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Basilal Ramnath Agarwal charitable trusts
Vishwkarma institute of Management
A
Project Report
On
Audit of Export Oriented Unit
For Ameya Management Consultancy Pvt. Ltd.
Submitted to:
In partial fulfillment of 2 years full time M.B.A. Course.
Submitted By: Deepak Kulkarni
VIM, Pune.
(2005-07)
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Acknowledgement
Before writing the actual report on summer training I wish very thankful to
Ameya Management Consultancy Pvt. Ltd. , who gave me a chance to make a
project.
A special thanks to Mr. Rajesh khadilkar sir, the director of Ameya
management consultancy Pvt ltd., who showed me the path of the project.
I also wish thanks to Mr. Kaushal Mundada, C.A. who gave proper
knowledge of auditing of EOU s. I also wish thanks to Mr. shrikant
Charegaonkar, who helped for this project.
I am very much thankful to Mrs.Smita Sovani, who showed me exact
direction of project & making of a report.
Deepak Kulkarni (MBA II)
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This is to certify that Mr. Deepak Kulkarni is
bonafide student of our institute. He has successfully
completed his summer project titled, Audit of Export
oriented Unit
in partial fulfillment of MBA programmed
2005-2007 as per rule of Pune University.
Director Project guide
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Title Index
Sr. No. Title Pg. No.
Remark
1. Executive summary 4-6
2. Scope 7.1
3. Objective 7.2
4. Company Profile 8-16
5. Theoretical Background 17-21
6. Benefits of EOU 22-28
7. Information and formats of documents
29-39
8. Conclusion 40
9. Bibliography 41
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Executive Summary
Introduction:
Ameya Management Consultancy Pvt. Ltd. is well known
consultancy in Pune. It deals with excise, customs, service taxes etc.
Mr. Rajendra khadilkar is the director of a company & a very helping nature
person. The firm gives services to various companies.
I think it was a good experience to work with Mr. khadilkar and he
gave me full information about Export oriented unit.
About my work in summer training.
Project title:
The company deals with custom audit. I got a chance to
work as a trainee in well-known GME Pvt. ltd, which is registered under this
firm. So, my project title is Audit of EOU s and the documents maintained by
company.
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Why:
The area of exporting unit is becoming wider day-by-day. Customs audit
consists of the export oriented unit s audit. Working with custom and get
knowledge about Export-oriented units was a nice experience for me.
So, I feel very glad and very satisfied to work with Ameya
management consultancy Pvt ltd.
Location:
Ameya Management consultancy
Located at,
514, 5th floor, siddharth towers,
Near city pride theatres
Off karve road, kothrud,
Pune 411029
& Gadre marine export ltd. was located at,
Ratnagiri MIDC,
7
Dist. Ratnagiri.
Duration:
The period for the training was for the month of June and July. The
audit of Export oriented unit was done during this period so I got chance with
Ameya Management Consultancy PVT LTD to work on EOUs.
Result:
Two months experience in the field of export was very nice for
me. In these two months I get much knowledge of implementation of EOU and
the various documents maintained for the unit. Because of lack of time I cant
get full information about the unit but whichever information I can try to get
I had explained it in this report.
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Scope And Objective
Project title:
Audit of EOU s
Scope: (7.1)
The learning project of Audit of Export oriented units consists of
The study of the documents maintained by the company. I examined various
Types of documents maintained by the company. Due to lack of time I cant get
thorough knowledge of documents maintained by the EOU scheme. But few
Of them I had mentioned with the format and related information which I get
during the working. The study involved verification of records and checking
of various documents.
Objective (7.2)
The primary objective of this learning project was to get a
Knowledge of export-oriented unit and the documents maintained for
Implementation of EOU scheme. Also it consists the audit of EOU and gets much
Knowledge of verification of documents maintained by the EOU scheme.
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Company Profile
Company history:
The details of company are as follows.
R.M.Khad ilk ar s
Ameya Management Consultancy Pvt. Limited
514, 5TH Floor, Siddharth Towers,
Near City-Pride theatres,
Off Karve Road, Kothrud,
Pune 411 029
Phone: 25467155, Mobile: 98226 13856
E-Mail Address: ameyamanagement@ameya-managemnt.com
rmkhadilkar@ameya-managemnt.com
Services offered:
1) Management & taxation Consultancy in Indirect Taxation in India.
2) Systems [ERP like SAP, ORACLE ETC.] development &management,
3) Computerization of Financial, materials and related records
4) Realization of exports benefits
5) Liaison with offices of Director General Foreign Trade, Customs, Software Technology
Parks of India, Development Commissioner [SEEPZ, Mumbai.
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6) In-House awareness/Training Programs in Indirect as well as Direct Taxation in India.
7) Identification of resource organizations and tie up with them in the areas of logistics,
warehouse management, infrastructure providers.
Note: The Organization is aided and headed by professionals having versatile working
experience in the capacity of head of the departments like Excise, Commercial & Stores in
major Indian Corporate and MNCs for last fifteen years. This includes areas like compliance
to Central Excise & Service Tax law, systems, dispatches and materials management.
The organization at present is engaged in soliciting advises to various manufacturing MNC s,
Industries in organized Sector and Infra-structureprojects in respect of Central Excise,
Customs & Service Tax laws. It also helps to the corporate sector for conducting in-house
training programs for their employees so as to upgrade their skills in these laws.
