Export Oriented Unit Scheme

Export Oriented Units Scheme 1981

The Export Oriented Units (EOU) scheme was introduced to boost exports, increase foreign exchange and create employment in India. The EOU scheme is complementary to the scheme for Free Trade Zone, Export Processing Zone.

In this article, we look at the Export Oriented Units scheme in detail.

Export Oriented Units:

Export Oriented Units (EOUs) have been defined under Chapter 6 of Foreign Trade Policy (FTP) as those units undertaking to export their entire production of goods and services [except permissible sales in Domestic Tariff Area (DTA) for manufacture of goods, including repair, re-making, reconditioning, re-engineering, rendering of services, development of software, agriculture including agro-processing, aquaculture, animal husbandry, biotechnology, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture]. Trading units are not covered under the EOU.

Eligibility Criteria for EOU:

For the status of EOU, the project must have a minimum investment of Rs.1 crore in plant and machinery. This condition does not apply on EOUs involved in handicrafts, agriculture, animal husbandry, information technology, services, brass hardware, handmade jewellery, software technology parts, electronics hardware technology parks and biotechnology parks.

How to Obtain EOU Status? :

An application for setting up an EOU needs to be made in ANF 6A to the office of the DC. Apart from the application fee of Rs 5000/- , some of the other documents required are the Certificate of Incorporation, Articles of Association (AOA), Partnership Deed as the case may be, existing and proposed capital structure, would need to be submitted.

Application for setting up of EOU shall be approved or rejected by Unit Approval Committee (UAC) within 15 days, as per the criteria specified in appendix 6A.

On approval, a Letter of Permission (LoP) is issued by Development Commissioner of the Special Economic Zone (SEZ) under whose administrative control the EOUs comes. The validity of LoP is for a period of 5 years (excluding the period of 2 years for commencement of production). The LoP is considered as Authorization.

Benefits of Export Oriented Units:

• Procurement of raw material or capital goods either through import or through domestic sources is duty free;
• EOUs cab claim Refund of GST paid.
• EOUs are eligible for reimbursement of duty paid on fuels procured from domestic oil companies;
• EOUs are eligible for claiming input tax credit on the goods and services.
• Fast track clearance facilities;
• Exemption from industrial licensing for the manufacture of items reserved for SSI sector.

Supply of Goods to EOU :

Under GST, there is no exemption available to supplier of goods to EOU. IGST, CGST and SGST, as applicable, will be payable by the supplier who supplies the goods to EOU. EOU has following options to offset GST paid on goods received from suppliers:

Option 1 – To take input tax credit of GST paid and utilize the same towards supplies made by EOU to Domestic Tariff Area Customer.

Option 2 – Claim refund of GST paid.

Supply of Goods by EOU:

EOU units are required to pay applicable GST on supply made to DTA. Only in case of zero rated supplies, as defined under section 16 of the IGST Act, EOU are exempted from payment of GST. Hence, when an EOU units undertakes physical export of goods or services or supplies goods or services to special economic zone (SEZ) developer or special economic zone unit, then, in such cases, EOU units are exempted from payment of GST.

Supply from EOU to EOU:

When the goods are supplied by one EOU to another EOU, such supply would be treated as any other supplies under GST law and hence GST would be payable on the same as payable under any other supplies.

Tax Benefits for EOU:

Exemption from the additional duties of customs, if any, under section 3(1), section 3(3) and section 3(5) of the Customs Tariff Act, 1975 and exemption from central excise duty will be available for goods specified under the Schedule IV of  Central Excise Act.

In order to avail benefit of import duty exemption, EOU unit needs to follow the procedure under the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017.

EOU Vs SEZ:

Although both EOUs and SEZs, were initiated to boost exports, there are differences between the two. An EOU can be set up anywhere in the country, provided it meets the scheme’s criteria. On the other hand, an SEZ is a specially demarcated enclave that is deemed to be outside the Customs jurisdiction and therefore, a foreign territory. Thus, any sale made from an SEZ to DTA is considered as import for the DTA unit. Moreover, any supply from DTA to an SEZ is considered as export. On the other hand supplies from DTA to an EOU are considered as deemed exports.

Being a clearly demarcated area, there is substantial control over the physical movement of goods to and from SEZs, but the same cannot be said about EOUs. In terms of the fiscal treatment, SEZs are zero rates and hence exempt from payment of GST while in the case of EOUs, the principle of refund of GST paid is applicable.

Minimum investment in plant and machinery and building is Rs 1 crore for EOUs. This should be before commencement of commercial production, there is no such limit for SEZ.

With approval of DC, an EOU may opt out of scheme. Such exit shall be subject to payment of applicable Excise and Customs duties and on payment of applicable IGST/ CGST/ SGST/ UTGST and compensation cess, if any, and industrial policy in force.