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EOU & SEZ Schemes are one among them, which provides an internationally competitive duty
free environment coupled with better infrastructural facilities for export production. Export
Oriented Units (EOUs) now constitute a very important sector in the
country's Export Production scenario.
What does EOU mean?
Export Oriented Unit (EOU) is a export promotional scheme from government of india which
provides an internationally competitive duty free environment coupled with better infrastructural
facilities for export production. The main objectives of the EOU scheme is to increase exports,
earn foreign exchange to the country, transfer of latest technologies stimulate direct foreign
investment and to generate additional employment.

Special Benefits to Export Oriented Units (EOU)

No license required for import.
Exemption from Central Excise Duty in procurement of capital goods, raw-materials,
consumables spares etc. from the domestic market.
Exemption from customs duty on import of capital goods, raw materials, consumables
spares etc.
Reimbursement of Central Sales Tax (CST) paid on domestic purchases.
Supplies from DTA to EOUs treated as deemed exports.
Reimbursement of duty paid on furnace oil, procured from domestic oil
companies to EOUs as per the rate of drawback notified by the Directorate General of
Foreign Trade.
100% Foreign Direct Investment permisisible.
Exchange earners foreign currency (EEFC) Account
Facility to retain 100% foreign exchange proceeds in EEFC Account.
Facility to realize and repatriate export proceeds within twelve months.
Further extension in time period can be granted by RBI and their authorized dealers.
Re-export of imported goods found defective, goods imported from foreign suppliers on
loan basis etc.
Exemption from industrial licensing requirement for items reserved for SSI sector.
Profits allowed to be repatriated freely without any dividend balancing requirement
Access to Domestic Market upto 50% of FOB value of export on concessional rate of
duty.
Duty free goods to be utilized in two years. Further extension granted on liberal basis.
Job work on behalf of domestic exporters for direct export allowed.
Conversion of existing Domestic Tariff Area ( DTA) unit into an EOU permitted.
Can Procure duty-free inputs for supply of manufactured goods to advance licence
holders.
Suppy of ITA-I items in the domestic market which would be counted for fulfillment of
NFE.
 EOUs in agriculture and horticulture engaged in contract farming may be permitted to
take out duty free goods listed in Appendix 14-I to the fields of contact farmers for
production.

Some of the benefits that are extended to the EOUs for imparting a competitive edge to compete
in the export market are as follows:
EOUs are allowed to procure raw materials/capital goods duty free, either through import or
through domestic sources
Reimbursement of Central Sales Tax (CST)
Reimbursement of duty paid on fuels procured from domestic oil companies
CENVAT credit on the goods and service and refund thereof
Fast track clearance facilities
Exemption from Industrial Licensing for manufacture of items reserved for SSI sector.

