics, trimmings and emblishments imported have been actually used in the garments which were exported under the Scheme. Thus the Scheme continues with actual user condition i.e. import of inputs have to proceed exports and all inputs are required to be used in the export product only.

(d)    In the new Exim Policy announced with effect from 1st April, 1995, a provision has been made under Duty Exemption Scheme for execution of bond with the Customs authorities. Accordingly, the Licencing authority whereas a bond with suitable surety or security is required to be executed with the Customs authorities. The quantum of Bank Guarantee to be taken with the bond has been prescribed vide Ministry's Circular No. 52/95 dated 25.5.95 issued from F.No. 605/72/95- DBK.

New Scheme 'B' for Garment Sector

3.    A new Scheme 'B' which has been introduced, provides for issuance of Value Based Advance Licence upto 150% of the FOB value of appellant's exports for ready-made garments in the preceding licencing year. After obtaining the licence, the exporter can accept export orders from the foreign buyer, against an irremovable letter of credit opened by foreign buyer in freely convertible currency. The licence holder will be permitted to open back to back overseas letter of credit for souring  his inputs from abroad subject to the condition that such back to back overseas letter of credit should not exceed 50% (fifty percent) of the value of irrevocable letter of credit opened by the foreign buyer of goods in favour of the exporter. Thus, value addition under the scheme would automatically by 100%.

3.1    The Scheme 'B' allows import of fabrics required for manufacture of garments to be exported and also allows import of trimmings, embellishments and sample yardage by the exporter. The Indian exporter can only import trimmings, embellishments and sample yardage upto a value not exceeding 3% of the value of the Letter of Credit he can open for procuring his inputs (which is 50% of the value of the irrevocable Letter opened by his purchasers abroad) for such imports either individually or collectively. The balance portion of the Letter of Credit could be utilised for the import of fabrics. For example, if the Indian exporter gets an irrevocable Letter of Credit in his favour for export of garments for value of Rs. 100/-, he can procure raw materials from abroad for a value not exceeding Rs. 50/-, on the basis of back to back Letter of Credit. Since the value of Letter of Credit opened by the Indian exporter is Rs. 50/-, he can import trimmings and / or embelishments and/or sample yardage for a value not exceeding 3% of the value of his Litter of Credit, i.e. for 3% or Rs. 50/-, that is, Rs. 1.50 only. The value limit of Rs. 1.50 can be utilised for import of trimmings or embelishments or sample yardage or any combination ot these three items. Accordingly, the value of import of fabrics (other than sample yardage) for purpose of fabricating the garments for export would be to the extent of 97% of the value of the Letter of Credit opened by him, i.e. Rs. 48.50 in this case. In case the Indian exporter does not want to import trimmings, embelishments or sample yardage at all, or imports the same to the extent or lesser than 3% of value of back to back overseas Letter of Credit opened by him for import of his inputs, he can use the full value of Letter of Credit or the balance of value of Letter of Credit as the case may be, for import of fabrics required for manufacture of export product.

4.    A Notification No. 107 / 95- Customs dated the 2nd June, 1995 has been issued to give effect to this Scheme. Conditions regarding drawback, execution of bond with bank guarantee, actual use of the imported materials shall apply to this scheme also. Physical imports have to take place before exports and the items imported cannot be transferred or sold in any form in the domestic market

5.    Other conditions of Value Based Advance Licences to the extent they are not inconsistent with the special provisions of this scheme are applicable for import and exports under these schemes also.

6.    You are requested to take note of the Exim Policy, details of the schemes in Appendix XXIIA of the handbook of Procedure, Vol.I and the Customs notification and bring the aforesaid changes to the notice of field officers by issuing suitable standing orders separately for old schemes (if not already done), new Scheme 'A' and Scheme 'B'. Similarly by separate detailed Public Notice/ Trade Notice, the trade interests may be suitably informed of the Schemes. Copies of the Standing orders and Public Notice issued should be forwarded to Commissioner (DRAWBACK) as well as to Director general of Inspection & Audit  (Customs and Central Excise).