Formation of 100% EOU:

Criteria: Units undertaking to export there entire production of goods ands services except permissible sales in the DTA as per the policy may set up under EOU scheme for manufacturing of goods, including repair, remaking, reconditioning, re-engineering, and rendering of services.

No trading unit shall, be permitted under 100% EOU Scheme.

For setting up of an EOU in the state of Maharashtra, the application is to be submitted to the Development commissioner, SEEPZ, Mumbai

Only project having a minimum investment of Rs. 1 crore and above in building, plant and machinery shall be considered for establishment under EOU scheme. Minimum investment should take place on coming into production of the unit. This shall not apply to existing units to be converted in to EOU scheme.

Once the EOU unit is approved by the Development commissioner, the unit shall have to execute a legal undertaking with the Development commissioner.

EOU’s should have their own web site and permanent Email address compulsorily. Bonding by Customs

After the approval by the Development commissioner,the operations of a 100% EOU unit are to be in a customs bonded warehouse.

A licence is granted by the Commissioner of Customs after being satisfied that all the conditions are fulfilled for private bonded warehouse under section 58 of customs act, 1962 & under section 65 of customs act, 1962 for manufacturing.

An EOU unit may import or procure from DTA or bonded warehouses in the DTA/ international exhibitions held in India, without payment of duty, all types of goods required by it for its activities or in connection therewith, provided they are not prohibited items of imports in the ITC.

Goods permitted to be imported /procured from Domestic Tariff Area shall include: Raw materials, components, consumables, intermediates, spares and packing materials: Capital goods, whether new or second-hand, including their spares:

The units shall also be permitted to import/procure goods and services required for its activities, including capital goods, free of cost or on loan from clients

The raw material , components, etc. except capital goods and spares, shall be utilised by EOU units within a period of three years or as may be extended by Customs authorities.
The ware housing period for capital goods is 5 years after which it has to be renewed.

Goods already imported/shipped/arrived before the issue of LOP/ LOI are also eligible for duty free clearance under the EOU scheme provided customs duty has not been paid and the goods have not been cleared from Customs

EOU unit shall be a positive net foreign exchange earner.

Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively for a period of five years from the commencement of production according to the formula given below. Items of manufacture for export specified in the Letter of Permission (LOP)/ Letter of Intent (LOI) alone shall be taken into account for calculation of NFE

Positive NFE = A – B > 0
A=is the FOB value of exports by the EOU unit; and

B= the sum total of the CIF value of all imported inputs + the CIF value of all imported capital goods + the value of all payments made in foreign exchange by way of commission, royalty, fees, dividends, interest on external borrowings during the first five year period or any other charges.

"Inputs" mean raw materials, intermediates, components, consumables, parts and packing materials

For annual calculation of NFE the value of imported capital goods and lumpsum payment of foreign technical know-how fee shall be amortized as under:
1st - 10th Year: 10%

EOU unit shall maintain proper account, and shall submit quarterly and annual report (QPR & APR)to the Development Commissioner and Customs and Central Excise authorities

Failure to ensure positive NFE or to abide by any of the terms and conditions of the LOP/LOI/IL/LUT shall render the unit liable to penal action under the provisions of the Foreign Trade (Development & Regulation) Act, 1992 and the Rules and Orders made there under without prejudice to action under any other law/rules and cancellation or revocation of LOP/LOP/IL DTA (LOCAL)Sale of Finished products/ Rejects waste/scrap/ remnants and by-products

The entire production of EOU units shall be exported subject to the following

Units may sell goods/ services upto 50 % of FOB value of exports, subject to fulfillment of positive NFE on payment of applicable duties.

However, Units which are manufacturing and exporting more than one product can sell any of these products into DTA, upto 75% of FOB value of export of the specific products, subject to condition that total DTA sale does not exceed the overall entitlement of 50% of FOB value of exports for the unit.

Unless specifically prohibited in the LOP, rejects may be sold in the Domestic Tariff Area (DTA) on payment of duties as applicable to sale on prior intimation to the Customs authorities. Such sales shall be counted against DTA sale entitlement

3 .Increase in Duty Payable under DTA Sales for 100% EOU:

Currently excise duty equivalent to 25% of the basic customs duty + CVD (as applicable) is payable on DTA clearance/sale made by an EOU, STP or EHTP.

The duty now chargeable would be equivalent to 50% of the basic customs duty + CVD (as applicable). (Notification No. 23/2003-CE as amended vide notification No. 10/2008 - CE ).

Sale of rejects upto 5% of FOB value of exports shall not be subject to achievement of NFE.

Scrap/ waste/ remnants arising out of production process or in connection therewith may be sold in the DTA as per the Standard Input-Output norms notified under the Duty Exemption Scheme on payment of duties as applicable within the overall ceiling of 50% of FOB value of exports.

Such sales shall not, however, be subject to achievement of positive NFE.

The paragraph 6.8 (a) of the FTP provides that EOU/EHTP/STP may sell goods upto 50% of FOB value of exports in DTA on payment of concessional duty subject to fulfillment of positive NFE. It also provides that within the entitlement of DTA sale, the unit has to sell in DTA its products similar to the goods, which are exported or expected to be exported. There has been doubt as to what constitutes ‘similar goods”. Further, when the units are not required to take any permission for DTA sale under paragraph 6.39.9, it is felt necessary to provide definition of “similar goods” to bring clarity and uniformity. Therefore, it has been decided that the definition of ‘similar goods’ would be based on the definition of similar goods as provided in the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The term ‘similar goods” means “goods which is although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable with the goods which have been exported or expected to be exported having regard to the quality, reputation and the existence of trade mark and produced in the same unit by the same person who produced the export goods”. The Board’s Circular No. 85/95 dated 26-7-95 issued in this regard stands rescinded.

