Chapter 9

DTA SALE BY SEZ UNITS

General

The DTA sale by SEZ unit is not subject to any prerequisite of achievement of NFE positive NFE before effecting DTA sale as is the case in case of EOUs/ESTPs/STPs. However, there is no concept of concessional rate of duty in case of DTA sale of goods by SEZ units. The units are required to pay Customs Duty equal to duty of customs leviable on like goods when imported into India. The DTA sale by SEZ units is considered to be import by the DTA buyer. The DTA sale is subject to restrictions/prohibitions under ITC (HS) of any other law applicable in respect of import of like goods into India, unless exempted otherwise. The Section 30 of SEZ Act provided for levy of Customs Duty equivalent to the import duty on the goods cleared from SEZ to DTA. Since the Customs Duty is leviable on import of goods under section 12 of the Customs Act, 1962, it implies that the duty in case of DTA sale of goods from SEZ to DTA is chargeable under section 12 of the Customs Act, 1962.

The SEZs being deemed territory outside the Customs territory of India, the supplies from SEZ to DTA shall be in the nature of imports into India and therefore, the provision relating to levy, refund, penalty, confiscation etc. would be applicable in respect to these supplies as they apply to goods imported into India (Although on this issue no clarification has been issued either from MOC or from CBEC). 

An SEZ unit can clear the goods in DTA on payment of customs duties leviable under section 30 of the SEZ Act. The duty payable is equal to the duty of Customs leviable on like goods when imported into India. This implies that the exemption notification, if any, which is applicable in respect of normal import of any goods into India, is also to be applicable in respect of the same goods when cleared by a unit in SEZ into DTA. Further the rate of duty and tariff valuation applicable to goods removed from SEZ are at the rate and tariff valuation in force as on date of removal of goods and where such date is not ascertainable, as on the date of payment of duty. Valuation and assessment of the goods cleared into DTA would be made in accordance with Customs Act and the Rules made thereunder.

Restrictions & prohibitions

Sale in DTA is treated as imports for the DTA buyer. Import Licensing condition, under Indian Tariff Classification (Harmonised System of Import and Export Items) are also applicable at the time of DTA sale of goods by SEZ unit. However, the rejects or scrap or waste or remnants arising during the course of manufacturing or in connection therewith is subjected to the restrictions provided under ITC (HS). However, the Central Government may impose any restriction on DTA sale of such goods or any class of such goods (reject, scrap, waste, remnants arising during the manufacturing process or in connection therewith by the SEZ unit) [Ref: Rule 47(1) (a) & (c) of the SEZ Rules, 2006].

DTA sale of goods imported or procured from DTA, as such without subjecting it to any manufacturing activity, are subjected to the same provisions of FTP as applicable to import of similar goods into India.

The units set up for repair or reconditioning or reengineering or undertaking such activity are not allowed to make any DTA sale of such goods including rejects, waste, scrap, remnants etc generated out of such activity [Ref: Rule 18(4) [d) of the SEZ Rules, 2006].

Applicability of Sales Tax/VAT/CST

The DTA sale attracts Customs duty, which is equivalent to duty of Customs leviable on like goods when imported into India. Since the goods cleared into DTA are not imports into India, they are additionally subjected to levy of sales tax/VAT/CST, which is not the case, when goods are imported into India from any place outside India. Therefore, DTA sales attracts sales tax/VAT/CST as well as duty under section 3(5) of the Customs Tariff Act, 1975.  Accordingly, the Government has exempted duty under section 3(5) of Customs Tariff Act, 1975 if the goods attract sales tax/VAT/CST at the time of DTA sale.

Exemption from additional duty of Customs leviable under section 3(5) of the Customs Tariff Act, 1975

The goods manufactured by the SEZ Unit when sold in DTA and if such sale is not exempted from payment of State Sales Tax/VAT, then such goods are exempted from payment of Additional duty ( i.e @ 4% duty) leviable under Sub-section (5) of Section 3 of the Customs Tariff Act, 1975 vide notification No. 45/2005-Customs, dated 16.05.2005.

Supply of goods as such to DTA (re-import for DTA)

Further in cases where the goods procured by an SEZ unit from DTA are supplied back to DTA as such or without substantial processing, such goods are treated as re-imported goods and the clearance of such goods is allowed as per the procedure and subject to fulfillment of conditions as applicable in respect of clearance of re-import of goods from outside India [Ref: Rule 48(3) of the SEZ Rules, 2006].

Where goods are admitted into SEZ unit from DTA and DEPB credit has been availed against such supply, while transferring such goods to EOU/EHTP/STP/BTP, as it is or after processing which does not amount to manufacture, the SEZ unit will be required to pay the customs duty equal to entitlement availed under DEPB scheme [Ref: Rule 46(13) (v) of the SEZ Rules, 2006].

Abatements from Payment of Duty in Certain Cases

 In respect of removal of the capital goods that have been installed and used for production, depreciation in value of capital goods shall be allowed from the date of commencement of production to the date of presentation of Bill of Entry for home consumption. The rate of depreciation shall be:—

         (i)    For computer and computer peripherals

        (ii)    For capital goods other than computer and computer peripherals

The depreciation is allowed in straight-line method and for any part of a quarter the rate applicable to such quarter is considered. [Ref: Rule 49(1) of the SEZ Rules, 2006].

