EXPORT ORIENTED SCHEME

The EOU Scheme introduced in early 1981, is complementary to the SEZ scheme (erstwhile EPZ

scheme). It adopts the same production regime but offers a wider option in location with reference to

factors like source of raw materials, port of export, hinterland facilities, availability of technological

skills, existence of an industrial base, and the need for a large area of land for the project. 

Over the last decade, Export Oriented Units have evolved as a major player in the country's export effort.

They have grown consistently at double digit level, and recorded a growth of about 27.48% during the

year 2004-05

SALIENT FEATURES

No license required for import.

Exemption from Central Excise Duty in procurement of capital goods, raw-materials, consumables spares etc. from the domestic market.

Exemption from customs duty on import of capital goods, raw materials, consumables spares etc.

Reimbursement of Central Sales Tax (CST) paid on domestic purchases. 

Supplies from DTA 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 permisisible.

 Exchange earners foreign currency (EEFC) Account

Facility to retain 100% foreign exchange proceeds in EEFC Account.

Facility to realize and repatriate export proceeds within twelve months. 

Further extension in time period can be granted by RBI and their authorized dealers.

Re-export of imported goods found defective, goods imported from foreign suppliers on loan basis etc.

Exemption from industrial licensing requirement for items reserved for SSI sector.

Profits allowed to be repatriated freely without any dividend balancing requirement

Access to Domestic Market upto 50% of FOB value of export on concessional rate of duty.

Duty free goods to be utilized in two years. Further extension granted on liberal basis.

Job work on behalf of domestic exporters for direct export allowed.

Conversion of existing Domestic Tariff Area ( DTA) unit into an EOU permitted. 

Can Procure duty-free inputs for supply of manufactured goods to advance licence holders. 

Suppy of ITA-I items in the domestic market which would be counted for fulfillment of NFE.

EOUs in agriculture and horticulture engaged in contract farming may be permitted to take out duty free goods listed in Appendix 14-I to the fields of contact farmers for production.

How to set-up an Export Oriented Unit

“How to set-up an Export Oriented Unit (EOU)” is a step-by-step process.

The information is divided into 5 parts:

I. Eligibility criteria

Who is eligible to become an EOU?

An 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, re-making  and re-engineering also.

Trading activity is not allowed in the EOU Scheme.

EOU unit is required to achieve only positive Net Foreign Exchange (NFE) over a period of  5 years.

Policy for EOU is given in Chapter-6 Foreign Trade Policy and Chapter 6 of Handbook of Procedure (Vol. – I)

EOU can also be set up in the following sectors: -

Agriculture

Animal Husbandry

Aquaculture

Floriculture

Horticulture

Pisciculture

Viticulture

Poultry or

Sericulture

Conversion of existing DTA/EPCG (Export Promotion Capital Goods) units to EOU Scheme

Existing DTA units or EPCG units are permitted for conversion into EOU Scheme as one time option. In case

there is an outstanding export commitment under the EPCG Scheme, it will be sub summed in the export

performance (EP) of the unit. If the unit is having outstanding export commitment under the Advance

Licensing Scheme, it will discharge the same as well, as per its conditions before conversion into EOU

Scheme. However, duties of Customs and Central Excise already suffered shall not be refunded on conversion

into EOU.

II. Prior to approval

1) Planning your venture:

Is it your own or 

Is it with foreign participation and, if so, nature of participation (foreign investment allowed 100%)

2) What process do you intend to do i.e. Manufacturing, rendering and export of services or: -

Agriculture

Animal Husbandry

Aquaculture

Floriculture

Horticulture

Pisciculture

Viticulture

Poultry or

Sericulture

Repair, reconditioning, re-making, re-engineering etc.

3) Technology to be used:

Indigenous/ foreign

Related cost and conditions

4) Feasibility report:

On your own or with help of consultant

5) The finances involved:

Land, structure, buildings etc.(Please note, building construction material is not exempted from duty).

Capital Goods, machinery etc.

Payment for royalties etc.

Administration and establishment

Others : like interest on loans, related taxes and levies etc.

6) The current competition overseas:

Main competitors

Demand and price levels.

7) The import laws and other requirements in target markets:

Any fiscal/ non-fiscal barriers, like anti-dumping laws.

Quota restrictions.

Preferential treatment to competitor countries.