4 . DTA Supplies to Count towards NFE

The following supplies effected in DTA by EOU/EHTP/STP units will be counted for the purpose of fulfillment of positive NFE

Supplies effected from DTA in terms of Chapter 8 of the Policy.

Supplies made to bonded warehouses set up under the Policy and/or under Section 65 of the Customs Act

Sales made to a private bonded warehouse set up under the policy shall also be taken into account for the purpose of arriving at FOB value of exports by EOUs provided payment for such sales are made from EEFC account.

Supplies against special entitlements of duty free import of goods

Supplies of goods and services to such organizations which are entitled for duty free import of such items in terms of general exemption notification issued by the Ministry of Finance

Supply of services (by services units) relating to exports paid for in free foreign exchange or for such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by RBI.

Supplies effected in DTA against payment from the Exchange Earners Foreign Currency (EEFC) Account of the buyer in the DTA or against foreign exchange remittance received from overseas subject to Import Policy in force

Supplies to other EOU/SEZ/ EHTP/ STP units shall be counted towards NFE provided that such goods are permissible for procurement by these units.

Entitlement for supplies from the DTA

Supplies from the DTA to EOU/EHTP/STP units will be regarded as "deemed exports" and the DTA supplier shall be eligible for the relevant entitlement under deemed exports besides discharge of EP if any, on the supplier.

Additional benefits:
In addition the EOU/EHTP/STP units shall be entitled to the following
1. Reimbursement of Central Sales Tax.
2. Exemption from payment of Central Excise Duty on all goods as per entitlements given in the Policy.
3. Reimbursement of Duty paid on fuels procured from domestic oil companies, by the Development Commissioner of the concerned Zone as per the rate of Drawback notified by the Directorate General of Foreign Trade from time to time

5 . Reimbursement of Central Sales Tax.

Reimbursement of CST will be made on quarterly basis. The application for claiming reimbursement should be filed within a period 6 months from the completion of the quarter in which the claim has arisen.

In case of procurement of goods against payment in installments, the CST reimbursement claim may be made in the quarter in which the full payment has been effected against the invoice/bill. Whenever application is received after expiry of last date of submission of such application, provisions of para 9.3 of the HBP Vol.1,would apply. Application for supplementary claim will be considered as per provisions of para 9.4 of HBP Vol I”.

Exemption from payment of Central Excise Duty on all goods as per entitlements given in the Policy.

Exemption from Payment of Central Excise Duty on all goods R.M/C.G, Imported / Local Goods under CT-3 and Procurement Certificate.

Board’s letter dated 17-10-2002 issued from F. No 305/119/2000-FTT, wherein it was suggested that in case any serious discrepancies are noticed against any EOU, immediate action may be taken by way of suspension of facility of issuance of CT-3/procurement certificates.

The Board has revisited the matter. The withdrawal of CT-3/ Procurement certificate facility causes a great hardship and adversely affects the day-to-day operations of the unit by denying exemption on inputs meant for production of export goods. It also impinges upon the livelihood of the labour engaged in manufacturing and production activities of the affected EOUs. Therefore it has been decided that in case any gross misuse/abuse of the EOU Scheme by any EOU/EHTP/STP is noticed or any evidence suggesting prima facie evasion of substantial duty by EOU/EHTP/STP comes to light, the CT-3 procurement certificate facility to the EOU/EHTP/STP may not be suspended with immediate effect. Instead the jurisdictional Deputy/ Assistant Commissioner may withdraw the facility of pre-authenticated CT-3 certificate for a period for six months at a time, and allow the unit to import/ procure goods duty free on the basis of individual CT-3 certificates/ procurement certificates subject to the condition that the unit furnished additional bank guarantee to cover the 100% duty foregone on such duty free import/ procurement. However, this executive order of the jurisdictional Deputy/ Assistant Commissioner may be reviewed or amended by the jurisdictional Commissioner of Customs or Central Excise, on receipt of any request from the unit. It is further clarified that while deciding to withdraw the facility of pre-authenticated CT-3 certificate, proper care may be taken that the withdrawal is not done for mere procedural violations.

6 . Other Entitlements

Exemption from payment of income tax (I.T.) is as per section 10A & 10B of the Income Tax Act. I.T. benefit to 100% EOU’s available under Section 10B of Income Tax Act is being extended for one more year, beyond 2009. i.e. the Sunset clause would be extended further and exemption from I.T would be available for exports made up to 03/2011.

For claiming of Trading house or export house status, the Clubbing of FOB value of export of an EOU units with FOB value of export of its parent company in the DTA or vice versa is possible.

Foreign Direct Investment (FDI) up to 100% in the manufacturing sector is permissible, as per the guidelines of Department of Industrial Policy and Promotion on the subject

Exemption from industrial licensing for manufacture of items reserved for SSI sector

If an industrial enterprise is operating both as a domestic unit as well as an EOU unit, it shall have two distinct identities with separate accounts, including separate bank accounts. It is, however, not necessary for it to be a separate legal entity, but it should be possible to distinguish the imports and exports or supplies affected by the EOU units from those made by the other units of the enterprise

Exit from EOU scheme (Debonding) under 0% & 3% EPCG Scheme

Subject to the approval of the Development Commissioner, EOU/EHTP/STP units may opt out of the scheme. Such exit from the scheme shall be subject to payment of duties of Customs and Excise as per the duty structure applicable on that given period and the industrial policy in force at the time of exit. If the unit has not achieved the obligations under the scheme, Exit from the scheme, shall also be subject to penalty as may be imposed by the competent authority.

An EOU unit may also be permitted by the Development Commissioner, as a one time option, to exit from the scheme on payment of duty on capital goods under the prevailing 0% or 3% EPCG Scheme.

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