Circular No. 26 /2009-Cus.
Government of India
Ministry of Finance
Department of Revenue
New Delhi dated 30th September, 2009
All Chief Commissioners of Customs
All Chief Commissioners of Customs & Central Excise/ Central Excise
All Director Generals under CBEC,
All Commissioners of Customs, Customs (Preventive)
All Commissioners of Customs & Central Excise/ Central Excise
Sub: Foreign Trade Policy (FTP), 2009-14 – regarding.
The Foreign Trade Policy (FTP), 2009-2014 (herein after referred to as the Policy) and the Handbook of Procedures (Vol.I) (herein after referred to as the Handbook) have been notified by the DGFT vide notification No. 1 / 2009-2014 dated 27th August 2009 and Public Notice 1/2009-14 dated 27th August 2009 respectively. The Department of Revenue has since issued notifications Nos. 91/09-Cus to 103/09-Cus all dated 11.9.09, 104/09-Cus & 105/09-Cus both dated 14.9.09, 109/09-Cus dated 24.9.09, 23/09-CE(NT) dated 25.9.09 and 112/09-Cus dated 29.9.09 to implement the Policy and the Handbook. The Policy, Handbook and the above mentioned notifications may please be perused for details. The salient features of the changes are discussed below:
I. New schemes.
(1) Status Holder Incentive Scheme (SHIS)
The scheme has been introduced vide paragraph 3.16 of the Policy. Under the scheme, Status Holders are entitled to incentive scrip @1% of FOB value of export of goods of certain specified sectors made during 2009-10 and during 2010-11. The scrips will be valid for a period of 2 years for import of capital goods with actual user condition. The status holders who avail the benefits under Technological Up gradation Fund Scheme (TUFS) (a scheme administered by the Ministry of Textiles, Government of India) or zero duty EPCG scheme in a particular year shall not be eligible for Status Holders Incentive Scrips for that year. Notification No. 104/2009-Cus dated 14.9.2009 has been issued to operationalize the SHIS. This may be perused for details.
(2) Agri-Infrastructure Incentive Scrip (AIIS).
Para 3.8.6 of FTP (04-09) permitted issue of scrips against exports of agricultural exports for import of specified capital goods. This was part of the Vishesh Krishi and Gram Udyog Yojana (VKGUY) scheme. A new name has been given to such scrips in the Policy. In terms of para 3.13.4 of the Policy such scrips will now be known as Agri-Infrastructure Incentive Scrip (AIIS). The scrips issued under the scheme would be allowed for import of specified agri-equipments with actual user condition, as was the case earlier. One important change is that now, transferability of the scrips amongst status holders has been permitted for import of cold chain equipment only without breaking the actual user condition. Notification No. 94/2009-Cus dated 11.9.2009 has been issued to operationalize the scheme and may be perused for details.
(3) Zero duty Export Promotion Capital Goods (EPCG) Scheme:
The scheme has been introduced vide Para 5.1 of the Policy and is applicable to certain specified sectors. The benefits under this scheme shall be available only if the importer is not currently availing any benefits under TUFS and /or does not avail the benefit under Status Holder Incentive Scheme (SHIS) in the year of import of the goods. All imports of capital goods under this scheme have to be completed within 9 months from the date of issue of the authorization. The scheme requires that Export Obligation (EO) of 6 times the duty saved has to be fulfilled within 6 years with one extension of 2 years. The scheme shall be valid up to 31.3.2011.
Notification No. 102/2009-Cus dated 11.9.2009 & Notification No. 101/2009-Cus dated 11.9.2009 have been issued to operationalize Zero Duty EPCG Scheme and Zero Duty EPCG Scheme for Common Service Providers. The notifications may be perused for details.
II. Changes in the existing Export Promotion schemes
(1) Duty Free Credit Entitlement (DFCE) scheme and Target Plus Scheme (TPS)
The exporters of the marine sector have been allowed to import 36 additional items, specified in list 50 of notification No. 21/2002-Cus against the scrips issued to them under TPS and DFCE schemes vide DGFT Policy circular No. 03/2009-14 dt 27.8.09. The notification Nos. 53/2003-Cus dated 1.4.2003, 32/2005-Cus dated 8.4.2005 and 73/2006-Cus dated 10.7.2006 issued under DFCE scheme and TPS have been amended vide notification No. 105/2009-Cus dated 14.9.2009 in this regard. There are no other changes in the schemes. The notification may be perused for details.
