TMI BlogExport Oriented UnitsX X X X Extracts X X X X X X X X Extracts X X X X ..... Hence the scheme is for EOU/STP/EHTP/BTP and is referred in common parlance as EOU scheme. 1.3 Over the years, the EOU Scheme has undergone various changes and its scope has also expanded substantially as compared to the initial Scheme, which was basically for manufacturing sector with certain minimum value addition in terms of export earnings. Presently, the units undertaking to export their entire production of goods are allowed to be set up as an EOU. These units may be engaged in the manufacture, services, development of software, repair, remaking, reconditioning, re- engineering including making of gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing, aquaculture, animal husbandry, bio- technology, floriculture, horticulture, pisiculture, viticulture, poultry, sericulture and granites. The EOUs can export all products/ services except prohibited items of exports in ITC (HS). 1.4 Some benefits that are extended to the EOUs to impart to them a competitive edge to compete in export market are, as follows: (i) EOUs are allowed to procure raw materials/ capital goods duty free, either through import or through domestic sources; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of legal undertaking, a Green Card is issued to the unit. 3.4 On approval for setting up an EOU by Unit Approval Committee, a Letter of Permission (LOP/LOI) is issued by the jurisdictional Development Commissioner. It mentions inter-alia the capacity and items of manufacture and export, capital goods permitted to be imported/ procured. Thereafter, the unit has to execute a legal undertaking with the Development Commissioner. The LOP/ LOI issued is construed as a license for all purposes. After obtaining the LOP and execution of legal undertaking, the unit is required to apply for a license for Private Bonded Warehouse and In-bond manufacturing sanction order under provisions of Section 58 and 65 of the Customs Act, 1962 respectively from the jurisdictional Assistant/Deputy Commissioner of Central Excise and Customs. 4. Import/ procurement and warehousing: 4.1 Under the EOU scheme, the units are allowed to import or procure from DTA or bonded warehouses in DTA/ International exhibitions in India, without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any item in addition to those given in SION are required as input or where generation of waste, scrap and remnants is beyond 2% of the input quantity, consumption is allowed on the basis of self-declared norms for a period of three months till the jurisdictional Development Commissioner fixes ad hoc norms subject to an undertaking by the unit that the self-declared/ ad hoc norms shall be adjusted in accordance with norms as finally fixed by the Norms Committee in DGFT for the unit. Further, a provision has also been made to consider such cases by the Board of Approval for appropriate decision in case of difficulty in fixation of SION by the Norms Committee. The norms fixed by the Norms Committee shall be applicable to the specific unit. [Refer Circular No. 12/2008-Cus dated 24-7-2008] 5. Monitoring and administrative control: 5.1 The EOUs basically function under the administrative control of the Development Commissioner of the Special Economic Zones, whose jurisdiction has been notified by the Ministry of Commerce. In all, there are seven Development Commissioners at Mumbai, Gandhidham, Chennai, Cochin, Visakhapatnam, Noida and Kolkata, who supervise the functionin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a Customs bonded warehouse under the warehousing provisions of the Customs Act. The manufacturing and other operations are carried out under customs bond and the unit bears appropriate charges for officers on cost recovery basis. In case of units in Aquaculture, Horticulture, Floriculture, Granite quarrying etc exemption from bonding is given for administrative reasons with certain other safeguards being put in place to check that duty free benefits where availed are not abused. The EOUs are required to execute a multipurpose bond with surety/ security with jurisdictional Central Excise and Customs officers. [Refer Circular No. 15/95-Cus., dated 23-2-1995] 7. Items allowed duty free imports/procurement: 7.1 Under the EOU scheme, the units are allowed to import or procure locally without payment of duty, all types of goods including capital goods, raw materials, components, packing material, consumables, spares and various other specified categories of equipments like material handling equipments, UPSs, quality assurance equipments, captive power plants, central air conditioning equipments, security systems, pollution control equipments, modular furniture and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital goods, procured/ imported by the EOU shall be co-terminus with the validity of LoP (Letter of Permission) [Notification No. 34/2015-Customs dated 25.5.15 and 30/2015-CE dated 25.5.15] 9. Manufacture in bond: 9.1 EOUs are private bonded warehouse under provisions of Section 58 of the Customs Act, 1962. To undertake manufacturing or other operations in