Applying to be a STPI Unit and procedure for custom bonding

In Bangalore, with its pre-eminence of IT companies and IT-enabled service providers, the setting up of the facility involves first applying to be a STP (Software Technology Park) unit to take advantage of the various facilities and benefits provided by the government. There is also the related aspect of customs bonding. Though inter-related, they are two separate areas. We have covered both the aspects one after another in detail. We first focus on the process of applying to be a STP unit.

In order to become a certified member unit under the STP scheme, proposals have to be submitted to the Directors of the concerned STP or the Designated officers, as the case may be. Applications that fulfill the below conditions shall be eligible for automatic approvals within 15 days from the date of submission:

1. The project is not included in Schedule I or Schedule II of the Industries (Development and Regulation) Act, 1951.

2. The location of the project conforms to the locational policy announced by the Department of Industrial Policy and Permission.

3. The export obligation laid down in the respective STP scheme is fulfilled.

4. The CIF value of import capital goods required for the project does not exceed Rs.10 Crores.

5. The foreign technology proposal envisaged, if any, does not involve a lump sum know-how fee exceeding 2 Million U.S $ (Net of taxes) and 8% royalty on exports and 5% royalty on Domestic Tariff area sales (net of taxes) over a period of 5 years from the date of commencement of commercial production.

6. The exports shall be made to General Currency Area/ Hard Currency Area countries.

7. The unit is amenable to bonding by customs, and all the manufacturing operations are carried out in the same premises and the proposal does not envisage sending out of the bonded area any raw material or intermediate products for any other manufacturing or other processing activity.

8. Proposal does not envisage foreign equity/NRI equity.

In case the above criteria are not fulfilled, the STPI forwards the proposal to the Secretariat for Industrial Assistance in the Department of Industrial Policy and Promotion, Udyog Bhavan, New Delhi or the Foreign Investment Promotion Board, depending upon the value of the investment.

Procedure for Approval under STP Scheme

In order to become a certified member under STP Scheme, units should apply to the Director, STPI in the following manner:

1. Submit an application in the prescribed format for registering an STP unit to the STPI.

2. Along with the application, submit details of the Software Project in terms of strengths, area of expertise, marketing arrangement, business plans, means of finance.

3. A duly authorised representative of the company should sign in initials on each page of the application and duly affix the office seal of the company.

4. Certificate of Incorporation, Memorandum of Association and Articles of Association of the company should support the application.

5. Attach a copy of the resume of the Chief Executive heading the STP operations.

6. Submit a Demand Draft of Rs. 2500/- drawn in favour of “The Director, Software Technology Parks of India” towards processing fees.

Upon a project being approved under STP Scheme, the unit should convey it’s acceptance of the Terms & Conditions attached to the Letter of Permission/ Letter of Approval (LOP/LOA). The LOP/LOA will be construed as a license for all purposes under the scheme, including procurement of raw material and consumables either directly or through designated canalised agency. The LOP/LOA specifies, inter alia, the item of manufacture/service activity, annual capacity, minimum export obligation of the unit for the first five years in dollar terms.

Signing of Legal Agreement with STPI

After obtaining an LOP/LOA, the approved unit is required to sign a Legal Agreement with the concerned STPI, to ensure the due fulfillment of the Terms & Conditions of the approval. The Legal Agreement will be executed guaranteeing operations for a period of five years. The following documents are required to be submitted along with the Legal Agreement:

1. A Cheque/DD for Service Charges as applicable from time to time in favour of “The Director STPI”.

2. List of Capital Goods to be imported during the operation with approximate cost for the project.

3. List of Indigenous Equipment to be purchased.

The Director of STPI will attest the List, issue a letter to the Assistant Commissioner of Customs and provide a copy to the unit.

