Setting up of Export Oriented Units (EOUs)

EXPORT ORIENTED UNITS
INTRODUCTION
The Export Oriented Units (EOUs) scheme, introduced in early 1981, is complementary to the SEZ scheme. It adopts the same production regime but offers a wide option in locations with reference to factors like:-
1. Source of raw materials,
2. Ports of export, hinterland facilities,
3. Availability of technological skills,
4. Existence of an industrial base and
5. The need for a larger area of land for the project.
ELIGIBILITY
Units undertaking to export their entire production of goods and services, *except permissible sales in the DTA, as per this Policy, may be set up under the Export Oriented Unit (EOU) Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP) Scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering, and rendering of services.  No trading units shall, however, be permitted.
INCENTIVES AVAILABLE TO EXPORT ORIENTED UNITS
Various incentives/facilities available to EOUs, in brief, are as under:-
(i) Duty free imports or procurement from Bonded Warehouse /International Exhibitions of inputs, consumables, office or other capital goods (including second-hand Capital goods) etc.
(ii) Procurement of goods from Domestic Tariff Area without payment of Central Excise duty.
(iii) Supplies by DTA manufacturer are eligible for deemed export benefits under Chapter 8 of FTP, which include drawback, refund of Terminal Excise Duty and Issuance of Advance Authorisation enabling duty free import to the DTA supplier.
(iv) Full reimbursement of Central Sales Tax on goods purchased from DTA against C-Form for manufacture of goods for export.
(v) Export Income exempted from payment of Income Tax (upto 31.3.11).
(vi) DTA Sale (including advance DTA sale) upto 50% of F.O.B value of exports (i.e. Physical Exports) permitted on payment of Concessional rate of Central Excise duty.
(vii) Only positive net foreign exchange earnings (NFE) to be achieved over a period of five years.
(viii) Duty free goods (except Capital Goods) to be utilized over a period of 3 years.
(ix) Export proceeds to be realized within a period of 12 months. Retention allowed upto 100% of export earnings in EEFC Account.
(x) Supplies made in DTA under Paragraph 6.9 of FTP & Supplies to other exporting units/Bonded Warehouse are counted for the purpose of fulfillment of positive NFE.
(xi) Goods allowed to be supplied duty free in DTA against Advance Authorization/ DFIA issued by DGFT.
(xii) Job-work/sub-contracting for or from DTA permitted subject to fulfillment of certain conditions.
(xiii) Import/export of goods including precious goods permitted through personal carriage & Foreign Post Office.
(xiv) FDI upto 100% permitted as per the guidelines of Department of Industrial Policy and Promotion.
(xv) Exemption from Industrial Licensing for manufacture of items reserved for SSI sector.
(xvi) Software Units allowed touse computer systems for training purposes (including commercial training).
(xvii) EOUs allowed to install one fax machine and two computers outside the bonded area of the unit.
(xvii) Depreciation upto 100% permissible on capital goods. On debonding, the duty to be paid on the depreciated value of the capital goods.
LOCATION FOR EOU
EOUs can be set up anywhere in the country and may be engaged in the manufacture and production of software, floriculture, horticulture, agriculture, aquaculture, animal husbandry, pisciculture, poultry and sericulture or other similar activities.
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. Non-polluting EOUs such as electronics, computer software and printing are exempt from such restriction while choosing the area.
Apart from local zonal office and state government, setting up of an EOU is also strictly guided by the environmental rules and regulations. Therefore, an even if the EOU unit has fulfilled all locational policy but not suitable from environmental point of view then the Ministry of Environment, Government of India has right to cancel the proposal. In such situation industrialist would be required to abide by that decision.
UNIT APPROVAL COMMITTEE (UAC)
For setting up a unit under EOU Scheme, approvals are given by the Unit Approval Committee, which is headed by the jurisdictional Development Commissioner and consists of SEZ officers, officers of the State Govt., and officer of jurisdictional Central Excise Commissionerate as members.
Powers of the Unit Approval Committee, in brief, are as under:-
1. To consider application for setting up an EOU under the automatic route.
2. To consider and permit conversion of EOU to SEZ unit.
3. To monitor the performance of EOUs.
4. To grant all approvals and clearances relating to the establishment, changes in
5. constitution or activity, operation of EOU and take action for violations, if any.
