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Haier Appliances (India) Pvt. Ltd – PuneHaier Appliances (India) Pvt. Ltd – Pune100% Export Oriented Unit 100% Export Oriented Unit

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• Units undertaking to export their entire production of goods and services Units undertaking to export their entire production of goods and services may be set up under the Export Oriented Unit (EOU) Schememay be set up under the Export Oriented Unit (EOU) Scheme

• EOUs can get a location of their choice Customs-bonded anywhere in EOUs can get a location of their choice Customs-bonded anywhere in India India – For setting up an EOU in Karnataka, Kerala, Lakshadweep or For setting up an EOU in Karnataka, Kerala, Lakshadweep or

Maharashtra apply to Development Commissioner, Maharashtra apply to Development Commissioner, • EOUs can import without duties, all capital goods and raw materials for EOUs can import without duties, all capital goods and raw materials for

running the unit.running the unit.– EOUs can procure these items from Indian sources also without EOUs can procure these items from Indian sources also without

excise duties and sales taxes ( in some cases)excise duties and sales taxes ( in some cases)• EOUs can sell upto 50% of FOB value of exports in the Indian market at EOUs can sell upto 50% of FOB value of exports in the Indian market at

concessional dutiesconcessional duties• New EOUs get Corporate Income Tax concessions till 2010New EOUs get Corporate Income Tax concessions till 2010

EOU Scheme-OverviewEOU Scheme-Overview

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• EOUs are given approval for manufacture of goods, including re-EOUs are given approval for manufacture of goods, including re-furnishing, as well as for rendering of services. furnishing, as well as for rendering of services.

• Trading by EOUs is not permittedTrading by EOUs is not permitted– Minimum Investment for approval as an EOU should be Rs.10 Minimum Investment for approval as an EOU should be Rs.10

million in plant &machinery.million in plant &machinery.• Software /services/ handicrafts/ agriculture/ floriculture/ aqua-Software /services/ handicrafts/ agriculture/ floriculture/ aqua-

culture/ animal husbandry/ information technology are culture/ animal husbandry/ information technology are exempted from this size restriction.exempted from this size restriction.

Approvals for EOUsApprovals for EOUs

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Licenses are required for Licenses are required for

Manufacturing Manufacturing arms and ammunition, atomic substances, arms and ammunition, atomic substances, narcotics/psychotropic substances, and tobacco productsnarcotics/psychotropic substances, and tobacco products

Approvals for licensable activity and services are given by the Board of Approvals for licensable activity and services are given by the Board of Approvals in the Commerce MinistryApprovals in the Commerce Ministry

Applications are to be routed through the Development Applications are to be routed through the Development Commissioner Commissioner

Approval (called Letter of Permission (LOP)) for non-licensable Approval (called Letter of Permission (LOP)) for non-licensable manufacturing activity is given locally by the Development manufacturing activity is given locally by the Development Commissioner Commissioner

Approvals for EOUsApprovals for EOUs

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• EOUs may export all products except prohibited items of EOUs may export all products except prohibited items of exports exports

• EOUs may import without duty all types of goods, including EOUs may import without duty all types of goods, including capital goods required for its activities, unless they are capital goods required for its activities, unless they are prohibited for importprohibited for import

Even second hand plant & machinery can be imported.Even second hand plant & machinery can be imported. Capital Goods can be purchased, loaned, sourced from Capital Goods can be purchased, loaned, sourced from

foreign/domestic leasing companies or brought free of cost.foreign/domestic leasing companies or brought free of cost. EOUs get upto 5 years for utilization of imported capital goods, EOUs get upto 5 years for utilization of imported capital goods,

and upto 3 years for other items. and upto 3 years for other items.

EOU Scheme FeaturesEOU Scheme Features

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100% FDI in manufacturing EOUs is permitted under the 100% FDI in manufacturing EOUs is permitted under the automatic route of the Reserve Bank of Indiaautomatic route of the Reserve Bank of India

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

Also under the automatic route for EOUs areAlso under the automatic route for EOUs are External Commercial Borrowing upto USD 50 million, with External Commercial Borrowing upto USD 50 million, with

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

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

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

EOUs & FDIEOUs & FDI

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EOUs may freely repatriate investment & returns abroadEOUs may freely repatriate investment & returns abroad EOUs need to bring export proceeds to India only within 360 days EOUs need to bring export proceeds to India only within 360 days

of export of export And even then, upto 100% may be retained in foreign currency And even then, upto 100% may be retained in foreign currency

in the unit’s EEFC Accountin the unit’s EEFC Account EOUs may invoice sales to other EOUs etc in foreign exchangeEOUs may invoice sales to other EOUs etc in foreign exchange EOUs may invoice sales to Indian entities other than EOUs also in EOUs may invoice sales to Indian entities other than EOUs also in

foreign exchange sourced from from their EEFC account or abroadforeign exchange sourced from from their EEFC account or abroad

