eou scheme

1. Export Oriented Unit Scheme
100% EOUS
Introduction
The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated
31
st
December 1980. The purpose of the scheme was basically to boost exports by creating
additional production capacity. It was introduced as a complementary scheme to the Free Trade
Zones/ Export Processing Zone (EPZ) Scheme introduced in the sixties which had not attracted
many units due to locational restrictions. It offers similar incentives and policy regime but
offers a wider option in location depending upon factors like source of raw material, ports of
exports, hinterland facilities, availability of technological skills and labour existence of an
industrial base and the need for a larger area of land for the project.
The exporters showed willingness to set up units with long term commitment to exports under
Customs bond operations provided they had the freedom to locate them in places of their choice
and given most of the benefits as provided to units set up in the Zones.
objectives of the 100% Export Oriented Unit:
The main objectives of the scheme are to increase exports, earn foreign exchange for the
country, transfer of latest technologies, stimulate direct foreign investment and to generate
additional employment.
What is 100% Export Oriented Unit Scheme
In the country’s efforts to improve foreign trade 100% EOU’s have played a significant role.
One of the schemes, which the government devised to improve exports and thereby move on to
higher levels of industrial and technological progress, is the Export Processing Scheme. All
industrial units offering 100% of their production for exports (except the permitted domestic
sales) and registered under the Scheme fall into this category. Though these units were
restricted to a defined geographical zone in the initial stages, they were later allowed to be set
up outside the zones also.
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2. 100% EOUs are classified into the following 3 categories, all enjoying almost identical benefits
and incentives.
1.Units in Export Processing Zones (EPZs) and Special Economic Zones (SEZs)
2.100% EOUS established anywhere in India.
3.Units sets up under Software Technology Parks (STPs) and Electronic Hardware
Technology Parks (EHTPs) schemes for development of computer software and
Electronic Hardware
The essence of the EOU scheme is that units are allowed to customs-bond their premises, and to
import all their requirements for export production into that area duty-free. To encourage
linkages with the hinterland, inputs and capital goods from the domestic market are also
provided free of excise duties and sales / purchase taxes to EOUs. This measure also helps the
EOUs to be more competitive internationally.
The Export Oriented Unit Scheme has the same provisions as that of the Export Processing
Zone (EPZ) scheme with one notable difference: EPZs are walled-in enclaves providing
infrastructure and on – site customs clearances, whereas EOUs can be set up anywhere in the
country taking into account factors like source of raw materials, ports, comparative advantage
in manufacture, infrastructural facilities, availability of technological skills, existence of
ancillary / complementary industry, need for a larger area for the project, etc.

The Government of India has introduced the 100% Export Oriented Unit Scheme in the year
1981. Under this scheme, industrial units set up to export their products are given certain
concessions like duty-free indigenous purchase of plant and machinery, raw materials,
components, packing materials to enable to meet the international competition in the matter of
pricing, quality and precision etc.
The Export Oriented Unit can sell up to 50% of the Exported Value in the domestic market on
payment of the applicable duties on a quarterly / half yearly / annual basis.

Product Coverage
While the EPZ operating units broadly fall under the product groups of electronic, engineering
items, chemicals and allied products, gem and jewellery, textiles, garments, plastics and rubber
products, EOUs are mainly concentrated in textiles and yarn, food processing, electronics,
chemicals, plastics, granites and minerals/ores. Majority of units are located in Tamil Nadu,
Andhra Pradesh, Karnataka, Maharashtra and Gujarat. As on 01.11.2004, there were 276 valid
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3. approved EOUs out of which 91 units were in production and 70 units were under
implementation. Prominent functional sectors are Yarn & Textiles, Food & Agro products ,
Electronic Software etc. Majority of the functional units are located in West Bengal , Jharkhand
and Orissa.
Under the 100% Export-Oriented Unit Scheme (“EOU Scheme”), a unit proposing to export the
bulk of its manufactured goods and/or services can set up either in one of the Zones considered
above or at any other location. EOUs are industrial units that export their entire production for a
period of ten years, or five years with respect to products liable to rapid technological change,
excluding permitted levels of rejects. The EOU Scheme is distinguished from other similar
schemes in that it is possible to establish a unit under this scheme anywhere in India subject to
locational criteria, environmental laws and local zoning and land-use laws.
EOUs must operate in customs bonded factories, unless specifically exempted from physical
bonding. Units must also achieve a minimum local value addition prescribed in the
Import/Export Policy 1992-97. For items not specified in the Policy, units must achieve a
minimum local value addition of 20%. Furthermore, when a unit acts both as a domestic unit
and an EOU, it must keep separate accounts and have separate identities, although it does not
require a separate legal identity EOUs are playing an important role in country’s export
scenario. The contribution of EOUs in country’s total exports is about 12% and their export
growth rate during the year 2000-2001 was 18%.
FEATURES OF EOU : FEATURES OF EOU :
i) An EOU can be set up anywhere in India. i) An EOU can be set up anywhere in India.
ii) It can export free of duty all types of goods including capital goods, required by it for ii) It can export free of duty all types of goods including capital goods, required by it for
manufacture, production or processing provided they are not prohibited items in the negative manufacture, production or processing provided they are not prohibited items in the negative
list of imports. list of imports.
. EOU can be set up at various places in India declared as 'warehousing stations'. There are
over 300 such places. Thus, flexibility in locating EOU is quite wide.
EOU units are closely connected with Customs Law and Excise Law. They have to follow the
prescribed procedures and statutory exemptions are given by way of notifications under these
laws. Besides, Income Tax Act and Foreign Exchange Management Act are also very relevant
for EOU units.
iii) “Deemed Exports”, means - iii) “Deemed Exports”, means -
a. sales to other EOUs a. sales to other EOUs
b. sales in India under contracts bagged in global tenders b. sales in India under contracts bagged in global tenders
c. Supply of goods manufactured by it to a recognised Export House/ c. Supply of goods manufactured by it to a recognised Export House/
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4. iv) Export-oriented units are eligible for concessional rent for lease of industrial plots and iv) Export-oriented units are eligible for concessional rent for lease of industrial plots and
standard design factory building / sheds allotted for the first three years. standard design factory building / sheds allotted for the first three years.

v) FOB value of export of an EOU can be clubbed with FOB value of export of its parent v) FOB value of export of an EOU can be clubbed with FOB value of export of its parent
company for the purpose of according status as Export House, Trading House or Star Trading company for the purpose of according status as Export House, Trading House or Star Trading
House for the latter. House for the latter.

vi) Finished products are exempt from excise and other Central levies. vi) Finished products are exempt from excise and other Central levies.
vii) Reimbursement of Central Sales Tax paid on purchase made from domestic tariff vii) Reimbursement of Central Sales Tax paid on purchase made from domestic tariff
area(DTA) for utilisation of goods so purchased for production of goods for export, is allowed. area(DTA) for utilisation of goods so purchased for production of goods for export, is allowed.

viii) All the units intending to set up industries under the EOU scheme have to make viii) All the units intending to set up industries under the EOU scheme have to make
application to the Secretariat for Industrial Approvals (SIA), Ministry of Industry, Udyog application to the Secretariat for Industrial Approvals (SIA), Ministry of Industry, Udyog
Bhavan, New Delhi (for setting up unit under EOU scheme) in the relevant application form. Bhavan, New Delhi (for setting up unit under EOU scheme) in the relevant application form.

ix) Foreign equity upto 100% is permissible in such units. ix) Foreign equity upto 100% is permissible in such units.

Policy for permission - Only project having an investment of not less than 100 lakhs and
above in building and plant and machinery shall be considered for establishment under EOU
scheme. This will not apply to existing units in agriculture/floriculture /aquaculture/animal
husbandry/information technology, handicrafts, services and other sectors as may be approved
by BOA (Board of Approvals).

