Shri Madhusudan Saraogi 9-Nov-05

Mining & Drilling Services

50/C/1A K.G. Bose Sarani,
Kolkata – 700 085

Dear Sir,

My point wise reply regarding your queries on Central Excise issues is as follows:-

Query 1: What is the turnover limit for registration for non factory based units?

Opinion : Before going into the issue of turnover limit for non factory based units we
need to understand the liability of person for payment of duty in case goods are
manufactured on job work basis. Whether the liability for payment of duty is of job
worker or supplier of raw material or non body is liable to pay the duty in case of goods
manufactured on job work basis.

Notification No. 214/86 –C.E., dated 25-3-1986 as amended from time to time (last
amended vide notification no. 54/2004 dated 9-11-2004), exempts job worker from
payment of duty on goods manufactured in a factory as a job work and cleared as such
from the factory of the supplier of raw materials or semi-finished goods on payment of
duty for home consumption (on which duty of excise is leviable whether in whole or in
part) provided the supplier of the raw materials or semi-finished goods gives an
undertaking to the Assistant Commissioner of Central Excise or Deputy Commissioner of
Central Excise having jurisdiction over the factory of the job worker that the said goods
shall be (i) removed on payment of duty for home consumption from his factory (ii) the
said supplier produces evidence that the said goods have been used or removed in the
manner prescribed above; and (iii) the said supplier undertakes the responsibilities of
discharging the liabilities in respect of Central Excise duty leviable on the final products.
For the purpose's of this notification, the expression "job work" means processing or
working upon of raw materials or semi-finished goods supplied to the job worker/ so as
to complete a part or whole of the process resulting in the manufacture or finishing of an
article or any operation which is essential for the aforesaid process.

Further notification no. Notification 36/2001 – C.E. (N.T.) dated 26th June, 2001 as
amended from time to time specifies that every manufacturer who gets his goods
manufactured on his account from any other person will not be required to take
registration subject to the conditions that the said manufacturer authorises the person,
who actually manufactures or fabricates the said goods to comply with all procedural
formalities under the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder,
in respect of the goods manufactured on behalf of the said manufacturer and, in order to
enable the determination of value of the said goods under section 4 or section 4A of the
said Act, to furnish information including the price at which the said manufacturer is
selling the said goods and the person so authorised agrees to discharge all liabilities under
the Act and the rules made thereunder

On a plain reading of the extracts of above notifications it is clear that if the supplier of
raw material undertakes the responsibilities of discharging the liabilities in respect of
Central Excise duty leviable on the final products than job worker will not be required to
pay duty. However in case the supplier of raw material does not undertake the
responsibility of payment of duty than job worker will be required to pay duty. In other
 words either job worker or supplier of raw material has to pay duty and both of them
cannot escape from payment of duty manufactured on job work basis.

Now assuming that supplier of raw material undertakes the responsibility of payment of
duty what is the turnover limit for registration.

Notification 8/2003-C.E. dated 1st March, 2003 as amended from time to time, grants
exemption on First clearances up to an aggregate value not exceeding one hundred lakh
rupees made on or after the 1st day of April in any financial year provided that the
aggregate value of clearances of all excisable goods for home consumption by a
manufacturer from one or more factories, or from a factory by one or more
manufacturers, does not exceed rupees four hundred lakhs in the preceding financial year.

Notification 36/2001 – C.E. (N.T.) dated 26th June, 2001 as amended from time to time(
latest amendment vide notification no. 14/2005 dated 1st March, 2005) grants exemption
to a manufacturer from registration which are chargeable to nil rate of duty or remain
fully exempt from the whole of the duty of excise leviable thereon provided he complies
with the following conditions:-

a. the manufacturer makes a declaration in the specified form annexed hereto while
claiming exemption under this notification:

b. that where the exemption from the whole of the duty of excise leviable on the said
goods is granted, based on the value of clearances made in a financial year
(hereinafter referred to as "full exemption limit"), no such declaration shall be filed, if
the aggregate value of the said goods cleared -
i. by a manufacturer from one or more factories, or
ii. from any factory by one or more manufacturers,
for home consumption, was less than the specified limit during the preceding financial
year or in case of a new factory or manufacturer, such value of clearances is estimated to
remain less than the specified limit during the current financial year;

"specified limit" shall mean full exemption limit minus sixty lakh rupees.

To put it simply a manufacturer will not be required to take registration upto a turnover of
Rs. 100 lakhs (full exemption limit as per notification 8/2003) provided he files a
declaration in the specified form (Annexed) after his turnover crosses the specified limit
i.e. Rs. 100 lakhs minus 60 lakhs.

Query 2 : What is the turnover limit for registration for factory based units?

Opinion : Notification 8/2003-C.E. dated 1st March, 2003 as amended from time to time,
grants exemption on First clearances up to an aggregate value not exceeding one hundred
lakh rupees made on or after the 1st day of April in any financial year provided that the
aggregate value of clearances of all excisable goods for home consumption by a
manufacturer from one or more factories, or from a factory by one or more
manufacturers, does not exceed rupees four hundred lakhs in the preceding financial year.

