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41. Sub-contracting — (1) A Unit may sub-contract 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 one hundred and twenty 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:

Provided that the total wastage of the Unit, including the wastage of the sub-contractor 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:

Provided that 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.

Explanation : For removal of doubts it is clarified that the expression “sub-contracting” of a part of its production under this rule shall mean

sub-contracting 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 sub-contracted 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 sub-contracting 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 subcontractor (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.

(2) The Development Commissioner may also permit sub-contracting 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.

(3) A Developer or a co-developer or on their behalf their contractor, as the case may be, may also temporarily remove the goods, procured or imported duty free by them for their authorized operations, to a place in the Domestic Tariff Area or a unit in the same or another 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, for sub-contracting a process, with prior permission of and subject to such conditions as may be prescribed by the Approval Committee.

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