Certain Concerns and Clarification on EOU Debonding/Exit

When an Export Oriented Unit (EOU) exits or is debonded, it is required to pay applicable customs duty, cess, Integrated GST (IGST), and any interest on the stock of raw materials and capital goods that were originally imported or procured duty-free.

Here’s a breakdown of the payment requirements and legal basis:

1. Customs Duty and Cess

• Applicable on: Capital goods and raw materials that were imported under duty exemption.
• Legal Basis: Notification No. 52/2003-Cus dated 31.03.2003 and Customs Act, 1962.
• Details:
  • Customs duty is payable on unutilized stock of raw materials, and capital goods still in use at the time of debonding.
  • The rate and value for duty calculation will be as on the date of debonding or exit.
  • Depreciation benefit is available on capital goods as per Circular No. 21/95-Cus dated 10.03.1995 (and subsequent updates).

2. Integrated GST (IGST)

• Applicable on: Capital goods and raw materials if exemption was availed under IGST provisions.
• Legal Basis:
  • Section 5 of the IGST Act, 2017.
  • EOUs earlier were exempted from IGST under certain notifications (e.g., 18/2015-Customs), but post-GST, this exemption has been limited or withdrawn.
• Details:
  • IGST becomes payable at the time of debonding, unless already paid or exemption applies.
  • This is also calculated on the transaction value or depreciated value in case of capital goods.

3. Interest

• Applicable if: There is delay in payment of duties/taxes due at the time of debonding.
• Legal Basis: Section 28AA of the Customs Act, 1962 (and similar provisions under the CGST/IGST Act).
• Details:
  • Interest is charged if duty was short paid, not paid or if theres delayed payment during exit.
  • Usually, the applicable interest is calculated from the due date to the actual date of payment.

4. Procedure for Debonding / Exit from EOU Scheme

1. Application to Development Commissioner (DC) for exit.
2. Surrender of LOP (Letter of Permission).
3. Submission of stock details – raw materials, consumables, capital goods, finished goods.
4. Customs/Excise verification of stock.
5. Assessment of duty & tax liability.
6. Payment of customs duty, IGST, and interest (if applicable).
7. No Dues Certificate (NOC) from Customs/Excise.
8. Final debonding order issued by the DC.

5. Depreciation on Capital Goods

• Depreciation is allowed on the capital goods as per prescribed norms:
  • E.g., 10% per annum on straight-line basis for 10 years (can vary depending on notifications).
• It helps reduce the taxable value of capital goods at the time of debonding.

 Key Notifications and Circulars

• Notification No. 52/2003-Customs
• CBIC Circular No. 76/99-Cus, Circular No. 21/95-Cus
• CBIC IGST clarifications post-GST rollout
• FTP Handbook of Procedures (Chapter 6 – EOU Scheme)

When is Interest Payable on Customs Duty at the Time of EOU Exit?

Interest liability arises not automatically, but only if there is a delay in payment of duty after it becomes due and determined by the Customs Department.

Key Points:

1. Duty Becomes Payable:
   • On the date of debonding approval or exit granted by the Development Commissioner, customs duty is assessed by the proper officer on the remaining stock (capital goods and raw materials).
   • This is the 'date of determination' of duty under Section 15 of the Customs Act, 1962.
2. Interest Liability Arises:
   • ONLY IF the assessed duty is not paid within the stipulated period after demand is raised by customs.
   • Interest is not calculated from the date of import.
3. Interest Starts From:
   • From the date on which duty becomes due (as per demand/order) till the date of actual payment.
   • This is governed by Section 28AA of the Customs Act, 1962:

If a person fails to pay the duty determined under Section 28 within the period specified in the notice or order, interest shall be payable from the date immediately after the expiry of the period till the date of payment.

1. Stipulated Time Period:
   • Usually 30 days from the date of demand/order to pay the duty without interest.
   • If not paid within this period, interest applies for the delayed period.

Summary of Event Timeline

 Legal References

• Section 28AA,Customs Act, 1962 – Interest for delayed payment.
• Section 15, Customs Act, 1962 – Date for determination of rate of duty and tariff valuation.
• Notification No. 52/2003-Customs, para 6 – Exit from EOU scheme and payment of duty.

Conclusion

Interest is not payable from the date of import. It becomes payable only if the duty assessed at the time of debonding is not paid within the stipulated time, usually 30 days from the order. Interest runs from the expiry of that period till the date of actual payment.

***

25th November, 2004

Notification No.132/2004-Customs (N.T.)

In exercise of the powers conferred by sub-section (2) of section 61 of the Customs Act, 1962 (52 of 1962) (hereinafter referred to as said Act) and in supersession of the notification of Central Board of Excise and Customs, No 67/95 (NT)- CUSTOMS, dated the 1 st November, 1995 vide number S.O.870 (E), dated the 1 st November, 1995, the Central Board of Excise and Customs, being satisfied that it is necessary so to do in the public interest, hereby exempts interest accrued on the customs duties payable on the capital goods, components and spares of capital goods and material handling equipment ( fork-lifts, overhead cranes, mobile cranes, crawler cranes, hoists and stackers), office equipments, captive power plants including captive generating sets, spares of captive power plants and captive generating sets, tools, jigs, gauges, fixtures, moulds, dies instruments and accessories,( other than raw materials, components and consumables ) authorised to

be imported by an export oriented undertaking or an Electronic Hardware Technology Park (EHTP) unit or a Software Technology Park (STP) Unit and warehoused under Chapter IX of the said Act, at the time of clearance from Customs Bonded Warehouses under section 68 of the said Customs Act.

Explanation .- For the purposes of this notification,

(i) ' Electronic Hardware Technology Park (EHTP) unit' means a unit established under and in accordance with the Electronic Hardware Technology Park Scheme notified by the Government of India in the Ministry of Commerce, vide,notification No. 5(RE-95)/92-97, dated the 30th April, 1995 and approved by the Inter Ministerial Standing Committee;

(ii) 'export oriented undertaking' has the same meaning as assigned to ' hundred per cent export oriented undertaking' in clause (ii) to the Explanation 2 to sub-section (1) of section 3 of the Central Excise Act, 1944(1 of 1944); and

(iii) ' Software Technology Park (STP) unit ' means a unit established under and in accordance with the Scheme notified by the Government of India in the Ministry of Commerce, vide, notification No. 4/(RE-95/92-97), dated the 30th April, 1995 and

approved by the Inter Ministerial Standing Committee.

F. No 305/25/2004-FTT

V.Kezo

Under Secretary to the Government of India