The EOU (Oriented Unit Scheme) is a unique program with the benefits of the Central Excise Act, Foreign Trade Policy, and Customs Act combined. The plan is designed to give the greatest benefit to the exporter.
The EOU can buy or import capital products (new or second-hand) and import goods for domestic use without paying duty. The only requirement for the unit is to earn an income of positive net Foreign Exchange. An EOU scheme must meet the requirements and procedures of the Customs Act, Central Excise Act, the rules/regulations they operate under and the Foreign Trade Policy.
Did You Know?
The EOUs are permitted to import all sorts of goods, such as consumables, capital goods, office equipment, raw materials, etc., for the manufacturing/production of export goods without paying duty.
Export Oriented Units Benefits
There are many benefits associated with EOU Registration, financial assistance, and other support offered by various banks, governments and other organisations that support eou in export. A few of the benefits are as follows:
- The exemption from Central Excise Duty in the purchase of goods for capital use, consumables spares and raw materials on the market domestically.
- Licence isn't compulsory to import.
- Exemption from customs duty to import capital products falls under consumables, raw materials, spares, etc.
- Supplies that originate from DTA through EOUs are regarded as exports.
- The reimbursement of Central Sales Tax (CST) is affixed to purchases made within the country.
- Reimbursement of duty fee paid on furnace oil generated from local oil companies to EOUs according to the rate of drawback stated by the DGFT (Directorate General of Foreign Trade).
- Exchange Earners Foreign Account (EEFC)
- 100% Foreign Direct Investment permissible.
- EOUs involved in agriculture and horticulture engaged in contract farming could be permitted to use duty-free items as listed in Appendix 14 to the contact farmers' areas of fields for the production.
- Facility to repatriate and realise export earnings within 12 months.
- Re-export defective goods, imported by foreign exporters on a loan basis, etc.
- Additional extensions of the time frame are granted by RBI or their designated dealers.
- The profits can be freely repatriated without the obligation to balance dividends.
- Allowance of Job work on behalf of local exporters for direct exporting.
- Conversion of the existing DTA (Domestic Tariff Area) unit to an EOU is allowed.
- EOUs involved in agriculture and horticulture that are engaged in contract farming could be permitted to use duty-free items as listed in Appendix 14 I to the contact farmers' areas of fields for the production.
A Location for EOU
EOUs can be established in any place in the world. Also, they are upgradable in the production and manufacture of software and hardware for floriculture, animal husbandry, sericulture and poultry, horticulture, aquaculture, agriculture, pisciculture, or similar activities.
However, in cities with a population exceeding one million, the location must be 25 kilometres away (minimum) from that city's Standard Urban Area limits. The other way to establish it is that EOUs should be within an area famous as the "industrial zone" before the 25th of July 1991. Non-polluting EOUs like computer software, printing and electronics are exempt from such restrictions while selecting an area.
Other than local zonal offices and the state government, the establishment of the EOU is also governed by environmental regulations. Thus, even if an EOU has met the locational requirements, if it is not environmentally friendly, authorities from the Ministry of Environment Government of India are entitled to end the project. In this scenario, industrialists must follow the decision.
Procedure to Set Up the Export Oriented Units
To set up an EOU, the procedure for setting up an EOU is like this:
- To set up an EOU, an application must be filed on ANF 6A for the Development Commissioner officer.
- The application for establishing an EOU must be accepted/rejected by the Units Approval Committee within 15 days, based on the guidelines in appendix 6A.
- The application must be submitted with an uncrossed Demand Draft of ₹5000 drawn in the name of the acc pay & accounts, Ministry of Commerce & Industry, payable at the Central Bank of India, located in Udhyog Bhawan, New Delhi.
- Minimum investment in Plant & Machinery and Building should be as prescribed. This does not apply to already existing units and units present in Floriculture, Handicrafts, Agriculture, Animal Husbandry, STP/EHTP, Aquaculture, Information Technology and other similar sectors as determined by BOA.