This Legal Agreement should be signed by a duly authorised representative of the company and the common seal of the company should be affixed to it. A copy of the Board resolution authorising the concerned representative of the company for the aforesaid purpose should also be furnished along with the Agreement. After acceptance, the Director of STPI will sign the Legal Agreement, retain the original and provide a photocopy to the unit.

Having outlined the procedure for applying to be a STP unit, we now focus on the aspect of “Customs bonding”. Before we get into the process, allow us to share a few points with regard to customs bonding.

1. It is mandatory for an Export Oriented Unit/Software Technology Park/Electronic Hardware Technology Park to obtain customs bonding whether or not it avails the benefits of Customs/Excise Duty exemption.

2. All the operations of an EOU/STP/EHTP should be in a Customs Bonded factory unless specially exempted from physical bonding by the concerned Commissioner of Customs/Central Excise.

3. The initial bonding period for units under the EOU/STP/EHTP scheme is 5 years which may be further extended for periods of 5 years at a time by the concerned Development Commissioner of Customs/Central Excise.

On completion of the bonding period, it shall be open for the unit to either continue or opt out of the STP scheme. If no intimation is received from the unit within six months of the expiry of the bonding period, the Development Commissioner will suo motu take action to de-bond the unit. If a unit opts to continue, the Development Commissioner concerned will extend the bonding period and determine the net foreign exchange earning as a percentage of exports and the export performance to be achieved during the extended period.

Units may also be de-bonded on their inability to achieve the export obligation or such other requirements, subject to the approval of the Inter Ministerial Standing Committee. In case a unit wants to opt for de-bonding, the same will be permitted by the STPI after 5 years, if the unit has met the export obligation and other conditions of the approval letter, if any. In case a unit has not met export obligation norms but wants to de-bond after 5 years, the same will be forwarded to the Director General of Foreign Trade (DGFT) who will decide if any penalties have to be imposed.

Procedure for Customs Bonding

Unless already declared as a Warehousing Station, the place where the STP/STP Complex is being set up should be declared as one under Section 9 of the Customs Act, 1962. For such a declaration, the STP/STP Complex should make an application to the Principal Commissioner, Central Excise & Customs through the jurisdictional Superintendent of Central Excise & Customs and the Assistant Commissioner of Customs & Central Excise of the Division duly certified by the Director, Software Technology Park and Department of Electronics.

After the place is declared as a warehousing station, each individual software unit should make an application to the jurisdictional Assistant Commissioner of Customs for issue of licence for a private bonded warehouse under Section 58 and manufacture in bond under Section 65 of the Customs Act, 1962. In Bangalore, the STP unit may apply in the prescribed format in triplicate along with the following documents

1. Copy of the Initial Application, Memorandum & Articles of Association of the unit & the Project Report submitted to the Director, STPI.

2. Letter of Approval from the Director, STPI allowing 100% EOU status to the unit or Letter of Intent/Permission from Secretariat of Industrial Assistance, as the case may be.

3. True copy of the Legal Agreement for Export Obligation executed with the Director, STPI.

4. Purchase/Lease deed of building/premises

5. Ground plan of the premises.

6. Tentative list of imported and indigenous capital goods for setting up the 100% EOU along with the estimated cost duly certified by the Director of STPI.

7. Registration-cum-Membership Certificate issued by the Director of STPI.

8. Importer-Exporter Code allotted by STPI or DGFT, as the case may be

9. Copy of Green Card issued by STPI

10. Three passport photographs of the head of the unit.

If all the above documents are in order, the license will be issued for a period of 5 years.

A single all-purpose Bond (B-17) is now required to be furnished by the 100 % EOU/STP/EHTP in lieu of the different bonds being executed earlier. The said Bond can be executed with either surety or security. After obtaining the Private Bonded Warehouse license from Customs, a copy of the same should be forwarded to STPI office.

(The article is written by indialawinfo.com a legal portal based out of Bangalore.The opinion and facts mentioned in the article are that of the aurthor and the firm he represents and businessgyan is not liable nor claims any responsiblity for the same.)