Subcontract Manufacturing by 100% EOU for a Main contractor (Outside India) who is in contract with an Indian Brand Owner for supply of Ready Made garments

[Sanketh Meri]

Dear All,

An 100% EOU is planning to do Sub Contract Manufacturing for a Main Contractor outside India who has a contract with a Indian Brand Owner for manufacture of Ready Made Garments. The arrangement is such that 100% EOU shall manufacture the goods on sub contract basis for Main Contractor outside India but supply the goods directly to Brand Owner in India (assuming Brand Owner will sell in DTA) and bill in USD to Main Contractor. Main Contractor instead shall bill it to Brand Owner and receive payment.

Note: Subcontractor shall purchase all materials himself and manufacture the Ready Made Garments. It can be DTA or Import Purchase.

Can anyone let us know the implications under the following

1. FTP - Whether it is a deemed export.

2. If it is not a Deemed Export, what shall be the implications under Central excise if billing is done to Main Contractor outside India and goods are cleared in DTA to the Brand Owner.

3. What shall be the implications under Customs for Main Contractor who is billing the Brand Owner in India but not supplying the materials.

4. Whether a 100% EOU shall be allowed to keep duty paid DTA purchases in Warehouse or he has to set up a separate DTA unit.

Looking forward to reply from technical people in this area.

AI Summary

EOU Subcontracting for Overseas Contractor: Implications on DTA Sales, Central Excise Duty, and Foreign Exchange Management A 100% Export Oriented Unit (EOU) plans to subcontract manufacturing for an overseas main contractor, who has a contract with an Indian brand owner for ready-made garments. The EOU will supply goods directly to the Indian brand owner, billing the main contractor in USD. Key issues discussed include whether this is deemed export under Foreign Trade Policy, implications under Central Excise when goods are cleared in Domestic Tariff Area (DTA), customs implications for the main contractor, and whether a separate DTA unit is needed for storing duty-paid purchases. It is clarified that DTA sales are not deemed exports, and duty is payable under Central Excise Act. Payments are governed by the Foreign Exchange Management Act.