Notification 36/2001 – C.E. (N.T.) dated 26th June, 2001 as amended from time to time(
latest amendment vide notification no. 14/2005 dated 1st March, 2005) grants exemption
to a manufacturer from registration which are chargeable to nil rate of duty or remain
 fully exempt from the whole of the duty of excise leviable thereon provided he complies
with the following conditions:-

c. the manufacturer makes a declaration in the specified form annexed hereto while
claiming exemption under this notification:

d. that where the exemption from the whole of the duty of excise leviable on the said
goods is granted, based on the value of clearances made in a financial year
(hereinafter referred to as "full exemption limit"), no such declaration shall be filed, if
the aggregate value of the said goods cleared -
iii. by a manufacturer from one or more factories, or
iv. from any factory by one or more manufacturers,
for home consumption, was less than the specified limit during the preceding financial
year or in case of a new factory or manufacturer, such value of clearances is estimated to
remain less than the specified limit during the current financial year;

"specified limit" shall mean full exemption limit minus sixty lakh rupees.

To put it simply a manufacturer will not be required to take registration upto a turnover of
Rs. 100 lakhs (full exemption limit as per notification 8/2003) provided he files a
declaration in the specified form (Annexed) after his turnover crosses the specified limit
i.e. Rs. 100 lakhs minus 60 lakhs.

Query 3 : What is turnover limit for registration for non factory based 100% EOU units?

Opinion : We have already discussed the issue of liability of person for payment of duty
in case goods are manufactured on job work basis in point no. (1) above.

Notification 36/2001 – C.E. (N.T.) dated 26th June, 2001 as amended from time to time(
latest amendment vide notification no. 14/2005 dated 1st March, 2005) specifies that
where a hundred per cent export oriented undertaking is licensed or appointed, as the case
may be, under the provisions of the Customs Act, 1962, such hundred per cent export
oriented undertaking shall be deemed to be registered for the purposes of the Central
Excise.

In accordance with this notification there is no turnover limit for 100% EOU units as they
will deemed to be registered with central excise provided they are licensed or appointed,
as the case may be, under the provisions of the Customs Act, 1962. Which means that if a
unit is not licensed or appointed, as the case may be, under the provisions of the Customs
Act, 1962, then they will have to obtain registration under central excise irrespective of
turnover.

Query 4: What is turnover limit for registration for non factory based 100% EOU units?
Opinion : same as point no. 3

Query 5 : What is minimum turnover for registration?

Opinion : There is no minimum limit of turnover for registration of a manufacturing unit

as it has to be registered as soon as the liability for payment of duty arises.

Query 6 : What is the method of calculation of turnover for non factory based units –
including/excluding (a) manufacturing through job workers (b) ready made bought out
components?
Opinion : Turnover of goods manufactured through job worker will be included for
calculation of turnover as it chargeable to duty in terms of discussion in point no. 1
above. However turnover of ready made bought out components will not included for
calculation of turnover as it is chargeable to excise duty.

Query 7 : What is the method of calculation of turnover for factory based units –
including/excluding (a) manufacturing through job workers (b) ready made bought out
components?
Opinion : Turnover of goods manufactured through job worker will be included for
calculation of turnover as it chargeable to duty in terms of discussion in point no. 1
above. However turnover of ready made bought out components will not included for
calculation of turnover as it is chargeable to excise duty.

Query 8 : What is the method of calculation of turnover for non factory based 100%
EOU units – including/excluding (a) manufacturing through job workers (b) ready made
bought out components?
Opinion : Question of calculation of turnover in case of 100% EOU does not arise.

Query 9 : What is the method of calculation of turnover for factory based 100% EOU
units – including/excluding (a) manufacturing through job workers (b) ready made
bought out components?
Opinion : Question of calculation of turnover in case of 100% EOU does not arise.

Query 10 : What registers / procedures / formalities are to be maintained for registered

manufacturers having sales below 1 crore?

Opinion : Registration of manufacturer having sales below 1 crore is not required. In

terms of Notification 36/2001 – C.E. (N.T.) dated 26th June, 2001 as amended from time
to time( latest amendment vide notification no. 14/2005 dated 1st March, 2005), he is just
required to file a simple declaration once his turnover crosses a limit of Rs. 40 lakhs.

Query 11 : What are the formalities/ forms for getting 100% EOU certification?

Opinion :

(1) 100% EOUs fall into 3 categories

(a) EOUs established anywhere in India and exporting 100% products except certain
fixed percentage of sales in the Domestic Tariff Area (DTA) as may be permissible under
the Policy.

(b) Units in Free Trade Zones in Special Economic Zones (SEZs) and exporting 100% of
their products.
(c) EOUs set up in Software Technology Parks (STPs) and Electronic Hardware
Technology Parks (EHTPs) of India for development of Software & Electronic Hardware.

