II. SOFT BONDED IT UNIT (S-BIT)
2. Structure of S-BIT Units:
i) Any IT product manufacturing
unit, subject to Para-6 below, shall have a right to
declare itself as a Soft Bonded IT Unit. Such unit
shall have the freedom to market its products
domestically and also export its products. The Unit
will be located in a soft bonded area subject only to
fiscal and procedural controls and without a-priori
ii) The Unit will have
permission to import IT products without payment of
duty and on a self-declaration basis.
iii) For maximising the economy
of scale and operational flexibilities, local and
export production can be seamlessly integrated
without any Government imposed obligations on the mix
of production. The instrumentality of 'export
obligation' is substituted by 'fiscally and
procedurally self-regulated export incentives'. There
will be no minimum export obligation and the unit
will be permitted to sell even 100% of their
production in the Domestic Tariff Area.
iv) On domestic sale, duty will
be paid on the finished products and on all the
intermediate products sold by the unit as per para -
v) For maximising the velocity
of business, a-posteriori controls substitute
a-priori controls through a system of a Legally
enforceable Undertaking (LUT) of Self-Declarations
with a strict but fair post-audit control. The unit
will keep accounts of utilisation of imported duty
free raw-materials utilised for exports and render
accounts which will be on the post audit basis.
vi) Aggregation of several
S-BIT Units into a cooperatively managed zone or a
High Tech Habitat will be subject only to the same
policy instruments under this dispensation as would
apply for an individual S-BIT Unit.
vii) The above facility will be
available not only for units manufacturing finished
products, but also those manufacturing primary and
intermediate IT products.
viii) Where rules and
procedures applicable for S-BIT Units herein are
silent, those for IT Units in DTA will apply.
3. Conversion of Existing Units
into S-BIT Units:
a) The start-up of a new S-BIT
Unit or conversion of existing units into S-BIT units
will be through Industrial Entrepreneur's Memorandum
(IEM) in the Ministry of Industry and this should be
granted within 7 days of application. If approval is
not granted within 7 days of application, the
acknowledged copy of IEM itself will be deemed as an
b) When the existing unit
converts into an S-BIT Unit, the balance of MODVAT
credit in RG-23 Part-II can be used to pay excise
duty on clearance from an S-BIT Unit.
c) Any parts/subassemblies/end
equipment manufacturing unit for Electronic
components or Digital Electronics or Computer
Hardware or Data-communication (upto but including
Transducer or display parts/equipment) manufacturing
is also eligible for conversion/starting as an S-BIT
4. Duties Payable:
i) For all electronic
components and other primary products (listed in
Annexure-IVA) which are manufactured by the S-BIT
Unit and sold in DTA, the customs duty chargeable
will be Nil, and the excise duty chargeable will be
8% till 1-1-2002 and Nil thereafter.
ii) For priority Intermediate
Products (listed in Annexure-IVB), which are
manufactured in the S-BIT Unit and sold to the DTA,
the customs and excise duties will be 45% of the
prevailing normal rates for that product.
iii) For all IT products, other
than those covered under Paras 4(i) and 4(ii), which
are manufactured in the S-BIT Unit and sold to the
DTA, the Customs and Excise Duties will be 70% of the
prevailing normal rates for that product.
i v) The Customs duty will be
payable at the end of each month as per the statement
submitted by the S-BIT Unit. No interest will be
v) No Special Additional
Customs duty will be charged on inputs or finished
goods while clearing into DTA.
vi) S-BIT Unit is permitted to
purchase any item from DTA.
vii) All purchase transactions
will be free of Sales Tax, Entry Tax, Excise Duty,
Purchase Tax/Trade Tax/Turnover Tax and Octroi. All
imports of Capital Goods, Raw Materials, piece parts,
consumables, Components and Sub-assemblies will be
free of customs duties.
viii) The objective of the
scheme is to promote genuine manufacturing.
Therefore, the import of any item(including SKD Kits
there of), which is on the list of items LUT
Self-declared by the S-BIT units for their selling to
DTA,is strictly not permitted, except under the
existing provisions for the import of prototypes and
samples for market promotion of the product prior to
ix) An S-bit unit sourcing the
inputs from DTA in lieu of direct import shall have
the option to source the same against advance release
orders denominated in free foreign exchange/Indian
Rupee. In such cases, the license will be invalidated
for direct import to that extent and the permission
in the form of ARO will be issued which will entitle
the DTA supplier to the benefits of deemed export.
x) Supplies from DTA to S-BIT
units shall be treated as deemed export. Sale of
Products from DTA Units to S-BIT Units shall qualify
for all benefits available for physical export. The
domestic manufacturers shall get duty draw-back
against deemed exports to S-BIT units within 15 days
of filing their application duly certified by a
Chartered Accountant. This is essential in order to
get domestic products ( for local value addition)
into S-BIT Units at internationally competitive
prices. Post-audit shall be resorted to for
subsequent verification. Deemed Export status will
not apply to DTA sale of any item(including SKD Kits
thereof), which is LUT self-declared by the S-BIT
Unit for their selling to DTA as in 4(viii) above.
xi) Deemed export benefits can
be availed through an extension of DEPB scheme or
Advance Licensing scheme or Duty Drawback scheme.
xii) All the benefits available
to EOU Units will also be available to S-BIT Units.
