SUB CONTRACTING

 

1.       Permission for sub-contracting

2.       Terms and conditions of sub-contracting

3.       Sub contracting abroad

4.       Procedure for sub contracting

5.       Export directly from sub-contractor premises

6.       Waste and Scrap generated at sub-contractor’s premises

7.       Sub-Contracting within same Economic Zone

8.       Sub-contracting for Domestic Tariff Area unit for export

 

1.       Permission for sub-contracting -

Annual Permission for sub-contracting shall be made to the Development Commissioner, in Form F, in five copies, with a copy to the Developer.

Contents of Form F

If sub-contracting is envisaged in the manufacturing operations, following information are to be furnished

i.    Sub-contracting permission is required for -

(a) Part of the production process (quantity)

(b) Any particular production process (details)

ii.    Name and address and other particulars of sub-contractor and whether the sub-contractor is -

(a)  Domestic Tariff Area unit/Central Excise Registered or otherwise

(b)  Other Special Economic Zone unit

(c)  Export oriented unit or Electronic Hardware Technology Park unit or Software Technology Park unit.

Exemptions, drawbacks and concessions on the goods and services allowed to a Developer or Co-developer, as the case may be, shall also be available to the contractors appointed by such Developer or Co-developer and all the documents in such cases shall bear the name of the Developer or Co-developer along with the contractor and these shall be filed jointly in the name of the Developer or Co-developer and the contractor:

The Developer and Co-Developer shall execute the Bond-cum-Legal undertaking in form D with regard to their obligations regarding proper utilization of goods, including goods procured or imported by a contractor duly authorized by the Developer or Co-Developer as the case may be.

2.   Terms and conditions of sub-contracting – Rule 41(1)

A Unit, may subcontract a part of its production or any production process, to a unit(s) in the Domestic Tariff Area or in a Special Economic Zone or Export Oriented Unit or a unit in Electronic Hardware Technology Park unit or Software Technology Park unit or Bio-technology Park unit with prior permission of the Specified Officer to be given on an annual basis and subject to following conditions, namely: -

(a)  the finished goods requiring further processing or semi-finished goods including studded jewellery, taken outside the Special Economic Zone for sub-contracting shall be brought back into Unit within 120 days or within such period as may be extended by the Specified Officer for reasons to be recorded in writing for grant of such extension;

(b)  Cut and polished diamonds and precious and semi-precious stones (except rough diamonds, precious or semi-precious stones having zero duty) shall not be allowed to be taken outside the Special Economic Zone for sub-contracting;

(c) a gem and jewellery Unit may receive plain gold or silver or platinum jewellery from the Domestic Tariff Area or from an Export Oriented Unit or from a Unit in the same or another Special Economic Zone in exchange of equivalent content of gold or silver or platinum contained in the said jewellery after adjusting permissible wastage or manufacturing loss allowed under the provisions of the Foreign Trade Policy read with the Handbook of Procedures;

(d)  In sub-contracting or exchange, wastage shall be permitted as per the wastage norms admissible under the Foreign Trade Policy read with the Handbook of Procedures:

The total wastage of the Unit, including the wastage of the subcontractor or the supplier of Jewellery on exchange basis, shall not in any case exceed the wastage permissible under the Foreign Trade Policy read with the Handbook of Procedures;

(e) The Domestic Tariff Area Unit undertaking sub-contracting or supplying jewellery against exchange of gold or silver or platinum shall not be entitled to export entitlements;

(f)   The value of the sub-contracted production of a Unit in any financial year shall not exceed the value of goods produced by the Unit within its own premises in the immediately preceding financial year:

A Unit, sub-contracting part of the production or production process to other Unit in the same Special Economic Zone shall not require the permission of the Specified Officer provided that both the supplying and receiving Units shall maintain proper account of the goods involved in the subcontracting.

subcontracting of a part of its production under this rule shall mean subcontracting all the production processes for conversion of raw material into finished products but only for a part of the quantity of the finished products exported during the year or in the first year of production, the value of the goods subcontracted shall not exceed the value of goods produced by the unit in its own premises during the first year of production.

(g) A Unit engaged in trading or warehousing shall not be allowed the facility of subcontracting of production or production process in the domestic tariff area;

(h) a Unit may remove, with the permission of Specified Officer, moulds or jigs or tools or fixtures or tackles or instruments or hangers and patterns and drawings to the premises of sub-contractor(s), subject to the condition that these shall be brought back to the premises of the Unit immediately on expiry of such sub-contracting arrangement and submission of a quarterly verification report from the Central Excise Officer having jurisdiction over the sub-contractor that such goods are lying in the sub-contractor’s premises and are being used for production of goods on account of the Unit;

(i)   Raw materials, components and consumables excluding fuel may be sent along with these goods, or separately.

3.   Sub contracting abroad- Rule 41(2)

The Development Commissioner may also permit subcontracting of part of the production process abroad and in such cases, the goods may be exported from the sub-contractor’s premises abroad subject to following conditions, namely:-

(a) Sub-contracting charges shall be declared in the export declaration forms and invoices and other related documents;

(b) The export proceeds shall be fully repatriated in favour of the Unit.