Minimum investment in plant and machinery and building is Rs 100 lakhs for EOU. This
should be before commencement of commercial production. - - The unit may be engaged in
manufacture, services, repair, re-engineering, gold/silver/platinum jewellery, agriculture,
aquaculture, floriculture, horticulture, poultry, granites etc.
Units for generation and distribution of power may also be set up in EOU. They can supply
surplus power to another EOU. They can also supply surplus power to DTA unit on payment of
duty on consumables and raw materials used for generation of power so sold on basis of norms
to be approved by Board of Approval.
In service sector, duty free imports will be permitted only to units engaged in the export of
services out of the country and not to those providing services within India. Further, no trading
units are permitted.
Each EOU must have its website and e-mail address.
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5. 100% foreign equity permitted except in certain cases - EOU can be set up with 100%
foreign investment, except in few sectors where compulsory licensing is required. 100% foreign
investment in sectors like arms and ammunition, explosives, atomic substance, narcotics and
hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes, cigars and
manufactured tobacco substitutes is not permitted. In some sectors, there is sectoral cap.
Inputs and capital goods without payment of customs / central excise duty - Material,
machinery, packing material etc. imported in this zone is brought without customs duty in case
of imported goods and excise duty in case of goods produced indigenously. Machinery can be
obtained on lease.
Spares, fuel, lubricants and consumables can also be brought. These should be approved by
Assistant Commissioner.
Second hand capital goods can be imported without payment of duty.
Procurement of imported goods - The goods can be brought from customs port under a transit
bond or an insurance policy covering the duty involved. No bank guarantee is necessary.
[MF(DR) circular No 41/97-Cus dated 19-9-1997 as amended vide No 38/98 dated 21.5.1998].
The imported goods can be cleared from port under 'Fast Track Clearance Scheme'.
Goods can also be procured from a public or private warehouse, where goods are kept without
payment of customs duty. - MF(DR) circular No. 30/99-Cus dated 25-5-1999.
Procurement certificate to obtain imported goods - Procurement certificate is required to be
obtained and submitted at the time of clearance. The procurement certificate should be signed
by Range Superintendent. Even in case of industries in textile and chemical sectors,
procurement certificate will be signed by Range Superintendent, if the record of assessee is
clean, after power is delegated to him by Assistant/Dy. Commissioner - CBE&C circular No.
84/2001-Cus dated 21-12-2001, modified vide CBE&C circular No. 66/2002-Cus dated 8-10-
2002.
Permissible capital goods - Capital goods, material handling equipments, captive power
plants, office equipment, tools, prototypes, air conditioning system, computers, laptops can be
brought as 'capital goods' if these are essential in manufacture or production of goods. -. -
Personal computer can be obtained duty free. These should be located in registered office /
administrative office. Intimation of location of computers should be informed to AC Customs /
CE. Disposal is subject to same conditions as are applicable to other imported goods - CBE&C
circular No. 41/99-Cus dated 30-6-1999. Leasing of capital goods is also permitted.
No anti-dumping duty or safeguard duty - Anti-dumping duty or safeguard duty is not
applicable for imports by EOU unless it is specifically made applicable in the notification
imposing anti-dumping / safeguard duty. [section 8B(2A) and section 9A(2A) of Customs
Tariff Act]
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6. CT-3 certificate for procuring indigenous material - The EOU can procure indigenous
material without payment of excise duty.
Activities that can be carried out by EOU - Besides manufacturing, the EOU can carry out
following activities -
(a) Import of goods for service activities
(b) Reconditioning, repairs of imported goods and return to foreign suppliers
(c) Destruction of waste and rejects with permission of Asstt. Commissioner even outside the
premises
(d) Undertaking job work of repairs and maintenance - Pune Commissionerate Public Notice
41/97 dated 8.8.1997. They can also import goods of any origin for reconditioning, repairs and
re-engineering activities for export in freely convertible currency.
Service has been included as 'export product' as per EXIM Policy
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SETTING UP 100% EOUs.
Intial spade work
The first step is ofcourse to take decision regarding setting up of E O U after making a detailed
study of project and profitablility .
1. project report
the first step is to prpare a detailed project report. This forms basis of sanction of the scheme.
The project report should give details of :
A ) Location and availbilty of infrastructure like power,water,roads etc
B ) Organisation chart.
C ) product profile with ITC code.
D ) manufacturing process (with flow chart/s).
E ) Marketing arrangement.
F ) list of machinery and estimated cost.
G ) cost of project and means of finnancing of project.
H ) Finnancial projections for 5 years.
I ) Feasilbility report.
J ) projections about NFEP for 5 years.
K ) detailed list of raw materials to be purchased by E O U .
L ) manpower requirement.
M ) joint venture aggrement if any.
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7. N ) technical collaboration aggrement,if any.
O ) affullent treatment.
P ) Enviornmental clearnces.
The EP/NFEP projected in the report should be more than the minimun required as per EXIM
policy.
2. approval of board of company.
The project should be approved by the board of directores.
3.procedure for obtaining approval.
The E O U is implemented by ministry of commerce. First step is to obtain necessary
approval from appropriate authority.crieteria for automatic approval is

Approval Mechanism
1. All applications are to be filed with the Development Commissioner concerned.
2. Development Commissioner is competent to clear/approve all cases within a period of 15
days, if the application is otherwise in order.
3. A limited number of cases are referred by the Development Commissioner to the Board of
Approvals in Deptt. of Commerce for approval. These include:
4. 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).
5. Service activities.
6.Cases in which location of a project not covered by the locational restrictions as notified by
Deptt. of Industrial Promotion & Policy.
7. The Development Commissioner is also competent to approve all cases involving FDI
(Foreign Direct Investment) falling under the automatic route.
8. For cases not falling under the automatic route, the DC recommends the case to the FIPB
(Foreign Investment Promotion Board) in DIPP.
9. On approval of a proposal, the Development Commissioner issues a Letter of
Permission/Letter of Intent to the unit concerned.
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8. 10. The Letter of Permission is valid for a period of three years within which the prospective
investor is required to execute the Legal Undertaking (see
11.Appendix 14 of the Handbook of Procedures Vol.I)with the DC concerned, execute a Bond
with the Custom/Excise Deptt. and implement the project.
4.Procedur after approval.
After obtaining Letter of Approval from Development Commisioner(or Board of
Approval if not under automatic Approval),following steps are involved-
Legal Undrtaking should be executed and submitted to Development Commissioner
.Green Card will be obtained from him. The legal undertaking should be in form given in
appendix
How to setup an EOU
For setting up of EOU, three copies of the application in the prescribed form are required to be
submitted to the concerned Development Commissioner.
After Approval of the application and issuance of Letter of Permission, the applicant is required
to execute a legal undertaking with the Development Commissioner/ Designated Officer
concerned with in the prescribed time period. On execution of legal undertaking, a green card is
issued to the unit.
Who can setup?

(i)An individual/ a corporate body including partnership Company/a unit of any Company
including partnership firm can obtain LOP.However, in case of a LOP issued to an individual,
this has to be subsequently implemented by an entity under the Companies Act including
partnership Company. The LOP would be transferred to the name of the corporate entity.The
LOP is transferable to assign successors etc. subject to certain terms and conditions.
A 100% EOU and unit in the Zone can be set up for the following activities in various
combinations:
(a) Manufacturing.
(b)Re-engineering, re-conditioning and re-processing
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9. (iii) Facilities for all or any of the activities can be set up under one roof and can be covered
under one single LOP. However, for the sake of convenience and operational ease and
streamlining of procedure, it is suggested that separate LOP be taken for separate activities. A
unit of an existing company can set up a unit in the Zone/100% EOU. Permission for additional
items of activities within the same LOP with or without revision to foreign trade projections has
also granted by the approving Office.
(iv) The unit is liable to export its entire production of goods and services to General Currency
Area as per the specific terms and conditions of the LOP.
2.2 Some units in the DTA may export their entire productions. However, unless they hold a
formal LOP issued under the 100% EOU scheme by the Office of the Development
Commissioner concerned, these are not treated as 100% EOUs under the EXIM Policy. Existing
domestic units can also apply for conversion into 100% EOU.
Who can apply for 100% EOU Scheme

Units undertaking to export the entire production of their goods may be set up under the EOU
Scheme. Such units may be engaged in the manufacture / production of any goods, software,
hardware, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture,
viticulture, poultry and sericulture units engaged in the service sector may also apply for 100%
EOU approval for various services.

The EOUs have to protect exports for a minimum of one million U.S. Dollars (or) five times of
the CIF value of the imported capital goods whichever is higher in a period of five years. For
the units in biotechnology, floriculture, toys of all kinds and service sectors, the minimum
export performance requirement is U.S. Dollars 0.50 Millions (or) five times the CIF value of
the imported capital goods whichever is higher in a period of five years. The minimum export
performance for computer software is U.S. Dollars of 0.25 Million (or) five times of the CIF
value of imported capital goods whichever is higher.