5. All clearances will be on the
basis of legally enforceable undertaking (LUT) and based
on self-declaration without insisting upon any a-priori
permits or inspections; that their actions are in
conformity with the provisions of the applicable policies
of the S-BIT Unit Schemes; and the declaration that the
goods are used for manufacture of IT products, and will
be subject to a post audit with strict and heavy punitive
measures and fines for proven false declaration.
6. Eligibility criterion under
i) A Unit can start or continue
to exist as an S-BIT Unit if and only if:
a) the present worth of
active plant and machinery for the manufacture of
IT products is atleast Rs. 1 crore except that if
the unit is a small scale unit registered with
DCSSI or the State Directorate of Industries, it
is atleast Rs. 25 lakhs, and
b) If export is less than
25% of sales value, then the Unit should satisfy
the following simplified Minimum Value Addition
(MVA) norm: (A-B)/(A)>0.15,
where, A = Sales Value; B =
(c.i.f. value of imports) + (value of DEPB/ARO
The calculation of A and B
excludes all local Central and State
levies/duties and software imported directly/
purchased locally. The c.i.f.value of imports
excludes imported plant, machinery, jigs and
ii) An S-BIT Unit can be
started on the basis of LUT self-declaration of
compliance with the above criteria within 6 months
after IEM is filed with the Ministry of Industry as
per para 3(a) above.
iii) The above criteria may be
fine tuned by the Government on the basis of
experience and the exigencies of national interest.
7. Post-Audit Procedure:
i) The first post-audit shall
be completed within six months of executing and
notifying the LUT of self-assessment. Post-audit
shall be conducted by an auditor franchised by the
Government. The cost of auditing will be borne by the
audited unit. The Government is empowered to conduct
further post-audits if a prima-facie case of
violation of S-BIT scheme procedures or Customs
regulations or other applicable Government
regulations is found to exist or if a just and
reasonable cause exists.
ii) The documentation procedure
of self assessment as per para (5) and other
procedures of post-audit shall be so simplified as to
give minimum chance of disputes while taking care to
prevent cognizable violations of rules and
iii) As and when any dispute
arises with an S-BIT Unit on Customs/Excise matters,
it shall not be dealt by an officer below the rank of
Commissioner of Customs/Excise.
iv) Whenever a dispute arises
between an S-BIT Unit and the Customs/Excise
authorities, the latter will expeditiously take an
advice from the Single-Window agency of para 8 below
and the advice of this agency will be binding on
Customs/Excise authorities as well as on the S-BIT
v) Only officers at the rank of
Assistant Commissioner of Central Excise/Customs or
higher shall visit the unit.
8. A Single-Window agency will be
created by the Government of India to look after the
administration, post-audit, dispute resolution and
facilitation of the S-BIT Units, S-BIT Zones and S-BIT
9. Incentive for Export:
To encourage exports from S-BIT
Units, the unit will be allowed a concessional rate of
duty for Domestic (DTA) access as follows:
Exports to other countries
Concession allowed on
as % of Total Sales Customs
Duty as per
by S-BIT Unit Para 4(i)/Para
Upto 25 % Nil
25 - 50% 25%
> 50% 50%
The entire production within the
S-BIT Unit will be treated as the basis of the
calculation for the above.
10. The Harmonised System of
Nomenclature (HSN) which the country has already adopted
for import, export and revenue purposes, is accepted as
standard for the classification of the IT Products.
11. No SIL is required for DTA
access of products manufactured in an S-BIT Unit.
12. An S-BIT Unit may send goods
for processing to its sub-contractors in other S-BIT
Units without permission. An S-BIT Unit may send goods
for processing by sub-contractors in the DTA provided it
follows all the procedures set out under Excise Rule
13. The sale of IT products
manufactured from one S-BIT unit to another S-BIT unit is
equivalent to international trade and would not qualify
as domestic sale.
14. S-BIT Units are not eligible
for repeat benefits on any transaction between the Unit
and DTA or between one S-BIT Unit to another S-BIT Unit.
15. Disposal of waste material
(whether purchased or arisen out of manufacture) will be
at the value declared by the manufacturer (including NIL
value) at the rate of duty applicable to waste material.
Raw materials, components, CG, and other material which
are surplus to the manufacture may be re-exported either
overseas or to another S-BIT Unit without payment of duty
or given to DTA upon payment of relevant applicable duty.
16. In the S-BIT Units, repacking
and trading will not be considered as part of
manufacturing activity except as provided for under Para
17. Ministry of Finance will issue
the necessary notification for the applicability of LUT
without any bank guarantee as per paras (5), (6) and (7)
18. Addition of new items for
manufacture will be through a manufacturer's LUT
declaration without requiring any permit.
19. All banking in S-BIT units will
also be allowed in hard currencies; For quoting to World
Bank etc. tenders and invoicing thereof from S-BIT unit
shall be allowed in any hard currency also.
20. S-BIT Unit shall be entitled to
export spares free of charge upto 2% of the estimated
value of the exports during a year to its overseas
customers without permission but upon maintaining proper
records subject to Para (5), (6) and (7) above.