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K.R. Srivats

New Delhi , May 13

THE Finance Ministry has withdrawn the existing limitation that allowed a unit in a special economic zone (SEZ) to sub-contract production only up to a limit of 50 per cent of free-on-board (f.o.b) value of exports made in the previous year.

"This limitation in respect of sub-contracting of production has been withdrawn," a circular issued by the Revenue Department said. The Department has, however, held that the facility of sub-contracting of production would be allowed only if the unit in the zone is also manufacturing the product and that sub-contracting is being done to meet the excess demand.

This measure forms part of a host of procedural relaxations that were effected by the Revenue Department on May 11 through amendments in the SEZ rules and regulations.

The Finance Ministry has also, with effect from May 11, operationalised the provisions of Chapter XA of the Customs Act, 1962. With this move, export benefits such as drawback and duty entitlement passbook (DEPB) are now available from this date on all supplies made from a domestic tariff area (DTA) to the SEZ.

As regards jobwork, the Revenue Department has held that in addition to the status holders, units having unblemished track record would be exempted from furnishing security/bank guarantee for taking goods into DTA for the purpose of jobwork.

The zone unit would also not be allowed to parcel out "entire manufacturing" activity in DTA in the name of jobwork. Hitherto, the SEZ regulation required that while considering application for jobwork, the officer concerned would ensure that there is no attempt to parcel out "substantial manufacturing process" to DTA. The word "substantial" has been substituted by the word "entire."

The Revenue Department has also amended SEZ regulations to allow transfer of "all goods" from a SEZ unit to EOU/EHTP/STP. However, transfer of raw materials to EOU/EHTP/STP and other SEZs would be allowed only in those cases where the SEZ units are unable to utilise the raw material for a valid reason. Hitherto, SEZ units could transfer only manufactured goods and capital goods to EOU/EHTP/STP/SEZ.

It has been stipulated that in case the goods procured by SEZ unit from DTA are transferred, directly or via another SEZ to EOU/EHTP/STP, as it is, or after subjecting them to processes not amounting to manufacture, the SEZ units would be required to pay back the duty drawback or DEPB benefits which was taken at the time of procurement of such goods from DTA either by the DTA unit or the SEZ unit.

Informed sources said that this provision has been introduced to ensure that supplies from DTA to EOU/EHTP/STP do not get benefit of drawback or DEPB indirectly.

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