the warehouse in relation to warehoused goods, the required permission is granted under Section 65 of the Customs Act, 1962, read with Manufacture and Other Operations in Warehouse Regulations, 1966 . The degree of supervision of the Departmental officers on movement of raw materials, components, finished goods and manufacturing process and accounting in an EOU is aimed at providing operational flexibility, easing restrictions and removing practical difficulties faced by EOUs. Accordingly, the manufacture is now allowed without any physical supervision of the Central Excise and Customs authorities, locking of the warehouse premises, control over the issue and return of imported goods. Further, all movements from and to the units like clearance of raw materials/ components to the job worker's premises, retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any other mode of security recognized by the Government is required to be given by the EOUs. In the case of surety, a letter from the person standing surety duly certified by a Chartered Accountant for solvency is also required to be submitted. 10.3 Units which have achieved positive NFE and are in existence for the last three years with unblemished track record having export turnover of ₹ 5 Crores or above and have not been issued a show cause notice or a confirmed demand, during the preceding 3 years are exempted from furnishing Bank Guarantee etc. or Surety along with B-17 bond. However, this facility will not be available to the Units where Show Cause Notices have been issued or cases booked on grounds other than procedural violations, under the penal provision of the Customs Act, the Central Excise Act, the Foreign Trade (Development Regulation) Act, the Foreign Exchange Management Act, the Finance Act, 1994 covering Service Tax or any allied Acts or the rules made thereunder, on account of fraud / collusion / willful mis-statement/ suppression of facts or contravention of any of the provisions thereof. [Refer Circulars No. 14/98-Cus, dated 10-3-1998, No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. If the seal is found intact, the container is allowed clearance. The imported cargo so cleared and brought into the unit's premises are examined by the jurisdictional Central Excise and Customs officials. After examination (percentage check only), the goods are allowed to be used for export production. Re-warehousing certificate is to be submitted to the Assistant/Deputy Commissioner in charge of the port of import within 90 days of the issue of procurement certificate. 12.2 On the export side, the units having status of a Super Star Trading House, Star Trading House, Trading House, and Export House are allowed the facility of self-sealing of their export containers. [Refer Circulars No. 63/97-Cus, dated 21-11-1997, No.14/98-Cus, dated 10-3-1998 and No.90/98-Cus, dated 8-12-1998] 13. Goods imported / exported and found defective: 13.1 Subject to grant of GR waiver by the RBI, the EOUs are allowed to make free replacement of the goods exported by them earlier and found defective, damaged or otherwise unfit by the overseas buyer. However, such defective, damaged or otherwise unfit for use goods are required to be brought back subsequently, to the country. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufactured by EOU, which are similar to the goods exported or likely to be exported from the EOU, are allowed to be sold in Domestic Tariff Area (DTA) at concessional rate of duty upon fulfillment of certain conditions in terms of Para 6.8(a) of the FTP read with Para 6.14 and Appendix 14-I-H of the HBP. 15.2 'Similar goods' has been defined as goods which are identical in all respects including goods which although not alike in all respect, have like characteristics and like components, materials which enable them to perform the same function and are commercially interchangeable with the goods exported or expected to be exported. 15.3 The EOUs (other than gems jewellery units) are allowed to sell goods (including rejects, scrap, waste, remnants and by-products) in DTA up to 50% of FOB value of exports on payment of concessional duty if they are NFE positive. However, units which are manufacturing and exporting more than one product, can sell any of these products into DTA, upto 90% of FOB value of export of the specific products within the overall DTA entitlement of 50%. Gems and Jewellery units may sell up to 10% of FOB value of export of preceding year subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aggregate of the Customs duties which would be leviable under the Customs Act, 1962 or under any other law for the time being in force, on like goods produced or manufactured outside India, if imported into India. The value for payment of duty is arrived at in accordance with the provisions of the Customs Act, as if these are imported goods. An amount equal to anti dumping duty foregone on the goods at the time of import shall also be paid on the equivalent quantity of goods used for manufacture of any goods which are cleared into DTA or on such quantity of goods which are cleared as such into DTA. 17.2 On fulfillment of positive NFE, the EOUs other than Gem and Jewellery units are allowed to sell goods including rejects, waste, scrap, remnants, byproducts and services in DTA, its products similar to goods which are exported or expected to be exported from units, within overall ceiling of 50% of FOB value of exports at a concessional rate of duty in an amount equal to 50% of Customs duties. Sales beyond 50% of entitlement would attract full duties. Sale of rejects upto 5% of FOB value of exports and sale of Scrap/ waste/ remnants shall not be subject to achievement of NFE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n DTA by an EOU are prescribed under Notification No. 23/2003-CE, dated 31-3-2003. 