What Is Export Oriented Units Minimum Investment Criterion
- Only projects that invest ₹1 crore and more in machinery and plant are considered.
- All services and goods, excluding items prohibited by ITC (HS), can be exported/imported through EOUs to conduct their authorised operations subject to the requirement that any law currently in force could be applied in these cases.
- Requests for setting up units under the EOU scheme, apart from plans for establishing an entity in the service industry, are to be approved/ rejected.
- The Units Approval Committee decides within 15 days, based on the guidelines in Appendix 6A and specific to the sector regarding approval in Appendix 6B.
- R&D, software and IT-enabled services, or any other activity related to service that the Board of Approval delegates over are exceptions.
- In other instances, the approval can be given by DC after approval by BoA.
Approval of New Units
Proposals to establish units under the EOU scheme with the automatic route are to be evaluated through the Unit Approval Committee, taking into consideration: -
- Residence proof regarding individual/partnership firms of all Directors/Partners. (Passport/ration card/driving licence/voter identification card or any other evidence at the discretion of The Development Commissioner);
- Marketing tie-ups
- If there are EOUs
- Inspection of the project's site by an officer;
- Return on Income Tax of all promoters in the past three years;
- Experience of promoters;
- The report of other DCs on whether an instance under the EOU scheme regarding the diversion of goods, etc., is pending.
When necessary, the above could be confirmed by a personal interview with the people who are the venture's sponsors. If the promoters are an established organisation, conducting a personal interview can be avoided.
The Unit Approval Committee shall meet every Monday. If there is no Development Commissioner, the next top officer from the zone will conclude it. The unit will inform the issues facing them before the meeting. Apart from the promoters, any other involved agency with whom the unit is having difficulties can also be referred to in meetings.
Recycling non-ferrous and ferrous metals will be evaluated only if the facility is equipped with an Ingot making facility. Also, be sure to avoid QR code fraud if you will receive payments online.
Sector-Specific Requirements for EOUs
- High-Grade Iron Ore: Proposals to export the High-Grade Iron Ore, i.e. 64% Fe and higher, are currently canalised through MMTC and exports of it are subject to the approval from the BOA. Iron ore with Goa source and Redi origin are exclusions.
- Coffee: Exports of coffee imported are subject to the approval of the Coffee Board under the relevant Act.
- Polyester Yarn: None of the factories that make polyester yarn, whether existing or newly developed - is permitted to conduct exports through a third party and must directly export.
- Textiles: Any activities related to the reprocessing of clothing no matter used or not; secondary textiles materials such as clippings, industrial wipers, rags, shoddy yarns, wool blankets or shawls and besides that, other recyclable textile materials don't have permission under EOU programs. The Board decides on extending the letters of Permission for an existing unit.
- Tea: In the case of teas, the business has to fulfil a minimum value addition of 50%.
- Segregation Activities: Segregation-related activities won’t come in the "manufacture" definition w.e.f. 1.4.2002. However, this activity will have permission to continue concerning units established before 1.4.2002 for five years, beginning from the commencement of commercial production. According to the current policy, the necessary inputs will also have permission with exemption benefits. However, the option of DTA sales under paragraphs 6.08 and 6.09 of FTP won’t have the Permission.
- Spices: Importation is permitted for export without or with tax/duty and compensation cess as defined in paragraphs 6.01(d) (ii) and (iii) of the FTP 2015-20 for the only purpose of value-added purposes such as grounding, crushing, sterilisation or the production of oleoresins, oils and not for basic cleaning, grading, packaging and so on. A minimum value enhancement of 15% is compulsory.
Remember that a supplier must charge GST on products supplied for the benefit of the EOU. The EOU may request the benefit of an in-tax credit for the GST paid when supplying goods to the DTA, and it may also claim reimbursement of GST. EOUs must pay GST on all sales admissible to DTAs if they're selling non-taxable goods that are exempted from GST. As a trader, you’ll have to face a lot of calculations. Instead, you can just try Khatabook. It can be highly beneficial as it keeps all the transaction calculations of your business handy.
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