How to set-up an Export Oriented Unit

EOU Scheme
The needs for higher level of technological and industrial progress made the Government devise
a series of export promotional schemes. EOU & SEZ Schemes are one among them, which
provides an internationally competitive duty free environment coupled with better infrastructural
facilities for export production.
Export Oriented Units (EOUs) now constitute a very important sector in the countrys Export
Production scenario. They have become dominant players in our export strategy, and their share
in the Countrys export performance is about 10%. The export growth rate of 30% compares
very favorably with the National export growth rate.
How to set-up an Export Oriented Unit (EOU)
How to set-up an Export Oriented Unit (EOU) is a step-by-step process.
The information is divided into 5 parts:
Eligibility Criteia Prior to Approval
How to apply Approval Procedure
After Approval (what to do for commencement of Production)
I. ELIGIBILITY CRITERIA
Who is eligible to become an EOU?
An 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, re-making and re-engineering also.
Trading activity is not allowed in the EOU Scheme.
EOU unit is required to achieve only positive Net Foreign Exchange (NFE) over a period of 5
years.
Policy for EOU is given in Chapter-6 Foreign Trade Policy and Chapter 6 of Handbook of
Procedure (Vol. I)
EOU can also be set up in the following sectors: -
Agriculture
Animal Husbandry
Aquaculture
Floriculture
Horticulture
Pisciculture
Viticulture
Poultry or
Sericulture
Conversion of existing DTA/EPCG (Export Promotion Capital Goods) units to EOU
Scheme
Existing DTA units or EPCG units are permitted for conversion into EOU Scheme as one time
option. In case there is an outstanding export commitment under the EPCG Scheme, it will be
sub summed in the export performance (EP) of the unit. If the unit is having outstanding export
commitment under the Advance Licensing Scheme, it will discharge the same as well, as per its
conditions before conversion into EOU Scheme. However, duties of Customs and Central Excise
already suffered shall not be refunded on conversion into EOU.
II.PRIOR TO APPROVAL
1) Planning your venture:
Is it your own or
Is it with foreign participation and, if so, nature of participation (foreign investment allowed
100%)
2) What process do you intend to do i.e. Manufacturing, rendering and export of services
or: -
Agriculture
Animal Husbandry
Aquaculture
Floriculture
Horticulture
Pisciculture
Viticulture
Poultry or
Sericulture
Repair, reconditioning, re-making, re-engineering etc.
3) Technology to be used:
Indigenous/ foreign
Related cost and conditions
4) Feasibility report:
On your own or with help of consultant
5) The finances involved:
Land, structure, buildings etc.(Please note, building construction material is not exempted from
duty).
Capital Goods, machinery etc.
Payment for royalties etc.
Administration and establishment
Others : like interest on loans, related taxes and levies etc.
6) The current competition overseas:
Main competitors
Demand and price levels.
7) The import laws and other requirements in target markets:
Any fiscal/ non-fiscal barriers, like anti-dumping laws.
Quota restrictions.
Preferential treatment to competitor countries.
8) Location of the Unit:
The first thing before setting up an EOU the entrepreneur has to decide the location of unit: -
i. close to port or rail/ road.
ii. availability of raw material and
iii. Environment clearance needed if unit is located within 25 kms of an urban town
Accordingly the application will be submitted to the concerned Development Commissioner
under whose jurisdiction that state comes.
9) Capital goods, machinery and equipment to be used:
Indigenous or foreign (allowed duty free)
Related cost
10) The raw materials and other inputs, like consumables etc. that would be required:
Source (allowed duty free)
Cost
Monthly, quarterly and annual requirements.
11) The production process:
Whether production process requires air-conditioning plant, special furnaces or kilns etc.
Details and cost. (Please note, air-conditioning equipment permitted duty free only if it is
essential for production process).
12) The production capacity and spare capacity:
Do you intend to utilize the same by doing sub-contracting work for other export units in DTA or
Export Oriented Units.
Whether you want to get job work done outside the EOU.
Details of sub-contractors.
Related costs.
13) Any by-products turned out in the production process:
Details of by-products
Whether these would be exported or sold in Domestic Tariff Area (DTA)
14) Effluents or waste-material:
How do you propose to treat these or discharge them.
15) Packaging
Details of packaging (packaging material allowed without payment of duty)
Source
Cost
16) Power:
Whether the normal grid could supply adequate power.
Or there would be a need for a captive power plant.
Cost of power plant
Fuel required for captive power plant (e.g. furnace oil, LPG, HSD, coal etc.) (allowed duty free)
17) Other information:
Firm/company should be duly registered and details about Proprietor/Partner/ Directors etc.
A current account with the bank authorized to deal in foreign exchange should be opened.
Sale tax registration to be obtained from the Sale Tax Department.
Investment details
18) Mandatory clearances from State Government: -
Pollution clearance certificate.
Approvals of building plan in cases where building is proposed to be constructed.
Registration as a small scale industrial unit, if applicable
Registration under Factories Act.
III. HOW TO APPLY
All applications are to be filed with the concerned Development Commissioner of Special
Economic Zone (For jurisdiction of Development Commissioner) Appendix 14-I- K
The unit/ promoter has to apply in the application form, to be given in triplicate given in
Handbook of Procedures in Appendix 14-1A (Please click here)

