Manufacturing
in Bond Rules 1997 |
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Until 1997, there were three kinds of Customs Manufacturing Bonds in operation
which envisaged duty-free import of raw materials and accessories into
bond for production of goods for exports. SRO-68(I)/70 dated 17.4.70 provided
for a manufacturing bond partially for exports;
SRO-69(I)/70 dated 17.4.70 provided for manufacturing bond mainly for exports;
and SRO-722(I)/89 dated 10.7.89 was the Open Bond Scheme for duty-free and
tax-free import of all imported inputs. In all the three kinds of bonds,
duty drawbacks were allowed on the use of duty paid imported inputs for
export production. On6th November 1997, the new Manufacturing in Bond Rules
1997 were notified as SRO-1140(I)/97 dated 6.11.1997 (App: 6.1) was issued
that merged the three kinds of bonds into one. It was provided that any
manufacturing bond already licensed under the previous regime was automatically
converted into a manufacturing bond under SRO-1140/97, without the necessity
of issuance of a new bond license. The main provisions in the Manufacturing
in Bond Rules are summarised below.
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Duty/Tax-free Clearance
These rules apply to clearance of dutiable imported goods, excisable goods
and goods/supplies chargeable to Sales Tax, without payment of Customs
duty, Central Excise duty and Sales Tax, for the manufacture of goods
primarily for exports. These input goods include raw materials, accessories,
sub-components, components, sub-assemblies, assemblies, unrecorded media
for development of software and recorded software used as tools for development
of software.
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Bond License
Any person wishing to operate a manufacturing bond has to be registered
as an exporter and importer with the Export Promotion Bureau and under
the Sales Tax Act 1990. An application for bond license is made to the
Collector of Customs in the prescribed form (App: 6.2), along with the
following required documents:
- Site plan indicating location of the bond premises, total area,
covered area and manufacturing area.
- Details of machinery installed.
- Export performance, if any, for the previous financial or calendar
year.
- National tax number or certificate.
- Bank certificate for financial transactions in the last two years.
- Memorandum and Articles of Association, partnership deed, if and
as applicable.
- Copies of National Identity Cards of owners and directors.
- Lease/Tenancy agreement with written permission of landlord to use
the premises as manufacturing bond.
- Certificate from supplier of fire fighting equipment installed in
the premises regarding its validity date.
- Comprehensive insurance policy by a company registered with the
Controller of Insurance, for the sum of
- Customs Duties, Central Excise and Sales Tax for the goods intended
to be stored in the bond.
- An undertaking by an approved insurance company about intimation
of any change in the insurance policy
- to the Collector of Customs, payment of full insurance premium,
declaration of stock.
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Validity of Bond License
The bond license is issued by the Collector of customs, after verification
as necessary; within seven days of verification which itself will be done
within seven days. The license can be cancelled or suspended for violation
of any conditions. The license is valid for three years and will be revalidated
automatically for a further period of three years. No fee or establishment
charges are payable by the licensee for issuance, revival or revalidation
of the license. The license is not transferable.
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Bond Premises
The licensee should own the bond premises or have a lease in his name for
the period of the license. There should be a clearly marked area for storage
of imported or locally procured input goods, an area for manufacturing and
separate areas for storage of finished goods and rejects and waste. The
premises should be on an independent area, with independent entry or exit
from a public area and having no other entry/exit on it.
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Analysis Certificate
The consumption of bonded materials for the manufacture of export goods
is accounted for on the basis of an Analysis Certificate. (App: 6.3/Appendix
II to SRO-1140/97) showing the input and output ratio of input goods including
wastage. The Analysis Certificate is not required in every case if the finished
goods are the same for which Analysis Certificate has been issued already.
A new Analysis Certificate is required for every new finished goods. For
the issuance of Analysis Certificate, the Customs may retain a sample of
complete finished product but, in case of expensive items like leather garments,
a piece of leather or lining material, button, zipper or thread may be retained
by the Customs instead of the complete product.
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Procurement of Input Goods
The input goods for production of finished goods meant for export, according
to the approved specification as per Analysis Certificate, are procured
by the bond licensee in the following manner:
Input goods may be imported without payment of Customs duty under an In-bond
Bill of Entry, with the declaration that the input goods are imported into
manufacturing bond for production of export goods. A record of the duty-free
imports is kept in the prescribed format (Appendix III to SRO-1140/97) and
a copy is provided to the Customs verified by the Customs officer incharge
of the bond. The input goods removed are debited to the import record and
the export goods produced are credited in the record of export goods. Factory
rejects and wastages are accounted for separately.
Input goods procured locally from an excisable unit are procured under AR-3
procedure without payment of Central Excise duty. A record of these input
goods is also maintained in the prescribed format (Appendix IV to SRO-1140/97)
and a copy is provided to the Customs verified by the Customs officer incharge
of the manufacturing bond. The input goods removed are debited to the record
and the export goods are credited in the record of export goods. Factory
rejects and wastages are accounted for separately.
