IT Taskforce
Basic Background  Report
(BR-2)
8th August 1998



III. SOFT-BONDED IT UNIT (S-BIT)

The National Task Force on Information Technology and Software Development may examine the following policy instruments to choose a sub-set which will be optimal for the setting up of the Soft-Bonding IT Units; apart from adding those which are not included in the list below:

1. All the policy instruments available to EOU/EPZ/MEHTP can be invoked for applying to any requirement of the Soft Bonded IT Unit on the choice of the enterpreneur.

2. For DTA access, duty may be linked to value addition as follows:

Value addition

Recommended duty (basic + CVD) aspercent of the existing rate.

0 - 10 100 percent
10 - 20 75 percent
20 - 35 50 percent
35 - 50 25 percent
> 50 Zero

The value addition criteria is given by the formula:

Percentage Value Addition =

Selling Price - c.i.f. value of imports

c.i.f value of imports

The c.i.f. value of import excludes capital goods import.

Duty is calculated for a period of 12 months. Accounting for exports and value addition shall be done on a 12 months basis of commitments which are backed by a legally valid corporate guarantee.

3. Modification in general exemption No. 55: At present the following provision exists for exemption to all excisable goods produced in 100 percent EOU/EHTP when sold in India:

Para 4

'Provided also that the exemption under this notification shall not be availed until the assistant commissioner is satisfied that:

(i) in the case of the said goods other than software, rejects, scrap, waste or remnants:

(a) such goods being cleared for home consumption are identical in all respects to the goods which are exported or expected to be exported from the unit during specified period for such clearances in terms of the Export Import Policy 1-4-97 - 31-3-2002.'

The above policy shall be modified with the following addition:

'Provided also that the exemption under this notification shall not be availed until the Assistant Commissioner is satisfied that

(ii) in the case of the said goods other than software, rejects, scrap, waste or remnants:

(a) "such goods being cleared for home consumption are identical in all respects, including goods which though not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and commercially interchangeable with the goods exported or expected to be exported from the unit during a specified period for such clearance in terms of the Export Import Policy 1-4-97 - 31-3-1002. For the purposes of clarity, identification can be established by the 4 or 6 digit harmonised Serial Number code as a unique basis of classification"

4. The following modification shall be effected in the Notification No. 23/97-CE dated 29-4-97 regarding Soft Bonded IT Units. The present formula is as follows:

"In exercise of the powers conferred by Sub-section (1) of Section 5A of the Central Excise Act, 1944, (1 of 1944), the Central Government being satisfied that it is necessary in the public interest to do so, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance, No. 2/95-Central Excise dated the 4th January 1995, namely:

In the aid notification

(i) in the opening paragraph, for the words and figures 'Sub-paragraphs (a), (b), (c), (d) and (f) of paragraph 9.9' the words and figures 'sub-paragraphs (a), (b), (c) and (d) of paragraph 9.9' shall be substituted and

(ii) in the Table S.No. 2A 'and the entries relating thereto' shall be omitted".

In the above aid notification, sub-items (ii) shall be removed in the recommended modifications.

5. Self-declaration and Post-Audit: There are a number of cases where self-declaration/certification/self-assessment has been found to streamline procedures and reduce the production delays. Some of these are outlined below:

Self-declaration will be given by the exporter at the time of import, about items of exports. The holder of the license shall be entitled to import of input items upto the full c.i.f value of the items subject to the undertaking of the export obligation as stipulated under the scheme. The importer maintains the details related to the actual use for manufacture of goods for exports which shall be offered, after self-assessment, for post audit by the custom authorities at the time of the expiry of the export obligation period or at the time of closing of such passbooks.

Although there are no restrictions on import of electronic components, as they are all under OGL, the procedures for import of raw material under concessional duty have been made cumbersome and delay prone. The Notification No. 36/96-CUS require registration with the Excise authorities every time the consignment has to be imported. There are delays in this process, besides monetary transactions which add to the cost, making indigenously manufactured items more uncompetitive. For overcoming this, a procedural simplification based on self-certification has been suggested.

Even custom clearance can be made by self-assessment by following the excise duty collection model and doing away with the approvals, inspections, signatures and endorsements. Only spot audits and post audits are resorted to. In the present situation, in the Soft Bonded IT units, it is envisaged that 90 percent of the import clearance would not require the physical presence of the custom officials. The consignment is handed over against documentations filed by the importer/exporter. Monthly filing of export/import statistics can be put in place. Discrepancies, if any, in duty remittance, can be rectified while filing the statement. However, similar to the excise mechanism, in case of violations, the authorities can impost strict punitive measures and penalties.

The criteria for self-assessment to determine who can be given this facility depends upon the larger goal the country has set. In the limit, if all entry barriers have to be removed and even small scale units are to be encouraged, then, anyone operating in the Soft Bonded IT Unit should be given the facility of self-assessment. However, if at the other limit, only larger economically viable units are required to be encouraged to set up large scale production, then the following two criteria can be laid down:

• Investment over Rs. 50 crores

• The unit has obtained ISO-9001 certification

In the event only experienced units are required to be allowed, then, the following two criteria can be adopted:

• The unit has ISO-9001 certification

• The unit has been in existence for more than 5 years.

The criteria may be suitably fixed anywhere in between with some amount of flexibility.

Self-assessment is concomitant with post-audit as otherwise we may end up in a difficult situation. Post-audit ensures that the velocity of business of the enterprise is not hampered by insisting upon giving approvals and import licence before the import/export. The post-audit may be financial audit or technical audit or both.