8) Location of the Unit:

The first thing before setting up an EOU the entrepreneur has to decide the location of  unit: -

i.   close to port or rail/ road.

ii.  availability of raw material and

iii. Environment clearance needed if unit is located  within 25 kms of an urban town

Accordingly the application will be submitted to the concerned Development Commissioner under whose

jurisdiction that state comes.

9) Capital goods, machinery and equipment to be used:

Indigenous or foreign (allowed duty free)

Related cost

10) The raw materials and other inputs, like consumables etc. that would be required:

Source (allowed duty free)

Cost

Monthly, quarterly and annual requirements.

11) The production process:

Whether production process requires air-conditioning plant, special furnaces or kilns etc.

Details and cost. (Please note, air-conditioning equipment  permitted duty free only if it is essential for

production process).

12) The production capacity and spare capacity:

Do you intend to utilize the same by doing sub-contracting work for other export units in DTA or Export

Oriented Units.

Whether you want to get job work done outside the EOU.

Details of sub-contractors.

Related costs.

13) Any by-products turned out in the production process:

Details of by-products

Whether these would be exported or sold in Domestic Tariff Area (DTA)

14) Effluents or waste-material:

How do you propose to treat these or discharge them.

15) Packaging

Details of packaging

Source

Cost

16) Power:

Whether the normal grid could supply adequate power.

Or there would be a need for a captive power plant.

Cost of power plant

Fuel required for captive power plant (e.g. furnace oil, LPG,  HSD, coal etc.) (allowed duty free)

17) Other information:

Firm/company should be duly registered and details about Proprietor/Partner/ Directors etc.

A current account with the bank authorized to deal in foreign exchange should be opened.

Sale tax registration to be obtained from the Sale Tax Department.

Investment details

18) Mandatory clearances from State Government: -

Pollution clearance certificate.

Approvals of building plan in cases where building is proposed to be constructed.

Registration as a small scale industrial unit, if applicable

Registration under Factories Act.

III. HOW TO APPLY

All applications are to be filed with the concerned Development Commissioner of Special Economic Zone

(For jurisdiction of Development Commissioner) Appendix 14-I- K

The unit/ promoter has to apply in the application form, to be given in triplicate given in Handbook of

Procedures in Appendix 14-1A 

Project Report including a write up on the background of the promoters establishing their credentials and

standing.

Please see Appendix 14-1B for documents required by the Development Commissioner for approval.

For sector specific conditions Please see Appendix 14-1C 

DD for Rs. 5,000/- drawn in favour of The Pay & Accounts Officer, Ministry of Commerce and Industry,

Department of Commerce, payable at the Central Bank of India, Udyog Bhavan, New Delhi.

Registration –cum-Membership Certificate (RCMC) should be obtained from the office of the concerned

Development Commissioner.

Import Export Code: If the  unit does not have an Import Export code (IEC), it will apply in the prescribed

form (Appendix 18-B)  to the Zone Administration for the same.

IV. APPROVAL PROCEDURE

Letter of Permission (LOP)

After submitting the application form and if every thing is in order, Letter of Permission (LOP) is issued by the

Zone Administration within 2 weeks after interview of the promoter by the Approval Committee.  For format

of LOP please see Appendix 14-IE Legal undertaking (LUT)

A legal undertaking in the prescribed form undertaking to abide by the terms and conditions of the LOP has to

be executed  by the unit in format given at Appendix 14-1F

A Green Card will be issued  to the unit by the Zone Administration on request.

Approval from State Government  Agencies:

V. AFTER APPROVAL

After the approval from the Development Commissioner concerned, the manufacturing and other activities

have to be undertaken under customs bond for which formal application is to be made to the jurisdictional

Assistant Commissioner/ Deputy Commissioner of the Customs/ Central Excise for issuance of a Private

Custom Bonded Warehouse Licence under section 58 and 65 of the Customs Act, 1962. The application shall

be accompanied by the following documents/information: -

Copy of notification whereunder the place (proposed location of unit)  has been declared as warehousing

station under section 9 of the Customs Act. In case the approved place is not a notified warehousing station, a

separate application for issuance of such notification is to be submitted to the Commissioner of Customs

through the jurisdictional Assistant Commissioner/ Deputy Commissioner.

Copy of LOI/LOP issued by Development Commissioner concerned and LUT accepted by the Development

Commissioner.

