{EOU} Export oriented units

Introduction
 EOU introduced by Ministry of
I

Commerce in 1980.
 A complementary scheme to
FTZ/EPZ introduced in 60’….
that did not attract many units
due to restrictions….specially
location restrictions
 EOU complement SEZ scheme.
 Aim - To boost exports by
creating additional production
capacity with certain minimum
value addition….
 i.e., without burdening existing
infrastructure
Free-trade zone (FTZ) -
A specific class of specific economic zone; a
geographic area where goods may be landed,
stored, handled, manufactured or reconfigured &
re-exported under specific customs regulation,
generally not subject to customs duty.
Export processing zones (EPZs) -
Areas within developing countries that offer
incentives and a barrier-free environment to
promote economic growth by attracting foreign
investment for export-oriented production.
 Special Economic Zones {SEZs}
The SEZ Policy was announced in April 2000.
• Objectives -
 Engine for economic growth….
 Supported by quality infrastructure…..
 Offer attractive fiscal package at Central & State levels
 Provide a “Single” window clearance.
SEZ concept recognizes “Holistic Economic Development”.
Provides for development of “Self-sustaining Industrial
Townships”.
Increased economic activity with no pressure on
the existing infrastructure.
Self sustainable Industrial Townships
• Basic Concept of EOU Policy:
• Employment Opportunities
• Increase in Exports
• Increase in FDIs
• Growth & Development
• No Industrial License required
• Domestic Labour law Purview
• Free selection of location for
project
• EOU Scheme -
• Offers a wide range of options in locations
• Factors taken into consideration -
 Source of raw materials
 Ports of export
 Availability of land for the project.
• EOUs concentrated in industries such as -
 Yarn & Textiles
 Food Processing
 Electronics
 Chemicals
 Plastics
 Granites
 Minerals & Ores.
 Need for Special License
• Special License to set up an EOU in the following sectors -
 Arms and ammunition
 Explosives
 Defense aircrafts
 Atomic substances
 Cigarettes/Cigars

EOU Scheme: Who can operate?

• To run an EOU, foreign companies need to set up an
Indian Company….
• A Company registered in India
OBJECTIVES OF THE EOU SCHEME

Transfer of
latest
technologies

Stimulate direct
foreign
investment
 OBLIGATION OF EOU

 Achieve Positive Net Foreign Exchange Earning (NFE).

 NFE is calculated cumulatively for a period of Five years

from the date of commencement of production.

 Input / output norms maintained as per FTP* on the

resultant product.

 Unutilized material disposal on payment of applicable

duties.

*Foreign Trade Policy

 ELIGIBILITY CRITERIA
 An EOU can be set up by any entrepreneur for
 manufacturing of goods & rendering services.
 repair, reconditioning, re-making and re-engineering.
 EOU unit is required to achieve positive Net
Foreign Exchange Earning (NFE) over a period
of 5 years.
It can be set up in sectors like -
 Agriculture & Animal husbandry
 Horticulture & Floriculture
 Aquaculture & Viticulture etc.
Trading activity not allowed in the EOU
Scheme.
EOU 2009 - 2014
 BENEFITS OF EOU
All imports customs duty free.
 Exemption Central Excise Duty for
procurement…Capital Goods & Raw Materials from
domestic market.
Up to 50% products to be exported in value terms.
 100% foreign equity permissible.
 Reimbursement of Central Sales Tax (CST)
on all domestic purchases.
 No restrictions on External Commercial
Borrowings.
 Full freedom for sub-contracting.
 EOUs free to select location of a project.
 Exemption from paying electricity duty.
 BENEFITS CONT….
 Fast Track Clearance Scheme (FTCS) for all imported
consignments
Sub-contracting to Domestic Tariff Area (DTA) or Domestic
Tariff Zone (DTZ) permissible after obtaining permission on
annual basis.
 Unutilized raw material disposal on payment of
applicable duties.
 EOU can exit with permission of Development
Commissioner, on payment of applicable duties.
 Prescribed percentage of foreign exchange earnings can
be retained in EEFC account in foreign exchange.
EOUs can export through an export house/trading
house/star trading house or other EOUs.
 BASIC REQUIREMENTS FOR SETTING UP AN EOU

 Planning of venture
 Is it on your own?
 Foreign participation ?
 Nature of participation? (foreign investment allowed 100%)
 What product does one intend to manufacture?
 Product/By-product
 Does it require clearance from Central/State Government authorities
 Is it an SSI Unit. If so, is registration required as an SSI?
 Technology to be used?
 Indigenous / foreign.
 Related costs and conditions.
 Feasibility report?
 On your own or is it with help of a consultant.
 Finances involved?
 Land, structure, buildings etc.
(Building construction material is not exempted from duty).
 SALIENT FEATURES
 No licence required for import ( except restricted items)
 Exemption from Central Excise Duty in procurement of capital
goods, raw materials, consumables, spares, packing material etc from
the domestic market.
 Exemption from Customs duty on import of capital goods, raw
materials, consumables, spares, packing material etc.
 Reimbursement of Central Sales Tax (CST) paid on domestic
purchases (but no local tax).
 Supplies from Domestic Tariff Area (DTA) to EOU treated as deemed
exports.
 100% Foreign direct investment permissible.
 Exchange earners foreign currency (EEFC) Account.
 Facility to retain 100% foreign exchange proceeds in EEFC account.
Facility to realize & repatriate export proceeds within 12 months.
 Cont.d
 Re-export of imported goods found defective for repair/replacement,
testing/ calibration and return.
 Access to domestic market upto 50% FOB value of export on
payment of concessional rate of duty.
 Job work on behalf of domestic exporters for direct export allowed.
 Conversion of existing Domestic Tariff Area (DTA) unit into an
EOU permitted.
 New EOUs get Corporate Income Tax concessions till 2009.
 Even second hand plant & machinery can be imported.
 Can Procure duty-free inputs for supply of manufactured goods to
advance licence holders.
 EOUs get upto 5 years for utilization of imported capital goods, and
upto 3 years for other items.
MAJOR SECTORS IN EOU

FOOD
PROCESSI COFFEEE
NG
• EOU Scheme: Exit Policy
• Units can de-bond without paying duties on
capital goods 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/material,
 transferring it to another SEZ/EOU unit
 destroying items in Customs presence
 donation on gratis basis to educational institutions…
• EOU Scheme: Exit Policy
• Failure to achieve positive Net Foreign Exchange
earnings , duty may be foregone under the EOU
scheme with interest recoverable in proportion to
the shortfall in NFE
• If EOU has not met positive NFE, de-bonding shall
be subject to payment of penalties under -
 Foreign Trade (Development & Regulation) Act,
1992
Customs Act, 1960
 Reports of review of performance of EOU -
• Karnataka leads in exports from EOUs
• Jewellery sector is the top EOU sector in Karnataka followed by –
 garments
 minerals
 electronics
 textiles
 software
 agro and food processing
 biotechnology,
 engineering and services,
• Rajesh Exports Ltd - exports of gold coins & medallions is the
leading exporter under the EOU scheme from the state
• In garments, Gokaldas India of Gokaldas Exports, manufacturers of
readymade garments
 Conclusion

• Need for higher level of technological & industrial progress has led to
a series of export promotional schemes…. for export production.
 EOUs
 SEZs
• These are providing -
 international competitive duty free environment
 infrastructural facilities.

• Export Oriented Units (EOUs) constitute a very important sector in

the country’s Export Production scenario.
• Are dominant players in export strategy
• Have a share in the Country’s export market
THANK YOU