Export Performance of EOUs Vs India's Exports
(Rs. in Crores)
Year EOUs Exports India’s Exports
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10. 1996-1997 8728072 118817.08
1997-1998 10278.51 130100.64
1998-1999 12058.27 139753.14
1999-2000 13701.29 159561.39
2000-2001 15912.00 203571.01
2001-2002 18733.45 207745.54
2002-2003 22729.00 252790.00

EOU Check List
Basic Requirements for setting up an EOU (Check-list)
i) Planing your venture:
vIs it on your own
vWith foreign participation and nature of participation (foreign investment allowed 100%)
ii) What product do you intend to manufacture
vProduct/By-product
vDoes it requires clearance from Central/State Government authorities
vIs it an SSI Unit. If so, registration is required as an SSI
iii) Technology to be used
vIndigenous/foreign
vRelated costs and conditions
iv) Feasibility report
vOn your own or with help of consultant
v) The finances involved
vLand, structure, buildings etc (Please note, building construction material is not exempted
from duty)
vCapital goods, machinery etc
vPayment for royalties etc.
vAdministration and establishment
vOthers : like interest on loans, related taxes and levies etc.
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11. vi) The current competition overseas
vMain competitors
vDemand and price-levels.
vii) The import laws and other requirements in target markets
vAny fiscal/non-fiscal barriers, like anti-dumping laws
vQuota restrictions
vPreferential treatment to competitor countries
viii) Location of the unit
vWhether it is located close to a port or railroad
vAvailability of raw materials
vManpower availability
vEnvironment clearance needed if unit is located 25 kms from an urban town
ix) Capital goods, machinery and equipment to be used
vindigenous or foreign
vRelated costs
x) The raw materials and other inputs, like consumables etc that would be required:
vSource
vCost
vMonthly, quarterly and annual requirements
xi) The production process and the related inputs
vWhether production process requires air-conditioning plants, special furnaces or kilns etc.
vDetails and costs (Please note, air-conditioning equipment permitted duty free only if it is
essential for production process).
xii) The production capacity and spare capacity:
vDo you intend to utilise the same by doing sub-contracting work for other export units in DTA
or Export Oriented Unit (EOU)/Export Processing Zone.
vDetails of sub-contractors
vRelated costs
xiii) Any by-products turned out in the production process
vDetails of by-products
vWhether these would be exported or sold in Domestic Tariff Area (DTA)
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12. xiv) Effluents or waste-material
vHow do you propose to treat these or discharge them.
xv) Packaging
vDetails of packaging
vSource
vCost
xvi) Power
vWhether the normal grid could supply adequate power
vWhether there would be need for a captive power plant
vCost of power plant
vFuel that would be required for captive power plant (e.g. furnace oil, LPG, coal etc).
xvii) Duties, taxes and fiscal levies both, Central and State-level
vCustoms and Excise levies
vSales tax, Octroi etc
vPower tariffs and duties
xviii) Other information
vThe company should be registered
vA current account with a bank authorised to deal in foreign exchange should be opened.
vRegistration-Cum-Membership Certificate (RCMC) should be obtained from the office of the
concerned Development Commissioner.
vSales tax registration be obtained from the Sales Tax Department
xix) Mandatory clearances from State Government's
vPollution clearance certificate
vApproval of building plan in cases where building is proposed to be constructed.
vRegistration as a small scale industrial unit, if applicable
vRegistration under Factories Act
EOU and Customs Law - EOU have to import inputs and capital goods and have to export their
final product. Hence, Customs law is very closely involved in implementation and execution of
EOU scheme.
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13. Day to day control over operations of EOU is exercised by customs authorities. In the interior
areas, the administrative control is exercised by excise authorities. Exemption to imports by
EOU is given through notifications issued by customs department.
Exemption notifications have been issued under section 25(1) of Customs Act, making statutory
provisions for granting exemption from customs duties to goods imported by EOU.

Chapter 6:- EXPORT ORIENTED UNITS (EOUs),


6.2 Exports and Importability of goods
Capital goods, as defined in the paragraph 6.2 of the Policy shall include inter-alia the following
and their spares:
Items permite for import:
(i) DG sets, captive power plants, transformers and accessories and consumables and spares for
all above.
(ii) Pollution control equipment.
(iii) Quality assurance equipment.
(iv) Material handling equipment, like fork lifts and overhead cranes.
(v) Un-interrupted Power Supply System (UPS), Special racks for storage, storage systems,
modular furniture, computer furniture, anti-static carpet, tele-conference equipment, Servo
Control System, Air-conditioning system, panel for electricals.
(vi) Security Systems.
(vii) Tools, jigs, fixtures, gauges, moulds, dyes, instruments and accessories;
(viii) Raw material for making capital goods for use within the unit.
(b) Raw materials, components, consumables, intermediates, spares and packing materials (PN
43 dtd 18.10.02)
(i) (Prototypes and technical samples for existing product(s) and product diversification,
development or evaluation.
(ii) Drawings, blue prints, charts, microfilms and technical data;
(iii) Office equipment, including PABX, Fax machines, projection system, Computers, Laptop,
server
(iv) Spares and consumables for the above items.
(v) Any other item with the approval of the BOA
Note:-The above items may be new or second hand.
Conditions of Import
(c) The import shall be subject to the following conditions:
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14. (i) The goods shall be imported into the EOU/EPZ/EHTP/STP premises. However, agriculture
and allied sectors and granite sector units in EOU/EPZ may supply/ transfer the capital goods
and the inputs in the farms/fields/quarries with prior intimation to the jurisdictional Customs/
Central Excise authorities, provided the ownership of the goods rests with EOU/EPZ units.
(ii) The normal procedure as prescribed under Customs/Excise rules for EOUs and units in
EPZs/EHTP/STP will be followed and appropriate bond executed with Customs/ Excise
authorities.
(iii) The goods, except capital goods and spares, shall be utilised by EOU as per Policy within a
period of two years or as may be extended by Customs authorities.
(iv) Goods already imported/shipped/arrived before the issue of LOP/ LOI are also eligible for
duty free clearance under the EOU/EPZ/EHTP/STP scheme provided customs duty has not
been paid and the goods have not been cleared from Customs.
(v) EOU/EPZ units may import plain/studded gold/platinum or silver jewellery for export after
repairs/remaking.
(vi) EOU/EPZ units may obtain gold/ silver/ platinum from the nominated agencies on loan
basis subject to the condition that the gold/silver/platinum jewellery shall be exported within the
specified period from the date of release. This shall not, however, apply to outright purchase of
precious metals from nominated agencies or if the same is obtained on loan other than from the
nominated agencies
Import of capital goods
(d) In the case of EOU/EPZ/EHTP/STP units, import of capital goods including second hand
capital goods, may be permitted in accordance with the list attested by the Development
Commissioner concerned
Re-import
(e) The units may be allowed by the Customs/Central Excise authorities concerned to re-import,
after repairs abroad, machinery/ equipment exported by them for this specific purpose. Any
foreign exchange payment for this purpose will also be allowed.
Fax machines/lap top computers
(f) EOU/EPZ/EHTP/STP may install one fax machine at a place of its choice, outside the
approved premises, subject to intimation of its location to the concerned Customs/Central
Excise authorities.
(g) EOU/EPZ/EHTP/STP units may, temporarily take out of the bonded premises duty free
laptop computers and video projection systems for working upon by authorised employees.
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15. (h) EOU/EPZ/EHTP/STP units may install personal computers not exceeding two in number,
imported/procured duty free in their registered/administrative office subject to the guidelines
issued by Department of Revenue in this behalf.
(i) For IT and IT enabled services, persons authorized by the software units may access the
facility installed in the EOU/EPZ/EHTP/STP unit through communication links.
Utilisation of goods
(j)The unit shall be able to account for the entire quantity of goods imported/procured duty free,
by way of exports and sales in DTA or transfer to other EOU/EPZ/ EHTP/ STP/ SEZ units, and
balance in stock. However, at no point of time the units shall be required to co-relate every
import consignment with each category of homogenous goods exported, transferred to other
EOU/ EPZ/EHTP/STP/SEZ units, sales in DTA and balance in stock. In case of doubt the
matter shall be referred to BOA for decision. (PN 16 dtd 5.6.02)
Export of jewellery at notional rate
(k) (i)The EOU/EPZ units shall be permitted to export the jewellery on the basis of a notional
rate certificate to be issued by the nominated agency. This rate will be based on the prevailing
Gold/USD rate and the USD/INR rate on the date of the Shipment.(ii)The exporter shall have
the flexibility to fix the price and repay the gold loan within 180 days from the date of export.
The price shall be communicated to the nominated agencies who will issue a certificate showing
the final confirmation of the rate to the bank negotiating the document, to ensure export
proceeds are realized at this rate
(l) Gem and Jewellery EOU/ EPZ units may re-export imported goods and export domestically
procured goods, including goods generated out of partial processing/ manufacture. Besides,
supply of unsuitable/ broken cut and polished diamonds, precious and semi-precious stones
upto 5% of the value of imported or indigenously procured goods to the DTA against the valid
Gem REP as applicable on payment of appropriate duty is also permitted. (PN 40 dtd 8.10.02)

6.3 Second Hand Capital Goods Top
The licence referred to in paragraph 6.3 of the Policy for import of second hand capital goods
shall, in the case of EOU/EPZ/ EHTP/ STP units, deemed to be the approval given by the
concerned Development Commissioner.

