SEZ - Failure to meet export obligation
AUDIT notes;
Rule 43 of SEZ Rules 2006 permits subcontracting by SEZ Unit for exports on behalf of the DTA exporter subject to the condition that all the Raw Materials including semi-finished goods and consumables including fuel shall be supplied by the DTA Exporter. Further, finished goods need to be exported directly by the SEZ Unit on behalf of the DTA exporter. However, exports can be made either by the SEZ Unit or EOUs when sub-contracting on behalf of EOUs is undertaken.
"Export" as defined in section 2(m) of SEZ Act 2005 means taking Goods/service out of India from a SEZ, supplies from DTA to a SEZ Unit/Developer and supplies from one SEZ Unit to other SEZ unit and does not include Deemed Exports.
In Andhra Pradesh, a unit in APIIC took sub-contracting permission from DC and Specified Officer for manufacture of Zidolam-N amounting to Rs.149.24crore. The entire quantum of subcontracted materials was sent to another unit (EOU Unit) and from there, the material was cleared as physical exports as well as deemed exports.
Deemed exports of material sub-contracted by the SEZ Unit through an EOU is not in order as the said materials are required to be physically exported under the SEZ Rules.
Department's Reply: SEZ Unit may, in terms of Rule 43(b) of SEZ rules, on the basis of annual permission from the Specified Officer, undertake sub-contracting for export on behalf of a DTA exporter, subject to condition that finished goods shall be exported directly by the Unit on behalf of the DTA exporter provided that in case of sub-contracting on behalf of an EOU or EHTP unit or STPI unit or Bio-technology Park unit, the finished goods may be exported either from the Unit or from the EOU or EHTP unit or STPI unit or Bio-technology Park unit. Accordingly the decision was taken.
Rule 43(b) provides for Sub-contracting for Domestic Tariff Area unit for export - A Unit may, on the basis of annual permission from the Specified Officer, undertake sub-contracting for export on behalf of a Domestic Tariff Area exporter, subject to following condition that finished goods shall be exported directly by the Unit on behalf of the Domestic Tariff Area exporter provided that in case of sub - contracting on behalf of an Export Oriented Unit or an Electronic Hardware Technology Park unit or a Software Technology Park unit or Bio - technology Park unit, the finished goods may be exported either from the Unit or from the Export Oriented Unit or Electronic Hardware Technology Park unit or Software Technology Park unit or Bio - technology Park unit.
The reply is not acceptable to Audit as proviso to Rule 43(b) of SEZ Rule specifically prescribes that the finished goods manufactured on sub - contracting basis are to be mandatorily exported either from the Unit or from the EOU. Further, the ‘condition of export' is referred to in SEZ Rules, which does not include deemed exports.
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