The organization also provides aid for developing a system, system audit, up
gradation of the system and verification of records to ensure the statutory compliance
required under various provisions of the said fiscal laws i. e. Central Excise, Customs &
Service Tax.
The organization also provides consultation in replying to the queries raised by the
Government Departments. It also provides support and assistance in legal disputes before
quasi-judicial and judicial authorities up to the Apex court in India
Consultancy:
The company provides different types of consultancy. These consultancies
Are listed as follows.
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Cont inue d
Indirect Taxes:
1 Central Excise Act, 1944
2 Service Tax (chapter V of the Finance Act, 1994)
Liaison & logistics:
1. With Customs, DGFT, STPI, SEEPZ
2. With infrastructure providers and logistics providers
Brief information about various acts is described as under.
The Central Excise Act:
The Central Excise Act, 1944 is one of the major revenue contributors and the same is
revenue for the union Government. The said Act allows levy and collection of duty on the
activity of production or manufacture of Excisable Goods in India. The said tax is payable by
the manufacturer of the Excisable goods. The Central Excise Law certainly ranked as the
most complicated branch of law in the country. It has to be understood by getting conversant
through an entangled and confused mass of Central Excise Act, Central Excise Tariff Act,
Central Excise Rules, 2002, Central Excise Appeals Rules, 2001, Cenvat Credit Rules, 2004,
Central Excise (Settlement of Cases) Rules, 2001, Central Excise (Removal of Goods at
Consessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, Central Excise
Valuation (Determination of Price of Excisable Goods) Rules, 2000. In addition to the above
one also will have to get conversant with around 20 Acts and Rules relating to additional
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duties of Excise & Cess. The confusion further gets compounded by an astonishing number
of amendments brought about by various Notifications that are issued each year.
The penal provisions like penalty equal to the duty, Interest @ 13% P. A. on the duty sought
to be evaded etc. make it obligatory on the part of the manufacturer to keep a cautious
approach to the said act. EOUs registered with Excise Department and related services such
as procurement of CT3 s from Department, Bonding & de-bonding, Rewarehousing
Certificates, DTA Sale Permissions, Job-Work permissions, etc.
The consultancy provide advice to the manufacturer so as to enable him to discharge
the correct duty liability to avoid litigations in future. We also extend help in defending the
case at the appropriate levels such as Commissioners (Appeals), Customs Excise Service
Tax Appellate Tribunal (CESTAT). We also extend help in preparing periodic returns,
Verification of records maintained by the manufacturer and Excise Audits in line with
EA 2000.
Service Tax:
The Finance Act, 1994, introduced the said Tax for first time in the year 1994. At
present more than 90 Services, which have been brought under the tax net. It is expected
that in forthcoming years some more services also will be brought so as to compensate the
revenue loss, which Government is likely to incur due to rationalization of rates in Customs
and Central Excise. The Tax is on the activity of providing specified services and the service
provider is liable to pay the tax the periodic returns are required to be filed.
The consultancies provide help to fulfill all the procedural requirements and also
discharge correct tax liability. We also provide service to contest the Notices to Show Cause
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at various Appellate forums. Recently Government had introduced intra-sectoral Credit. This
is very important as far as industry.
The consultancy give adequate support to develop, understand the new terminology
and train staff, officers to work accordingly. Now the Excise & service tax is to be seen as
profit center and we take proper initiative to guide industry to keep age.
In-House awareness/Training Programs:
Since the policy of the Central Government is to bring broad base reasonable
taxation in the field of Direct as well as Indirect Taxes, many changes are brought in
particularly in the field of Central Excise Law. The Objective of these changes is to simplify
the procedures required to be followed by the manufacturer. It is our experience that many
number of times the execution department like materials, stores marketing etc. commit
number of mistakes unconsciously due to lack of awareness/Updating about the changed
procedure provided in the law. The said mistake therefore results in to litigations and penal
actions on the organization. To avoid these mistakes arranging regular awareness programs
within the organization immensely help the company to prevent such type of mistakes. We
provide such in-house awareness programs wherein the procedures required to be followed
are explained in simple layman s language. After the awareness it was experienced that
employees brings out many practical difficulties they face in their day-to-day working. The
solution to these difficulties also helps to the organization
to make necessary modifications in its internal control system. In majority of cases it is
experienced that 90% of the procedural lapses gets automatically solved and litigations gets
reduced. The confidence of the employee s increases and overall working becomes smooth.
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It is advisable to arrange this type of programs at least two times a year to enable the
staff members to keep them selves up-to-date on the recent changes. These programs are
generally conducted in the field of Customs, Excise & Service Tax.
System Audit:
Since 1986 the Central Excise Law can be looked as one of the effective tools for
the purpose of increasing the competitiveness, profitability of the organization. The resent
approach of the Government and the simplification major implemented in law suggest on line
proper system of accounting of a transaction from its inception to the closure. Slowly the
statutory records, which were required to be maintained under various laws stands,
abolished and private records maintained by the organization are replacing the same. The
manufacturer is now law bound declare his private records maintained by him in respect of
purchases, receipt of material, storage of material, issue of material, accounting of finished
goods and removal thereof. He is also required to give the complete details, audit trails in
case the records are maintained on computers. In short the complete details are now to be
declared to the Excise Authorities. The Excise Authorities on the basis of these declarations
is likely to conduct the audits of the company. It is therefore advisable to monitor the system
periodically so as to make it completely foolproof. It is also necessary that periodic
reconciliation if any of the various returns filed under various laws is done. Company
Organization extends help in this area too. The verification of various private records in
maintained in connection with Central Excise Law. The method of excise audit is undergoing
radical changes.