(2) Served From India Scheme (SFIS)
The scheme as it existed under FTP (2004-09) was operationalized vide notification number 92/04-Cus dated 10.9.2004. There is no change in the scheme. Notification No. 91/2009-Cus dated 11.9.2009 has been issued to operationalize the scheme under the new Policy. The notification may be perused for details.
(3) Vishesh Krishi and Gram Udyog Yojana (VKGUY).
The scheme as it existed under FTP (2004-09) was operationalized vide notification number 41/05-Cus dated 2.5.2005. There is no change in the scheme except that the scrips earlier issued under erstwhile para 3.8.6 of the FTP (04-09) shall now be issued as AIIS already mentioned above. Notification No.95/2009-Cus dated 11.9.2009 has been issued to operationalize the scheme under the new Policy. The notification may be perused for details.
(4) Focus Market Scheme (FMS)
The scheme as it existed under FTP (2004-09) was implemented vide notification number 90/06-Cus dated 1.9.2006. There is no change in the scheme. Notification No. 93/2009-Cus dated 11.9.2009 has been issued to operationalize the scheme under the new Policy. The notification may be perused for details.
(5) Focus Product Scheme (FPS)
The scheme as it existed under FTP (2004-09) was implemented vide notification number 91/06-Cus dated 1.9.2006. There is no change in the scheme. Notification No. 92/2009-Cus dated 11.9.2009 has been issued to operationalize the scheme under the Policy. The notification may be perused for details.
(6) Advance Authorization Scheme
The scheme as it existed under FTP (2004-09) was implemented vide notification numbers 91/04-Cus dated 10.9.2004 (Advance Authorization for deemed Exports), 93/04-Cus dated 10.9.2004 (normal Advance Authorization scheme) and 94/04-Cus dated 10.9.2004 (Advance Authorization for Annual requirement). Notification Nos. 96/2009-Cus and 99/2009-Cus both dated 11.9.2009 and 112/09-Cus dated 29.9.09 have been issued to operationalize the Advance Authorization, Advance Authorization for Annual requirement and Advance Authorisation for deemed export schemes respectively under the new Policy. The following changes have been made in these schemes:-
(i) In respect of imports made after the discharge of export obligation,-
(a) if the exporter has availed the facilities in respect of inputs used in the manufacture of export goods as specified in para (v) of notification No. 96/2009-Cus dated11.9.2009, para (v) of notification No. 99/2009-Cus dated 11.9.2009 and para (v) of notification No. 112/09-Cus dated 29.9.09, then the importer at the time of clearance of the imported materials shall execute a bond that the imported materials will be used in his factory or in the factory of the supporting manufacturer for the manufacture of dutiable goods. Further, he shall submit a certificate from the jurisdictional Central Excise officer or a specified Chartered Accountant within 6 months from the date of clearance of the said materials, that the imported materials have been so used. It may be noted that in case this condition is violated, then the importer would be required to pay all duties of Customs i.e. duty of Customs,the additional duty, safeguard duty and anti dumping duty specified under sections 2,3,8B,and 9A of the Customs Tariff Act,1975 respectively and cess as aplicable which have been exempted under the notification Numbers 96/2009-Cus,99/2009-Cus and 112/2009-Cus. The term ‘dutiable goods’ has been defined in the explanation to the notifications and would mean all excisable goods which are not exempt from Central Excise duty and which are not chargeable to ‘nil’ rate of central excise duty; the term specified chartered accountant has been defined in the explanation to the notifications.
In this regard, it is clarified that, the there is no need to furnish any Bank Guarantee ordinarily along with the bond, as the imports are taking place after fulfilment of Export Obligation. However, if the assessing officer, based on past record of the importer, feels that some revenue safe guarding measure is necessary, then a bond backed with sufficient bank guarantee may be taken.
(b) the importer also has an option to pay additional duty of customs on the imported materials and clear the goods without furnishing any bond as specified above. This additional duty of customs so paid shall be eligible for availing CENVAT Credit under CENVAT Credit Rules, 2004.
(c) if the facility under rule 18 (rebate of duty paid on materials used in the manufacture of resultant product) or sub-rule (2) of rule 19 of the Central Excise Rules, 2002 or CENVAT credit under CENVAT Credit Rules, 2004 has not been availed, then the imported materials can be cleared without furnishing a bond specified above. However, the importer will have to furnish a proof to the assessing officer to the effect that the ‘said facilities’ have not been availed.
