How To Start Export Oriented Units
The technological growth of our country has led to a better industrial infrastructure. We have come a long way from breaking rocks with a hammer and are now using some really sophisticated machinery and plants for production of goods. New innovations are being brought in every day. This has made the government extremely optimistic regarding our productivity and technical knowhow. Thus, many schemes to promote exports have been brought forward. Programs such as EOU and SEZ has made the entire thing duty free and further liberalized the international trade environment. Such moves have made the export industry an attractive business opportunity for many people.
- Merchant Exporter: buying the goods from the market/manufacturer and selling to foreign buyers
- Manufacturer Exporter: manufacturing the goods for export
- Services Exporter: Hotels, Tourism, IT, Software, Health Care, Consultancy, etc.
- Project Exports: Contracts for Designing, manufacturing, supply, erection, commissioning, etc
- Deemed Exports: Global Tenders, Duty-free Licenses
- Buying Agent/Sales Agent/Commission Agent/Indenting Agent
What is Export Oriented Unit (EOU) Scheme?
It was introduced in the early 1980s. It still remains in the foremost of India’s export production schemes. The main objectives of this scheme are:
- To promote exports further
- Bring more foreign exchange to our country
- To generate further employment for our country
The scheme has greatly evolved over the last two decades. But the basic idea remains the same. According to this, exporters are given a wide range of support facilities to make the process of export smoother and more profitable for them. It is a very dynamic policy initiative and has increased our exports considerably. It has made many citizens want to become exporters themselves, as all the complications and difficulties from this field have been removed.
These are the basic constituents of EOU:
- 100 percent of the products can be exported, as per law. Of course, a certain percentage remains for sale in the domestic area.
- Free trade zones have been formed, where all the products are permitted to be exported.
- Software and electronic hardware are being developed considerably and EOU has been set up in our software technology parks as well as the electronic hardware technology parks.
Major Sectors that fall under EOU and bear the fruit of new liberalized regulations are:
- The Granite industry
- Textiles and Garments sector
- Food Processing industry
- Chemical industry
- Computer Software industry
- Coffee production
- Pharmaceuticals sector
- Gem & Jewelry industry
- Engineering Goods industry
- Electrical & Electronics industry
- Aqua & Pearl Culture industry
In spite of having given so much relief by the government, there are certain things that any exported will have to do, in order to give his or her business a set of wings. First of all, you don’t get EOU automatically. You need to obtain a special license. Fortunately, EOU is not centralized and can be set up anywhere and everywhere in India. An EOU may be indulging in the production and manufacturing of software’s, the floriculture and horticulture industry, the agriculture, animal husbandry, aquaculture, poultry farming, pisciculture, sericulture or any other activities falling in the same line. Setting up EOU can be quite a task as it cannot be done privately. Government has some really strict rules and regulations regarding it. It can only be done in the local zonal offices or the offices of state of state government.
Benefits of Export Oriented Units
The following are the benefits enjoyed by Export Oriented Units:
- 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 Central Sales Tax (CST);
- EOUs are eligible for reimbursement of duty paid on fuels procured from domestic oil companies;
- EOUs are eligible for CENVAT credit on the goods and services and refund thereof;
- Fast track clearance facilities;
- Exemption from industrial licensing for manufacture of items reserved for SSI sector.
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 bio-technology parks. Further, EOU involved in handicrafts, agriculture, animal husbandry, information technology, services, brass hardware and handmade jewellery do not have any minimum investment criteria.
Obtaining EOU Status
To obtain EOU status, application for setting up of unit under EOU scheme must be made to the Board of Approval. If approved, a validity of Letter of Permission for setting up EOU is provided. The Letter of Permission will have a initial validity of 2 years to enable the unit to construct the plant and install the machinery. Further extension can be obtained for a period of upto one year. On starting operation, in a period of 5 years, the EOU will have to achieve positive net foreign exchange earning cumulatively.
- Export Oriented Units (EOUS), Electronics Hardware Technology Parks (EHTPS), Software Technology Parks (STPS) And Bio-Technology Parks (BTPS)
- Units undertaking to export their entire production of goods and services (except permissible sales in DTA), may be set up under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering and rendering of services. Trading units are not covered under these schemes.
- An EOU/EHTP/STP/BTP unit may export all kinds of goods and services except items that are prohibited in the ITC (HS). Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) shall be subject to fulfillment of the conditions indicated in the ITC (HS).
- An EOU/EHTP/STP/BTP unit may import and/or procure from DTA or bonded warehouses in DTA / international exhibition held in India without payment of duty all types of goods, including capital goods, required for its activities, provided they are not prohibited items of import in the ITC (HS). Any permission required for import under any other law shall be applicable. The units shall also be permitted to import goods including capital goods required for the approved activity, free of cost or on loan/lease from clients. The import of capital goods will be on a self certification basis.
- State Trading regime shall not apply to EOU manufacturing units.
- EOU/EHTP/STP/BTP units may import/procure from DTA without payment of duty certain specified goods for creating a central facility which will be used by software units. These software units can be EOU/ DTA units who will use the facility for export of software.
- An EOU engaged in agriculture, animal husbandry, aquaculture, floriculture, horticulture, pisciculture, viticulture, poultry or sericulture may be permitted to remove specified goods in connection with its activities for use outside the bonded area.
- Gems and jewellery EOUs may source gold/silver/platinum through the nominated agencies also. Units obtaining gold/silver/platinum from the nominated agencies shall export gold/silver/platinum jewellery within 90 days from the date of release. This shall not, however, apply to outright purchase of precious metal from the nominated agencies.
- EOU/EHTP/STP/BTP units, other than service units, may export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer subject to RBI clearance, if any.
- Procurement and supply of spares and consumables required for the goods manufactured by the units may be allowed to be exported along with goods upto 1.5% of FOB value of exports. This shall, however, not count towards NFE calculation, for concessional rate DTA sales or for Income Tax exemption.
Choosing the 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.