Details of the premises including ground plan, purchase/rent/lease deed, allotment letter from Industrial

Development Corporation/ Authority (if any)

Details about the constitution of the firm/company including its Proprietor/Partners/Directors etc.

Project Report indicating stage wise manufacturing process.

List of raw material, consumables and capital goods etc. required.

Undertaking that cost recovery and other charges shall be paid.

After verification of the premises and relevant documents, the requisite licence under section 58 and 65 of

the Customs Act will be issued by the Assistant Commissioner/ Deputy Commissioner Customs/ Central

Excise on priority basis.

B-17 Bond:

B-17 bond is a multi – purpose surety bond which the unit has to execute with the Jurisdictional Assistant/

Deputy Commissioner Customs/ Central Excise on a non-judicial stamp paper of Rs. 300/-. Format of the

Bond is prescribed under Notification No. 6/98 CE (N.T) dt. 2-3-98.

B-17 Bond is a surety bond and in case valid surety cannot be arranged security @5% of the bond amount has

to be furnished. The bond amount shall be equal to 25% of the duty foregone on the capital goods required in

the next 5 years plus duty foregone on the value of raw material for a period of 3 months.

B-17- Bond covers the following activities:-

Duty free import/ procurement of goods as per relevant notification and warehousing/storage in the unit and

their utilization.

Transhipment of import/ export of goods duty free between port of import/ export and units premises.

Movement of duty free goods for job work and return.

Temporary clearance for repair and display in exhibitions, testing/ approval etc.

However it dose not cover differential duty amount against advance DTA sale for which a separate bond is to

be executed.

The unit has also to take a Central Excise Manufacture Code No. from the Superintendent, Central Excise to

enable them to sell in the domestic market.

The Development Commissioner is empowered to grant approvals on the following matters: -

Import of additional capital goods 

Enhancement of production capacity

Broad-banding/diversification

Change in name/ constitutions

Change of location/expansion

Extension of validity of LOP/LOI/LOA:

Import of Office equipment:

Merger of two or more EOU/SEZ Units 

Import of spares and accessories of DG sets    

Eligibility certificates for grant of employment visa to low level foreign technicians to be engaged by EOUs as

per Ministry of Home Affairs Letter No. 250227/7/99-F-1 dated 20-9-1999 (Annexure-XI).

Sale of goods in DTA.

De-bonding/ Exit from EOU scheme.

Approval from State Government   Agencies:

The unit has to secure approval for its wiring and electrical plan from the Electrical authorities.

It has  also to secure power allocation and wiring approval from the State Electricity Board.

The unit has to take a registration under the State Government Sales Tax Act and Central Sales Tax Act.

In case the unit already has a registration with the State Sale Tax Department the address of the additional

premises should also be endorsed in the registration certificate.

The unit has also to take Small Scale Industry (SSI) Registration from the District Industries Center to apply

for State Government’s Investment Subsidy.

In case there are effluents or emissions the unit has to secure approval form the Pollution Control Board.

Every Zone has a statutory Single Window Clearance Board.

Approval Mechanism

All applications are to be filed with the Development Commissioner concerned. (for application format see

appendix 14-1A)

Development Commissioner is competent to clear/approve all cases within a period of 15 days, if the

application is otherwise in order.

A limited number of cases are referred by the Development Commissioner to the Board of Approvals in Deptt.

of Commerce for approval. (See Appendix 14-1B)

Manufacturing activities requiring compulsory industrial licensing and those reserved for the Public Sector.

(Refer to Manual on Industrial Policy & Procedures for list of these activities).

Service activities other than Software and IT enabled services.

Cases in which location of a project not covered by the locational restrictions as notified by Deptt. of Industrial

Promotion & Policy.

The Development Commissioner is also competent to approve all cases involving FDI (Foreign Direct

Investment) falling under the automatic route.

For cases not falling under the automatic route, the DC recommends the case to the FIPB (Foreign Investment

Promotion Board) in DEA.

On approval of a proposal, the Development Commissioner issues a Letter of Permission/Letter of Intent to the

unit concerned. (for details see Appendix 14-1E)

vThe Letter of Permission is valid for a period of three years within which the prospective investor is required

to execute the Legal Undertaking and common products (for details seeAppendix 14-1F)

The Investor is required to execute a bond with Custom and Excise Department.(Click here for bond 17)