V The Export Oriented Units (EOUs) scheme,

introduced in early 1981, is complementary to

the EPZ scheme.
V It adopts the same production regime but offers
a wide option in locations with reference to
factors like source of raw materials, ports of
export, hinterland facilities, availability of
technological skills, existence of an industrial
base and the need for a larger area of land for
the project.
V As on 31st December 2005, 1924 units are in
operation under the EOU scheme.
V The EOU scheme was introduced in the year 1980 vide Ministry of Commerce.
V The purpose of the scheme was basically to boost exports by creating additional
production capacity.
V It was introduced as a COMPLEMENTARY scheme to the FTZ/EPZ Scheme
introduced in the 1960s which had not attracted many units due to location
restrictions.
V The exporters showed willingness to set up units with long term commitment to
exports provided they had the freedom to locate them in places of their choice
and given most of the benefits to units set up in the Zones.
V For setting up an EOU, application in the prescribed form are required to
be submitted to the r
  

 .
V Applications for setting up of EHTP/STP/BTP units are submitted to the
officer designated by the 

 r  
  
for this purpose.
V After approval of the application and issuance of ¢   

,
the applicant is required to execute a legal undertaking with the
r
  

 r 
 
 .
V On execution of legal undertaking, a  is issued to the unit.
V (RANITE
V TEXTILES / (ARMENTS
V FOOD PROCESSIN(
V CHEMICALS
V COMPUTER SOFTWARE
V COFFEE
V PHARMACEUTICALS
V (EM & JEWELLERY
V EN(INEERIN( (OODS
V ELECTRICAL & ELECTRONICS
V AQUA & PEARL CULTURE
V Exports from EOUs during 2004-2005 were of
the order of Rs.36806.17 crores as compared
to the export of Rs.28827.58 crores achieved
during 2003-2004, registering a growth of
27.68%.
V Initially, EOUǯs were mainly concentrated in Textiles
and Yarn, Food Processing, Electronics, Chemicals,
Plastics, (ranites and Minerals/Ores
V But now ,EOU has extended it area of work which
includes functions like manufacturing, servicing,
development of software, trading, repair, 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, pisiculture, viticulture, poultry,
sericulture and granites.
V To set up an EOU for the following sectors, an EOU owner
needs a special license.
V Arms and ammunition,
V Explosives and allied items of defense equipment,
V Defense aircraft and warships,
V Atomic substances,
V Narcotics and psychotropic substances and hazardous
chemicals,
V Distillation and brewing of alcoholic drinks,
V Cigarettes/cigars and manufactured tobacco substitutes.
V In the above mention cases, EOU owner are required to
submit the application form to the Development
Commissioner who will then put them up to the Board of
Approvals (BOA).
V EOUs can be set up anywhere in the country
and may be engaged in the manufacture
V And production of software, floriculture,
horticulture, agriculture, aquaculture, animal
husbandry, pisciculture, poultry and
sericulture or other similar activities.
V However, it should be noted that in case of large
cities where the population is more than one
million, such as Bangalore and Cochin, the
proposed location should be at least 25 km away
from the Standard Urban Area limits of that city
unless, it is to be located in an area designated
as an "industrial area" before the 25th July, 1991.
V Non-polluting EOUs such as electronics,
computer software and printing are exempt
from such restriction while choosing the area.
V The EOUǯs are required to achieve the minimum
NFEP (Net Foreign Exchange Earning as a
Percentage of Exports) and the minimum EP
(Export Performance) as per the provisions of
EXIM Policy which vary from sector to sector.
V As for instance, the units with investment in
plant and machinery of Rs.5 crore and above are
required to achieve positive NFEP and export
US$ 3.5 million or 3 times the CIF value of
imported capital goods, whichever is higher, for
5 years
V For electronics hardware sector, minimum
NFEP has to be Ǯpositiveǯ and minimum EP for
5 years is US$ 1 million or 3 times the CIF
value of imported capital goods, whichever is
higher
V NFEP is calculated cumulatively for a period
of 5 years from the commencement of
commercial production according to a
prescribed formula.
V The EOUs are licensed to manufacture goods
within the bonded time period for the
purpose of export
V As per the Exim Policy, the period of bonding
is initially for five years, which is extendable
to another five years by the Development
Commissioner
V However on a request of EOU Unit, time
period can also be extended for another five
year by the Commissioner / Chief
Commissioner of Customs.
V The EOUs can export all products except
prohibited items of exports in ITC (HS).
V Recent EOUs Scheme Policy Changed w.e.f.
7th April, 2006.
V The export of goods up to one and half
percent of the FOB value
V In order to facilitate the smooth functioning of
the EOU units, the Development Commissioners
will fix time limits for finalizing the disposal of
matters relating to EOUs.
V New units engaged in export of Agriculture/
Horticulture/Aqua-Culture products have been
now allowed to remove capital goods inputs to
the DTA on producing bank guarantee
equivalent to the duty foregone on the capital
goods/input proposed to be taken out.
V The EOU units in Textile Sector are allowed to
dispose off the left over material/fabrics up to
2 per cent of Cost Insurance Freight (CIF)
value of imports, on consignment basis.
V Recognizing that settling the accounts for
every consignment is complex and time
consuming it has been decided to allow
disposal of left over material on the basis of
previous year's imports.
V No import licences are required by the EOU units and
import of all industrial inputs exempt from customs duty.
V Supplies from the DTA to EOUs are regarded as deemed
exports and are hence exempt from payment of excise
duty which means that high quality inputs are available at
lower costs.
V On fulfillment of certain conditions, EOUs are exempted
from payment of corporate income tax for a block of 5
years in the first 8 years of operation. Export earnings
continue to be exempt from tax even after the tax holiday
is over.
V Industrial plots and standard design factories are available
to EOUs at concessional rates.
V Exemption from Customs and Central Exciuse
duties on import/local procurement of Capital
goods, raw materials, consumables, spares,