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The old system of internal audit now being stands replaced by a new system
called Excise Audit 2000 (EA 2000). The said system at present is introduced to certain
category of industries and slowly will be implemented to all manufacturing units. The said
system not only insures a complete transparency but also encourages voluntary compliance.
The departmental audit parties are expected to visit the organization with advance intimation.
The higher officers of the rank of Additional Commissioner are expected to personally
supervise the audit and he may discuss the audit observation with the senior management
Staff of the organization. Such voluntary compliance will also be appreciated by the
department and the audit it self will be smooth.
Software Technology Park Units/ EOU s:
In this area company provide services
like obtainment of Customs license under Section 56 of the Customs Act, 1962 for in bond
manufacturing, execution of Bond, obtainment of CT-3 certificates/ Procurement
certificates for duty free procurement. Re-warehousing certificates, permission for material to
be send for job work etc. De-bonding of goods, shifting from one premise to another
premises (i.e. in bond movement).
Audit & verification of compliance with Bond Register & B-17 Bond
Register verification & guidance.
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The valued clients list of the company:
The consultancy have more than 75 manufacturing
companies, taxable service providers and infrastructure providers.
Few illustrious of them are. Here I mentioned few of the names.
1. Cummins India Limited 2. Cummins Diesel Sales & Service (India) Limited 3. Nelson Engine Systems India Limited 4. Lucas TVS Limited 5. HSBC Software Development India 6. Praj Industries Limited 7. Honeywell Turbo Atomization India Limited 8. Honeywell Turbo India 9. Husco Hydraulics Pvt. Limited 10. Spicer India Limited 11. Gabriel India Limited 12. Coro Colour India Limited 13. Siro Plast Limited 14. Mahindra Automotive Steels Limited 15. Mojj Engineering Systems Limited 16. V Cube Forge India Limited 17. Disha Technologies India Limited 18. Die-Aluminum India Limited 19. Durabuild Techniques India Limited 20. Ghatge Patil Transports Limited 21. Reinshaw Metallurgy Techniques India Limited 22. Magarpatta Township Development Co. Limited 23. Vascon Engineers Limited 24. Paranjpee Schemes Limited 25. KTR Couplings Limited 26. Mahle Filtration Systems India Limited 27. PMT Machines Limited 28. Precision Automation and Robotics India Limited 29. Seinumero Engineering India Limited 30. Seinumero Machine Tools Limited 31. Soma Textiles & Industries Limited 32. Spintex Industries Limited 33. Starion India Limited 34. Fleetguard Filters Pvt. Limited 35. Abhi Natural Products Pvt. Limited 36. Anand Technology Resource Parts {Anand Group] 37. Accurate gauges & Tools Pvt. Limited 38. Ambika Waste Management Pvt. Limited
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Client list continued
39. Arklite Specialty Lamps Limited 40. Accurate Sales & Services 41. Alfa Industries & Batteries 42. Am-tech Engineering 43. Aura Electronics Pvt. Limited 44. Autobat Battries Pvt. Limited 45. SpaceSaver Exports Pvt. Limited 46. Armar Industries 47. Amruta Enterprises 48. Atul Enterprises 49. Chatham Thermostat Pvt. Limited 50. Classic Strips India Pvt. Limited 51. Dhruvi Flexipack Pvt. Limited 52. Dispotronics 53. Enginetech Systems Pvt. Limited 54. Filtrum Tools Pvt. Limited 55. Filtrum Paper Products Limited 56. Glotech Mold India Pvt. Limited 57. Gadre Marine Exports Pvt. Limited 58. Hodak Engineering Pvt. Limited 59. Hardik Founders & Engineers Pvt. Limited 60. ID Technologies 61. JD Panse & Co 62. JIS Tools Company 63. Magarpatta Resort & motels Pvt. Limited 64. Magarpatta Property Management Co. Limited 65. Microversa Automisation Pvt. Limited 66. Marigold Premises Pvt. Limited 67. Pawas Canning 68. Prasanna Tours & Travels Pvt. Limited 69. Premier Engineering Company 70. Power Control
These all includes the company profile.
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Theoretical Background
Introduction to Export Oriented Unit scheme:
The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution
dated 31st December 1980. The purpose of the scheme was basically to boost exports by
creating additional production capacity. It was introduced as a complementary scheme to the
Free Trade Zones/ Export Processing Zone (EPZ) Scheme introduced in the sixties which
had not attracted many units due to location restrictions. The exporters showed willingness to
set up units with long term commitment to exports under Customs bond operations provided
they had the freedom to locate them in places of their choice and given most of the benefits
as provided to units set up in the Zones.
Over the years the Scheme has undergone various changes and its scope also expanded
substantially as compared to the initial Scheme, which was basically for manufacturing sector
with certain minimum value addition in terms of export earnings. The EOU scheme is, at
present, governed by the provisions of Chapter 6 of the Export and Import (EXIM) Policy,
2004-2009 and Chapter 6 of the Handbook of Procedures, Volume-I (HOP). Under this
scheme, the units undertaking to export their entire production of goods are allowed to be set
up. These units may be engaged in the manufacture, services, development of software,
trading, repair, remaking, reconditioning, re-engineering including making of
gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing,
aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisiculture,
viticulture, poultry, sericulture and granites. The EOUs can export all products except
prohibited items of exports in ITC (HS).