6.4 Leasing of Capital Goods Top
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16. (a) Capital goods procured from indigenous sources on the basis of lease agreement between the
leasing company and the EOU/EPZ/ EHTP/ STP unit, will be eligible for Central Excise
exemption.
(b) The value of imported capital goods financed through leasing companies or obtained free of
cost and/or on loan basis shall also be taken into account for the purpose of calculation of NFEP
as defined in paragraph 6.5 of the Policy.

Export Obligations of EOUs
EOUs have only to be foreign exchange positive
FE Inflows> FE Outflows
where
n FE Inflows = Export earnings (Direct Exports+ Exports through Third Parties + Inter-unit
Sales + Exports to EOU/SEZ/STP/EHTPs)
n FE Outflows = Foreign Exchange outgo on imports of Raw materials/consumables + FE
payments of commission/ royalty/ fees/ dividends/ interest on ECB + share of amortised value
of capital goods imported
§ Imported capital goods are amortized over 10 years; only amortized amount is included in
NFE calculation
§ Values are included in the calculation even if the imports are not actually paid for.
6.5 Minimum level of Net Foreign Exchange as a Percentage of exports (NFEP) and minimum
Export Performance (EP) Top
(a) Minimum level of Net Foreign Exchange as a Percentage of exports (NFEP) and minimum
Export Performance (EP) 6.5 (a). Net foreign exchange earning as a percentage of exports
(NFEP) under EOU/EPZ/ EHTP/STP schemes, as provided in paragraph 6.5 of the Policy, shall
be calculated according to the following formula:
A - B
NFEP= --------- x 100,
A) A Where NFEP is Net Foreign Exchange Earning as a Percentage of Exportis the FOB value
of exports by the EOU/EPZ/EHTP/STP unit; and
16

17. B) B is the sum total of the CIF value of all imported inputs, the CIF value of all imported
capital goods, and the value of all payments made in foreign exchange by way of commission,
royalty, fees, dividends, interest on external borrowings during the first five year period or any
other charges. "Inputs" mean raw materials, intermediates, components, consumables, parts and
packing materials
NOTE: IIf any goods are/ is obtained from another EOU?EPZ?EHTP?STP unit, or procured
from an international exhibition held in India and precious metals procured from nominated
agencies (PN 16 dtd 5.6.02) the value of such goods shall be included under B.
(ii) If any capital goods imported duty free is leased from a leasing company, received free of
cost and/or on loan basis or transfer, the CIF value of the capital goods shall be included or
excluded, as the case may be, pro-rata, under B for the period it remains under bond
(iii) For annual calculation of net foreign exchange as a percentage of exports, imported capital
goods and lumpsum payment of foreign technical know-how fee shall be included under B
above as under:
Units with actual investment in plant and machinery of Rs.5 crores and above. Others
Others
1st -2nd year : 5% each year 1st-2nd Year : 10%
3rd - 5th year : 10% each year 3rd Year : 20%
6th-8th year : 20% each year 4th year : 30%
5th Year : 30%
(b). The minimum NFEP and EP are indicated in Appendix 1 of the Policy. In case of existing
units the earlier NFEP and EP may be repeated at the time of renewal. However, NFEP and EP
of such units will be revised, as per Policy, at the time of renewal of the approval or mid-term
revision by the Development Commissioner, if such proposal envisages addition of installed
capacity.
(c). Appendix I of the Policy only indicates the minimum level to be achieved, but does not
preclude the Board of Approvals (BOA) or the Development Commissioner from prescribing a
higher percentage where warranted.
17

18. 6.6 Letter of Permission/Letter of Intent and Legal Undertaking
Top
(a) The LOP/LOI shall specify the items of manufacture/service activity, annual capacity,
projected annual export performance (EP) for the first five years in dollar terms, Net Foreign
Exchange earnings as a Percentage of exports (NFEP), limitations, if any, regarding sale of
finished goods, by-products and rejects in the DTA and such other matter as may be necessary
and also impose such conditions as may be required.
(b) The approved EOU/EPZ unit shall be required to execute a legal undertaking with the
Development Commissioner concerned in the form given in Appendix 14-D of the Handbook
(Vol.1).

6.7 Application and Approvals Top
(a) For setting up a unit in an EPZ or an EOU, three copies of the application in the form given
in Appendix 14-A may be submitted to the Development Commissioner (DC) of the EPZ
concerned.
(b) Application for setting up EHTP/STP unit shall be in the format prescribed by the Ministry
of Communication and Information Technology (Department of Information Technlology) and
shall be submitted to the officer designated by the Department of Information Technology for
this purpose.
(c) Sector specific conditions: The approval of proposals for setting up of EOUs for the
manufacture and export of cotton yarn, tea, rice, meat, granite and petroleum products would be
subject to the conditions mentioned in Appendix-14-B.
(d) Foreign investment into EOU/EPZ/EHTP/STP shall be governed by the guidelines of
Department of Industrial Policy and Promotion on the subject.
18

19. (e) With effect from 01.04.2003, all EOUs should have their own web site and permanent e-
mail address. No LUT for new units after 01.04.2003 shall be executed unless the unit has its
own web site and permanent e-mail address. In the event of an EOU not having permanent e-
mail address and own website, further, imports and DTA sale may not be permitted by the
Development Commissioner. ( PN 59 dtd 15.1.03)
Distinct Identity
(f) If an industrial enterprise is operating both as a domestic unit as well as an EOU/EPZ/
EHTP/STP unit, it shall have two distinct identities with separate accounts, including separate
bank accounts. It is, however, not necessary for it to be a separate legal entity, but it should be
possible to distinguish the imports and exports or supplies effected by the EOU/EPZ/EHTP/STP
units from those made by the other units of the enterprise.
DTA SALES
COPY IT FROM GIST OF EOU

6.8 DTA sale of finished products/rejects/waste/scrap and by-products Top
EOU/EPZ/EHTP/STP units may sell in the DTA rejects as per paragraph 6.8 (a) of the Policy
subject to the following conditions:
(a) The term 'rejects' shall cover the products which have definite manufacturing defects and are
not exportable as per declaration of the unit concerned and shall include sub-standard products,
but not spares, tools, waste/scrap/remnants and by-products.
19

20. (b) The following parameters shall be kept in view for determining 'rejects'.
(i) The unit must certify that the rejects were an unavoidable feature on account of flaws of
technology, technique or material deployed in manufacture.
(ii) 'Rejects' must be invoiced and stamped by the manufacturer as 'Rejects' at the time of
clearance into the Domestic Tariff Area.
DTA Sale and Bunching of products
(c) DTA sale shall be admissible only to similar goods as that of the goods manufactured and
exported from the unit. In case of doubt in regard to similar nature of goods, the matter shall be
referred to the BOA for decision (PN 16 dtd 5.6.02)
(d) Within the entitlement of DTA sale, as provided in paragraph 6.8 (b )of the Policy, the unit
may sell in DTA its products and services. Entitlement will be determined in totality and not
with reference to specific items. Detailed Guidelines on DTA sales are given at Appendix 14-F
of the Handbook (Vol.1).
Disposal of waste/ scrap
(e) Norms for disposal of Waste/scrap/remnants arising out of production process and in
connection therewith, including wastage or manufacturing loss on gold/silver/ platinum
jewellery and articles thereof, is given in Appendix 14-L (PN 16 dtd 5.6.02) of the Handbook
(Vol.1).
(f) In respect of items not covered by Appendix- 14-L (PN 16 dtd 5.6.02), Development
Commissioner shall fix the wastage keeping in view the norms notified under Duty Exemption
Scheme. For items not covered by these two, the Board of Approval shall fix Norms. However,
Development Commissioners may fix adhoc norms on the basis of date for a period of six
months and within this period he shall get the norms fixed by the Board of Approval. (PN 40
dtd 8.10.02)
(g) EOU/EPZ units may clear scrap/waste/ remnants arising out of sub-contracting of
production/production process from the job worker's premises, on payment of applicable duties,
or bring it back to its own premises
(h) Scrap/Dust/sweeping of gold/silver/platinum may be sent to the Government of India
Mint/Private Mint from the EOU/EPZ units and returned to them in standard bars in accordance
with the procedure prescribed by the Customs authorities or may be permitted to be sold in the
DTA on payment of applicable Customs duty, on the basis of gold/ silver/ platinum content, as
may be notified by Customs.
20