Input goods subject to Sales Tax are procured against a tax invoice after
payment of Sales Tax. A record of Sales Taxable input goods is kept in
the prescribed format (Appendix V to SRO-1140/97). While the drawback of
Customs duty and Central Excise duty, where actually paid, is allowed according
to standard drawback rates, the Sales Tax is refunded on exports through
the Input/Output Sales Tax Return submitted to the Sales Tax Department
after exports.
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Admissibility of duty drawbacks
In case duty-paid input goods are procured from the local market and used
in the manufacture of finished goods, the amount of duty drawbacks, calculated
on the standard drawback rates, is reduced by the proportionate duty amount
on the quantity of such input imported goods that have been imported without
duty and are listed as raw materials in the relevant standard drawback notification.
This has been further explained in the Customs General Order NO: 02/99 dated
19.2.99 (App: 6.4). This CGO is applicable to input goods imported on and
after 23.7.98 when the original Rule-13 of SRO-1140/97, about admissibility
of duty drawbacks on exports, was amended by SRO-845(I)/98 dated 23.7.98.
It provides as follows:
In case only duty-paid inputs are used, the drawbacks are admissible on
the export of finished products according to the relevant standard drawback
notification. In case only duty-free input goods are used, no duty drawback
is admissible. In case the input goods used are partly duty-free and partly
duty-paid procured from the local market, the amount of duty drawback
is reduced proportionately by the amount of Customs Duty applicable at
current rates, on the quantity of duty-free input goods used out of the
items listed in the raw materials column of the relevant standard duty
drawback notification.
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Bond to Bond Transfer
Bond to bond transfer of input goods is allowed by the Customs on application
in the prescribed form (App: 6.5/Appendix VI to SRO-1140/97). The Customs
may also allow transfer of input goods for getting these processed in another
bond or in the Export Processing Zone, against an Indemnity Bond(App:6.6/Appendix
VII to SRO-1140/97) equal to applicable Customs duty, Central Excise duty
and Sales Tax involved. Input goods can also be sold by one bond licensee
to another, but within the validity period of the license and subject to
consumption within the validity period.
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Manufacture and export of Finished Goods
The bond licensee has to maintain a record of the finished goods manufactured,
in the prescribed form (Appendix VIII to SRO-1140/97), and provide a copy
as a quarterly return to the Customs verified by the Customs officer incharge
of the bond.
The licensee also has to keep a record of the goods exported, in the prescribed
form (Appendix XI to SRO-1140/97) and provide a copy in the form of a monthly
return to the Customs verified by the Customs officer incharge of the bond.
Export is made against a Bill of Export which should be endorsed as “Export
of Manufacturing Bond”. At the option of the licensee, the export goods
may be examined at the exit port or in the manufacturing bond.
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Clearance for Home Consumption
Removal of finished goods for home consumption, on Bill of Entry, is allowed
up to 40% of the annual production of the manufacturing bond; in case of
engineering goods and leather footwear upto 75% in the first three years
and 40% in subsequent years.
Removal for home consumption is subject to the provisions of the current
Import Policy and on payment of applicable duties and taxes, on the sum
total of the value of input goods
The licensee may remove input goods or semi-finished goods from the bond
premises for partial manufacture or processing or packing by the vendors,
and return to the bond, subject to intimation to the Customs in the prescribed
form (Appendix X to SRO-1140/97). If the vendor is located near the Customs
port of exit, the finished goods may be removed from the vendor directly
to the Customs port of exit for export.
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Re-export of Imported Input Goods
Re-export of imported input goods, in their original and unprocessed form,
is allowed within three years of their import subject to the current Import
and Export Regulations. Application for re-export is made in the prescribed
form (Appendix XI to SRO-1140/97).
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Retention Period of Input Goods
The input goods imported or procured locally should be consumed within a
maximum period of five years. The period can be extended by CBR in deserving
cases. There is no surcharge on over-stayed goods.
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Wastages
Wastages of input goods in terms of quantity, volume, weight or number are
allowed only as determined in the Analysis Certificate and no duties and
taxes are charged on such wastages of the input goods. Such wastages are
to be destroyed in the presence of a Customs officer not below the rank
of Assistant Collector or the applicable duties and taxes are paid on such
wastages before removal. Destruction of wastages is applied for in the
prescribed form (Appendix XII to SRO-1140/97).
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Factory Rejects
The factory rejects or goods not upto export standards are allowed disposal
in the local market subject to the current import regulations, on a Bill
of Entry for home consumption and on payment of duties and taxes on the
appraised value as if the goods had been imported into Pakistan in that
condition.
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Unaccounted Input Goods
If the input goods or finished goods are not properly accounted for, the
bond licensee has to pay the duties and taxes as if they were imported
and used for home consumption besides penalties under the relevant Acts.
The duties and taxes can be remitted fully or in part in the cases when
the goods are damaged or destroyed for causes beyond the control of the
licensee or when the wastage of the goods is destroyed or when the goods
are bonafide samples.
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