Under the EOU scheme, the units are allowed to import or procure locally without payment of
duty all types of goods including capital goods, raw materials, components, packing
materials, consumables, spares and various other specified categories of equipments
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including material handling equipments, required for export production or in connection
therewith. Even the goods appearing in the restricted list of the EXIM Policy (2005-2009) are
permitted to be imported. However, the goods prohibited for import are not permitted. In the
case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisiculture,
viticulture, poultry, sericulture and granite quarrying, only specified categories of goods
mentioned in the relevant notification have been permitted to be imported duty-free.
The Customs exemption notifications for import & related Central Excise exemption
notification when the goods are procured from local manufacturing units, prescribe several
conditions to be fulfilled by the beneficiaries keeping in view the objective of the Scheme and
to prevent abuse. Working in Customs Bond is one of the essential prerequisite-there being
few exceptions. They also provide various flexibilities in the matter of taking out the materials
for job work, inter unit transfer. The EOUs are required to achieve the minimum NFEP (Net
Foreign Exchange Earning as a Percentage of Exports) and the minimum EP (Export
Performance) as per the provisions of EXIM Policy.
The EOUs are licensed to manufacture goods within the bonded premises for the purpose of
export. As per the policy, the period of bonding is initially for five years, which is extendable
to another five years by the Development Commissioner. On completion of the bonding
period, it is for the unit to decide whether to continue under, or to opt out, of the scheme. The
imported capital goods are allowed to be warehoused for a period of 5 years. For other
goods, the warehousing period is one year, which can be extended further by the
Commissioner / Chief Commissioner of Customs. On an application being made by the unit,
extension of the time limit is granted in all cases unless there is malafide and diversion of
duty free materials. As on 31-3-2001, there are more than 1500 EOUs functioning in the
country.
Monitoring and Administrative Control:
The EOUs basically function under the administrative control of the Development
Commissioner of the Export Processing Zones, whose jurisdiction has been notified by the
Ministry of Commerce. In all, there are seven Development Commissioners at Mumbai,
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Gandhi ham, Chennai, Cochin, Vizag, Noida and Calcutta, who supervise the functioning of
the EOUs and eight Export Processing Zones/Special Economic Zones in the country. The
Development Commissioners of the EPZs/SEZs are the Licensing Authorities in respect of
units under the EOU Scheme, as per specified territorial jurisdiction as indicated in the Export
and Import Policy.
The provisions of the Customs and Central Excise law in respect of the EOUs are
administered by the Commissioners of Customs and Central Excise, who work under the
control of Central Board of Excise & Customs. The staff of jurisdictional Commissioner of
Central Excise handles the work relating to EOUs. However, in the case of EOUs located in
port cities/towns or within the municipal limits of port cities/towns, jurisdictional Commissioner
of Customs, Seaport, handles the work. (Reference Board s Circular Nos. 72/2000-Cus,
dated 31-8-2000 and 87/2000-Cus, dated 2-11-2000.)
For setting up of an EOU, three copies of the application in the prescribed form are required
to be submitted to the Development Commissioner. In certain cases, approval of the Board of
Approval (BOA) is required. Applications for setting up of Electronic Hardware Technology
Park/Software Technology Park units are submitted to the officer designated by the Ministry
of Information Technology for this purpose. After approval of the application and issuance of
Letter of Permission, the applicant is required to execute a legal undertaking with the
Development Commissioner/Designated Officer concerned within the prescribed time period.
On execution of legal undertaking, a green card is issued to the unit.
On the policy front, all decisions relating to the EOUs are taken by the Board of Approvals
(BOA), set up under the Ministry of Commerce. The BOA is chaired by the Secretary,
Ministry of Commerce and includes the Chairman, C.B.E.C. or his nominee as a member. In
the case of units engaged in manufacture of electronic hardware and software, the policy
decisions are taken by the Inter Ministerial Standing Committee (IMSC) set up under the
Ministry of Information Technology and the same are implemented through its Designated
Officers. Chairman, C.B.E.C. or his nominee is a member of the IMSC. The availability of any
benefit under Customs or Central Excise Acts or the notifications issued there under has,
however, to be determined by the Commissioner of Customs or Central Excise having
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jurisdiction-guided by CBEC in areas of doubt. Appropriate inter Ministerial liaison is
maintained for ensuring uniformity as far as possible in the Exam Policy provisions and the
provisions built in the relevant Customs & Central Excise notifications.
Customs Bonding of EOUs:
The premises of EOU are approved as a Customs bonded warehouse under the
warehousing provisions of the Customs Act. The manufacturing and other operations are
carried out under customs bond and the unit bearing appropriate charges for officers on cost
recovery basis. In case of units in Aquaculture, Horticulture, Floriculture, Granite quarrying
etc exemption from bonding is given for administrative reasons with certain other safeguards
being put in place to check that duty free benefits where availed are not abused. The EOUs
are required to execute a multipurpose bond with surety/ security with jurisdictional Customs/
Central Excise officers. (Reference Board s Circular No. 15/95-Cus, dated 23-2-1995)
Customs and Central Excise Notifications relating to EOU Scheme:
To enable EOUs to import / procure locally their requirement of raw materials, capital goods
and office equipment etc. duty free, a number of Customs and Central Excise notifications
have been issued by the Ministry of Finance. These notifications specify the different
categories of items allowed to be imported / procured duty free as well as the conditions
thereof.
