Law of Export Oriented Units

EXPORT ORIENTED UNITS IN INDIA

Dr. Tabrez Ahmad
Professor of Law

Dr. Tabrez Ahmad; http://corpolexindia.blogspot.in

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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.

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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.


3

Basic Concept of EOU Policy
 Employment opportunities are created
 Increase in Exports
 Increase in foreign direct investments
 Growth and development

 Industrial License not required
 Domestic Labour law is applicable
 Free to select the location of a project


4

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


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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.


6

Need for Special License
To set up an EOU for the following sectors,
an EOU owner needs a special license:
 Arms and ammunition
 Explosives
 Defense aircrafts
 Atomic substance
 Cigarettes/Cigars


7

EOU Scheme: Who can operate
 To run manufacturing activities foreign

companies need to set up an Indian Company
 A Company registered in India can start an EOU
unit without starting a new legal entity:


8

EOU Scheme Features
 EOUs may export all products except prohibited items of
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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.

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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.


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 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.


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 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.


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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


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Benefits
 All items if procured domestically:
 sales tax exemption/refund
 Excise exemption
 Income Tax concessions


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EOU Sales to Other EOUs
 EOU can sell duty free to other
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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.

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 They can be invoiced in foreign currency or in Indian

currency.
 Sales do not count as physical exports.


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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 entities other
than EOUs also in foreign exchange sourced from

from their EEFC account or abroad


17

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

18

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.

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EOU Scheme: Exit Policy

 In case of failure to achieve positive NFE, duty
foregone under the EOU scheme with interest is
recoverable in proportion to the shortfall in NFE
 If the unit has not met positive NFE, de-bonding
shall also be subject to payment of penalties under
the Foreign Trade (Development & Regulation)
Act, 1992, and under the Customs Act, 1960


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Dr. Tabrez Ahmad http://corpolexindia.blogspot.in

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Law of Export Oriented Units

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Law of Export Oriented Units