21. 6.9 Other Supplies in DTA
Top
(a) The unit will report the transactions in terms of sub-paragraphs 6.9 of the Policy to the
Development Commissioner concerned on a quarterly basis. However, units effecting supplies
in the DTA in terms of sub-paragraph 6.9 (b) of the Policy shall obtain permission from the
concerned Development Commissioner. In all the cases, the unit shall indicate to the
Development Commissioner concerned the quantity and value of items (category-wise),
supplied in DTA and the total quantity and value of each such item produced by the unit as on
the date during the year.
(b) The purchaser of the goods in the DTA shall be liable to pay the duties and taxes as may be
applicable on the goods in question.
(c) Such DTA sales shall not affect the application to any goods of any other prohibition or
regulation affecting import thereof in force at the time when such goods are imported. This also
does not confer any immunity, exemption or relaxation at any time from any commitment or
compliance with any requirements to which the importer may be subject to under other laws or
regulations.
(d) ITA-I items to be cleared in the DTA shall undergo tariff change at four digit level. Only the
value added products, which have undergone the process of manufacture would be allowed to
be cleared in the DTA. (PN 16 dtd 5.6.02). Non ITA-I items that may be sold in DTA in terms
of paragraph 6.9(h) of the Exim Policy are given in Appendix 14 B (Pn 59 dtd 15.01.03)

6.10 Export through Status Holder
Permission to export goods through Status Holder/Merchant Exporter or other
EOU/EPZ/EHTP/STP/SEZ units in terms of paragraph 6.10 of the Policy extends only to the
marketing of the goods by the Status Holder/ Merchant exporter or other EOU/EPZ/ EHTP/
STP/ SEZ unit. The manufacture of the goods shall be done in the EOU/ EPZ/ EHTP/STP unit
concerned. The level of NFEP and EP as well as any other conditions relating to the imports
and exports as prescribed shall continue to be discharged by the EOU/ EPZ/ EHTP/ STP unit
concerned. Such export shall fulfil the following conditions:
(i) The export orders so procured shall be executed within the parameters of
EOU/EPZ/EHTP/STP schemes and the goods shall be directly transferred from the Customs
bonded unit to the port of shipment.
(ii) Fulfilment of NFEP/EP by EOU/EPZ/ EHTP/ STP units in regard to such exports shall be
reckoned on the basis of the price at which the goods are supplied by EOU/EPZ units to Status
Holder/ Merchant Exporter or other EOU/EPZ/ EHTP/ STP/SEZ unit.
21

22. (iii) All export entitlements, including recognition as Status Holder would accrue to the exporter
in whose name foreign exchange earnings are realised.

6.11 supply or sale of Samples.
Top
EOU/EPZ/EHTP/STP units may on the basis of records maintained by them, and on prior
intimation to Custom authority :
a) Supply or sell samples in the DTA for display/market/ promotion upto 1% of value of
previous year's export or maximum of Rs.10 lakhs in case of new unit going into production, on
payment of applicable duties;
b) Remove samples without payment of duty, on furnishing a suitable undertaking to Customs
authorities for bringing the samples back within a stipulated period;
c) Export samples, including through courier agencies.
d) Samples made in wax models, silver models and rubber moulds may also be exported by
Gem & Jewellery units.

6.12 Entitlement for supplies from the DTA
(a) An application for reimbursement of Central Sales Tax and grant of entitlements in terms of
paragraph 6.12 of the Policy may be made to the Development Commissioner of the EPZ
concerned. The procedure to be followed and the form of the application for reimbursement of
Central Sales Tax (CST) is given in Appendix 14-G of Handbook (Vol.1).
(b) The procedure for submission of application for grant of Replenishment License as
contained in paragraphs 4.55 to 4.56 of this Handbook shall be applicable. However, the
application shall be made to the Development Commissioner of the EOU/EPZ concerned. Such
supplies to EOU/EPZ are not treated as deemed exports for the purpose of any of the deemed
export benefits.
(c) Valuation of goods for deemed export benefit:
22

23. For determining deemed export benefit the price declared by the DTA unit to the jurisdictional
excise authorities shall be treated as the fair price
(d) For reimbursement of Central Excise Duty paid on bulk tea procured from licenced auction
centers in terms of para 6.12 (a) (iii) the unit shall submit documentary evidence showing that
the tea was procured from licenced auction centers along with the claim. (PN 40 dtd 8.10.02)

6.13 Other Entitlements Top
(a) Units set up in EPZs will be charged rent for lease of industrial plots and standard design
factory buildings/sheds as per rates fixed from time to time.
(b) Corporate tax: EOU/EPZ/EHTP/STP units engaged in manufacturing and services will be
eligible for entitlements in respect of payment of income tax as per the provisions of Income
Tax Act.
(c) FOB value of export of an EOU/EPZ/ EHTP/STP units may be clubbed with FOB value of
export of its parent company in the DTA or vice versa for the purpose of according Export
House, Trading House, Star Trading House or Super Star Trading House status.
(d) 100% Foreign Equity: 100% FDI in the manufacturing sector is permissible to the
EOU/EPZ/EHTP/STP units. For FDI in services and trading sector, the sectoral norms as
notified by the Department of Industrial Policy & Promotion shall be applicable."
(e) Software units may, in addition, also be allowed to use the computer system for training
purpose (including commercial training) subject to the condition that no computer terminal shall
be installed outside the bonded premises for the purpose.
(f) Procurement of raw materials, components and consumables and export of finished products
shall be exempt from Central levies.
(g) Exemption from industrial licensing for manufacture of items reserved for SSI sector.
(h) State Trading regime shall not apply to EOU/EPZ manufacturing units. Export of iron ore
shall however be subject to the decision of the Government from time to time. Requirements of
other conditions of exports like minimum export price/export in consumer pack etc. as per
ITC(HS) shall apply in case the raw materials are sourced from DTA. Export of textile items
shall be covered by bilateral agreements. Wood based units shall comply with the direction of
Hon'ble Supreme Court contained in its order dated 12.12.1996 in Writ (civil) No, 202 of 1995-
T.N.Godavarman Thirrumulkpad v/s Union of India and others with WP(Civil) no 171 of 1996
in regards to use of timber/other wood.
23

24. SUB CONTRACTING

6.15 Sub-contracting Top
a) EOU/EPZ/EHTP units may be permitted to remove moulds, jigs, tools, fixtures, tackles,
instruments, hangers and patterns and drawings to the premises of sub contractors subject to the
condition that these shall be brought back to the bonded premises of EOU/EPZ/EHTP unit on
completion of the job work within a stipulated period.
b) Export of finished goods directly from the job worker's premises may be permitted provided
the job workers premises is registered with the Central Excise authorities. However, export of
such products from the job worker's premises shall not be allowed through third parties as
provided under paragraph 6.10 of the Policy (PN 21 dtd 1.7.02)
Contract farming
c) EOUs in agriculture/horticulture engaged in contract farming may on the basis of annual
permission from the Customs authorities take out inputs and equipments to the DTA farm
subject to the following conditions:
i) Supply of inputs by the EOU to the contract farm(s) shall be subject to the input-output norms
notified by the Directorate General of Foreign Trade.
ii) There shall be contract farming agreement between the EOU and the DTA farmer(s);
iii) The contract farm(s) shall be within the jurisdiction of the same Commissioner of
Customs/Excise under whose jurisdiction the unit is registered.
iv) The unit has been in existence for at least two years and engaged in export of agriculture/
horticuture products; otherwise it shall furnish bank guarantee equivalent to the duty foregone
on the capital goods/inputs proposed to be taken out to the Assistant Commissioner of Customs/
Central Excise till the unit completes two years.

