NFE calculation

[sivakumar vellanki]

My company is an 100% EOU. It wants to exit from EOU scheme and switchover to EPCG Scheme. Accordingly, it got 'in principle' permission to exit from eou, from the Development Commissioner, VSEZ, Vizg. On the basis of the said permission, it got EPCG licnese from JDFT,Hyderabad, on 13th March, 2012. Afterwards, it submitted the relevant papers/documents to the Asst.  Commissioner, Kadapa Division and paid the relevant duties on DTA sales and indigenous capital goods. Now, the AC wants confirmaion of positive NFE from the Development Commissioner, VSEZ, Vizag. So, when we approached the Developemnt Commissioner, he said that the policy is not clear whether whole  value of imported capital goods to be deducted or amortization value of capital goods to be deducted from NFE. 

According to para 6.9.4 of chapter 6 of FTP 2009-14, the following sentence is added.

' For Existing units, appropriate customs and central excise duties should be paid where NFE is less than Deprecation claimed by the unit, before exit'

Hence, Development Commissioner has referred the matter to MOC. In turn, MOC refers the matter to DGFT. We clearly explained to the Development Commisisoner, Assit. Commisiioner of Custons and Central Excidse and the  Director, Joint SEcretary and Under Secretary in MOC that as the unit is exiting from EOU Scheme prior to the first ten years, only depreciation has to  be cosnidered as foreign out flow for the purpose of calculation of NFE. Circular no. 12/2008, is also shown to them. But, Development commissioner said that they will not follow the circulars issued by Ministry of Finance.

So, can you guide me in this regard.

Regards,

V. Sivakumar

9642517459

[Dhirendra Satapathy]

Foreign Trade Policy is very clear in this regard.

If the unit undertakes to continue for 10 years then amortization @ 10% will be applicable for imported CG, and Technical Know How Fees for annual calculation of NFE.

 

However at the time of exit the NFE calculation shall be A - B

A: FOB value of exports

B: sum total of CIF value of all imported inputs and the CIF value of all imported CG ..........

it means all imported CG whether duty paid or duty free to be included.

 

Further the NFE calculation says that 'If any capital goods imported duty free ........... the CIF value of the CG shall be included pro-rata under B for the period it remains with the units.

 

Here pro-rata value of duty free CG can be easily said as the depreciation charged on that CG. Hence for duty free imported CG the depreciation charged (as prescribed) by the unit shall be taken into account while calculating the NFE.

[sivakumar vellanki]

But, pro-rata value of duty free CG is applicaable where the said CG is imported duty free on lease or loan basis only. So, pl clarify.

[Dhirendra Satapathy]

Please refer to Para 6.9.3 of Hand Book of Procedures 2009-14 where it states 'If any capital goods are imported duty free or leased from a leasing company, received free of cost and / or on loan basis or transfer, CIF value of Capital goods shall be included pro-rata, under 'B' for period it remains with units.

So it is very clear that whether goods are imported duty free or on lease or on loan, pro-rata value is to be taken for the period it remains with the unit.  So when the unit debonds the duty free imported CG; it reflects that such CG remained with the unit from the date of import / bond entry till the date of debonding. The pro-rata value of such CG can be equal to the depreciation claimed but not less than that.c

AI Summary

Net foreign exchange calculation: include CIF of imported inputs and pro rata value of duty free capital goods on exit. NFE on exit is computed as A - B, with A as FOB exports and B as the CIF value of all imported inputs and imported capital goods; duty free, leased, loaned or transferred imported capital goods are included pro rata in B for the period they remained with the unit, the pro rata value being the depreciation charged by the unit (not less than depreciation); where NFE is less than depreciation claimed, appropriate customs and central excise duties must be paid.