AUGUST 26 , 2020

By B V Kumar, Former CBEC Member

THE need to raise the global competitiveness of the Indian manufacturing sector is a key imperative for the country's long term growth. The National Manufacturing Policy (NMP) is by far the most comprehensive and significant policy initiative taken by the Government of India.

The policy outlines the creation of National Investment and Manufacturing Zones (NIMZ) with minimum size of 5,000 Hectares as giant industrial greenfield townships to promote world-class manufacturing activities.

The NMP seeks to increase manufacturing growth rate from 9% (in the last five years) to 12% to 14% over the medium-term period. The aim is to push manufacturing's contribution to GDP from the present 16% to 25% by 2022. In doing so, the policy intends to create an additional 100 million jobs and support required skills development programmes. Other key objectives of the policy include:

- Creation of National Investment and Manufacturing Zones (NIMZs)

- Development of Small and Medium Enterprises (SMEs)

- Implementation of industrial training and other skill upgradation measures

- Promotion of Green Manufacturing

- Rationalisation and simplification of business regulations.

Besides, the policy also dwells upon improvement of core infrastructure, creation of financial and institutional mechanisms for technology development, boosting domestic capacity to enhancing exports, besides many other provisions, with the intent to enhance global competitiveness of Indian manufacturing.

With a view to make India into a global design and manufacturing hub the Government is taking several initiatives to boost exports from India and give exporters an ease of doing business.

In order to achieve, the lofty objectives of NMP, a co-ordinated effort is required from the ministries/departments concerned of the Central Government, viz., Ministry of Finance, Department of Revenue, Ministry of Railways, Ministry of Road Transport and Highways, Ministry of Commerce and Industry, Ministry of Micro, Small and Medium Industries, Ministry of Environment, Forests and Climate Change, etc, and the State Industrial Infrastructure Development Corporations, State Industrial Investment and Development Corporations, State Industrial Finance Corporations, etc., of the State Governments.

For setting up the NIMZs and for implementing the NMP, apart from other initiatives taken by the ministries concerned, the Ministry of Finance, Department of Revenue notified on 1 st October 2019, Manufacture and Other Operations in Warehouse Regulations, 2019, (MOOWR). This is a game changer, and is a contrast, to the Export Promotion Schemes under the Foreign Trade Policy, such as 100% EOUs, Imports under Advance Authorisations, Export Promotion Capital Goods Scheme, Special Economic Zones, etc., in terms of which the unit concerned is required to achieve minimum export obligation within the specified or extended period failing which, not only the duty foregone is required to be paid along with the interest but they are also exposed to penal proceedings under the Customs Act, 1962 as well as under the Foreign Trade (Development & Regulations). Act, 1962.

MOOWR, 2019 functions within the statutory frame work of Chapter IX (Warehousing) of the Customs Act, (Sections 57 to 73A) and also derives all the facilities available under the same provisions. Further, the provisions of Warehouse (Custody and Handling of Goods) Regulations, 2016, would not be applicable to a warehouse operating under Section 65, with effect from 1 st October 2019.

The following facilities would be available to a unit functioning under MOOWR, in a NIMZ in contrast to units functioning under any of the export promotion schemes notified under the Foreign Trade Policy.

Briefly stated, the salient features under the NIMZ regulations are:

- A unit operating in a NIMZ can avail exemption of customs duty on imported capital goods and inputs used in the production of finished goods to be exported. On the deferred customs duty, there will be no interest liability and without any time limitation.

- BCD and IGST payable on imported capital goods and inputs stand deferred. In the case of inputs, the BCD and IGST payable stand deferred till they are cleared from the warehouse for home consumption, and no interest is payable on duty. In case the finished goods are exported, the duty on the imported inputs both BCD and IGST stands remitted and will not be payable.

- In the case of capital goods, the import duties (both BCD and IGST) stand deferred till they are cleared from the warehouse for home consumption on payment of applicable duty without interest or are exported after use without payment of duty.

- MOOWR also offers an unlimited warehousing period for the imported capital goods and inputs without any added interest liability.