Project Report including a write up on the background of the promoters establishing their
credentials and standing.
Please see Appendix 14-1B (Please click here) for documents required by the Development
Commissioner for approval.
For sector specific conditions Please see Appendix 14-1C (Please click here)
DD for Rs. 5,000/- drawn in favour of The Pay & Accounts Officer, Ministry of Commerce and
Industry, Department of Commerce, payable at the Central Bank of India, Udyog Bhavan, New
Delhi.
Registration cum-Membership Certificate (RCMC) should be obtained from the office of the
concerned Development Commissioner.
Import Export Code: If the unit does not have an Import Export code (IEC), it will apply in the
prescribed form (Appendix 18-B) to the Zone Administration for the same.
IV. APPROVAL PROCEDURE
Letter of Permission (LOP)
After submitting the application form and if every thing is in order, Letter of Permission (LOP)
is issued by the Zone Administration within 2 weeks after interview of the promoter by the
Approval Committee. For format of LOP please see Appendix 14-IE (Please click here)
Legal undertaking (LUT)
A legal undertaking in the prescribed form undertaking to abide by the terms and conditions of
the LOP has to be executed by the unit in format given at Appendix 14-1F (Please click here ).
A Green Card will be issued to the unit by the Zone Administration on request.
Approval from State Government Agencies:
V. AFTER APPROVAL
After the approval from the Development Commissioner concerned, the manufacturing and
other activities have to be undertaken under customs bond for which formal application is to be
made to the jurisdictional Assistant Commissioner/ Deputy Commissioner of the Customs/
Central Excise for issuance of a Private Custom Bonded Warehouse Licence under section 58
and 65 of the Customs Act, 1962. The application shall be accompanied by the following
documents/information: -
Copy of notification whereunder the place (proposed location of unit) has been declared as
warehousing station under section 9 of the Customs Act. In case the approved place is not a
notified warehousing station, a separate application for issuance of such notification is to be
submitted to the Commissioner of Customs through the jurisdictional Assistant Commissioner/
Deputy Commissioner.
Copy of LOI/LOP issued by Development Commissioner concerned and LUT accepted by the
Development Commissioner.
Details of the premises including ground plan, purchase/rent/lease deed, allotment letter from
Industrial Development Corporation/ Authority (if any)
Details about the constitution of the firm/company including its Proprietor/Partners/Directors etc.
Project Report indicating stage wise manufacturing process.
List of raw material, consumables and capital goods etc. required.
Undertaking that cost recovery and other charges shall be paid.
After verification of the premises and relevant documents, the requisite licence under section
58 and 65 of the Customs Act will be issued by the Assistant Commissioner/ Deputy
Commissioner Customs/ Central Excise on priority basis.
B-17 Bond:
B-17 bond is a multi purpose surety bond which the unit has to execute with the Jurisdictional
Assistant/ Deputy Commissioner Customs/ Central Excise on a non-judicial stamp paper of Rs.
300/-. Format of the Bond is prescribed under Notification No. 6/98 CE (N.T) dt. 2-3-98.
B-17 Bond is a surety bond and in case valid surety cannot be arranged security @5% of the
bond amount has to be furnished. The bond amount shall be equal to 25% of the duty foregone
on the capital goods required in the next 5 years plus duty foregone on the value of raw material
for a period of 3 months.
B-17- Bond covers the following activities:-
Duty free import/ procurement of goods as per relevant notification and warehousing/storage in
the unit and their utilization.
Transhipment of import/ export of goods duty free between port of import/ export and units
premises.
Movement of duty free goods for job work and return.
Temporary clearance for repair and display in exhibitions, testing/ approval etc.
However it dose not cover differential duty amount against advance DTA sale for which a
separate bond is to be executed.
The unit has also to take a Central Excise Manufacture Code No. from the Superintendent,
Central Excise to enable them to sell in the domestic market.
The Development Commissioner is empowered to grant approvals on the following
matters: -
Import of additional capital goods
Enhancement of production capacity
Broad-banding/diversification
Change in name/ constitutions
Change of location/expansion
Extension of validity of LOP/LOI/LOA:
Import of Office equipment:
Merger of two or more EOU/SEZ Units
Import of spares and accessories of DG sets
Eligibility certificates for grant of employment visa to low level foreign technicians to be
engaged by EOUs as per Ministry of Home Affairs Letter No. 250227/7/99-F-1 dated 20-9-1999
(Annexure-XI).
Sale of goods in DTA.
De-bonding/ Exit from EOU scheme.
Approval from State Government Agencies:
The unit has to secure approval for its wiring and electrical plan from the Electrical authorities.
It has also to secure power allocation and wiring approval from the State Electricity Board.
The industrial water supply is undertaken by the
The unit has to take a registration under the State Government Sales Tax Act and Central Sales
Tax Act.
In case the unit already has a registration with the State Sale Tax Department the address of the
additional premises should also be endorsed in the registration certificate.
The unit has also to take Small Scale Industry (SSI) Registration from the District Industries
Center to apply for State Governments Investment Subsidy.
In case there are effluents or emissions the unit has to secure approval form the Pollution Control
Board.
Every Zone has a statutory Single Window Clearance Board.