6.16 Sale of unutilized material
6.17 Reconditioning/ Repair and re-engineering Top
Recondition/repair and re-engineering activities may be undertaken as per paragraph 6.17 of the
Policy.
24

25. 6.18 Replacement/Repair of imported/ indigenous goods. Top
EOU/EPZ/EHTP/STP units may, on the basis of records maintained by them and prior
intimation to Customs authorities:
(a) Transfer goods to DTA/abroad for repair/replacement, testing or calibration and return
(b) Transfer goods for quality testing/R&D purpose to any recognised laboratory/ institution
upto a maximum of Rs. 2 lakhs per annum for items appearing in the negative list of imports
and Rs.5 lakhs per annum for other items, without payment of duty, on giving suitable
undertaking to the customs for return of the goods.
However, if the goods have been consumed/destroyed in the process of testing etc. a certificate
from the laboratory/ institution to this effect be furnished to the Customs.


6.19 Bonding Top
The entire operations of an EOU/EPZ/EHTP/STP shall be in a Custom bonded premises, unless
otherwise specifically exempted from physical bonding.On completion of bonding period as
provided for in paragraph 6.19 of the Policy, it shall be open to the unit to continue under the
scheme or opt out of the scheme. If no intimation in this regard is received from the unit within
a period of six months of expiry of the bonding period, the Development Commissioner will
take action, suo moto, to debond the unit. Where the unit opts to continue, the Development
Commissioner concerned will extend the bonding period and determine the NFEP and EP to be
achieved during the extended period.

6.20 Debonding Top
(a) Broad conditions governing debonding of EOU/EPZ/EHTP/STP units are indicated at
Appendix 14-J of the Handbook (Vol.1).
(b) To facilitate resource building in educational and medical institutions, electronics units
under the EOU/EPZ/EHTP/STP scheme would be allowed by Customs/Central Excise
authorities concerned to donate imported/ indigenously procured (bought or taken on loan)
computer and computer peripherals, including printer, plotter, scanner, monitor, key-board and
storage units without payment of duty, two years after their import/ procurement and use by the
units, to recognized non-commercial educational institutions, registered charitable hospitals,
public libraries, public funded research and development establishments, organizations of the
25

26. Government of India or Government of a State or Union Territory as per Custom/ Central
Excise notification issued in this regard.
(c) Debonding of capital goods imported as second hand shall not be allowed under EPCG
scheme. In case of second hand capital goods which are less than 10 years old on the date of
import, debonding may be allowed on payment of duty after 2 years from date of import. In
addition where the second hand capital goods are more than 10 years old, debonding may be
allowed only against an import licence and payment of applicable duties. (PN 17 dtd 5.6.02)
Depreciation norms for capital goods
(d) The depreciation norms for capital goods of units, including electronics, would be subject to
an overall limit of 90% as notified by the Department of Revenue.
(i) Depreciation for computers and computer peripherals for all types of electronic units would
be as follows: (PN 16 dtd 5.6.02)
10% for every quarter in the first year;
8% for every quarter in the second year;
7% for every quarter in the third year;
(ii) For capital goods, other than the above, the depreciation rate would be as follows:
4 % for every quarter in the first year;
3 % for every quarter in the second and third year; and
2.5 % for every quarter in the fourth year and thereafter.

6.21 Conversion Top
(a) Conversion of an existing Domestic Tariff Area (DTA) unit into an EOU/EPZ/EHTP/STP
may be permitted. For this purpose, the DTA unit may apply to the concerned DC, EPZ in the
same manner as applicable to new units. In case there is an outstanding export commitment
under the EPCG scheme, it will be subsumed in the export performance (EP) of the unit. If the
unit is having outstanding export commitment under the Advance Licensing Scheme, it will
apply to the Advance Licensing Committee for reducing its export commitment in proportion to
the quantum of duty free material actually utilised for production and permitted to carry forward
the unutilized material imported against the Advance Licence, if any, under the EOU/EPZ/
EHTP/ STP scheme.
(b) Existing EHTP/STP units desiring conversion as an EOU may apply to the DC of the EPZ
concerned through the Officer designated by the Department of Information Technology IN the
26

27. same manner as applicable to new units. Likewise EOU desiring conversion into EHTP/STP
may apply to the officer designated by the Department of Information Technology through the
DC of the EPZ concerned.
(c) An EOU may be shifted to SEZ with the approval of BOA provided the EOU unit has
achieved NFEP and pro-rata EP.

6.22 Monitoring of NFEP/EP and Maintenance of Accounts Top
(a). NFEP and EP shall be monitored in terms of paragraph 6.22 of the Policy as per the
guidelines given in Appendix 14-E of the Handbook (Vol.1). (PN 16 dtd 5.6.02)
The unit shall maintain in the specified form a proper account, including computerized account,
of the import, consumption and utilisation of all imported materials and of the exports made by
it and submit them periodically, as may be required, to the DC of the EOU/EPZ/EHTP/ STP
concerned. The unit shall ensure minimum NFEP and EP as stipulated in Appendix 1 of the
Policy. The unit shall also abide by all the terms and conditions incorporated in the LOP/
LOI/Industrial Licence (IL) issued to it. Failure to ensure minimum NFEP/EP as stipulated in
Appendix-1 of the Policy or to abide by any of the terms and conditions of the LOP/LOI/IL
shall render the unit liable to penal action under the provisions of the Foreign Trade
(Development & Regulation) Act, 1992 and the Rules and Orders made thereunder without
prejudice to any action under any other law/rules and cancellation or revocation of LOP/ LOI/
IL.

6.23 Export through Exhibitions /Export Promotion Tours /Export of Branded Jewellery/ sale
through Show rooms abroad/ international airports. Top
(a) EOU/EPZ unit shall produce to the Customs authorities the letter in original or its certified
copy containing approval of the Development Commissioner for holding exhibitions/export
promotion tour. For Gems and jewellery exhibition/export of branded jewellery, a self certified
photograph of the products shall also be submitted. In case of re-import, such items, on arrival
shall be verified along with the export documents before clearance.
(b) The exports through exhibitions/export promotion tours/export of branded jewellery shall be
subject to the conditions that items not sold abroad shall be re-imported within 60 days of the
close of the exhibition. However, in case the exporter is participating in more than one
exhibition within 45 days of close of the first exhibition, then the 60 days shall be counted from
the date of close of the last exhibition. In case of personal carriage of gems and jewellery for
holding/participating in overseas exhibitions, the value of such gems and jewellery shall not
exceed US $ 2 million.
27

28. (c) Personal carriage of gold/silver/platinum jewellery, precious, semi-precious stones, beads
and articles as samples upto US $ 1,00,000 for export promotion tours and temporary
display/sale abroad is also permitted with the approval of Development Commissioner subject
to the condition that the EOU/EPZ unit shall bring back the jewellery/goods or repatriate the
sale proceeds within 45 days from the date of departure through normal banking channel. In
case of personal carriage for export promotion tours, the unit shall declare personal carriage of
such samples to the Customs while leaving the country and obtain necessary endorsement on
the Export Certificate issued by the Customs.
(d) In case of export of jewellery through permitted shops set up abroad or in the showrooms of
their distributors/agents items not sold abroad within 180 days shall be re-imported within 45
days.
(e) In case of sale of jewellery to foreign tourists through permitted showrooms/retails outlets at
the International Airports in accordance with the procedure laid down by the Customs
authorities, jewellery items unsold after a period of 60 days be exported or returned to the
respective EOU/EPZ units

6.24 Personal carriage of gems and jewellery Export / Import Parcels Top
(a) The procedure for personal carriage of exports parcels shall be as prescribed by Customs.
The export proceeds shall, however, be realised through normal banking channel.
(b) In case of Personal carriage of jewellery by foreign bound passenger, the following
documents shall be submitted by EOU/EPZ units as proof of exports
i) Copy of the shipping bill filed by the EOU/EPZ units ;
ii) A copy of the Currency Declaration Form filed by the Foreign buyer with the Customs at the
time of his arrival; and
iii) Foreign Exchange Realisation/ Encashment Certificate from the Bank.

