Law of Export Oriented Units


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Lectures delivered by Dr. Tabrez Ahmad

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Law of Export Oriented Units

  1. 1. EXPORT ORIENTED UNITS IN INDIA Dr. Tabrez Ahmad Professor of Law Dr. Tabrez Ahmad; 1
  2. 2. 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. Dr. Tabrez Ahmad; 2
  3. 3. 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. Dr. Tabrez Ahmad; 3
  4. 4. 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 Dr. Tabrez Ahmad; 4
  5. 5. Main Sectors in EOU’s           Granite Textile Food processing Chemicals Computer software Coffee Pharmaceuticals Gem & Jewelry Engineering goods Electrical & Electronics Dr. Tabrez Ahmad; 5
  6. 6. 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. Dr. Tabrez Ahmad; 6
  7. 7. 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 Dr. Tabrez Ahmad; 7
  8. 8. 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: Dr. Tabrez Ahmad; 8
  9. 9. EOU Scheme Features  EOUs may export all products except prohibited items of     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. Dr. Tabrez Ahmad; 9
  10. 10. 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. Dr. Tabrez Ahmad; 10
  11. 11.  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. Dr. Tabrez Ahmad; 11
  12. 12.  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. Dr. Tabrez Ahmad; 12
  13. 13. 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 Dr. Tabrez Ahmad; 13
  14. 14. Benefits  All items if procured domestically:  sales tax exemption/refund  Excise exemption  Income Tax concessions Dr. Tabrez Ahmad; 14
  15. 15. EOU Sales to Other EOUs  EOU can sell duty free to other       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. Dr. Tabrez Ahmad; 15
  16. 16.  They can be invoiced in foreign currency or in Indian currency.  Sales do not count as physical exports. Dr. Tabrez Ahmad; 16
  17. 17. 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 Dr. Tabrez Ahmad; 17
  18. 18. 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 Dr. Tabrez Ahmad; 18
  19. 19. 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. Dr. Tabrez Ahmad; 19
  20. 20. 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 Dr. Tabrez Ahmad; 20
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