General Conditions of Duty free Import:
The facility of duty free import (extending exemption both from basic & countervailing duty) is
subject to certain general conditions in accordance with the EXIM Policy and these are
summed up as follows:
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(i)
The goods are required to be imported into the EOU premises directly. However,
Granite Quarrying units, agriculture and allied sector units are allowed to supply
/transfer the capital goods and the inputs in the farms/fields with prior permission of
Customs.
(ii) Prior to undertaking import / local procurement duty free, the unit is required to get their
premises customs bonded. The unit is also required to execute a B-17 bond with surety/
security with jurisdictional Customs/ Central Excise officers and take out a license under
section 58 of the Customs Act, 1962.
(iii)
The goods, except capital goods and spares, are required to be utilized within a period
of one year or within such period as may be extended by the Customs authorities.
(iv)
The importer is required to maintain a proper account of the import, consumption and
utilization of all imported/locally procured materials and exports made and submit them
periodically to the Development Commissioner/ Customs.
(v) The importer is required to achieve minimum NFEP/export performance as per the
provisions of EXIM Policy.
(vi)
The importer is required to abide by the terms and conditions of the Letter of
Permission/Letter of Intent /Industrial License issued to the unit.
However, the sector specific customs / excise duty exemption notification(s) have certain
additional conditions, which are also required to be followed by the units.
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Benefits of Export Oriented Unit:
Export Oriented units [STP s] are brought under the scheme as EOU scheme
on 31.12.1980. Now the provisions under Chapter 6 of Foreign Trade Policy,
2004-2009, govern EOU Scheme. Under EOU scheme various benefits are
available to industries who intent to avail this benefit under this scheme. The
major benefits can be summarized as under.
1. Unit may export all kinds of goods, which are manufactured by unit and services. This
also includes STPs & EHTP s
2. Machines, Machinery Equipment, tools and dies etc. can also procured either
imported or indigenous with out payment of duty.
3. Raw material components require for manufactured of final product can also be
procured without payment of customs and excise duty.
4. Income tax holiday (Exemptions from payment of income tax as per sec 10 A and 10B
of income Tax Act).
5. Exemption from Industrial Licensing for manufacture of item for SSI sector.
6. Unit is allowed to retain 100% of its export earning in EEFC Account.
7. Transfer of Manufactured goods from one EOU to another EOU is permitted.
8. EOU unit can send the goods for job-work out side its premises.
9. Unit can clear 50% of its FOB value of Exports to DTA on consessional rate Subject to
positive net foreign exchange.
10. Clearance From EOU to another EOU or to Holder of Advance license or EPCG
license holder will be considered positive foreign exchange earning.
11. Minimum Investment in plant and machinery for EOU unit is fixed as Rs 1 Crore.
Important aspects, which are to be noted:
1. The Accounts are to be maintained in proper manner.
2. The transfer pricing issue is to be settled if the software is exported to parent unit or
sister concerned abroad.
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3. The procedures are required to be followed by the unit.
EOU units are totally controlled by customs authorities and various documentation and
procedures are required to be followed by the unit, which is rigid, and join need to follow the
same as per provision of law. Following are the major procedure, which is required to be
followed by EOU either on day-to-day basis, or it is followed periodically & aspects which
needs to be followed by EOU/STP/EHTP.
1. EOU Unit is required to submit a project report along with Application in prescribed
format to Approval Committee [Development Commissioner]
2. The Board of Approval considering various aspects either approves or rejects the
application.
3. If Application is accepted for setting up an unit, a letter of permission [LOP/LOI] is
allotted.
4. Unit needs to obtain permission from local customs authorities and get registered as
bonded warehouse.
5. Unit needs to furnish B-17 Bond with the Customs authorities along with Bank
guarantee considering procurement plans.
6. The Customs authorities control each Procurement. For local procurement a CT 3 is
required to be obtained duty endorsed by Sector In charge superintendent, in case of
procurement of imported raw-material/components or cap goods, a procurement
certificate duly endorsed by Superintendent of Central Excise
7. Each consignment which was brought under consessional rate/exemption is required
to be endorsed by customs officer.
8. Exports are to be verified and documents are required to be endorsed by customs
officers.
9. Monthly ER 2 return is required to be submitted to Excise Authorities.
10. Unit is required to submit Quarterly & Yearly return to Development Commissioner.
11. Unit is required to maintain details of receipt, issue, consumption and utilization of the
raw material purchased.
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12. The Accounts are to be maintained in proper manner.
13. The transfer pricing issue is to be settled if the software is exported to parent unit or
sister concerned abroad.
14. The procedures are required to be followed by the unit.
In all under EOU scheme various facilities and concessions are provided to industry. It is
very important that the unit must follow the procedures and maintain stocks of raw-
material and finished goods on day-to-day basis. The unit is controlled by the Customs
department and required to be follow all the procedures. If the unit intent to export
majority of its production, it is advised to go ahead with this scheme.
The unit need to co-ordination with customs department and Development commissioner
on day-to-day basis for application for CT3/Procurement Certificate, obtain the same,
verification of the consignments, endorsement on Bill of Entry or AR3/AR3A etc.
Verification of export consignments and endorsement on Export documents, submission
of various declarations, returns etc.
