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 6.14 FTP; 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.

AI Summary

DTA clearance by STPI units remains limited, but imported goods sold without manufacture can trigger customs and compliance risk. An STPI unit may make limited DTA clearances, including transfer to another domestic group entity, if the prescribed entitlement, positive NFE and duty payment conditions are met. Appendix 6G treats DTA sale as clearance to any other unit within India. However, the FTP generally permits DTA sale of finished goods manufactured by the unit and not trading of imported goods as such, so imported laptops or components sold domestically without substantial processing may be treated as unauthorised diversion. DTA clearances also require GST, reversal of customs duty foregone and compliance with bonded warehouse conditions.