What is an EXPORT ORIENTED UNIT?
Export Oriented Units (EOU’s) are those which were introduced to increase the exports and enhance foreign exchange earnings in India. EOU can be defined as “Units that are undertaking to export their entire production to set up for exports are considered as Export oriented units. EOUs can be engaged in manufacturing, services, development of software, repair, remaking, reconditioning, re-engineering including making of gold/ silver/ platinum jewellery and articles. Further, units involved in agriculture, agro-processing, aquaculture, animal husbandry, biotechnology, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture, and granites can also obtain the status of EOU”.
Tamil Nadu has the highest number of Export Oriented Units (EOUs) in India, according to the Annual report of the Commerce Department of India, for the year 2017-18. Tamil Nadu has 416 EOUs followed by Karnataka which has 376 and Maharashtra 225. The total number of Export Oriented Units active in the country in 2017-18 is 1832. The remainder is divided among other states like Gujarat (177), Telangana (165), Kerala (83), Andhra Pradesh (76), etc.
Objectives of Export Oriented units
- Increase in Employment opportunities
- Increase in Exports
- Increase in Foreign Direct Investments
- Aids Growth and Development
- Submission of application form
- Approval of Export Oriented Units
- Issue of Letter of Permission by Commissioner/designated officer
- Legal Undertaking is to be executed by Unit with the Development Commissioner
- State Government Approvals
- Execution of B17 Bond with Custom Department
- Export-oriented units should commence commercial production within the initial validity period of Letter of Permission
Benefits of Export Oriented Units
A summary of the benefits that EOUs provide are as under:
- EOUs are allowed to procure raw material or capital good duty-free, either through import or through domestic sources;
- EOUs are eligible for reimbursement of GST, central sales tax paid on domestic purchases, duty paid on fuels procured from domestic oil companies; claiming an input tax credit on the goods and services and refund thereof;
- Exemption from industrial licensing for the manufacture of items reserved for the Small-Scale Industry.
- Supply of Information Technology Agreement -1 (ITA-I) items in the domestic market which would be counted for the fulfilment of Net Foreign Exchange.
- Supplies from the Domestic Tariff Area to EOUs treated as deemed exports.
- Reimbursement of duty paid on furnace oil procured from domestic oil companies to EOUs as per the rate of drawback notified by the Directorate General of Foreign Trade.
- 100% Foreign Direct Investment permissible.
- Facility to retain 100% foreign exchange proceeds in Exchange Earner’s Foreign Currency Account.
- Facility to realize and repatriate export proceeds within twelve months.
- Re-export of imported goods found defective; goods imported from foreign suppliers on loan basis etc.
- Exemption from the industrial licensing requirement for items reserved for the Small Scale Industry.
- Profits allowed to be repatriated freely without any dividend balancing requirement.
- Access to Domestic Market up to 50% of the Free on Board value of export on concessional rate of duty.
- Duty-free goods to be utilized in two years. Further extension granted on a liberal basis.
- Conversion of existing Domestic Tariff Area unit into an EOU permitted.
- Can Procure duty-free inputs for the supply of manufactured goods to advance license holders.
100% export-oriented units fall into 3 categories:
- The export-oriented units established anywhere in India and exporting 100% products except a certain fixed percentage of sales in the domestic tariff area as may be permissible under the policy.
- Units in free trade zones in special economic zones and exporting 100% of their products.
- The export-oriented units set up in software technology parks and electronic hardware technology parks of India for the development of software & electronic hardware.
Bonding Period of EOU
The EOUs are licensed to manufacture goods within the bonded period for export. 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. However, on a request of the EOU Unit, the period can also be extended for another five years by the Commissioner / Chief Commissioner of Customs.
Eligibility Criteria for EOU
For being accorded the status of EOU, the project must have a minimum investment of Rs.1 crore in plant and machinery. This condition does not apply for software technology parts, electronics hardware technology parks, and biotechnology parks. Further, EOU involved in handicrafts, agriculture, animal husbandry, information technology, services, brass hardware, and handmade jewellery does not have any minimum investment criteria.
All goods and services other than items that are restricted in Input Tax Credit (Harmonised system) can be imported or exported by EOUs for their authorized operations subject to the fulfilment of the provisions of the law applicable. EOU Scheme is one of the leading export promotion schemes in India. Export Oriented Units are provided with several incentives and concessions. These incentives and concessions motivated a large number of entrepreneurs to start EOUs.