4.   Procedure for sub contracting – Rule 42(1)

A Unit may take goods, including finished goods requiring further processing or semi-finished or semi-processed goods, including studded jewellery or inputs to the sub-contractor’s premises –

(i)   For subcontracting any production process; or

(ii)   Part of the production, without payment of duty, subject to following conditions, namely:-

(a) The Unit shall wherever possible apply for the permission at the time of project approval itself and based on such initial approval, the Specified Officer shall permit sub-contracting of part of production process (es) or part of the production;

(b) where the permission has not been taken at the time of project approval or a new permission is sought, the unit shall file an application containing the name and address of the subcontractor(s), Central Excise registration number in the case of the Domestic Tariff Area sub-contractor, if registered, and details of the processes to be carried out or quantum of production sought to be carried out at the sub-contractor’s premises and self certified input output ratio for the said processes;

(c) After examination of details under sub clause (b), the Specified Officer may grant annual permission for sub-contracting any production process or sub-contracting part of the production, as the case may be;

(d)  The Unit, removing raw materials, consumables excluding fuel and components, imported or domestically procured without any processing, for sub-contracting into the Domestic Tariff Area, shall furnish bank guarantee to Specified Officer to cover the duty foregone on such materials being taken out for sub-contracting:

Bank guarantee shall not be required by a unit whose turnover is rupees one crore or above or where the unit is in the Special Economic Zone for more than a period of two years with an unblemished track record;

(e) The Specified Officer or the Authorized Officer may make random checks either at the job worker’s premises or after receipt of goods from the job worker at the Special Economic Zone gate for the purpose of verification of goods which were sent and received:

(f)   a Unit shall remove the goods under serial numbered challans pre-authenticated by the owner or Managing Director or working partner or the company secretary or by any person duly authorized in this behalf by the company or firm, as the case may be and complete description of goods shall be provided on the challan;

(g) The authorized officer at the Special Economic Zone gate shall note down the identification marks of the goods for verification of the goods when received back after subcontracting:

Where sensitive items are sent out for sub-contracting, based on the risk profile or past performance of the unit, sample may be drawn and retained by the Specified Officer, if required:

For gem and jewellery Units, there shall be no requirement for drawal of samples;

(h) the goods sent out for sub-contracting shall be returned to the Unit  within one hundred and twenty days from the date of removal or within such period as may be extended by the Specified Officer for reasons to be recorded in writing for granting such extension;

(i)   in case of failure by the Unit to bring back the goods after subcontracting within the period under sub clause (h), action shall be taken by the Specified Officer to recover the duty on the goods taken out for subcontracting.

5.   Export directly from sub-contractor premises- Rule 42(2)

The Specified Officer may permit the Unit to export the finished goods directly from the sub-contractor’s premises subject to following conditions, namely:-

(i)   The sub-contractor is an Export Oriented Unit or an Electronic Hardware Technology Park Unit or Bio-technology Park Unit or a Special Economic Zone Unit or a Domestic Tariff Area Unit which is registered with the Central Excise Department;

(ii)   Export of finished goods from the sub-contractor’s premises shall be allowed only by way of direct export and not through third party;

(iii) Sample of goods exported from the sub-contractors premises shall be sent by the sub-contractor in sealed condition, to the Specified Officer for establishing identity of the goods exported with the sample drawn at the time of taking out of the goods to the sub-contractor;

(iv) Shipping Bill for duty free goods shall be processed at the port of export as in the case of normal export and shipping bill shall be filed in the name of the Unit and sub-contractor;

(v) Goods for such export shall be removed from the sub-contractor’s premises under bond:

Provided that in case of subcontracting abroad, the goods shall either be returned to the Unit or may be sold to buyers in that country or any third country.

6.   Waste and Scrap generated at sub-contractor’s premises- Rule 42(3)

Waste, scrap or remnants generated during processes at the sub-contractor’s premises may either be returned to the Unit or may be cleared on payment of duty as if the said waste or scrap or remnants have been cleared by the Unit or may be destroyed at the sub-contractor’s premises in the presence of jurisdictional Central Excise Officer if the sub-contractor is a Central Excise registrant:

In case of clearance of waste or scrap at sub-contractor’s premises on payment of duty or destruction thereof the same shall be in accordance with the Standard Input Output Norms notified for the Duty Exemption Entitlement Scheme under the Foreign Trade Policy or as fixed by Approval Committee:

Where the subcontractor’s premises are located abroad, the scrap, waste or remnants generated at the sub-contractors premises may either be returned to the Unit or may be disposed off abroad;

7.   Sub-Contracting within same Economic Zone – Rule 42(4)

A Unit may sub-contract a part of production or production process in another Unit within the same Special Economic Zone subject to the following conditions, namely:-

(i)   The movement of goods shall be under serially numbered challans and record of such movement of goods shall be maintained by the Unit;

(ii)   Raw material imported or procured by the Unit for manufacture of capital goods may be transferred to another unit for the purpose of manufacture or fabrication of capital goods for use by the Unit which had imported or procured the raw materials.

8.   Sub-contracting for Domestic Tariff Area unit for export- Rule 43

A Unit may, on the basis of annual permission from the Specified Officer, undertake sub-contracting for export on behalf of a Domestic Tariff Area exporter, subject to following conditions, namely:-

(a) All the raw material including semi-finished goods and consumables including fuel shall be supplied by Domestic Tariff Area exporter;

(b) Finished goods shall be exported directly by the Unit on behalf of the Domestic Tariff Area exporter:

Provided that in case of subcontracting on behalf of an Export Oriented Unit or an Electronic Hardware Technology Park unit or an Software Technology Park unit or Bio Technology Park unit, the finished goods may be exported either from the Unit or from the Export Oriented Unit or Electronic Hardware Technology Park unit or Software Technology Park unit or Bio-Technology Park unit;

(c) Export document shall be jointly in the name of Domestic Tariff Area  exporter and the Unit;

(d) The Domestic Tariff Area exporter shall be eligible for refund of duty paid on the inputs by way of brand rate of duty drawback.