Import and Export Procedure:
With regard to clearance of import cargo, the EOUs are placed in a special category,
eligible for fast track or green channel clearance through the Customs. Clearance of import
consignments is allowed at the gateway port/ Air cargo Complexes on the strength of
procurement certificate issued to the EOU by the jurisdictional Assistant
Commissioner/Deputy Commissioner. In general, the EOU cargo is not examined at the
gateway port. In case of loose cargo, marks & numbers on the packages are verified. As for
sealed containers, the seal number and container number are verified with the Bill of Lading.
If the seal is found intact, the container is allowed clearance. The imported cargo so cleared
and brought into the unit s premises are examined by the jurisdictional Customs/Central
Excise officials. After examination (percentage check only), the goods are allowed to be used
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for export production. Re-warehousing certificate is to be submitted to the Assistant
Commissioner/Deputy Commissioner in charge of the port of import within 90 days of the
issue of procurement certificate.
On the export side, the units having status of a Super Star Trading House, Star
Trading House, Trading House, and Export House are allowed the facility of self-sealing of
their export containers. (Board s Circular Nos. 63/97-Cus, dated 21-11-1997, 14/98-Cus
dated 10-3-98 and 90/98-Cus, dated 8-12-1998.)
Procurement of Goods Indigenously under CT-3 Procedure:
The EOUs can procure goods from DTA without payment of Central Excise duty subject
to following of the Chapter X procedure of erstwhile Central Excise Rules, 1944. Such
procurement from DTA is against CT-3, which is issued by the Superintendent of
Customs/Central Excise in charge of the EOU. Such goods are required to be brought
directly from the manufacturer /warehouse into the unit's premises under AR3A and
examined by the designated officer. After examination of such goods, one copy of AR-3A is
sent by registered post to the jurisdictional Central Excise authorities as a Re-warehousing
Certificate in token of receipt of the goods in the unit. To avoid separate permission every
time, the EOUs are issued pre-authenticated CT-3 in booklet form and against such pre-
authenticated CT-3, the EOUs are allowed to procure capital goods, raw materials,
consumables etc. Goods procured from DTA and found to be defective can be returned to
the manufacturer under Chapter X procedure of erstwhile Central Excise Rules, 1944.
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DTA sale:
The EOUs ( other than gems & jewellery units) are allowed to sell goods (including
rejects and byproducts) manufactured by them in DTA upto 50% of FOB value of exports on
payment of consessional duty subject to achievement of prescribed NFEP.
However, the DTA sale facility is not available for certain products such as motor car,
alcoholic liquor, tea (except instant tea), books etc. The EOUs are allowed to remove the
goods into DTA on a invoice. The invoice is used both as a transport document and also as a
document for determining the assessable value. The EOUs can pay the duty by depositing
the same in an authorized bank or the duty can also be debited from the Personal Ledger
Account if an account current is maintained.
Goods Manufactured from Indigenous Materials in 100% EOUs
A consessional duty has been prescribed for goods sold in DTA which are manufactured
entirely out of indigenous materials. In such cases, the duty charged is the effective rate
of excise duty, which is livable on like goods manufactured & cleared by DTA units.
(Reference: notification No.8/97-CE dated 1-3-97). However, if such goods manufactured
by a DTA unit are fully exempt from excise duty or are chargeable to nil rate of duty, the
EOUs are required to pay 30% of each of duties of customs livable on similar imported
goods. (Reference: Notification No.13/98-CE dated 2-6-98).
Clearance of Byproducts, Rejects, Waste and Scrap, Non-excisable Goods, etc.:
The DTA clearance of by-products and rejects on consessional rate duty is not allowed to
the EOUs, which have failed to achieve the prescribed NFEP. In such cases, the EOUs are
liable to pay full duty. Further, in case of these units, DTA clearance of finished goods is not
allowed even on payment of full duty. In case of waste/scrap/remnants, the same are allowed
to be sold in DTA on payment of consessional rate of duty within overall limit of 50% of FOB
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value of exports without insisting on achievement of prescribed NFEP. In case of sale of
scrap/waste/remnants beyond this limit, it is allowed on payment of full duty. As for DTA
clearance of goods manufactured by the EOUs, which are not excisable (e.g. cut flowers).
The duty on inputs and consumables etc. procured/imported duty free under exemption
notifications, which have gone into production of such non-excisable goods cleared into DTA,
is recovered.
De-Bonding:
An EOU may debond into a normal DTA unit subject to the approval of the Development
Commissioner and following of prescribed procedure & fulfilling the laid down conditions.
Such de-bonding is subject to penalty, if any, that may be imposed and payment of duties of
customs and excise applicable at the time of de-bonding. The standard conditions of de-
bonding, as indicated in the Handbook of Procedures provide, amongst other conditions, that
the applicable customs and central excise duty would be paid on imported and indigenous
capital goods, finished goods, raw materials, consumables, components etc. in stock.
Further, the unit in question continues to be treated as an EOU till the date of final de-
bonding order.
The duty payable in terms of the relevant notifications by the units seeking debonding is as
under:
(a)
Semi-finished and finished goods lying in stock at the time of de-bonding can be
cleared on payment of the excise duty equal to aggregate duties of Customs payable
on similar imported goods.
(b)
Capital goods, material handling equipment, office equipment and captive power plants
can be cleared on payment of an amount equal to the customs duty leviable on such
goods on the depreciated value thereof and at the rates in force on the date of
payment of such duty.