18. Goods manufactured from indigenous materials in EOUs: 18.1 Goods manufactured out of wholly indigenous inputs are allowed clearance into DTA on payment of only Central Excise duty. Earlier, goods supplied from DTA to EOU on which deemed export benefits had been availed were also considered as indigenous goods for extending the benefit of Notification No.23/2003-CE, dated 31-3-2003 for payment of Central Excise duty, but w.e.f. 6-7-2007 the exemption is denied where goods are manufactured out of indigenous goods on which deemed exports benefits have been availed. [Refer Circular No. 12/2008-Cus., dated 24-7-2008] 18.2 Where goods are either non-excisable or are leviable to nil rate of import duty, no exemption in respect of inputs utilized for manufacture of such goods is allowed. An EOU is required to pay back the duty foregone on the inputs used in manufacture of goods cleared in DTA on which no duty is leviable. 19. Clearance of by-products, rejects, waste, scrap, remnants, non-excisable goods, etc.: 19.1 Scrap/ waste/ remnants arising out of production process or in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification No. 23/2003-CE, dated 31-3-2003. 20. Special concessions for certain waste products and other goods: 20.1 Rags, trimmings and tailor cuttings arising in the course of manufacture of readymade garments are fully exempt from excise duty when cleared into DTA by EOUs. This is subject to the condition that the percentage of waste material in the form of rags, trimmings and tailor cuttings does not exceed the percentage fixed in this regard by the Board of Approval. The waste of fish or crustaceans, mollusks or other aquatic invertebrates falling in chapter heading 05.01, castor oil cake manufactured from the indigenous castor oil seeds on indigenous plant and machinery falling under chapter heading 23.01, guar meal manufactured wholly from indigenous guar seeds falling under chapter heading 23.02 and yarn of jute and goods of jute, manufactured from wholly indigenous raw materials headings 53.07, 53.10, 5702.12, 5703.20, 58.01, 58.02, 58.06 or 6305.10 are fully exempt from payment of duty if manufactured by EOUs wholly from indigenous materials and cleared into DTA. Also, cotton waste (including yarn falling under heading 52.02) is fully exempted if produced or manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 22.2 EOUs are allowed to send samples abroad through the courier. The packages containing such samples are sealed in the presence of the departmental officer and are handed over to the representative of the courier company authorised by the Commissioner of Central Excise Customs for presentation to the Customs at the port of export. These sealed samples are not normally examined again before let export is given if the seals are found intact and not tampered. The representative of the courier company later hands over the proof of export to the jurisdictional Assistant/ Deputy Commissioner. [Refer Circulars No.22/98-Cus dated 27-3-1998; and No.52/99-Cus, dated 20-8-1999] 23. Clearance of Fax/ Laptop Computers outside approved premises: 23.1 EOUs may: (i) Install one fax machine at a place of choice, outside the premises of unit, subject to intimation of its location to concerned Customs Central Excise authorities. (ii) Temporarily take out of premises of unit, duty free laptop computers and video projection systems for working upon by authorized employees. (iii) Install personal computers not exceeding two in number, imported/ procured duty free in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts etc. In such cases, the units are allowed to sell such flowers and floriculture products in DTA on payment of applicable duty. For such DTA sales, the unit must have DTA sale entitlement under the scheme. The unit is required to obtain permission from the concerned Development Commissioner for such DTA sale and shall clear the goods on payment of duty assessed by the concerned Assistant Commissioner / Deputy Commissioner in charge of the cargo. The DTA sale is allowed against documents as are used for DTA sale by EOUs in the manner as if the goods cleared from the unit itself. [Refer Circular No.31/2001-Cus., dated 24-5-2001] 26. Sub-contracting: 26.1 EOUs, including Gems and Jewellery units, are allowed to sub-contract their production process to DTA. These units may also sub-contract upto 50% of the overall production of previous year in value terms for job work in DTA. For this, permission is to be obtained from the Central Excise authorities. Sub-contracting of both production and production process are also allowed to be undertaken through another EOU or SEZ unit on the basis of records maintained by the unit. The units are also allowed to sub-contract part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o allowed from one EOU to another EOU/SEZ unit in terms of Para 6.15 of FTP. Inter-unit transfer of the raw material is not allowed in normal course. However, where a unit proves that it is not able to utilize the raw material, same can also be allowed to be transferred. 