STPI Unit - Transfer of Goods to DTA Units Permissible

[rajashekharaiah AM]

Can an STPI unit import goods (e.g., laptops, components, etc.) and subsequently sell/transfer them to another domestic group entity on a commercial basis?

If yes, can this be treated as a DTA sale, and what approvals/duty implications would apply? Also, are there any restrictions specifically for imported goods and potential compliance risks in such arrangement under STPI/FTP? Since STPI units are 100% EOU and domestic sales are not allowed?

[YAGAY andSUN]

Yes. An STPI unit, being governed under the EOU/EHTP/STP scheme under Chapter 6 of the FTP, may undertake limited Domestic Tariff Area (“DTA”) clearances, including transfer/sale to another domestic group entity, subject to the conditions prescribed under FTP and HBP. Such transaction would be treated as a “DTA sale”.

Para 6.08 of FTP 2023 permits EOU/EHTP/STP units to sell goods in DTA up to the prescribed entitlement, subject to positive NFE and payment of applicable duties/taxes. Appendix 6G of HBP specifically clarifies that “DTA sale includes clearance to any other unit within India”. However, the permissibility materially depends on the nature of goods transferred. FTP permits DTA sale primarily of “finished goods manufactured by the unit” and not trading of imported goods “as such”. Therefore, laptops/components imported duty-free for authorized operations and subsequently sold domestically without substantial manufacturing/processing may be viewed as unauthorized diversion of duty-free imports and contrary to the EOU/STPI scheme.

Further, Para 6.01 of FTP provides that certain procured/imported goods allowed for consolidation/export purposes “shall not be allowed to be sold in DTA”. Thus, direct commercial resale of imported goods may attract challenge from Customs/STPI authorities if the goods were imported availing duty exemption and were not used for authorized export activity.

Where DTA sale is otherwise permissible, the STPI unit must:

obtain/operate within DTA sale entitlement approved/intimated to the Development Commissioner/STPI authorities;

maintain positive NFE compliance;

pay applicable GST and customs duty foregone/reversal on imported inputs/components attributable to goods cleared into DTA; and
comply with Notification No. 52/2003-Cus. and bonded warehouse conditions.

Transfer of unused imported capital goods/components “as such” to another EOU/STPI/SEZ unit is generally permissible under Para 6.14FTP; however, transfer to a domestic DTA entity requires payment of applicable customs duties/GST and compliance with Customs bonding procedures.

Accordingly, while DTA sale per se is not prohibited for STPI units, commercial onward sale of imported goods without use in authorized operations/manufacture carries significant compliance risk, including demand of foregone customs duty, interest, penalty, and allegation of breach of LoP/FTP conditions.

[Ryan Vaz]

Yes, an STPI/EOU unit can undertake certain DTA clearances/sales, including transfer to a domestic group company, but this is permitted only within the framework of FTPChapter 6 and subject to payment/reversal of applicable customs duties and GST.

However, there is a critical distinction:

• Sale of finished/manufactured goods produced by the STPI unit generally permissible as DTA sale subject to entitlement and positive NFE.
• Sale of imported goods "as such" (e.g., imported laptops/components simply resold domestically without use/manufacture) generally viewed as impermissible trading/diversion of duty-free imports and may violate STPI/EOU conditions.

Thus, if the imported laptops/components are merely imported duty-free and commercially transferred to another domestic entity without authorized use/export linkage, this creates significant Customs/FTP/STPI exposure.

[Sadanand Bulbule]

I welcome the replies.

[Shilpi Jain]

Are these used goods?

Generally DTA sales are permitted if there is positive net forex position. Adhere to payment of the import duties.

AI Summary

Domestic Tariff Area sales by STPI units depend on positive net foreign exchange, duty compliance, and whether goods were manufactured or imported as such. An STPI unit may make limited Domestic Tariff Area clearances, including transfer to another domestic group entity, if the transaction falls within FTP Chapter 6, positive net foreign exchange requirements, entitlement limits, and applicable duty and tax payment. However, a distinction is made between finished goods manufactured by the unit and imported goods sold as such. While DTA sale may be permissible for manufactured goods, direct resale of duty-free imported laptops or components without authorized use is treated as a compliance risk and may violate STPI/EOU conditions.