Exim Matters : Need To Lift Sub-Contracting Riders

The new exim policy imposed certain restrictions on sub-contracting by 100 per cent export-oriented units (EOUs) and units in export processing zones (EPZs) and special economic zones (SEZs). These restrictions have now been eased somewhat but certain conditions have been imposed.

The EOU/EPZ/SEZ units can now send their goods for job-work to units in the domestic tariff area (DTA) that are not registered with central excise.

Secondly, the materials can be sent to DTA for sub-contracting even before any processing by EOU/EPZ/SEZ units. The unit concerned has to receive back the goods within 30 days or within any extended period, as granted by the authorities.

The unit sending the goods to DTA has to furnish a bank guarantee (BG) covering 100 per cent of the duty saved to the jurisdictional central excise or customs authorities, if the materials are sent before any processing is done at the EOU/EPZ/SEZ unit.

If the semi-processed goods have to be sent to DTA to carry out certain processes, the BG may be only to the extent of 50 per cent of the duty saved.

There are some exceptions to the requirement of BG. Status holders with unblemished track record need not furnish BG. EOU/EPZ/SEZ units that have furnished BG (instead of surety) to support the B-17 bond need not furnish a fresh BG if the balance in B-17 bond is sufficient and if the goods being sent for sub-contracting have already been partially processed by the EOU/EPZ/SEZ unit.

The unit has to give intimation to the jurisdictional central excise/customs authorities along with the sample of the goods being sent for sub-contracting. The authorities will visit the premises of the job-worker to satisfy themselves about the processing capacity, existence of machines to carry out the declared processes in the job-worker's factory.

If the authorities having jurisdiction over the EOU/EPZ/SEZ units can not visit the job-worker's premises, they will request the central excise authorities having jurisdiction over the job-worker's premises to visit the unit and give a report.

It is difficult to appreciate the need for bank guarantee when the EOU/EPZ/SEZ units are subjected to customs bond and they have to scrupulously maintain proper records and submit periodic returns. BGs entail additional costs and paperwork. The need of the hour is to reduce transaction costs of exporters.

As anyone dealing with central excise will testify, any interface with the staff entails certain costs. The conditions regarding job-work not only call for interaction of EOU/EPZ/SEZ units with the central excise authorities for the purpose of furnishing and redeeming the BG and submission of samples but also interface between the central excise officials and the job-workers, some of whom are not registered with the central excise.

Many small industries will be quite put off by the prospect of having to receive the central excise officials in their factory. That prospect is enough to discourage many DTA units from accepting job-work assignments from the EOU/EPZ/SEZ units.

The requirement of submission of samples betrays a certain distrust of EOU/EPZ/SEZ units. They should be able to sub-contract as freely as the DTA units do, that is, on the basis of documents and records suitable to them and any monitoring must be based on periodic returns. Any unnecessary conditions that hamper sub-contracting or increase the costs must be avoided.