6. To perform any other function as may be delegated by the Central Govt./State or its agencies.
APPLICATION /APPROVAL
For setting up an EOU, the procedure is as follows:
1. For setting up an EOU application shall be file in ANF 6A (Applications should be in triplicate) to the Development Commissioner Officer.
2. Application shall be file alongwith a crossed Demand Draft of Rs. 5000/- drawn in favor of the pay & accounts, officers, Ministry of Commerce & Industry, Department of Commerce, payable at the Central Bank of India, Udhyog Bhawan, New Delhi.
3. Application for setting up of EOU shall be approved or rejected by Units Approval Committee within 15 days, as per the criteria specified in appendix 6A
4. Minimum investment in Plant & Machinery and Building should be as prescribed [This does not apply to already existing units and units present in Handicrafts/ STP/EHTP/Floriculture/ Agriculture/Animal Husbandry/Aquaculture/ Information Technology/ services and other similar sectors as determined by BOA]
MINIMUM INVESTMENT CRITERION
Only projects with investment of Rs.1 crore and above  in plant & machinery are considered. All goods and services except items that are prohibited in ITC (HS) are allowed to be imported or exported by the EOUs for their authorized operations subject to the condition that the provisions of any law in force would be applicable in such cases as well.
Applications for setting up units under EOU scheme other than proposals for setting up of unit in service sector (except R&D, software and IT enabled services, or any other service activity as may be delegated by Board of Approval), shall be approved or rejected by Units Approval Committee within 15 days, as per criteria indicated in Appendix 6A and sector specific conditions relating to approval as in Appendix 6B. In other cases, approval may be granted by DC after clearance by BoA.
APPENDIX 6A
Appendix 6A, specify the criteria to be adopted by development commissioner for automatic approval of units under EOU scheme, which are as follows:-
APPROVAL OF NEW UNITS:
Proposals for setting up units under EOU scheme under automatic route shall be considered by the Unit Approval Committee taking into account the following: –
(i) Residence proof in respect of individual/partnership firms of all Directors/Partners. (Passport/ration card/driving licence/voter identity card or any other proof to the satisfaction of Development Commissioner);
(ii) Income Tax return of all the promoters for the last three years;
(iii) Experience of the promoters;
(iv) Marketing tie-ups;
(v) In case of EOUs, inspection of the project site by an Officer;
(vi) A report from other DCs as to whether any case under EOU Scheme in regard to diversion of goods etc. is pending.
Wherever necessary, the above may be verified through Personal Interview with the promoters of the project. In the event of the promoters being a well-established entity, the procedure of personal interview may be dispensed with.
The Unit Approval Committee shall meet on Monday, every week. In case of the absence of Development Commissioner, the meeting will be held by the next senior officer in the Zone. The unit shall intimate the problems being faced by them in advance. In the meetings, apart from the promoters, the other concerned agency with which difficulties are being faced by the unit, may also be called.
Recycling of ferrous and non-ferrous metal proposals will be considered only if the unit has Ingots making facility and proposes to achieve value addition.
APPENDIX-6B
SECTOR SPECIFIC REQUIREMENTS FOR EOUs
1. COFFEE: Export of imported coffee shall be subject to approval from Coffee Board under relevant Act.
2. HIGH GRADE IRON ORE: Proposals for export of High-Grade Iron Ore i.e. 64% Fe and above, except iron ore of Goa origin and Redi origin are presently canalized through MMTC and its exports would be subject to approval of the BOA.
3. POLYESTER YARN: None of the units making polyester yarn – existing or new – shall be permitted to do exports through third party and they have to export directly.
4. TEXTILES: Activities pertaining to reprocessing of garments/ used clothing /secondary textiles materials / clipping/ rags/ industrial wipers/shoddy wool/ yarn/ blankets/ shawls and other recyclable textile materials will not be allowed under EOU schemes. Provided that extension of Letter of Permission for an existing unit shall be decided by the Board.
5. TEA: In case of Tea, a minimum value addition of 50% shall have to be fulfilled.
6. SEGREGATION ACTIVITIES: Segregation activities are not covered under the definition of “manufacture” w.e.f. 1.4.2002. This activity will, however, be allowed to continue in respect of units set up prior to 1.4.2002 for a period of five years from the date of commencement of commercial production. The necessary inputs would also be allowed with exemption benefits as per the existing policy. However, the facility of DTA sale under para 6.08 or 6.09 of FTP shall not be allowed.