packing material etc.
V Reimbursement of Central Sales Tax (CST) on
purchases made from Domestic Tariff Area (DTA)
V Corporate Tax Holiday upto 2010
V CENVAT credit on Service Tax paid
V Re-iumbursement of duty paid on fuels procured
from domestic oil companies as per the rate of
Drawback notified by the D(FT from time to
time.
V Permissions and Customs clearances for both Imports and Exports on self
declaration basis.
V Fixation of Input-Output norms on priority within 60 days.
V Exemption from compulsory negotiation of documents through Banks.
V 100% retention of foreign exchange in EEFC account.
V Enhancement of normal repatriation period from 180 days to 360 days.
V Exemption from furnishing of Bank (uarantee in Schemes under this policy.
V Exemption from examination of Import Cargo
V Install one Fax machine & Two computers in their Administrative/Registered
Office on prior initiation only.
V Remove their Capital goods (or) part thereof for repairs under prior intimation to
the jurisdictional Asst./Deputy Commissioner of Customs & Central Excise
authority
V DTA clearance of rejects on priority basis
V Personal carriage of samples of (ems & Jewellery without a need for prior
permission
V DTA sale of finished products on prior intimation only
V Participation in exhibition for export promotion on prior intimation only
V As per the guidelines of Foreign Trade Policy, all the EOU in India are
free to sell the goods produced in the EOU units in the Domestic
Traffic Area (DTA).
V For old existing EOUs the exports limit has been set up to the 1% of
the EOUs previous yearǯs exports.
V However in case where the company is new and first time going into
production under the EOU scheme, the limit has been set up to
maximum of Rs. 10 lakhs, which means the EOU is free to sell goods
in the domestic market up to Rs. 10 lakhs.
V The most important thing is that all the EOUs are also allowed to
market and sell their samples into DTA without payment of duty on
returnable basis for the purpose of display/market promotion.
V All the EOUs are allowed to send goods abroad through the courier
under the guidance and presence of the custom officers.
V After the custom clearance, the goods are handed over to the
representative of the courier company authorised by the
Commissioner of Customs.
V These sealed samples are not normally examined again before Dzlet
export" is given and if the seals are found intact and not tampered.
V The representative of the courier company later on hands over the
proof of export to the jurisdictional Assistant / Deputy Commissioner.
V In case of flower, fruits, vegetables or any other agricultural
product that do not have very long life span and are damage
and are not good enough to export are forcibly destructed by
the unit and under such circumstances no duty is charge
from the EOUs.
V However, if the goods are not exported due to flight delay or
cancellation or any other such transportation related issues
then the EOUs are allowed to sell vegetables, fruit or
agricultural products in the DTA on the payment of
applicable duty.
V According to the guidelines mentioned in the Appendix 16-E
of the Handbook of Procedures (Vol.I) the monitoring of
Export Oriented Units is done jointly by the Development
Commissioner and the concerned Customs and Central
Excise officers.
V The main objective of the joint monitoring is to ensure that
the performance of EOUs is effectively monitored and action
is taken against the units which have contravened the
provisions of the EXIM Policy/Handbook and the Customs
Law/Procedures.
V Also such joint monitoring gives an opportunity to the
(overnment to discuss and help resolve the
problems/difficulties being faced by the EOUs.
V The idea is to remove all bottlenecks in export promotion
efforts while not jeopardizing the interests of revenue.
V The rules and regulations in matters related to EOUs are basically governed and
monitored by the Development Commissioner who is administrative head of
Export Processing Zones and functions under the guidelines given by the Ministry
of Commerce, (overnment of India.
The Development Commissioner of the Zone concerned has wide powers :-
V To adjust for currency fluctuation, in case of capital goods import
V Enhancement of production capacity
V Broad banding/diversification of product range
V Change in name or ownership
V Change of location/expansion
V Extension of validity of Letter of Permission
V To adjudicate in all matters
In all, there are seven Development Commissioners at Mumbai, (andhidham,
Chennai , Cochin , Vizag, Noida and Calcutta , who supervise the functioning of
the EOUs and eight Export Processing Zones/Special Economic Zones in the
country.
V Supervision of EOUs under the Customs and Central Excise is quite liberal.
V The EOUs no longer carry out manufacturing operations under physical
supervision of Customs officers and operational flexibility has been also given
to EOUs by amendment of "Manufacture and Other Operations in Warehouse
Regulations, 1966".
V The system of for locking of the warehouse and control of imported goods etc
by the Customs and Central Excise has also been abolished.
V All the movements from and to the unit like clearance of raw materials,
clearance to other EOUs, export and sale in DTA are allowed to be made by the
unit subject to maintenance of the records. Physical control over the EOUs
has, thus, been replaced by Record Based Control.
V The cost recovery officers/the officerǯs incharge of EOUs are required to
scrutinize /examine the accounts/ records of the units and transaction
undertaken by the unit at least once in a month.
V EOU has to sign a multipurpose bond with the jurisdictional Deputy
Commissioner of Customs and Central Excise at the time of commencement
of the unit.
V The bond is submitted in a prescribe format along with the copy of EOU
project report and Letter Of Proposal (LOP) to the Deputy Commissionerǯs
Office in the zone.
V Apart from these documents, EOU also need to submit a worksheet
authenticated by the authorized signatory showing the details of imported /
indigenous material covered by the Bond.
V The B-17 Bond is taken for an amount equal to 25% of the duty forgone on
the sanctioned requirement of capital goods plus the duty forgone on raw
materials required for 3 months.
V Surety or security equivalent 5% of the bond amount in the form of bank
guarantee is required to be given by the EOUs.
 EOUs SEZs