28.2 Inter-unit transfer is allowed without payment of duty. Goods supplied by one unit to another unit are treated as imported goods for the receiving unit in terms of Para 6.13(c) of the FTP and therefore, the usual procedure of bonding and re- warehousing is to be followed. Further the value of goods obtained from another EOU is to be included in the import value for fulfillment of NFE in terms of Para 6.10.2 of the HBP. Further, such supplies are also counted towards FE earning provided these are permissible in terms of Para 6.15 of the HBP. 28.3 Capital goods and goods manufactured, produced, processed, or packaged in an EOU can be taken to another EOU/ SEZ unit without payment of duty under the cover of ARE-3 for manufacture and export there from or for use within the unit after giving intimation to the proper officer. Both the units have to keep account of such removal and receipt and are required to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving country and obtain necessary endorsement; (iv) Export of jewellery including branded jewellery for display and sale in the permitted shops setup abroad, or in the showroom of their distributors or agents provided that items not sold abroad within 180 days, shall be re- imported within next 45 days; (v) Gems and jewellery manufactured in the EOUs situated in the municipal limits of Calcutta, Chennai, Delhi and Mumbai and sold to a foreign-bound passenger are allowed to be transferred to the retail outlets or showrooms set up in the departure lounge or Customs warehouse at international airports for being handed over to the said passenger for the purpose of export. (vi) Removal of moulds, tools, patterns, and drawings into the DTA for jobwork without payment of duty and to be returned to the unit thereafter. 32. Cost Recovery charges: 32.1 Cost recovery charges are the amount recoverable from the EOU on account of the expenses incurred by the Government for the posting of Central Excise Customs staff at its premises to supervise their operations. The cost of posts created for EOUs has been determined at an amount equivalent to the actual salary and emoluments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunity to the Government to discuss and help resolve the problems/ difficulties being faced by the EOUs. The idea is to remove all bottlenecks in export promotion efforts while not jeopardizing the interests of revenue. 35. Recovery of duty forgone and penal action for abuse/diversion etc.: 35.1 EOUs are required to achieve positive NFE as stipulated in the FTP and in case of failure to do so, the duty forgone under the EOU scheme along with interest is recoverable from the units. Further, the duty is recoverable from the units in case of non receipt of imported/ indigenously procured goods in the factory premises after import/ procurement, loss of goods in transit, non accountal of imported/ indigenously procured goods, unauthorized DTA sale, clandestine removal etc. Duty can also be demanded in case of failure to utilize duty free imported/ indigenously procured goods including capital goods within the prescribed time limit. The duty is also recoverable on goods removed for job work/ display/ testing/ quality testing, but not received back in the unit within the specified period of time. 35.2 Apart from recovery of duty forgone, the law also provides for taking penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular No. 12/2008-Cus., dated 24-7-2008] 36.6 The depreciation of computers and capital goods shall be allowed in straight line method as specified below: (i) For computer and computer peripherals: For every quarter in the first year @ 10% For every quarter in the second year @ 8% For every quarter in the third year @ 5% For every quarter in the fourth and fifth year @ 1% (ii) For capital goods other than computer and computer peripherals: For every quarter in the first year @ 4% For every quarter in the second year @ 3% For every quarter in the third year @ 3% For every quarter in the fourth and fifth year @ 2.5 % and thereafter for every quarter @ 2% 36.7 For the purpose of computing rate of depreciation for any part of a quarter, a full such quarter is taken into account. There is no upper limit for such depreciation and depreciation upto 100% could be allowed. 36.8 Raw materials, semi-finished and finished goods including empty cones, containers suitable of repeated use lying in stock at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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