6.25 Export by Post/Courier
In case of export through Foreign Post Office or by courier, at the time of exports, the
EOU/EPZ unit shall submit the following documents:
i) Shipping Bill or invoice presented at the Foreign Post Office.
28

29. ii) Three copies of invoice.

6.26 Development of infrastructure in EPZs.
Top
Development of Infrastructure, including construction of Standard Design Factory Buildings in
an EPZ may be undertaken through private/joint/State sector as per the guidelines given in
Appendix-14-H of Handbook (Vol-I).

6.27 Administration of EOU/EPZ units :Powers of approval of DevelopmentCommissioner Top
Apart from the original powers under the Policy and Handbook (Vol.1), the Development
Commissioners have been delegated with the following powers in respect of EOU/EPZ units
(a) Approval of units: Applications for setting up of units in EPZ or as EOU outside the EPZ,
other than proposals for setting up of unit in the services sector (except software and IT enabled
services, or any other service activity as may be delegated by the BOA) reconditioning, repair
and reengineering and conversion of sick/closed DTA unit into EOU, satisfying the following
conditions, may be approved by the Development Commissioner
(i) the item of manufacture does not require an industrial license under the Industries
(Development & Regulation) Act, 1951;
(ii) location of the unit is either in the EPZ (for which availability of space and conformity with
environment and other standards of EPZ have been confirmed) or in an area other than the EPZ
for which the locational conditions stipulated by the Department of Industrial Policy &
Promotion have been complied with;
(iii) the unit undertakes to achieve the minimum NFEP and EP as stipulated in Appendix 1 of
the Policy;
(iv) Foreign technology agreement, if any, is as per the RBI guidelines;
(v) Conversion of existing DTA unit into EOU conforms to paragraph 6.21 above;
(vi) Conversion of EOU to STP/EHTP and vice versa as per procedure laid down in paragraph
6.21 above;
29

30. (vii) EOU/EPZ units shall have separate ear-marked premises for separate LOP/LOI. Similarly,
EOUs may be approved on leased premises provided the 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 the date of LUT and the
Development Commissioner shall satisfy himself of genuine nature of the lease. (PN 40 dtd
8.10.02)
(vii) Approval for setting up of EOU/EPZ units shall be given by the Development
Commissioner after personal hearing and satisfying the criteria indicated at Appendix 14-B of
the Handbook.
b) Powers for post approval matters
(i) Currency Fluctuation: to allow increase in the value of capital goods in terms of Indian
Rupees, on account of foreign exchange rate fluctuations;
(ii) Enhancement of production capacity: to permit capacity enhancement without any limit in
case of de-licensed industries only;
(iii) Broad banding: Broad-banding shall be considered by the Development Commissioner
only for similar goods and activities mentioned in the LOP/LOI or to provide for backward or
forwarded linkages to the existing line of manufacture.
(iv) Change in name: to authorise change in name of the company or the implementing agency
and change from a company to another provided the new implementing agency/company
undertakes to take over the assets and liabilities of the existing unit;
(v) Change of location/expansion: To permit change of location from the place mentioned in the
LOP/LOI to another and/or include additional location provided that:
(a) no change in other terms and conditions of the approval is envisaged.
(b) the new location is within the territorial jurisdiction of the DC.
(c) other locational, zoning, land-use or environmental conditions are also complied with;
(d) Extension of validity of LOP/LOI: To extend validity period of LOP/LOI by two years
beyond the initial validity period of the LOP/LOI (except in case where there is a restriction on
initial period of approval, like setting up of oil refinery projects) ;
(e) To recommend extension of LOP/LOI to BOA along with field inspection report of the unit
for the sixth year.
30

31. (f) The Development Commissioner may also cancel LOI/LOI/IL wherever warranted.(PN 16
dtd 5.6.02)
(vi) Merge of two or more EOU.EPZ units: To permit merger of two or more units into one unit
provided the units fall with in the jurisdiction of the same DC subject to the conditions that the
activities are covered under the provision of broad binding.
(vii) Development Commissioner has been delegated with powers of adjudication under Section
13 read with Section 11 of Foreign Trade (Development & Regulation) Act, 1992 in respect of
EOU/EPZ units as mentioned in Gazette Notification No. SO. 194(E) dated 6.3.2000.
(viii) Eviction of EPZ unit under Public Premises Act:
(ix) In case the rent on the plot/built up premises allotted to EPZ units is in arrears or if the
plot/shed is not utilised for the purpose for which the same has been allotted, the Development
Commissioner shall have the power to get the premises vacated under the Public Premises Act.
(x) Development Commissioner has been authorised to do valuation of exports declared on
SOFTEX form by the units located in Export Processing Zones as per RBI A.D. (M.A Series)
Circular No. 35 dated 25.11.1999 and A P (DIR series Circular No.9 dated 25.10.2001) for
EOUs.
Registration-cum-Member-ship Certificate
Importer-Exporter CodeNumberGreen Cards for EOUs Development
(xi)Commissioner has been authorised to issue eligibility certificates for grant of employment
visa to low level foreign technicians to be engaged by EOU/EPZ units as per Ministry of Home
Affairs' letter No. 25022/7/99-F.1 dated 20.9.1999.
(xii) Registering authority for EOU/EPZ/EHTP/STP units shall be the concerned Development
Commissioner. A separate Registration-cum-Membership Certificate shall not be required in
their cases as provided for in paragraph 2.44 of the Policy.
(xiii) Importer-Exporter Code number for EOU/EPZ units shall be allotted by the concerned
Development Commissioner if the same has already not been allotted to the entity.
(xiv) Green Card will be issued by the DC concerned to EOU/EPZ units automatically after
execution of Legal Undertaking.
31

32. (xv) Development Commissioner shall be closely associated with the monitoring committee of
Agricultural Export Zones as contained in Chapter 3 of Policy. D.Cs shall ensure publicity of
EOU Scheme under their jurisdiction.

6.28 Revival of Sick units Top
Guidelines on revival of sick units are given in Appendix 14-K of the Handbook (Vol.I).

6.29 Fast Track procedure Top
A fast track procedure will be (PN 16 dtd 5.6.02) separately notified for EOU/EPZ units with
actual investment in plant and machinery, both imported and indigenous imported of Rs.5
crores and above.

Note: In the case of units under EHTP/STP schemes, necessary approvals/permission under
relevant paragraphs of this Chapter shall be granted by the officer designated by the Ministry of
Communication of Information & Technology (Department of Information & Technology) for
the purpose instead of the Development Commissioner of EPZ and by the Inter-Ministerial
Standing Committee (IMSC) instead of BOA.
FACILITIES FOR EOUs
1. Rent: The units set up in the EPZs will be charged lease rent on industrial plots/ standard
design factory (SDF) buildings/sheds for the first three years, at the following rates
(i)For Plots: The lease rent will be 25% of the applicable rate for the first year, 50% for the
second year and 75% for the third year if production had commenced in the first year or
the second year. Full rent will be payable in the third year if production had not
commenced by the end of the second year;
(ii) For SDF buildings/sheds: The lease rent will be 50% of the applicable rates for the first
year and 60% for the second year if production had commenced in the first year. The lease rent
will be 75% of the applicable rates for the third year if production had commenced in the first
year. Full rent will be payable if production had not commenced by the end of the first year;
Units located in Visakhapatnam and Falta EPZs will be eligible for lease rent on industrial plots
and SDF buildings/sheds as applicable in the third year, subject to commencement of
production as indicated above, during the fourth and fifth years also.
2. Tax Holiday: EOU/ EPZ/ EHTP/ STP Units will be exempted from payment of corporate
income tax for a block of five years in the first eight years of operation.
32