In this regard, it is clarified that, in case the importer is not registered with the Central Excise then he may be allowed clearance based on a self declaration that the facilities specified in the above referred conditions have not been availed. The jurisdictional Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, may carry out random checks to verify the correctness of the above declarations. However in case the importer is registered with the Central Excise then he may be allowed clearance based on a certificate issued by the jurisdictional Superintendent of Central Excise that the facilities specified in the above referred conditions have not been availed.
(ii) In case of imports made before the discharge of export obligation in full, the importer has to execute a bond, at the time of clearance, binding himself to the conditions specified in the notifications and to pay the leviable customs duties along with interest @15% in case the conditions of the notification are not complied with. It may be noted that this condition was also present earlier in notification numbers 91/04-Cus dated 10.9.2004 93/04-Cus dated 10.9.2004 and 94/04-Cus dated 10.9.2004
The above changes are in line with para 4.1.5 of the Policy. It may be noted that the conditions are similar to those incorporated in the Duty Free Import Authorization (DFIA) scheme vide notification No. 40/06-Cus dated 1.5.06 as amended vide notification No.17/2009-Cus. dated 19.2.2009. The only change is that the importers have been permitted to submit certificates from Specified Chartered Accountants also under the Advance Authorization scheme.
Condition (v) of notification No. 91/04-Cus dated 10.9.2004, condition No.(vii) of notification No.93/04-Cus dated 10.9.2004 and condition No 10 of notification No. 94/04-Cus dated 10.9.2004 provided that the duty free material imported under these notifications could be transferred to any manufacturer for processing under actual user condition only after the bond filed under the afore mentioned notifications had been redeemed i.e. after the fulfilment of export obligation. The Policy and the Handbook, however, did not have the condition of permitting job work only after fulfilment of export obligation. Para 4.16 of the Handbook states that the imported material may be used in any unit of jobber / supporting manufacturer provided the same is endorsed on the authorisation by the Regional Authority. If, the authorisation holder is registered with Central Excise, he has the option of getting names of the jobber endorsed by Central Excise as per central excise rules in lieu of RA endorsement. In case the manufacturer exporter holding the authorisation is not registered / not required to be registered with central excise authority, job work may be allowed as per central excise rules and regulations without insisting for endorsement of supporting manufacturers’ name.
The new customs notifications have been aligned with the provisions of the Policy and the Handbook. Condition (x) of Notification Nos. 96/2009-Cus, 99/2009-Cus and 112/09-Cus may kindly be referred to in this regard.
(iv) Para 4.5 of the Handbook provides that the duty free material imported or procured against an authorisation can be taken to the project site as per the provisions of the ANF-4A and the DOR guidelines in this regard. This provision has been implemented vide condition (xi) of the notification No 112/09-Cus dated 29.9.09. The following guidelines are prescribed in this regard:-
The facility, for the present, shall be restricted to only finished components and parts required to manufacture final goods which are fully exempted from payment of terminal excise duty in terms of a central excise notification read with the provisions of the para 8.3(c) of the FTP for supply to projects specified in para Nos.8.2 (d), (e), (f) and (g) of the FTP, (i.e. where supply is made under ICB procedure). These goods shall be allowed to move directly from the port of import to such project site subject to the following conditions:-
(a) the details of such finished components and parts are mentioned in the authorisation;
(b) the address of the site shall be mentioned on the authorisation;
(c) importer shall execute an undertaking at the time of clearance of the imported finished components and parts with the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, to the effect that he shall take the finished components directly to the site and shall produce a certificate to this effect from the Jurisdictional Superintendent of Central Excise /executive head of the Project Authority within a period of 60 days from the date of clearance of the goods. If however, he fails to produce the certificate, then he shall pay an amount equal to the duty which was otherwise leviable on the imported goods, but for the exemption contained in the notification, along with interest from the date of clearance of the said materials to the date of payment as prescribed in the notifications.
(d) The importer shall also inform his jurisdictional Central Excise authorities of such movement, in case he is registered with Central Excise.
(v) Under para 8.3(c) of the Policy, it has been provided that, exemption from payment of Terminal Excise duty (TED) shall also be available for supplies made by an Advance authorization holder to a manufacturer holding another Advance authorization if such manufacturer, in turn, supplies the resultant product(s) to an ultimate exporter in terms of para 8.3(c) of the FTP. Notification No. 44/01-CE has been amended vide 23/09-CE(NT) dated 25.9.09 to incorporate the above change.
(vi) The period to re-export the defective and unfit for use materials imported under the advance authorization scheme has been lowered from the existing period of three years to six months, which is extendable, by a maximum period of six more months by the Jurisdictional Commissioner of Customs.
