If you run or plan to run a unit in a Special Economic Zone, the Bond-cum-Legal Undertaking (BLUT) is one of the first documents you will sign and one of the most misunderstood. A defective or inadequate BLUT can lead to duty demands, penalties and even action against your Letter of Approval. This article explains what BLUT is and how to manage it.

What is a BLUT?

The BLUT is a bond given by an SEZ unit or developer to the Government, undertaking to pay customs duties, taxes and other amounts if the conditions of duty-free procurement under the SEZ Act, 2005 and SEZ Rules, 2006 are breached. Rule 22 of the SEZ Rules requires it. A unit executes the BLUT in Form H, and a developer executes it in Form D.

Why is it required?

SEZ units import and procure goods from the Domestic Tariff Area (DTA) without payment of duty for authorised operations. The BLUT is the legal safeguard that these goods will be used only for authorised operations, exported or otherwise dealt with according to the Rules, failing which duties become payable along with interest and penalty as applicable.

How much cover must the BLUT carry?

Under Rule 22(1)(iv), the unit's BLUT must cover the duties leviable on imports and DTA procurements of raw material, components and similar inputs for a period of three months, while the developer's BLUT must cover the effective duty on projected requirements for authorised operations. The Department of Commerce has clarified, through Instruction No. 72 of 2010, that:

• there is no debit and credit mechanism in the BLUT, i.e. the bond amount is not "used up" import by import;
• the unit or developer itself must monitor its position quarterly or annually using its progress reports and annual performance report;
• if the scale of operations grows and there is a shortfall, an additional BLUT must be furnished on its own initiative.

Some zones have issued public notices because units noticed debits on the customs system without credits on exports. The legal position remains that the responsibility to maintain adequate cover rests on the unit.

Electronic BLUT

The Department of Commerce has now permitted the BLUT to be executed electronically (e-BLUT), including through e-stamping and in alignment with systems like ICEGATE, and has dispensed with the earlier requirement of a notarised bond on non-judicial stamp paper. Units should check the instruction applicable in their zone before executing.

What happens on breach?

If goods are misused, diverted to the DTA without duty, or the unit fails to fulfil its obligations, the authorities can demand duty with interest, issue show-cause notices, and take action under the SEZ Act and the Foreign Trade (Development and Regulation) Act, 1992. Cancellation of the Letter of Approval can follow in serious cases. The BLUT survives until the unit exits and obtains clearance, so exit planning should also consider it.

Practical checklist for units

• Fix the BLUT amount on a realistic projection of duty on three months of requirements, not the minimum;
• Review the BLUT cover every quarter against actual imports and DTA procurements;
• Keep import and procurement records reconciled with the customs portal;
• Furnish an additional BLUT before a capacity expansion or new line begins;
• Make sure the authorised signatory and company resolution are in order.

Frequently asked questions

Is a bank guarantee required with the BLUT? Generally the BLUT itself is the instrument; security requirements are a matter of the Rules and the zone's instructions in the specific case.

Can the BLUT be released on exit? Only after the unit completes the exit formalities, pays applicable duties and obtains no-dues certificates.

Need Guidance? Contact KC LEGAL

For more information or to discuss your matter with our advocates, call or WhatsApp +91 98311 90819, write to info@kclegal.us, or use our contact form. Our office is at Olisa House, 10th Floor, 4 Government Place, Kolkata 700001.

This article is for general information only and is not legal advice. Law and procedure change; please verify the current position for your specific case. Last reviewed: November 2026.