Export Oriented Units Scheme

Updated on: Mar 16th, 2022 - 10:09:03 AM

5 min read

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The Export Oriented Unit (EOU) Scheme started in 1981 to promote exports and thus increase net foreign exchange earnings. This article highlights the rules and regulations applicable to EOUs and entering and exiting the scheme.

What is the EOU or export-oriented units scheme?

EOUs are those units that undertake to export their entire goods and services. Any entity engaged in the below-mentioned activities can obtain the status of EOU:

  • Manufacturing, 
  • Providing service,
  • Software development, 
  • Repair, reconditioning and re-engineering of jewellery and articles, 
  • Units engaged in agriculture, animal husbandry, poultry, biotechnology, floriculture, horticulture, 
  • Other similar activities 

However, trading units are not covered under the EOU scheme.

Customs Rules for EOU

As per Notification No. 52/2003- Customs dated 31.03.2003, 100% EOUs are exempted from payment of Basic Customs Duty as per the First Schedule of the Customs Tariff Act, 1975, as well as Additional Customs Duty as per Section 3. But, this notification was later substituted by Notification No. 59/2017- Customs dated 30.06.2017. As per this notification, the exemption on payment of Basic Customs Duty will not apply to inputs used to manufacture finished goods sold to DTA by payment of GST. But, the exemption will continue to apply for additional duty, if any, payable under Section 3 of the Customs Tariff Act.

Special facilities for EOU

An EOU enjoys the below benefits:

  • An EOU can purchase raw material or capital goods duty-free either through imports or domestic sources.
  • It is also eligible for domestic reimbursement of GST on raw materials or capital goods.
  • It can claim reimbursement of duty paid on fuels obtained from domestic oil companies.
  • It is eligible to claim Input Tax Credit (ITC) on goods and services used to manufacture goods used for export.
  • It can avail exemption from industrial licensing for items reserved for Small Scale Industries. 

FTP rules and regulations for EOU

EOUs are defined under Foreign Trade Policy (FTP). As per FTP, projects with a minimum investment of Rs. 1 crore in plant and machinery can be considered to establish EOU. However, this condition does not apply to existing units engaged in software technology parts, hardware technology, biotechnology parks, information technology and services, agriculture, animal husbandry, handicraft, and handmade jewellery. Such EOUs may be allowed to be established with lower investment criteria.

How to get EOU status?

For obtaining EOU status, an entity shall make an application to the Board of Approval. They will provide a Letter of Permission for setting up an EOU. This letter holds initial validity of 2 years within which a unit can install its plant and machinery. The applicant can obtain an extension of one year. After starting operations, the EOU must achieve positive net foreign exchange earning cumulatively in 5 years.

How to exit from EOU status?

An EOU can opt out of the scheme after getting approval from the Deputy Commissioner (DC) of Customs. But, such exit is subject to payment of applicable taxes of Excise and Customs, IGST, SGST, CGST and compensation cess, if any, as per the industrial policy in force. Also, if the unit could not meet its obligations, it shall be subject to penalty at the time of exit. 

If the entity ceasing its operations is in the manufacture of gems and jewellery, then all the gold and other precious metals available for its manufacture are given to an agency as specified by DC at a price determined by such agency.

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