Tax liability of export-oriented units

Updated: Oct 20 2006, 05:30am hrs
We are a 100% EOU engaged in the manufacture of speciality chemicals. Is it possible for us to make sales to units located in the Domestic Tariff Area (DTA)

As specified in para 6.8(b) of the Export Import Policy 2002-2007, EOU units (other than gems and jewellery units) are eligible to sell goods upto 50% of FOB value of their exports to units located in the DTA. The sales to units in the DTA would be subject to fulfillment of minimum positive net foreign exchange earnings as prescribed in the Exim Policy. The EOU is allowed to sell upto 50% of its exports in India. Hence, the EOU has to export a minimum of 67% of its total production so that it can sell 33% to units in the DTA, which is 50 per cent of its exports.

With respect to sales to units in the DTA by a 100% EOU, is it mandatory to receive payments through Exchange Earners Foreign Currency Accounts

As per para 6.8(b) of the Exim Policy, sale to the DTA by an EOU is subject to the fulfillment of the minimum net foreign exchange earnings. Further, under para 6.9(b) of the Exim Policy, supplies effected in the DTA by an EOU would be counted towards fulfillment of minimum NFE if payment is made from the Exchange Earners Foreign Currency Account of the buyer located in the DTA. Hence, payment received from EEFC accounts on sales to units in the DTA would be counted towards fulfillment of minimum NFE requirements. Once the minimum positive NFE is achieved by the EOU, they might make sales to units in the DTA other than through an EEFC account subject to the maximum limit of 50% of total exports.

We are a company engaged in the manufacture of synthetic yarn with three product centres. One of the product centres is a 100% EOU, which intends to sell to the other two product centres, located in the DTA. Can this sale be considered for fulfillment of minimum positive net foreign exchange earnings

Para 6.9(b) of the Foreign Trade Policy 2004-2009 states that supplies effected in the DTA against payment from the EEFC Account of the buyer in the DTA would be considered for the purpose of fulfillment of minimum NFE. Hence, the DTA unit to whom the goods are supplied by the EOU has to be a buyer. Thus, the supply of goods by one unit of a company to another unit of the same company might, at best, qualify as a stock-transfer and not a sale-and-purchase transaction So, the supply of goods by the EOU unit to the DTA units of the company would not qualify as a DTA sale. Therefore, it would not be eligible to be considered for fulfillment of the minimum NFE requirement .

We are a company engaged in the manufacture of engineering goods and hold an EPCG licenses for the import of certain capital goods. We wish to import certain spares. Is this permissible under law

Para 5.1 of the Exim Policy specifies that spares might be imported under the EPCG scheme subject to a limit of 20% of the CIF value of capital goods. Hence, the company would be eligible to import spares of capital goods under the EPCG licenses The company, thus, has to import capital goods of a minimum value of 83.33% of the value of the EPCG licenses. It would be eligible to import spares upto 16.66% of the licence value which is equivalent to 20% of the CIF value of capital goods to be imported.

Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers queries to the professionals. Neither Ernst & Young nor this publication are liable for any action taken on the basis of these replies.