- If the capital goods are cleared to the DTA, the deferred duty payable does not get incorporated on the finished goods. No extra duty on finished goods cleared into DTA is payable on account of imported capital goods on which duty has been deferred.

- The duties are fully remitted if the goods resulting from such operations are exported.

- Import duty is payable only if the resulting goods or imported goods are cleared to the Domestic Tariff Area (DTA) under a shipping bill.

- The unit can procure GST compliant goods from the DTA for use in manufacture and other operations.

- There is no investment threshold or export obligation.

- No geographical limitation on where such units can be set up.

- The permission to set up the unit is given by the jurisdictional Commissioner of Customs and no other authority needs be approached.

- There is no limit on quantum of clearances that can be exported or cleared to the DTA. This would help in optimum capacity utilization.

- Any unit in DTA is eligible for making an application for manufacture and other operations in a bonded warehouse. In other words, an existing factory in the DTA is eligible for applying.

- There is no physical control of a unit licensed under MOOWR, on a day to day basis. The unit will be subject to risk based audits.

- The regulations do not mandate that a fully enclosed structure is a prerequisite for grant of license. What is important is that the site or building is suitable for secure storage of goods and discharge of compliances, such as proper boundary walls, gate(s) with access control and personnel to safeguard the premises.

- The license and permission granted is valid unless it is cancelled or surrendered. No renewal of the license or permission granted is required.

- For ease of doing business and easy compliance, the unit is required to maintain a single digital account for receipt, processing and removal of goods. Unlike other export-oriented schemes like EOUs, SEZs and FTWZs which have to maintain elaborate records.

- The inspection of goods by customs at the stage of ex-bonding would be done, only if there is indication of risks and not as a matter of routine practice. Approval of the bond officer is not required for clearance of the goods from the warehouse. The audit of units would also be based on risk criteria. There is no prescribed frequency for such audits.

- The eligibility to export benefits under FTP or IGCR would depend upon the respective scheme. If the scheme allows, then the unit can avail such benefit.

- Once the goods are cleared from the warehouse, they will no longer be treated as warehoused goods. If the goods cleared are returned by the customer for repair, they will be entered as DTA receipts. After repair, when the goods are cleared from the warehouse, the same will be entered in the prescribed accounting form. If the goods exported are subsequently rejected or sent back for repair by the customer, then the goods upon re-import have to be entered as import receipts in the accounting form.

- A manufacturer operating under MOOWR is not bound by any export obligation or required to earn foreign exchange in freely convertible currencies or discharge any export obligation.

- The unit is also required to furnish a general bond undertaking to comply with all the provisions of both MOOWR and Section 59 of the Customs Act.

It can be seen from the above that if a unit is set up in NIMZ, it provides not only ease of business but provides deferment of duties providing the liquidity required for manufacturing and marketing operations.

As an incentive, the new units which are likely to be set up, particularly, for start ups, financial grants of at least, Rs. 10 Lakhs should be given by the Ministry of MSMEs.

Keeping the above objectives in mind, NIMZs have been created at:

Narasapura, which is one of the largest  industrial regions  in  Kolar District,  Karnataka  has been initially developed in 700.75 acres and another 1,480 acres have been notified under Section 28(1) of the KIADB Act for the second phase. For the third phase, it has identified 2,000 acres. This industrial area is expected to contribute 1.25% of the  GDP  towards the  Indian economy. Physical Infrastructure has been developed including multi-lane access road, power supply, street lights, dual water supply pipeline for potable and tertiary treated water. The substation has been upgraded to 32 MW for uninterrupted power supply. KIADB is planning to construct 220/66/11 KV Sub Station

A railway line between Whitefield-Kolar at the cost of Rs 353.45 corers will facilitate movement of people and freight. The Chennai-Bangalore Industrial Corridor will provide connectivity to Chennai Port for exports. The existing Old Bangalore-Madras Road (NH4) would also add to its connectivity.

Some of the important units functioning at Narasapura are :

- Wistron, Apple's Taiwanese supplier

- Mahindra Aerospace,  manufactures 2, 4 and 6 seated family & commercial planes for the Indian and international markets.