 In cases where the goods supplied by an SEZ  unit into DTA on payment of duty are brought back into the SEZ unit for the purpose of repair within a period of six months from the date of clearance from the SEZ or within such extended period as permitted by the specified officer or within the warranty period whichever is later and no duty shall be payable at the time of removal of such goods after repair. However, the duty on the value of repairs shall be payable. Such clearance would be subject to establishment of identity of goods.

      (iii)    Goods procured from DTA, on which any export entitlements were availed at the time of procurement, such goods are allowed to be supplied back into DTA on payment of duty equivalent to export entitlements availed, subject to establishment of identity [Rule 49(3) of the SEZ Rules, 2006]. However, this provision is in contradiction of provision which envisage that goods procured from DTA when supplied back to DTA as such are considered as re-import for DTA. In such case, the unit should have paid the duty forgone + export entitlements availed. [Ref: Rule 48(3) of the SEZ Rules, 2006].

       (iv)    In cases where the goods imported on payment of Customs duty or procured from DTA after payment of Central Excise duty without availing any export entitlement (fulfillment of obligation under any export promotion scheme, duty drawback, DEPB or claim of rebate etc) are supplied back into DTA as such without any processing etc. such clearance of the goods are permitted without payment of any duty subject to establishment of identity.

        (v)    The clearance of used packing materials other than metal containers are allowed to be cleared into DTA without payment of any duty [Ref: Rule 49(4) (6) of the SEZ Rules, 2006].

       (vi)    The computers and computer peripherals, including printer, plotter scanner, monitor, keyboard and storage units imported or procured from DTA are allowed to be donated to the recognized non-commercial educational institutions or registered charitable hospitals or public libraries or public funded research and development establishments or organizations of the Government of India or Government of a state or union territory without payment of any duty after two years of admission of goods and use by the SEZ unit. [Ref: Rule 49(4) ( c) of the SEZ Rules, 2006].

Procedure for DTA Sale

The DTA unit intending to buy goods from SEZ is required to file Bill of Entry for Home Consumption giving therein complete description of goods, make and model number and serial number and specification along with invoice and packing list. The bill of entry is to be filed with the authorized officer. The Bill of Entry may also be filed by the SEZ units on the basis of authorization from DTA buyer. The assessment and valuation of goods would be as per the provision of Customs Act and rules made thereunder.

In case of supply of goods into DTA, of goods manufactured by an SEZ unit undertaking operations of contract manufacturing on behalf of overseas entity, the bill of entry will be filed by the DTA buyer on the basis of transaction value recorded in the Commercial invoice issued by the overseas entity.

Other supplies in DTA

Following sales in DTA are treated as deemed export and are counted towards fulfilment of NFE as foreign exchange earned.

        (a)    Supply of goods against Advance Licence or Duty Free Replenishment Certificate under the Duty Exemption or Remission Scheme or Diamond Imprest Licence under the Foreign Trade Policy;

        (b)    Supply of capital goods to holders of licence under the Export Promotion Capital Goods Scheme under the Foreign Trade Policy;

        (c)    Supply of goods to projects financed by maltilateral or bilateral agencies or funds as notified by the Department of Economic Affairs. Ministry of Finance under International Competitive Bidding in accordance with the procedures of those agencies or funds, where the legal agreements provide for tender evaluation without including the customs duty;

        (d)    Supply of capital goods, including those in unassembled or disassembled condition as well as plants, machinery, accessories, tools. dies and such goods which are used for instrallation purposes till the stage of production and spares to the extent of ten per cent, of the free on rail value to fertilizer plants;

        (e)    Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duy;

         (f)    Supply of goods to the power projects and refineries not covered in (e) above;

        (g)    Supply to projects funded by United Nations Agencies;

        (h)    Supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding;

         (i)    Supply made to bonded warehouses set up under the Foreign Trade Policy or under section 65 of the Customs Act and free trade and warehousing zones, where payment is received in foreign exchange;

         (j)    Supply against special entitlements of duty free imports of goods under the Foreign Trade Policy;

        (k)    Export of services by services units including services rendereed within Special Economic Zone or services rendered in Domestic Tariff Area and paid for in free foreign exchange or such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by the Reserve Bank of India;

         (l)    Supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, Colour Display Tubes for monitors and Deflection components for colour monitors or any other items as may be notified by the Central Government;

       (m)    Supply to other units and Developers in the same or other Special Economic Zone or Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Units or Bio-Technology Part Unit provided that such goods and services are permissible for import or procurement by such units and Developers;

        (n)    Supply of goods to Domestic Tariff Area against payment in foreign exchange from the Exchange Earners Foreign Currency account of the Domestic Tariff Area buyer or Free Foreign Exchange received from overseas;

        (o)    Supply of goods against free foreign exchange by a Free Trade and Warehousing Zone Unit.

Sale of Power in DTA

The SEZ Developer or SEZ units are allowed to sale surplus power generated in the captive power plant or captive generating set on payment of duty on consumables and raw materials used for generation of such power under sale. The sale of power would be subject to the following conditions:—

        (1)    The proposal for sale of power is to be submitted to the Development Commissioner, who will examine the proposal in consultation with State Electricity Board. However, in case of supply of power within the same SEZ, there is no requirement for consultation with State Electricity Board.

        (2)    The norms for production of per unit of power will be fixed by the Approval Committee.

        (3)    For sale of surplus power to EOU/EHTP/STP/BTP are in the same or other SEZ, no duty would be payable.

(4)Sale of power in DTA is permissible on the permission of specified officer and State Electricity authorities.