7. SPICES (COVERED BY CHAPTER 9 OF THE ITC (HS) CLASSIFICATIONS OF EXPORT & IMPORT ITEMS:
i. Import of spices for export shall be permitted with or without payment of duties and/or taxes and compensation cess as provided under para 6.01(d) (ii) and (iii) of FTP 2015-20 only for value addition purposes like crushing/ grounding/ sterilization or for manufacture of oils and oleoresins and not for simple cleaning, grading, repacking, etc.
ii. A minimum value addition of 15% shall have to be fulfilled
 LETTER OF PERMISSION (LOP) / LETTER OF INTENT (LOI)
(a) On approval, a Letter of Permission (LoP) / Letter of Intent (LoI) shall be issued by DC / designated officer to EOU/ EHTP / STP / BTP unit. LoP /LoI shall have an initial validity of 2 years to enable the Unit to construct the plant & install the machinery and by this time the unit should have commenced production. In case the unit is not able to commence production in initial validity of 2 years, an extension of one year may be given by the DC for valid reasons to be recorded in writing. Subsequent extension of one year may be given by the Unit Approval Committee subject to condition that two thirds of activities including construction, relating to the setting up of the Unit are complete and Chartered Engineer‟s certificate to this effect is submitted by the Unit. Further extension, if necessary, will be granted by the Board of Approval. Once unit commences production, LoP / LoI issued shall be valid for a period of 5 years for its activities. This period may be extended further by DC for a period of 5 years at a time.
(b) Proposals for setting up EOU requiring industrial licence may be granted approval by DC after clearance of proposal by BOA (as per Appendix 6 C of Appendices & ANFs) and Department of Industrial Policy and Promotion within 45 days on merits.
(c) LoP /LoI shall specify item(s) of manufacture / service activity, annual capacity, projected annual export for first five  years  in  dollar  terms, Net Foreign Exchange (NFE) earnings,  limitations, if  any,  regarding sale of finished goods, by-products and rejects in DTA and such other matter as may be necessary and also impose such conditions as may be required.
(d) LoP /LoI issued to EOU / EHTP /STP /BTP units by concerned authority would be construed as an authorization for all purposes. Standard format for LoP for EOU is given in Appendix 6 D of Appendices & ANFs.
(e) EOUs shall have separate earmarked premises for separate LoP. Similarly, EOUs may be approved on leased premises provided lease has been obtained from Government Department / Undertaking / Agency. However, in case lease is obtained from private parties, it shall have a validity period of five years from date of LUT and DC shall satisfy himself of genuine nature of lease.
 (f) On completion of approval period as provided for in Paragraph 6.05 of FTP, it shall be open to unit to continue under scheme or opt out of scheme. Where unit opts to continue, DC will extend approval period. If no intimation in this regard is received from unit within a period of six months of expiry of approval period, DC will take action, suo motu, to cancel approval under EOU scheme and take further action in this regard. Where units give their option to continue after expiry of six months as stipulated above, DC will grant extension after obtaining approval of BOA.
LEGAL UNDERTAKING (LUT)
(a) Approved EOU / EHTP / STP / BTP unit shall execute an LUT with DC/ Designated Officer concerned as in Appendix 6 E of Appendices & ANFs.
(b) All EOU / EHTP / STP / BTP units should have permanent e-mail address. No LUT for new units shall be executed unless unit has its permanent e-mail address and digital signature on said e-mail ID. In event of an EOU not having permanent e-mail address and digital signature, further imports and DTA sale shall not be permitted by DC.
APPENDIX-6F
GUIDELINES FOR MONITORING THE PERFORMANCE OF EOU/STP/EHTP UNITS
1. The annual review of performance of each operational unit and its compliance with the conditions of approval shall be undertaken by the Development Commissioner before the end of the first quarter of the following financial year;
2. A summary of annual performance review will be sent by each Development Commissioner to the Ministry of Commerce for information under the three formats indicated below latest by 30th September every year;
Proforma I: Comparative statement of performance and monitoring as compared to previous year;
Proforma II: Summary of annual performance of the EOU units, sector – wise with sectoral sub – totals.
Proforma III: Unit-wise statement on NFE showing the result of review.