CONCEPT OF 'SOFT BONDING'
In 1997, when the IT hardware
industry was getting de-emphasised by a general hostile
policy environment and the impact of wrongly balanced
structure of the original version of the Electronic
Hardware Technology Park (EHTP), decisive steps were
taken towards creating a duty free area for IT hardware
manufacture with a scheme called, 'Modified EHTP'
(MEHTP). This was a preparatory step for the IT hardware
industry to face an eventual zero duty regime. This
scheme permitted bonded EHTP units to sell 50 percent of
their products in the DTA on full payment of customs duty
The MEHTP Scheme makes the
following liberal provisions:
gets all its parts and capital goods without payment
of any import duty.
procurement from within the country is treated as
purchases in India are free from excise duty, entry
tax, sales tax and in several cases, Octroi.
manufactured item is sold to the DTA on payment of
excise duty equivalent to the import duty plus CVD.
cleared for DTA, exported items and export targetted
items are all respectively identical in all respects.
Even with the above salubriant
climate, the Indian IT hardware industry was not, in
general, competitive with respect to other competing
countries like Korea, Hongkong, Philippines, Singapore
and Taiwan. It is feasible to create such a competitive
base in the country, if the concept of a 'Soft Bonded
Unit' for unified domestic and export manufacture is
brought about, elaborating on a prescription made by
1. IT products
are permitted to be manufactured in a unit in bonded
area as in the case of EOU or MEHTP, but these units
can sell even upto 100 percent of its production
within the country on the payment of import duties
and CVD according to a particular suitable criteria.
2. As with
EOU/MEHTP, all the purchase transactions will be free
of sales tax, entry tax, excise duty and octroi.
Harmonised Serial Number (HSN) which the country has
already adopted for all import, export and revenue
purposes, shall be insisted upon to give a clear,
unambiguous classification which does not need
interpretation when sold in the DTA with respect to
what is being manufactured.
clearances will be on the basis of only
self-declaration without insisting upon any permits,
thereby making DTA access simple. Here, the Green
Channel import clearance is required to be
products in the Soft Bonded IT Unit (SBIT) will have
access to DTA for which broadbanding applies within a
four or six digit HSN.
from DTA to the Soft Bonded IT Unit will be treated
as deemed export.
material can be re-exported. When sold in DTA,
applicable duty will be payable.
8. A Simple
bank guarantee or a legally valid undertaking for
self-declared guarantee is accepted for import
clearance as it is duty-free.
authorisations, where essential, are given from a
10. Addition of
new items for manufacture through a Notification and
not by permit.
11. All banking
will be allowed in hard currencies.
The above concept of Soft Bonded IT
Unit can address several of the present problems
encountered. In particular,
limit case of the zero duty regime, the excess quota
to DTA loses significance.
intrinsic incentive for manufacturing is built in.
use items will be duty-free to manufacture.
Incentives for export to the degree required can be
extraneously built in.
units will be on a level playing ground with
competing foreign manufacturers.
investment for IT hardware manufacture will flow
because of the large potential market in India and
for realising competitive edge and scale of
operation. They will also bring in considerable
export production without having to commit any
quantum of exports a-priori.
such duty-free areas within the country supplying to
DTA with Indian labour and Indian capital, makes much
more national economic sense than the alternative of
having to sacrifice its entire hardware industry to