EXPORT ORIENTED UNITS IN INDIA

-DEEPTI SHARMA

- 0241914308

- MBA(pt) Vth sem

Export Oriented Units The export oriented units (EOU)

scheme, introduced in early 1981, is complementary to SEZ scheme.

It adopts the same production regime but offers a wide option in locations with reference to factors like sources of raw material, ports of export, hinterland facilities, availability of technological skills, existence of an industrial base and need for a larger area of land for project.

EOU

The scheme was introduced by ministry of commerce in 1980.

The purpose of scheme was basically to boost exports by creating additional production capacity with certain minimum value addition.

Basic Concept of EOU PolicyEmployment opportunities are

createdIncrease in ExportsIncrease in foreign direct

investmentsGrowth and developmentIndustrial License not requiredDomestic Labour law is applicableFree to select the location of a

project

Main Sectors in EOU’s Granite Textile Food processing Chemicals Computer software Coffee Pharmaceuticals Gem & Jewelry Engineering goods Electrical & Electronics

Eligibility Criteria EOU can be set up by any

entrepreneur for manufacturing of goods and also for rendering services.

An EOU can be set up for repair, reconditioning, remaking and re-Engineering also.

EOU unit is required to achieve only positive NFE over a period of 5 years.

Need for Special LicenseTo set up an EOU for the following

sectors,an EOU owner needs a special

license:Arms and ammunitionExplosivesDefense aircraftsAtomic substanceCigarettes/Cigars

EOU Scheme: Who can EOU Scheme: Who can operateoperate To run manufacturing activities To run manufacturing activities

foreign companies need to set up an foreign companies need to set up an Indian CompanyIndian Company

A Company registered in India can A Company registered in India can start an EOU unit without starting a start an EOU unit without starting a new legal entity:new legal entity:

EOU Scheme Features EOUs may export all products except

prohibited items of exports EOUs may import without duty all types of

goods, including capital goods required for its activities, unless they are prohibited for import

Even second hand plant & machinery can be imported.

Capital Goods can be purchased, loaned, sourced from foreign/domestic leasing companies or brought free of cost.

EOUs get up to 5 years for utilization of imported capital goods, and up to 3 years for other items.

FEATURES No license required for import. Exemption from central Excise duty

in procurement of capital goods,raw materials,consumables,spares,packing material etc from domestic market.

Exemption from custom duty on import of capital goods,raw materials,consumables,spares, packing materials etc.

EOUs get upto 5 years for utilization of imported capital goods,and upto 3 years for other items.

New EOUs get corporate income tax concessions.

Access to domestic market upto 50%of value of export on payment of concessional rate of duty.

100 % foreign direct investment permissible.

Facility to retain and repatriate export proceeds within 12 months.

Re-export of imported goods found defective for repair/replacement,testing/calibration and return.

Even second hand plant and machinery can be imported.

Benefits of EOU An EOU unit can import the following on duty

free basis: a) Raw material, components, consumables,

intermediates, packaging materials b)Capital goods whether new or second

hand. c)Office equipments including computer,

PABX, Server, Laptop. d)Transformers, captive power plants. e)UPS, storage racks, furniture, AC,Security

systems. f)Any other item with approval of BOA

BENEFITS All items if procured

domestically:◦sales tax exemption/refund◦Excise exemption

Income Tax concessions

EOU Sales to Other EOUs

EOU can sell duty free to other EOU/SEZ/STP/EHT etc.

EOUs sales are duty free to Indian entities like

-SEZ/EOU/EPZ/STP/EHTP units. - Advance license holders. - Bonded warehouses - educational institutions,defence

establishments These sales count for computation of NFE.

They can be invoiced in foreign currency or in Indian currency.

Sales do not count as physical exports.

EOUs and Foreign Exchange EOUs may freely repatriate

investment and returns abroad. EOUs need to bring export proceeds

to India only within 360 days of export.

EOUs may invoice sales to other EOUs in foreign exchange.

EOUs may invoice sales to Indian EOUs may invoice sales to Indian entities other than EOUs also in entities other than EOUs also in foreign exchange sourced from from foreign exchange sourced from from their EEFC account or abroadtheir EEFC account or abroad

EOUs & FDI 100% FDI in manufacturing EOUs is permitted

under the automatic route of the Reserve Bank of India

i.e. first bring in the money, and then inform Reserve Bank of India’s local office in Form FC(RBI)  within 30 days of receipt

Also under the automatic route for EOUs are◦ External Commercial Borrowing up to USD 50

million, with maturities of 3 years or more, for funding and running the unit.

◦ Use of brand names/trademarks, if royalty is upto 2% on exports and 1% on domestic sales, without technology transfer

◦ Foreign technology tie-ups, if lump sum payment does not exceed USD 2 million, and if royalty is upto 5% on domestic sales and 8% on exports, even for wholly owned subsidiaries

EOU Scheme: Exit Policy Units can de-bond without paying duties capital goods they

have used for 10 years◦ Software units can de-bond on duty-free basis after 3

years.◦ Units can wind up their operations on meeting their

export obligations by ◦ Exporting back any imported capital goods and other

material, or transferring them to another SEZ/EOU unit, or

◦ Destroying the items in Customs presence, or◦ Donation on gratis basis to educational institutions, or◦ De-bonding on payment of duty on capital goods under

the EPCG Scheme as a one time option, or◦ De-bonding all duty-foregone items by paying duties at

current rates on unutilised raw materials (imported value) and on capital goods (on depreciated value only) and selling them in the DTA.

EOU Scheme: Exit PolicyEOU Scheme: Exit Policy

In case of failure to achieve positive In case of failure to achieve positive NFE, duty foregone under the EOU NFE, duty foregone under the EOU scheme with interest is recoverable in scheme with interest is recoverable in proportion to the shortfall in NFEproportion to the shortfall in NFE

If the unit has not met positive NFE, If the unit has not met positive NFE, de-bonding shall also be subject to de-bonding shall also be subject to payment of penalties under the payment of penalties under the Foreign Trade (Development & Foreign Trade (Development & Regulation) Act, 1992, and under the Regulation) Act, 1992, and under the Customs Act, 1960Customs Act, 1960