Under the Export Facilitation Scheme, which category does a textile manufacturer fall in, what security must it give, and can it bring in machinery?

Under the Export Facilitation Scheme, 2021, rule 874 of the Customs Rules, 2001 sorts every user into a category, and that category decides the security it gives, how long its authorization runs and how long it has to use its inputs. The corpus holds the Customs Rules only as updated to 30 June 2023, so later amendments to Chapter XL are not reflected here.

Who can use the scheme?

Rule 872(1) opens the scheme, subject to authorization and registration in WeBOC or PSW, to six kinds of user. For textile manufacturers the relevant ones are:

• persons registered under the Sales Tax Act, 1990 as manufacturer-cum-exporters, who must add value of not less than ten percent in manufacturing and exporting,
• manufacturers acting as contracted vendors of a foreign principal as toll manufacturers, and
• persons registered as manufacturers and operating as indirect exporters, for example a spinning unit supplying yarn to a garment exporter.

Which category does a textile mill fall in?

Rule 874(1) sets the categories:

Category	Who falls in it
A	Manufacturers-cum-exporters with 60% or above exports of total annual production, or exports of at least USD 20 million, in the last two years
B1	Other manufacturers-cum-exporters with more than 3 years of export history
B2	Other manufacturers-cum-exporters with less than 3 years of export history
C1	Indirect exporters, commercial exporters and international toll manufacturers with more than 3 years of history
C2	The same, with less than 3 years of history

Rule 874(2) lets existing users of the earlier schemes, including DTRE and Chapter XV (manufacturing bond), be classified in the matching category if they have a good compliance record. Rule 874(4) places a new exporter with a firm export contract in A or B according to the share of production it claims it will export, reviewed after one year.

Poor compliance. Under rule 874(5), an applicant with contravention cases adjudged against it, pending recovery cases or pending criminal proceedings in the last three years is downgraded for one year: A to B1, B1 to C1, B2 to C2, C1 to C2, and C2 to no authorization. Rule 874(6) says procedural cases, or cases involving less than rupees five million, do not affect the category.

What security must the mill give?

Rule 876(1) requires a security instrument equal to the duty and taxes being deferred or remitted on the approximate value of input goods during the authorization period. The type depends on category and on whether the factory is owned or rented:

Category	Self-owned facility	Rented facility
A	Indemnity bond (Appendix-III) and PDC	Indemnity bond (Appendix-III) and PDC
B1	Indemnity bond and PDC	Revolving insurance guarantee covering annual requirement
B2	Revolving insurance guarantee	Revolving bank guarantee, until the three-year benchmark is crossed
C1	Indemnity bond and PDC	Revolving insurance guarantee
C2	Revolving insurance guarantee	Revolving bank guarantee, until the three-year benchmark is crossed

The rule uses the abbreviation “PDC”; other chapters of the same rules use it for a post-dated cheque. Rule 871(n) requires an insurance guarantee to come from an insurance company registered with the Ministry of Commerce with a minimum PACRA rating of “AA”.

How long do the authorization and utilization periods run?

Category	Authorization period (rule 878)	Utilization period (rule 883)
A	Five years	60 months
B1	Four years	48 months
B2	Two years	24 months
C1	Four years	48 months
C2	Two years	24 months

The proviso to rule 883 lets the Chief Collector extend the utilization period by six months, for export of output goods only, in exceptional circumstances, with fresh security under rule 876 for the extension.

Can the mill bring in machinery?

Yes. Rule 881(1) allows a user to acquire plant, machinery, equipment and spares required to make its output goods, subject to authorization by the Regulatory Collector in WeBOC or PSW. Rule 881(2) then requires plant, machinery and equipment to be retained for five years from import, and spares for two years. Earlier disposal pays the duty and taxes leviable at the time of import at these rates:

Plant, machinery or equipment disposed of	Duty and taxes payable
Before three full years	Full
After three and before four years	75%
After four and before five years	50%
After five years	0%

For spares: full before one year, 50 percent between one and two years, nil after two years. Rule 881(3) lets the Regulatory Authority allow transfer of machinery to another EFS user, with security for the remaining period.

Worked example (illustrative figures)

A weaving mill in Faisalabad works from a rented shed. It exported 45 percent of its production in each of the last two years, well under USD 20 million, and has exported for six years with a clean record.

1. 45 percent is below 60 percent, so it is not Category A. Export history is more than three years, so rule 874(1)(ii)(a) places it in B1.
2. Its factory is rented, so rule 876(1)(b) requires a revolving insurance guarantee covering its annual requirement, not an indemnity bond and PDC.
3. Suppose the duty and taxes deferred on its approximate annual inputs come to Rs. 30,000,000. The guarantee must equal that amount.
4. Authorization runs up to four years (rule 878) and each lot of inputs must be used within 48 months (rule 883).
5. It imports air-jet looms on which the duty and taxes leviable at import were Rs. 12,000,000, and sells them four years and two months later. That falls after four and before five years, so 50 percent is payable: Rs. 12,000,000 x 50% = Rs. 6,000,000. Selling after two years would cost the full Rs. 12,000,000; after five years, nothing.

What if the mill is moving from DTRE or manufacturing bond?

Rule 877(2) lets an existing user of the earlier schemes be authorized under EFS, subject to the Regulatory Collector’s satisfaction and its compliance history, and stocks of inputs imported under the earlier scheme must be declared in the application. Rule 898(1) kept earlier approvals operative for two years from the issuance of the EFS rules, and rule 898(2) bars running both at once.

Common mistakes

• Looking only at the export percentage. Exports of at least USD 20 million also qualify for Category A.
• Assuming ownership does not matter. In B1, B2, C1 and C2 a rented facility changes the security.
• Mixing up the two periods. The authorization period in rule 878 and the utilization period in rule 883 are separate limits.

What to check in the official text

Read rules 871 to 883 and 898 of Chapter XL of the Customs Rules, 2001, with Appendix-III (indemnity bond). Any SRO amending Chapter XL after 30 June 2023 is not held in this corpus.