(c)
Goods including containers suitable for repeated use other than those at (b) above can
be allowed clearance on payment of customs duty on their value at the time of import
29
and at the rate of duty in force on the date of payment of such duty.
(d)
Used packing materials such as cardboard boxes, polyethylene bags of a kind
unsuitable for repeated use can be cleared without payment of duty.
At the time of debonding, the EOUs are entitled for depreciation on imported/indigenous
capital goods. The rate of depreciation on capital goods have been specified and in case of
the computers and computer peripherals, accelerated rate of depreciation have been
provided for.
In the event of a gem and jewellery unit ceasing its operation, gold and other specious
metals, alloys, gem and other materials available for manufacture of jewellery are handed
over to a nominated agency (nominated by Department of Commerce) at a price determined
by that agency.
After studying this all information about EOUs. I examined various types of
documents maintained by the company. Due to lack of time I cant get thorough
knowledge of documents maintained by the EOU scheme. , but few of them I had
mentioned with the format and related information which I get during the working.
30
Various Documents maintained by the company:
The study of document maintained by Gadre marine Export Ltd. is as follows.
These all documents are only related to custom s audit. Due to lack of time, whatever
information I could get I had tried to obtain it.
1. Commercial Invoice:
The format of commercial Invoice is as follows:
Name: Gade marine Export Pvt. ltd. Invoice No. & Date
Consignee: Buyers Order No.
Ref:
Country of origin Country of Destination INDIA JAPAN
Container No.
No. Of kinds of Package
Description of Goods
Quantity Rate Amount (Rs.)
Authorized signature
The commercial invoice register is maintained separately. The invoice amount tallied with
the amount of ARE-1. Here the rate is determined as per the grade of the product.
The product was fish paste, which was the raw material for the Gadre Marine Export
ltd.
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2.Format of Letter of Permission For EOU s Developer.
No. Government Of India
Ministry of commerce and industry
Department of Commerce
(EOU section) Dated: To, Subject: Proposal For setting up of Export Oriented Unit at
Sir, The under designed is directed to refer of your proposal for setting up of EOU
At ______________ and to convey the approval of the government of India to your proposal,
the details of which are noted below.
General Conditions:
1. At least 25% of the SEZ s area shall be used for developing industrial area for setting
up of EOU s.
2. It would be the responsibility of the developer to obtain required approval from various
statutory authorities under relevant statues and regulation of the government of India
and the state government.
3. The developer will make adequate provision for rehabilitation of the displaced person.
4. The developer shall be eligible for duty free import/ domestic procurement of goods only
for those activities approved by BOA
5. The state government shall issue requisite notification giving effect to the policy
announced by the state government and shall enact a SEZ act.
6. The project shall implemented and operated in terms of the parameters laid down by this
ministry
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7. The funds required for the project will be fully raised by developer, the external
borrowings will be as per the ministry of finance.
8. The promoters shall maintain adequate manpower to provide the facility
9. The operation and maintenance of the unit shall be undertaken as per the proposal.
10. The approval will be subject to cancellation in case of defective service ar if the service
is not up to minimum standard specification.
Kindly convey your acceptance of all the terms and conditions indicated above within 30 days
from the date of issue of this letter.
Yours faithfully
Director
Thus, it is important document of a company. The letter of permission shall issued by
Development commissioner to EOU.The letter of permission shall specify the item
manufacture for first five years. Letter of permission is also treated as license given by
concerned authority.
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CT-3 Register:
This is the important document of the company. To avoid the duty
payment the company issues the CT-3.
Difficulties have been expressed by the 100% EOUs in the procedure for obtaining CT-3
forms in particular they have suggested that since the present system of obtaining excise
duty free goods by way of CT-3 form is lengthy and time consuming , the same should be
done away with and instead the system has prevailing the sales tax side for issue of CT-3
form should be adopted wherein a pre authenticated book is issued to the GME Pvt. Ltd. for
claiming consessional rate of tax and the units are free to make use of it for obtaining raw
materials as and when required.
CT-3 forms were have 3 parts for the following purpose namely,
Part I: To be sent to the DTA supplier and be retained by the central Excise
Officer in charge of DTA supplier
Part II: To be sent by the 100% EOU to the range Superintendent
Part III: To be retained by the EOU for its record & verification.
Hence, I examined the CT-3 register .The procedure to be followed is as follows,
GME Pvt ltd gets the quotation from other company
They decides the price and
At last company issues CT-3
While examining the CT-3 register I verified every entries made by the company
The format of CT-3 register is as follows.
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Form CT-3
No. Date: ________
FORM CT-3
Certificate For removal of excisable goods under bond
This is to certify that:
Mr. /Messer .(Name and address) is/are bona fide license holding license NO.
. Valid upto .
That he/they has /have executed a bond in form B-17 (General Surety/ General Security)
No .date for rs .with the proper officer of central Excise or custom or Deputy
Commissioner of central Excise or custom .
and as such may be permitted to remove ..(Quantity) of . (Excisable goods )
from the unit at ..to their undertaking . at ..
That the specimen signature of his/their authorized agent , namely
shri are furnished below duly attested.
Specimen signature of Central Excise officer in
owner of authorized agent Sd/- charge of the EOU
Attested
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Form A.R.3-A This is another important document to be maintained by the company in
removal of excisable goods from a factory in INDIA to 100% EOU.
I examined whole A.R.3-A and verify the entries with other documents.
The format is as follows.