EOUs and Foreign ExchangeEOUs and Foreign Exchange

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New EOUs are entitled under to Corporate Income Tax exemption New EOUs are entitled under to Corporate Income Tax exemption on physical exports out of India till 2010on physical exports out of India till 2010Central Sales Tax is reimbursed on purchases from local Central Sales Tax is reimbursed on purchases from local manufacturersmanufacturersSupplies from local manufacturers are free of Central Excise Duty Supplies from local manufacturers are free of Central Excise Duty

In case duties are paid, Terminal Excise Duty is reimbursedIn case duties are paid, Terminal Excise Duty is reimbursedEOUs in manufacturing sector get exemption from State Sales Tax EOUs in manufacturing sector get exemption from State Sales Tax on inputs (excepting fuel)on inputs (excepting fuel)

Tax Concessions for EOUsTax Concessions for EOUs

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• Existing Indian entities can open a new EOU under the same Existing Indian entities can open a new EOU under the same legal entitylegal entity– But the EOU division must maintain separate accounts, But the EOU division must maintain separate accounts,

including separate Bank accountsincluding separate Bank accounts• DTA units can also convert to EOU schemeDTA units can also convert to EOU scheme

– Units working with EPCG /Advance Licencing can also Units working with EPCG /Advance Licencing can also convert to EOU schemeconvert to EOU scheme

– Their pending licence obligations will be subsumed into the Their pending licence obligations will be subsumed into the EOU scheme.EOU scheme.

– But to be eligible for Corporate Income Tax concessions But to be eligible for Corporate Income Tax concessions under section 10B, it has to be ensured that old assets do not under section 10B, it has to be ensured that old assets do not exceed 20% of total assets of the EOUexceed 20% of total assets of the EOU

EOU Scheme & DTA entitiesEOU Scheme & DTA entities

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• EOUs have to get their premises bonded by the local Customs/ EOUs have to get their premises bonded by the local Customs/ Central Excise Department, and function under their supervisionCentral Excise Department, and function under their supervision

• They can get a location of their choice so bonded. They can get a location of their choice so bonded. – All duty-free items have to be brought here first.All duty-free items have to be brought here first.

• One single multi-purpose bond with the Customs /One single multi-purpose bond with the Customs /Central Excise Central Excise DepartmentDepartment, called the B 17 Bond, suffices for all operations., called the B 17 Bond, suffices for all operations.

• While there is no physical control, there is record-based controlWhile there is no physical control, there is record-based control– EOU has to maintain proper account of the import, consumption EOU has to maintain proper account of the import, consumption

and utilisation of all imported/locally procured materials and and utilisation of all imported/locally procured materials and exports made and submit them periodically to the Customs.exports made and submit them periodically to the Customs.

• Duty foregone under the EOU scheme with interest is recoverable in Duty foregone under the EOU scheme with interest is recoverable in case of fraudulent activity (along with prosecution & penalties)case of fraudulent activity (along with prosecution & penalties)

EOUs & Customs DepartmentEOUs & Customs Department

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EOUs have only to be foreign exchange positiveEOUs have only to be foreign exchange positiveFE Inflows> FE OutflowsFE Inflows> FE Outflows

wherewhere• FE Inflows = Export earnings (Direct Exports+ Exports through Third FE Inflows = Export earnings (Direct Exports+ Exports through Third

Parties + Inter-unit Sales + Exports to EOU/SEZ/STP/EHTPs)Parties + Inter-unit Sales + Exports to EOU/SEZ/STP/EHTPs)• FE Outflows = Foreign Exchange outgo on imports of Raw FE Outflows = Foreign Exchange outgo on imports of Raw

materials/consumables + FE payments of commission/ royalty/ fees/ materials/consumables + FE payments of commission/ royalty/ fees/ dividends/ interest on ECB + share of amortised value of capital dividends/ interest on ECB + share of amortised value of capital goods importedgoods imported Imported capital goods are amortized over 10 years; only Imported capital goods are amortized over 10 years; only

amortized amount is included in NFE calculationamortized amount is included in NFE calculation Values are included in the calculation even if the imports are not Values are included in the calculation even if the imports are not

actually paid for.actually paid for.