Export Oriented Units Scheme

The Export Oriented Units (EOU) scheme was introduced to boost exports, increase foreign
earnings and created employment in India. The EOU scheme is complementary to the scheme for
Free Trade Zone, Export Processing Zone. Units that are undertaking to export their entire
production of goods are allowed to setup as a EOU. In this article, we look at the Export
Oriented Units scheme in detail.
Export Oriented Units
Export oriented units are units undertaking to export their entire production of goods. EOUs can
be engaged in manufacturing, services, development of software, repair, remaking,
reconditioning, re-engineering including making of gold / silver / platinum jewellery and articles.
Further, units involved in agriculture, agro-processing, aquaculture, animal husbandry, bio-
technology, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granites
can also obtain the status of EOU.
Benefits of Export Oriented Units
The following are the benefits enjoyed by Export Oriented Units:
EOUs are allowed to procure raw material or capital good duty free, either through
import or through domestic sources;
EOUs are eligible for reimbursement of Central Sales Tax (CST);
EOUs are eligible for reimbursement of duty paid on fuels procured from domestic oil
companies;
EOUs are eligible for CENVAT credit on the goods and services and refund thereof;
Fast track clearance facilities;
Exemption from industrial licensing for manufacture of items reserved for SSI sector.
Eligibility Criteria for EOU
For being accorded the status of EOU, the project must have a minimum investment of Rs.1
crore in plant and machinery. This condition does not apply for software technology parts,
electronics hardware technology parks and bio-technology parks. Further, EOU involved in
handicrafts, agriculture, animal husbandry, information technology, services, brass hardware and
handmade jewellery do not have any minimum investment criteria.
Obtaining EOU Status
To obtain EOU status, application for setting up of unit under EOU scheme must be made to the
Board of Approval. If approved, a validity of Letter of Permission for setting up EOU is
provided. The Letter of Permission will have a initial validity of 2 years to enable the unit to
construct the plant and install the machinery. Further extension can be obtained for a period of
upto one year. On starting operation, in a period of 5 years, the EOU will have to achieve
positive net foreign exchange earning cumulatively.

Export-oriented units (EOUs)

The export-oriented unit (EOU) Scheme was introduced in 1980 and is covered under Chapter 6
of the Foreign Trade Policy. Establishment of units and their performance is monitored by the
jurisdictional Development Commissioner under the Foreign Trade Policy provisions.

The purpose of the scheme was to boost exports by creating additional production capacity.
Under this scheme, units undertaking to export their entire production of goods are allowed to be
set up as an EOU. These units may be engaged in manufacturing, services, development of
software, trading, repairing, remaking, reconditioning, re-engineering including making of
gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing,
aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisci-culture,
viticulture, poultry, sericulture and granites. EOUs can export all products except prohibited
items of exports in ITC (HS) without payment of duty. However, permissions required for import
under other laws shall be applicable.

A minimum investment of Rs 10 million in plant and machinery is required before

commencement of commercial production in an EOU. Applications for setting up of units under
EOU scheme, other than proposals for setting up of units in the services sector (except R&D,
software and IT-enabled services or any other service activity, as may be delegated by the BOA),
is approved or rejected by the Unit Approval Committee.

EOUs may import, without payment of duty, all types of goods, including capital goods, as
defined in the Policy, required by it for its activities or in connection therewith, provided they are
not prohibited items of imports in the ITC (HS). The units are also permitted to import goods
required for the approved activity, including capital goods, free of cost or on loan from clients.

EOU units are exempted from central excise duty in procurement of goods manufactured in
India, procured from DTA and from customs duty on import of capital goods, raw materials,
consumables, spares, etc. Such units are further entitled to reimbursement of CST paid on
purchases.

Supplies from Domestic Tariff Area (DTA) to EOUs are considered deemed exports and Indian
suppliers can claim benefits of deemed exports. In addition, foreign investment up to 100% is
allowed, subject to sectoral norms.