Form A.R. 3-A
Application for removal of Excisable goods from a factory in India to 100%
Export oriented Undertaking
I/we holder(s) of Central Excise License No. .in form ..
apply for leave to remove the under mentioned goods from the factory at ..
to the 100 % Export oriented undertaking of Mr./ Messers ..
No. And date
of entry in
RGI
Register
Description
of goods
No. And
description
of packages
Gross weight
of packages
Marks and
number of
packages
(1) (2) (3) (4) (5)
Quantity of
goods
Value Duty amt Manner of
transport
Remark
1. To be entered by the Consignor/owner or his authorized agent in words.
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2. The aforesaid Mr., have executed a bond at destination ; in form B 16
Gen. Surety dated .
3. I/we hereby declare the above particulars to be true.
Place:
Date: Signature of Consignor or
his authorized agent
1. Certificate of central excise officer at factory at removal:
To,
The officer of central excise,
In charge of the 100% EOU
I hereby certify that the consignment conforms in all respect to the description given
above and I have permitted removal under Transport permit.
Place:
Date: Signature
37
B-17 Bond:
. All the EOUs are required to execute a single all purpose bond i.e. B-17
bond undertaking themselves to fulfill the conditions stipulated in the exemption notification of
EOU scheme. This bond is taken to take care of the interests of revenue arising out of goods
lost in transit, goods taken into Domestic Tariff Area for job work/ repair/ display etc but not
brought back etc. The bond is executed with the jurisdictional Assistant Commissioner of
Customs/Central Excise in charge of the unit. The format of the bond is prescribed vide
notification No. 6/98-CE ( NT) dated 2-3-1998.
The bond covers the activities which include, inter alias, transshipment of import /export
goods between port of import/export and units' premises; duty-free import/procurement from
the indigenous sources as per relevant notification and warehousing/storage in the unit;
movement of duty-free goods for job work and return; temporary clearance for repair and
display in exhibitions, testing/approvals etc.; and movement of goods against AR-4, AR-3A
and CT-3 etc. and transfer from one warehouse to another.
However, it does not cover the differential duty amount against advance DTA sale for which
a separate bond is to be executed. The bond is taken for an amount equal to 25% of the duty
forgone on the sanctioned requirement of capital goods plus the duty forgone on raw
materials required for 3 months. Surety or security equivalent 5% of the bond amount in the
form of bank guarantee is required to be given by the EOUs
After studying of all information about B-17 bond, I actually examined the bond.
It is most important document of the Export oriented unit company.
38
Form B-17 (General surety / security)*
General Bond with (surety / security) to be executed by the
100% EOUs / Units in EHTP/STP
We, having our registered office at
..Hereinafter referred to as the obligors and ..called the
Surety (ies) (which expression shall, unless repugnant to the context or meaning thereof
Include our heirs, successors, executors, administrators, liquidators, legal representative
And assignees) hereby hold and firmly bind ourselves, jointly and severally unto the
President of India hereinafter referred to as the Government in the sum of Rs .
Rupees. Only for which payment to be well and truly made, we,
The obligors bind us by these presents.
Whereas we the obligors have been granted by the government an
Industrial license for setting up a hundred present export oriented undertaking for the
Manufacture of the goods for export outside India on the terms and conditions stipulated in
Letter of intent no. Dated and we the obligors have duly accepted
The same terms and conditions.
I / we further declare that this bond is given under the orders of the
Central Government in the performance of an act in which the public are interested.
In these presents the words imposing singular only shall also include
The plural and vice versa where the context so requires.
In witness thereof these presents have been signed this day .
of .19 .hereinbefore written by the obligor(s) and the surty(ies).
Place:
Date: signature of the obligor
Witness (1) Address (1) Occupation
(2) Address (2) Occupation signature of surety
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Continued
Witness (1) Address (1) Occupation Signature and date
(2) Address (2) Occupation Name .
Designation ..
Accepted for and on behalf of the President Of India on ..day ..
of ..19 ..
Signature and date
Name ..
Designation ..
I had studied the B-17 bond. A single all-purpose Bond was required to be
furnished by 100 % EOU in lieu of the different bonds being executed earlier. The B-17
bond can be executed with either surety or security.
40
Some other important documents, which I have examined and verified
But due to lack of time I cant, get sufficient information about them. They are
As follows.
1.Daily stock register:
The company maintained daily stock register. Daily stock
register was consisting with entries regarding with daily production from the company.
It also consists of day-to-day dispatched goods entries. it also consist the stock lying with
the factory premises. Thus daily stock register consists every stock of goods which are lying
with the factory. The goods exported were returned back also recorded in this register.
2.Proof of export register:
This is another important register of company. Proof of export
register was consisting the bills at the time of export. This invoice or bill is considers as a
proof of export. I examined the register and also found the entries, which were not recorded
in it. It must be submitted to department on monthly basis.
At this stage the study of documents get over.
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Conclusion:
At this stage the study of documents get over but some
important points which were covered in Audit report was as follows (As per
auditor s view)
1. Goods exported were returned back but not entered in DSA register
2. Daily stock register is not maintained product wise as each product is
cleared under different values.
3. Proof of export should be submitted to dept. on monthly basis.
4. Records of any clearance from factory to be maintain.
5. Service tax on Export commissions is to be paid for the unit on monthly
basis.
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Bibliography:
For making this project report I refereed the following books.
1.NABHI s Manual for 100% Export units NABHI Publication
2.Central excise act and rules
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