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A guide to the Export Oriented Units (EOUs) scheme and process to avail its benefits

The Export Oriented Unit (EOU) scheme was introduced in 1980 to promote exports and increase foreign exchange earnings of the country. In this blog, learn about its benefits and how to set up an EOU.

Introduced in 1980, the Export Oriented Units (EOU) scheme aims to promote exports and increase foreign exchange of the country by creating additional production capacity. Only those units that are undertaking to export their entire production of goods are allowed to be set up as an Export Oriented Unit¹.

What is the EOU scheme?

Under the Export Oriented Units scheme, as per the Foreign Trade Policy (FTP), Export Oriented Units are set up to undertake the export of the entire production of goodss. Any sector that deals with the below-mentioned activities is liable to obtain the status of EOU:
• Manufacturing
• Providing service
• Software development
• Repair, reconditioning and re-engineering of jewellery and articles
• Units engaged in agriculture, animal husbandry, poultry, biotechnology, floriculture, horticulture and other similar activities.

Objectives of the EOU scheme

Some of the objectives of the EOU scheme are³:
• To accelerate export trade from India
• To increase foreign exchange earnings
• To stimulate direct foreign investment
• To generate foreign investments and employment opportunities

Eligibility criteria to set up an EOU

For obtaining an Export Oriented Unit status, the plant and machinery project must have a minimum investment of INR 1 crore. This is not applicable to existing units, units in handicrafts, agriculture, floriculture, aquaculture, animal husbandry, information technology, services, brass hardware and handmade jewellery sectors.

Procedure to set up an EOU

To set up an Export Oriented Unit, below are the steps you can follow⁴:

1. To set up an EOU, an application must be filed on ANF 6A to the Development Commissioner officer.
2. 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.
3. The application must be submitted with an uncrossed Demand Draft of INR 5000 drawn in the name of the account pay and accounts, Ministry of Commerce and Industry, payable at the Central Bank of India, located in Udyog Bhawan, New Delhi.
4. Minimum investment in the plant, machinery and building must be mentioned.

To obtain EOU status, application for setting up of Export Oriented Units must be made to the Board of Approval. After you have filled out the application form, the board will provide validity of the Letter of Permission for setting up your Export Oriented Unit. It must be noted that the Letter of Permission will have an initial validity of 2 years to enable the unit to construct the plant and install machinery. After receiving the application for Export Oriented Units registration, the Customs Authority will confer registration to Export Oriented Unit within five days of the registration application receipt.

Benefits of Export Oriented Units

Some of the benefits of Export Oriented Units are:
• Export Oriented Units are allowed to procure raw material or capital goods duty-free – either through import or through domestic sources
• EOUs are eligible for reimbursement of GST
• They are eligible for refund or reimbursement of duty paid on fuels produced from domestic oil companies
• All EOUs are liable to claim input tax credit on the goods and services and therefore, claim refund too
• EOUs enjoy priority-basis and fast track clearance facilities
• Exemption from industrial licensing for manufacturing of items, reserved specially for this purpose
• Export Oriented Units also act as a facility to release export earnings within 12 months

What is the difference between EOU and SEZ?

Both Export Oriented Units and Special Economic Zones (SEZ) have been initiated to promote exports and provide a boost to the economic sector of the country. Below are a few differences between the two¹:

EOU

• It can be set up anywhere in the country, following the scheme’s terms and conditions.
• Trading units are not allowed to be set up under EOU scheme.
• Under EOU, construction materials are not allowed to be imported or procured indigenously duty-free.
• Central State Taxes exemption is not offered. However, CST reimbursement can be claimed from Jurisdictional Development Commissioner.
• Private bonded warehouse license is required.

SEZ

• A SEZ is a specially designed facility that is set up outside the Customs jurisdiction.
• Trading units are allowed to be set up in SEZ.
• Construction material can be imported or procured indigenously duty-free under SEZ.
• There is a provision of exemption of Central State Taxes on goods that are procured indigenously.
• Private bonded warehouse license is not required.

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1. Understanding export incentives in India: What are the benefits for exporters?

2. Gold Card Scheme for exporters: Objectives, eligibility and benefits

3. How to register for the Market Access Initiative (MAI) scheme?

4. What is the NIRVIK scheme for exporters?

5. All you need to know about Interest Equalisation Scheme and its benefits

6. All you need to know about the Transport and Marketing Assistance Scheme (TMA Scheme)

7. RoSCTL scheme: Benefits, eligibility and application procedure

8. What is Duty Entitlement Passbook (DEPB) Scheme for exporters?

9. Advance Authorisation Scheme: How does it help exporters?

10. What is Export Promotion Capital Goods Scheme (EPCG)?

11. What is Duty Drawback in export: Meaning, types and process

12. Understanding the benefits of RoDTEP scheme: A guide for Indian exporters

13. What is Authorized Economic Operator (AEO) Programme: How to register and obtain AEO certificate?

Frequently Asked Questions

Who provides EOU status?

The Customs department grants the status of EOU. The EOUs basically come under administrative control of the Development Commissioner of the Export Processing Zones, who are permitted to provide Export Oriented Unit status to sectors⁵.

What are 100% export-oriented units?

A 100% export-oriented unit focuses on industrial unit that offers to export its entire production, which excludes domestic tariff area sales (up to the permitted level) for the manufacture of goods including repair or re-making, reconditioning and re-engineering of various services.

What is EPZ and EOU?

Export Promotion Zone and Export Oriented Units were introduced to enhance exports from India.

Is trading allowed in EOUs?

No, trading is not allowed in an EOU.

Can second hand goods be imported by EOUs?

Yes, second hand goods are liable to be imported by EOUs. Export Oriented Units have the permission to import second hand capital goods without any age limit.

Published on October 29, 2022.

Sources:
1. https://www.nsez.gov.in/Resources/EOU%20FAQs.pdf
2. https://nacin.gov.in/resources/file/e-books/EOU%20Scheme.pdf
3. http://www.seepz.gov.in/eou.aspx
4. https://csez.com/eou/html/h0400how.htm#how10
5. https://commerce.gov.in/about-us/divisions/sez-divisions/export-oriented-units-eou/#:~:text=Ministry%20of%20Commerce%20and%20Industry,-DEPARTMENT%20OF%20COMMERCE&text=To%20service%20Board%20of%20Approval,units%20in%20Special%20Economic%20Zones.
6. https://www.cbic.gov.in/Cbec_Revamp_new/resources//htdocs-cbec/customs/cst1617-020217/csgs-53.pdf;jsessionid=B6ADFDC2CDD6066F09AACE96702D9244
7. https://www.business-standard.com/article/sme/trading-not-allowed-under-export-oriented-unit-scheme-117020600637_1.html#:~:text=the%20EOU%20scheme.-,The%20facility%20for%20trading%20units%20under%20the%20EOU%20scheme%20was,out%20trading%20in%20an%20EOU.

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