Export Obligations of EOUsExport Obligations of EOUs

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Supplies from Indian manufacturers to EOUs are classified as Supplies from Indian manufacturers to EOUs are classified as deemed exports, and the suppliers are eligible fordeemed exports, and the suppliers are eligible for

Advance Licence for import of intermediate inputsAdvance Licence for import of intermediate inputs Deemed Export Duty DrawbackDeemed Export Duty Drawback Discharge of export performance obligation on the supplierDischarge of export performance obligation on the supplier

EOUs may obtain, on production of a suitable disclaimer from the EOUs may obtain, on production of a suitable disclaimer from the suppliers, the duty drawback and refund of Terminal Excise Dutysuppliers, the duty drawback and refund of Terminal Excise Duty

EOU Scheme- Duty-free Supplies from Indian EOU Scheme- Duty-free Supplies from Indian MarketMarket

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Sales to the Indian MarketSales to the Indian Market EOUs can sell duty-free to other EOU /SEZ /STP /EHTPs etc EOUs can sell duty-free to other EOU /SEZ /STP /EHTPs etc EOUs can sell on full duties in the DTA against foreign currency EOUs can sell on full duties in the DTA against foreign currency

(from EEFC account or from abroad)(from EEFC account or from abroad) This also counts for NFE.This also counts for NFE.

Apart from the above, Apart from the above, EOUs can sell upto 50% of FOB value of physical exports to EOUs can sell upto 50% of FOB value of physical exports to

the DTA at concessional duties the DTA at concessional duties EOUs can sell over and above that at full duties, subject to EOUs can sell over and above that at full duties, subject to

NFE being positiveNFE being positive

EOUs’ Access to Indian MarketEOUs’ Access to Indian Market

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EOU’s Sales are duty-free to Indian entitiesEOU’s Sales are duty-free to Indian entities like like SEZ /EOU /EPZ /STP /EHTP units, SEZ /EOU /EPZ /STP /EHTP units, Advance Licence Holders, Advance Licence Holders, Bonded Warehouses & Bonded Warehouses & Educational institutions, defence establishments, other agencies Educational institutions, defence establishments, other agencies

notified by Government of India as eligible for duty-free imports.notified by Government of India as eligible for duty-free imports. These sales count for computation of NFE.These sales count for computation of NFE.

But they do not count as physical exports.But they do not count as physical exports. They can be invoiced in foreign currency or in Indian currency.They can be invoiced in foreign currency or in Indian currency.

EOU Sales to other EOUsEOU Sales to other EOUs

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•EOUs can subcontract up to 50% of production or part of production EOUs can subcontract up to 50% of production or part of production process to units in the EOU or Indian manufacturers. process to units in the EOU or Indian manufacturers.

– EOUs may temporarily take to the job worker’s premises jigs, EOUs may temporarily take to the job worker’s premises jigs, moulds, tools, fixtures, tackles, instruments, hangers, patterns & moulds, tools, fixtures, tackles, instruments, hangers, patterns & drawings for job workdrawings for job work

– EOUs can even subcontract to units abroadEOUs can even subcontract to units abroad– EOUs can import raw materials & components free of cost for job-EOUs can import raw materials & components free of cost for job-

working and return.working and return.•EOUs can undertake job-work for export on behalf of local EOUs can undertake job-work for export on behalf of local manufacturers. manufacturers.

EOUs & Subcontracting EOUs & Subcontracting

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• To run manufacturing activities foreign companies need to To run manufacturing activities foreign companies need to set up an Indian Company

– The Indian Company has to have independent legal status, The Indian Company has to have independent legal status, distinct from the parent foreign company. distinct from the parent foreign company.

– The Company may be a wholly-owned subsidiary, or a joint The Company may be a wholly-owned subsidiary, or a joint venture company in financial collaboration with an Indian venture company in financial collaboration with an Indian company in India.company in India.

• A Company registered in India can start an EOU unit without A Company registered in India can start an EOU unit without starting a new legal entity: separate accounts suffice.starting a new legal entity: separate accounts suffice.

EOU Scheme: Who can operateEOU Scheme: Who can operate

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EOU TAX BENEFITS CALCULATIONEOU TAX BENEFITS CALCULATION

Custom DutyCustom DutyParticulars Rate $ Ex.Rate % DTA EOU

Basic Value (CIF Rate) 23.95 48.95 1172.35 1172.35Freight 0.00 0.00Insurance 1.125% 13.19 13.19Landing Rate 1% 11.72 11.72Assly Value- 1197.26 1197.26Custom Duty 7.50% 89.79 0.00Sub Total 1287.06 1197.26CVD 8% 102.96 0.00Edu Cess 2% 2.06 0.00HS Edu Cess 1% 1.03 0.00Total Duty (CD + CVD part) 195.85 0.00Sub Total 1393.11 1197.26Custom Duty Edu Cess 2% 3.92 0.00Custom Duty HS Edu Cess 1% 1.96 0.00Sub Total 1398.99 1197.26Additional Duty 4% 55.96 0.00