V The unit can import capital goods, V There is no such options available
raw materials, consumables,
packing material, spares etc.
without payment of customs
duty. Similarly, these can be
procured indigenously without
payment of excise duty.
V Second hand capital goods can V Option Not Available
also be imported.
V Minimum investment in plant and V There is no such limit for SEZ.
machinery and building is Rs 100
lakhs for EOU. This should be
before commencement of
commercial production. V (eneral infrastructure available to
V (eneral infrastructure available to SEZ unit are much better as
EOU unit are not as better as available to SEZ units.
available to SEZ units
V There is no physical supervision
of customs / excise authorities
over production and clearances,
but prescribed records are
required to be maintained.
V Fast Track Clearance Scheme
(FTCS) for clearances of
imported consignments for
EOU.
V (enerally, all final production
should be exported, except
rejects upto prescribed limit.
V Central Sales Tax (CST) paid on
purchases is refundable (but not
local tax).
V Supplies made to EOU by Indian
supplier are Ǯdeemed exportsǯ
and supplier is entitled to
benefits of Ǯdeemed exportǯ.
V There is no physical supervision
of customs /excise authorities
over production and clearances,
but prescribed records are
required to be maintained.
V In case of SEZ units, customs
clearance for export and import
is obtained within the zone itself.
V (enerally, all final production
should be exported, except
rejects upto prescribed limit.
V In case of SEZ unit, supplier does
not have to pay CSTá
V Supplies to SEZ are Ǯexportsǯ and
all export benefits are available.