- Honda Motorcycle and Scooter India Pvt. Ltd,  one of the largest manufacturers of 2-wheelers, Honda Active and Honda Yuva

- Triumph,  manufactures Cruise Bikes.

- Volvo,  manufactures buses.

- Bando,  manufactures engines belts and high strength rubber products.

- Scania,  a Volkswagen Company manufacturing luxury passenger buses and high-end trucks.

- Exedy Clutch India Pvt Ltd,  manufactures clutch systems.

- Lumax,  manufactures automotive spares.

- Indo,  manufactures electrical and electronic appliances and parts.

- Ask Automotive Pvt Ltd,  Manufactures break panels and engine parts for two wheelers.

- Suprajit Engineering, Manufactures automotive cables & components.

Narasapura is an outstanding example where the units which have been set up in the NIMZ have taken full advantage of the facilities available under the scheme.

The Karnataka government is also setting up the development of a NIMZ at Tumkur near Bangalore, for which approval has been received. The State Government has already acquired 9,000 acres and another 3,500 acres are under acquisition. 47  companies  have received approval to set up their manufacturing units.

Zaheerabad Nyalkal and Jharasangam Mandals of Sangareddy District, Telangana. The Telangana State Industrial Infrastructure Corporation (TSIIC) has taken possession of 3,000 out of 3,500 acres of land for phase one of the NIMZ. Steps have been taken to acquire the remaining 500 acres. The NIMZ proposed would cover 12,635 acres in two phases to develop manufacturing area.

Prakasam District in Andhra Pradesh. Final approval has been received for setting up a NIMZ in this District. The necessary infrastructure required is being developed.

Kalinganagar, will come up in Jajpur district of Odisha. The KNIMZ includes Kalinganagar Industrial Complex which has been developed by IDCO as the Steel Hub of Odisha. The required physical infrastructure is being developed.

Some of the prospective investors pointed out that MOOWR, as notified now, does not cover some areas which need either to be included under the scheme or clarification is required to be issued. Some of them are indicated below:

- Whether the units providing services can set up their business in the NIMZ? Such as speciality hospitals, hospitality services, testing and validation services, repair-replacement services, banking services, legal services, etc.  

- Some of the manufacturing units also provide Warranty and Post Warranty services for the products supplied by them in the DTA and sometime for products exported. Whether this is permitted.

- Whether, incentives are available for exports made by the units under the Income Tax Act.

- What are the transition provisions applicable to a unit in the DTA or EOU or a SEZ if it intends to migrate to NIMZ.

- Whether, input credit would be available on capital goods and inputs when a unit in the DTA or EOU or a SEZ intends to migrate to NIMZ.

- Whether, depreciation benefits would be available when capital goods are cleared to the DTA on payment of applicable duties, as available under FTP.

- Whether, t he SVB provisions in respect of goods covered under Zero duty Tariff, would be exempted.

- Under STP Scheme, units can import prototypes/samples/tools/hardware required for software development/R&D activities, free of cost, from its overseas entities and re-export them after completing the project or locally scrap them as per standard norms. Many of these items are in the nature of prototypes/samples either not available in the market for sale (or) specifically made for their R&D activities. These imports are made by multi-national companies operating under the STP scheme, under bond/undertaking/authorization from the respective administering authority established under Foreign Trade Policy. Since such goods are imported free of charge and through their overseas group companies, the value declared is changed on the ground that the declared price is influenced since they are related party transactions. Such shipments are not allowed to be cleared under current RMS facility resulting in delay of 4 to 7 days and held up for value confirmation, justification of evidence or submission of contemporary invoice, comparable price list, technical write up, and catalogue, etc. Will such delays be avoided if a unit is set up in a NIMZ. Probably, this issue can be resolved if the declared / transaction value is loaded by 15% - 20% and the clearance is permitted without any delay.

The CBIC should empower itself to expand the scope of the units that can be set up in a NIMZ so that the objectives of NMP are achieved.