(vii) The importer was required to produce evidence of discharge of export obligation to the customs within 30 days of the expiry of EO period under the existing notifications. This period has been extended to 60 days.
(7) Duty Free Import Authorization (DFIA) Scheme:
The scheme as it existed under FTP (2004-09) was implemented vide notification No. 40/06-Cus dt 1.5.2006. The notification as amended last vide notification no 17/2009-Cus dated 19.2.2009. It was later given effect to retrospectively vide clause 92 of Finance Bill 2009. The scheme has been operationalized in the new Policy vide notification No. 98 /2009-Cus dated.11.9.2009. The following changes have been made in this scheme in the new Policy / customs notification:-
(i) The duty free replenishments imported under the scheme cannot be transferred to the units located in areas, which are availing the area specific exemptions of Central Excise Duty. (para 4.34 of Handbook refers).
(ii) The period to re-export the defective and unfit for use materials imported under the advance authorization scheme has been lowered from the existing period of three years to six months, which is extendable, by a maximum period of six more months by the Jurisdictional Commissioner of Customs. This is in line with similar provision under the Advance Authorization scheme.
(iii) The importer was required to produce evidence of discharge of export obligation to the customs within 30 days of the expiry of EO period under notification No 40/06-Cus dt 1.5.2006. This period has been extended to 60 days under notification No.98 /2009-Cus dated.11.9.2009. This is in line with similar provision under the Advance Authorization scheme.
(8) Export Promotion Capital Goods (EPCG) Scheme:
The scheme as it existed under FTP (2004-09) was implemented vide notification numbers 97/04-Cus dated 17.9.2004 and 64/08-Cus dated 9.5.2008. The EPCG scheme for Common Service Providers was implemented vide notification No.136/08-Cus dated 24.12.2008. The scheme has been operationalized in the new Policy vide notification Nos. 100/2009-Cus, 101/2009-Cus., 102/2009-Cus and 103/2009-Cus. all dated 11.9.2009. The following changes have been made in these schemes in the Policy / customs notifications:-
A new para (5.2A) has been added to the Policy to provide that in the case of import of moulds, dies, jigs, fixtures, tools and spares e.t.c. specific EO shall be 50% of the normal EO i.e. 4 times instead of normal specific EO of 8 times the duty saved amount in case of 3% EPCG scheme and 3 times instead of 6 times the duty saved amount in case of zero duty scheme. In both cases it will be subject to the condition that the value of spares will be limited to 10% of the value of the capital goods imported under the EPCG scheme or 10% of the book value of the plant and machinery in case they were not imported under EPCG scheme
(ii) The definition of “Aquaculture” has been expanded to include fisheries also in Para 5.7.6 of the Handbook, thereby exempting fisheries from the requirement of maintaining average EO. However, this exemption from maintenance of average EO shall not be allowed for import of fishing trawlers, boats, ships and other similar items.
(iii) Para 5.2A of the new Policy allows import of refractory only for initial lining and catalyst for initial charge. Hence the import of these items shall not be allowed for existing plant and machinery under the EPCG scheme.
(iv) Para 5.3 of new HBP Vol.1(2009-14) provides that reasonable wastage if any anticipated at the time of installation of capital goods and certified by the Chartered Engineer in the nexus certificate would be allowed to be sold on payment of applicable Customs duties.
(v) Para 5.14 of new HBP Vol.1 (2009-14) provides that in the event of non-fulfilment of EO, the EPCG Authorization holder may pay duties of customs through the scrips issued under reward /DEPB scheme also. The interest on such duty and penalties, if any, however shall be paid in cash.
(9) DEPB Scheme
The scheme as it existed under FTP (2004-09) was implemented vide notification number 89/05-Cus dated 4.10.05. There is no change in the scheme except that the notification mentions the date upto which it will be valid viz. 31.12.10 . Notification No. 97/2009-Cus dated 11.9.2009 has been issued to operationalize the scheme under the new Policy. The notification may be perused for details.
III. Deleted Schemes
The Hi-Tech Products Export Promotion Scheme (HTPEPS) has been deleted in the new Policy. The products covered under the said scheme have been shifted to the Focus Product scheme (FPS).
IV. Miscellaneous changes
(i) The exports / imports under export promotions (EP) schemes are currently permitted from specified ports mentioned in the notifications issued under the EP schemes. In other words, the benefits under the export promotion schemes are available only if the exports and Imports under the concerned export scheme takes place through the seaports/airports/ICDs/ LCSs specified in the said EP notification.