Total Purchase Value 1430.04 1172.35

Cenvatable Duty 162.01 0.00Non Cenvatable Duty 95.67 0.00Total Duty Amount 257.68 0.00

Purchase Value 1430.04 1172.35Less Cenvat 162.01 0.00Net Value 1268.02 1172.35Add - Frt from port to factory 6.14 6.14Add - Custom Clearing Chag 1.14 1.14Add - Do Charges 5.45 5.45Add - Other Misc Chag 0.91 0.91

Net Landed 1281.66 1185.99Add Cenvat Value 162.01 0.00Net Net Landed 1443.67 1185.99Landed cost for EOU short by -257.68

CUSTOM DUTY CALCULATION Compressor

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EOU TAX BENEFITS CALCULATIONEOU TAX BENEFITS CALCULATION

Excise DutyExcise DutyParticulars DTA EOU

Basic Value 1225.00 1225.00Excise Duty 100.94 0.00Sub Total 1325.94 1225.00CST 2% 26.52 24.50Total Cost 1352.46 1249.50

Purchase Value 1352.46 1249.50Less Cenvat 100.94 0.00Net Value 1251.52 1249.50

Net Landed 1251.52 1249.50Add Cenvat Value 100.94 0.00Less: CST Credit 0.00 24.50Net Net Landed 1352.46 1225.00Landed cost for EOU short by -127.46

EXCISE DUTY CALCULATIONCompressor - LG Compressor

When any domestic vendor supply to EOU which will treat as Deemed Export for that Vendor, and can get the Duty Draw Back on the imported Raw Material Used In their final products and the Custom Duty paid on their imported item can be refunded to them, so by negotiation we can get this benefits for the amount Vendor will get.

Draw back can calculate on actual custom duty paid or 1.3% of FOB value.

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Documentation PartDocumentation Part

Purchase / SalePurchase / Sale

1.1. Have to issue PO from EOU as the Excise Registration will be separate for EOU.Have to issue PO from EOU as the Excise Registration will be separate for EOU.

2.2. Before dispatch the goods from vendor end, we have to issue P C (Procurement Before dispatch the goods from vendor end, we have to issue P C (Procurement Certificate) to vendor against which vendor will not charge Central Excise Duty Certificate) to vendor against which vendor will not charge Central Excise Duty (domestic purchase) in invoice raised to us.(domestic purchase) in invoice raised to us.

3.3. Goods have to unload separately in EOU stores and maintain separate records for Goods have to unload separately in EOU stores and maintain separate records for consumption, scrap, rejection etc.consumption, scrap, rejection etc.

4.4. Goods to be issued / consume against the EOU production only.Goods to be issued / consume against the EOU production only.

5.5. In case if there is no stock of any one components in EOU stores production can not In case if there is no stock of any one components in EOU stores production can not confirm and dispatch can not be made in any circumstances.confirm and dispatch can not be made in any circumstances.

6.6. While Sales invoice from EOU for Export there will be NO Excise Duty have to pay / While Sales invoice from EOU for Export there will be NO Excise Duty have to pay / debit.debit.

7.7. If we have to issue raw material to any vendor for any Job Work, permission from the If we have to issue raw material to any vendor for any Job Work, permission from the Development Commissioner have to obtain.Development Commissioner have to obtain.

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Documentation Part -2Documentation Part -2

1.1. On monthly basis raw material consumption report have to submit to Development On monthly basis raw material consumption report have to submit to Development Commissioner in which item wise consumption, rejection, scrap have to Commissioner in which item wise consumption, rejection, scrap have to declare. In case any gap we have to pay the duty to Government in cash equal to duty declare. In case any gap we have to pay the duty to Government in cash equal to duty forgone.forgone.

2.2. Import and Export against “Green Card” – The custom authorities will not inspect the Import and Export against “Green Card” – The custom authorities will not inspect the container for Green Card holder. container for Green Card holder.

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Final PendingFinal Pending

1.1. Require to purchase imported capital goods of $ 8,72,000 (INR 4.2 Crore.Require to purchase imported capital goods of $ 8,72,000 (INR 4.2 Crore.

2.2. MPCB ClearanceMPCB Clearance

3.3. LUT with C.Excise AuthorityLUT with C.Excise Authority

4.4. Pollution Control clearance.Pollution Control clearance.

5.5. Excise RegistrationExcise Registration

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