2) The EOUs basically function under the administrative control of the concerned
Development Commissioner of Export Processing Zones i.e., under the Commerce
Ministry, Government of India. Powers of the Development Commissioner are delegated
to the Director, STPI under the Ministry of Communication and Information Technology,
Government of India in respect of EHTP & STP units. These units can be an individual
STP / EHTP units by themselves or in an area designated so by the Ministry of
Information Technology.

3) EOU scheme is governed under the provisions of Chapter VI of EXIM policy and
Appendix 14-I under para 6.1 of Hand Book of Procedures, Ministry of Finance,
Department of Revenue have, vide their Customs Notification NO.52/2003 – Cus. dated
31.3.2003 as amended and Central Excise Notification No.22/2003 – CE dated 31.3.2003
as amended, prescribe the eligibility, limitations and guidelines for the EOUs. In
addition, the provisions of Chapter IX of the Customs Act, 1962 pertaining to
warehousing read with Manufacture and Other Operations in Warehouse Regulations,
1966 are also applicable to all EOUs. The salient features of these notifications / legal
provisions are as follows:

(i) All goods specified in the notifications (including capital goods, raw materials,
spares / consumables, office equipment, material handling equipment, computer furniture,
security system, pollution and quality control equipment, etc.) are exempt from payment
of all the customs / central excise duties when imported or procured indigenously for
manufacture or development of software or any other activity as mentioned above.

(ii) The EOU unit is to be licensed as a bonded warehouse under Section 58 of the
CA’1962. The entire EOU premises will be a customs bonded and all the duty free goods
brought in the EOU unit are required to be bonded therein.

(iii) EOU unit is obliged to export their entire production, except as may be permitted
by the CSEZ / STPI (Cochin Special Economic Zone & STPI, Bangalore Zone cover the
are under Bangalore Customs) for DTA sales. Prior to 1.4.2003, an EOU Unit was
obliged (a) to achieve 10% NFEP (net foreign exchange earning as a percentage of
export) and (b) to discharge export obligation equal to 3 or 5 times the CIF value of
imported capital goods or US $ 0.25 million whichever is higher. However w.e.f.
1.4.2003, they are required to achieve only a positive Net Foreign Exchange Earning
(NFE). The period to achieve the above is five years from the commencement of
production.

(iv) The export performance is monitored by the CSEZ / STPI. They are also
approving authorities for units issuing of LOP, accepting of legal undertaking, attestation
(listing and permission) for procuring capital goods by import or from indigenous sources
and for enhancement of value limits of capital goods so permitted.

(v) The power to accept the Bond, issue of Block Transfer, Procurement Certificate
for import, CT-3 certificate for indigenous goods, permissions for re-export, Inter Unit
Transfer, common sharing, DTA sale, de-bonding assessment, destruction etc. are with
the Customs.
(vi) The duty free capital goods and raw material should be installed and put to use
within a period of one year and three years respectively (or as extended) from the date of
import / procurement, failing which, duty foregone along with interest is charged.

(vii) DTA sale of the produce is permitted to the extent of 50% of FOB value of
exports on payment of applicable Central Excise duties under Section 3 of Central Excise
Act, 1944 read with Notification No.23/2003 (CE) dated 31.3.2003 as amended.

(viii) Re-export, Third party export, Inter-unit transfer, Temporary removal for display,
Job work etc. are allowed as per the conditions stipulated in the notification and policy.

(ix) De-bonding of duty free goods is allowed on payment of duties on the depreciated
value of the capital goods at the rate of 20% per annum in case of IT items and 10% per
annum on other goods.

(x) Destruction of goods is permitted on satisfaction of conditions of notification.

(xi) The initial warehousing / bonding period of capital goods and raw material is 5
years and 3 years respectively under the provisions of Section 61 of the Customs Act.
Thereafter specific permission for extension of the warehousing / bonding period is
required from the Commissioner of Customs.

The unit has to furnish following documents for applying to Deputy / Assistant
Commissioner to grant a license of Customs Bonded warehouse and permission for
manufacturing in Bonded warehouse u/s 58 & 65 of Customs Act, 1962.

List of documents required to be furnished are as follows:

1. Application for grant of licence u/s 58 & 65 of Customs Act, 1962

(Refer to format)
2. FORM B-17 Bond …….. (Refer to B - 17 bond format)
3. Bank Guarantee …… (Refer to B.G. format)
4. Insurance Policy for Fire & Burglary …… (For capital goods)
6. Affidavit with respect to non envolvement in Customs & Central Excise Cases (Refer
to format given)
7. DoE/STPI letter of approval vide ref. no. ………………………..
8. List of proposed plant, machinery & capital goods
9. Agreement with STPI / SEEPZ for Export Commitment
10. Process of Manufacture
11. Green Card No……………………………………………………
12. Self Removal Procedure approval request letter
13. Solvency Certificate
14. List of Board of Directors
15. Lease Agreement of premises
16. Ground Plan of premises
17. IEC Certificate
18. PAN
19. Memorandum & Articles of Association

Query 12 : Whether existing firm doing local business is eligible for 100% EOU
Certification?
Opinion : Applications for conversion of existing firm doing local business will be
allowed provided there is non outstanding export obligation under any other Export
oriented Scheme.