In some of the EP notifications which were issued to operationalize the FTP (04-09), the Jurisdictional Commissioners of customs were empowered to permit imports and exports under EP schemes through any other seaport, airport, ICD, or LCS in their jurisdiction even if the said port / ICD e.t.c. was not specifically mentioned in the concerned EP notification. This facility has been extended to all EP notifications. The jurisdictional Commissioners have now been empowered, in cases of exigency, to permit imports and exports under all EP schemes through any other seaport, airport, ICD, or LCS in their jurisdiction even if the said port / ICD e.t.c. has not been specifically mentioned in the concerned EP notification.
The notifications issued under reward schemes under FTP (2002-07 &2004-09), contained a proviso which states that ‘exemption from duty shall not be admissible if there is insufficient credit in the duty credit certificate for debiting the duty leviable on the goods, but for this exemption’. The said proviso had raised doubts in the field formations though the Board had clarified the matter vide Circular number 34/97 dt 10.9.97. In order to set at rest the doubts, the said proviso has been deleted in the notifications issued under reward schemes. The position however remains the same-thus exemption from duty is not to be extended to that portion of the duty assessed, which is in excess of the credit available. The excess amount of duty assessed not covered by credit may be allowed to be paid in cash.
(iii) The DGFT vide Public Notice No 151/2009 dated 26.2.2009 had clarified that the freely transferable duty credit scrips issued under reward schemes shall be granted on FOB value of exports, including commission, discounts, if any. The Public Notice had created confusion whether reward scrips would also be issued on ‘discounts’ and whether unlimited commissions would be permitted in case of reward schemes. The matter had been taken with the DGFT. The DGFT has clarified vide Policy circular no 98 dt 10.8.2009 that, the ‘discounts’ would be excluded for computation of benefits under the reward schemes. As regards ‘commissions’, the Policy vide para 3.17.3, has clarified that the foreign agency commission will be restricted to 12.5% of FOB value for computation of rewards. It is therefore clarified that the duty credit scrips pending for registration may be decided as per the above position and the said scrips may be permitted to be utilised.
(iv) The number of duty free commercial / gem & jewellery samples has been increased from the existing limit of 15 to 50 pieces without changing the value limits prescribed in the notification No. 154/94-Cus dated 13.7.94 as amended subject to compliance of terms and conditions specified therein. The notification No. 154/94-Cus has been amended vide 109/09-Cus dated 24.9.09.
(v) The notification Nos. 92/04-Cus, 41/05-Cus, 90/06-Cus, 91/06-Cus, 64/08-Cus and 136/08-Cus issued to operationalize EPCG and reward schemes provided that, ‘the foreign exchange counted towards fulfilment of export obligation (over and above the average) under the Export Promotion Capital Goods scheme shall not be eligible for benefits under the scheme’. The said clause has been deleted in the new notifications issued under the EPCG and reward schemes. Hence now the exports for fulfilment of export obligation (over and above the average) under the Export Promotion Capital Goods scheme shall also be eligible for benefits under the reward schemes
(vi) Para 3.23.8 of the HBP-2008 and para 3.11.8 of the Handbook-2009 provides that the exporters exporting their goods under the reward schemes have to declare, at the time of export, their intent to avail the benefits of the reward schemes. This provision was incorporated in the FTP as it was noticed that many export consignments especially which were exported on free shipping bills were not being examined for valuation / description as the customs department was not aware that the exporter would be claiming the benefits of reward schemes on such shipping bills at a later date. In this regard it is clarified that, the exporters are required to declare their intention to claim benefits under Chapter 3 of FTP by way of endorsement as prescribed in the above paras of the HBP on all copies of duty free shipping bills till suitable modifications are made in the EDI software.
(vii) The new notifications issued under the Advance Authorization, DFIA and EPCG schemes continue to stipulate that the exporter shall submit the proof of discharge of export obligation within the periods specified in the respective notifications. It is needless to stress that the stipulated conditions are required to be adhered to strictly; monitoring mechanism may be put in place and recovery action against defaulters initiated promptly.
VI. These instructions may be brought to the notice of the trade / exporters by issuing suitable Trade / Public Notices. Suitable Standing orders/instructions may be issued for the guidance of the assessing officers. Difficulties faced, if any in implementation of the Circular may please be brought to the notice of the Board at an early date.
VII. Receipt of this Circular may kindly be acknowledged.