33. 3. FOB value of export of an EOU/EPZ/EHTP/STP unit can be clubbed with FOB value of
export of its parent company in the DTA for the purpose of according Export House, Trading
House, Star Trading House or Super Star Trading House status for the latter
4. 100% Foreign Equity: Foreign equity upto 100% is permissible in the case of
EOU/EPZ/EHTP/STP units.
5. The EOU/EPZ units will be entitled to the benefits including grant of special import licence.
In addition, EOU/EPZ units, except telecommunication and electronics units, which achieve
more than 25% of the stipulated export performance, would be eligible for additional Special
Import Licence of 2% of the f.o.b value of such exports, in accordance with the procedure
specified in this behalf.
6. Software units may, in addition, also be allowed to use the computer system for training
purpose (including commercial training) subject to the condition that no computer terminal shall
be installed outside the bonded premises for the purpose.
FISCAL TAXATION INCENTIVES
Duty free import of capital goods, raw materials, consumables, spares and other equipment
required for export production.
Exemption from payment of excise duty on capital goods, raw materials, consumabbles, spares
and other equipment procured from Domestic Tariff Area (DTA).
Exemption from Sales Tax on inputs (applicable only in some states) and reimbursment of
Central Sales Tax (CST) on purchases made from DTA.
Corporate tax holiday for a period of ten years on graded basis.
Sub-contracting of production processes in the DTA.
Unrestricted foreign shareholding and 100 percent repatriation of export earnings at market
rates.
Exports through third party.
Flexible provisions for de-bonding.
Access to the local market;
Rent concession for first three years on sliding basis for units going into commercial production
within the first, second or third year.
Streamlined administration.
No restriction on export/import of canalised items
60% external commercial borrowing allowed in any project
Facility to retain up to 70% export earnings in EEFC account
Accelerated depreiciation norms for electronic sector
33

34. Positive NFEP for units with investments of 5 crores or more
Reimbursement of import duty on fuels.

DEEMED EXPORTS BENEFITS
Special Imprest LicenseAdvance Intermediate License
Deemed Exports Drawback
Refund of termincise duty
DTA SALES ENTIToned to EPZ/EOUs on priority by banks and financial institutions in
accordance with RBI guidelines.
Re-financing of term loans by Exim Bank.
t finance at concessional rates by commercial banks.
Facilities for opening of Letters of Credit, Bills of Purchase, discount and negotiations available
within or in close proximity to the zones.
ADMINISTRATIVE SUPPORT
.
For EOUs located outside the zones, office of the concerned Development Commissioner
liaises with the respective State Governments for providing pre-establishment support and also
for sorting out operational problems.
LABOUR RELATIONS
Public utility status has been granted to units in EPZs under Industrial Dispute Act which acts
as a psychological deterrent against wildcat strikes. In some states EOUs have also been
covered under these provisions.
All other labour laws of the country are followed.
EOU Export Growth and NFE (Rs. Mn)
Year Exports Imports N.F.E. N.F.E.(%)
1993-94 30860.05 11325.00 19535.05 63.30
1994-95 47095.90 11385.50 33710.40 71.58
1995-96 69745.92 37858.50 31887.42 45.72
34

35. 1996-97 87287.17 30764.02 56523.15 64.76
1997-98 102053.50 25668.82 76384.73 74.84
1998-99 120538.00 31048.03 89490.19 74.24
1999-00 137010.00 30147.07 106867.93 78.01
2000-01 159120.00 36590.11 122529.89 77.23
2001-02 18735 5940.8 127942.2 68.3
2002-03 22728.94 6973.02 15755.92 69.32
35
N.F.E.(%)
68.3
77.23
78.01
74.24
74.84
64.76
45.72
71.58
63.369.32

36. Other special sectors under EOU
EOU scheme has been suitably modified to suit requirements of some specific sector units.
Gem and Jewellery units - India has skilled manpower to make jewellery (plain and studded)
and gold / silver / platinum products. The raw material e.g. gold, silver, gems, diamonds,
precious stones etc. are imported and final products are exported. The general provisions
applicable to EOU units are more or less applicable to gem and jewellery units also. However,
provisions in respect of partial sale in DTA (Domestic Tariff Area) are applicable to these units
only in restricted way.
Diamonds and precious stones are allowed to be taken out for sub-contracting, i.e. job work
outside is permitted.
Broadly, provisions are identical in all the three notifications.
Supplies to gem and jewellery units are exempt from excise duty - Supplies to gem and
jewellery units can be made without payment of central excise duty. The exemption
notifications are as follows - (a) No. 146/89-CE dated 19.5.1989, in respect of supplies to units
located in SEEPZ. (b) Notification No. 22/2003-CE dated 31-3-2003, in respect of supplies to
EOU units.
Supplies of jewellery, broken diamonds etc. in DTA - Jewellery, broken diamonds etc. can be
supplied in DTA upto specified limits at concessional rate of excise duty, as prescribed in
notification No. 23/2003-CE dated 31-3-2003 [Earlier No. 20/97-CE dated 11.4.1997].
No license for import of rough diamonds - Requirement of license for import of rough
diamonds has been done away with w.e.f. 1-4-2002. Customs duty on rough diamonds is
reduced to zero.
Value addtion - Value addition norms for export of plain jewellery are 7% w.e.f. 1-4-2002.
[earlier 10% value addition was required]. Export of all mechanized unstudded jewellery is
allowed at a value addition of 3% only.
Special Provisions Relating to Gems & Jewellery EOUs.
46. The EOUs in gem & jewellery sector are allowed certain special facilities as mentioned
below:
(i)the items of gem and jewellery to be taken out temporarily into DTA without
payment of duty for the purpose of display and to be returned thereafter;
36

37. (ii)personal carriage of gold/silver/platinum jewellery or precious or semi-precious stones or
beads and articles as samples upto US$ 1,00,000 for export promotion tours and temporary
display or sale abroad subject to the condition that the exporter would bring back the jewellery
or the goods or its sale proceeds within 45 days from the date of departure through normal
banking channel;
(iii)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;
(iv)gem and jewellery units to remove parts & tools of machine temporarily without payment
of duty for the purpose of repair and return thereof.
(v)gem and jewellery manufactured in the EOU 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.
For availing of the above mentioned facilities, prior permission of Assistant Commissioner /
Deputy Commissioner is required.
Policy initiatives in new EXIM policy:
In the new EXIM policy 2002-2007 announced on 31-3-2002,following intiatives are
announced-
1. customs duty of vrough diamond is being reduced to zero.Import of rough diamonds is freely
allowed wothout any liscence.
2.value addition norms for export of plain jewellery reduced from 10% to 7%.export f all
mechanised unstudded jewellery is allowed at value addition of 3% only.
3. personal carraige of jewwellery is alloweed through Hyderabad and Jaipur airports in
addition to exisisting permitted airports.
Aquaculture - Customs notification No. 52/2003-Cus dated 31-3-2003 [Earlier No. 196/94-Cus
dated 8.12.1994] makes provisions in respect of aquaculture units. Supplies made to
aquaculture units in EOU by Indian manufacturer are exempt from excise duty vide Notification
No. 22/2003-CE dated 31-3-2003 [Earlier No. 10/95-CE dated 23.2.1995].
37

38. Granite quarry units - Customs notification No. 52/2003-Cus dated 31-3-2003 [Earlier
Notification No. 58/2000-Cus dated 8.5.2000] makes provisions in respect of granite quarry
units. Supplies made to granite quarry units in EOU by Indian manufacturer are exempt from
excise duty vide Notification No. 22/2003-CE dated 31-3-2003 [Earlier No. 37/2000-CE dated
8-5-2000].
Floriculture and pisciculture - Customs notification No. 52/2003-Cus dated 31-3-2003 (earlier
No. 126/94-Cus dated 3.6.1994) makes provisions in respect of aquaculture units. Supplies by
Indian manufacturers to these units are exempt from central excise duty vide excise exemption
notification No. 22/2003-CE dated 31-3-2003 [Earlier No. 136/94-CE dated 1.11.1994].
Specific provisions are made for these sectors, as in these cases, the capital goods and inputs
cannot be taken into EOU premises. These have to be taken to field / farm, which can be done
with permission of customs authorities. EPCG and Advance Licence holders.
Export Oriented Units (EOUs) relating to Agriculture/Hotriculture etc. have been allowed
to install equipments/inputs/consumables in the farmers' fields, outside the EOU.Branded
products exported under various Schemes allowed to be reimported to the extent of 5% of FOB
value of the preceding year's export subject to the refund of export related benefits.
Agriculture
·Corporate sector with proven credential to be encouraged to sponsor Agri Export Zone
(AEZ) for boosting agri exports.
DEPB (Duty Entitlement Passbook) rate for selected agri products to consider the cost of pre-
production inputs such as fertiliser, pesticides and seeds.
Agri Export Zones - The EXIM Policy 2002-2007 has announced concept of Agri-Export Zones
(AEZ). The intention is to promote agricultural export in sustained manner and will provide
enhanced international market access to Indian farmers.
AEZ will be identified by State Government, who may evolve a comprehensive package of
services to be provided in these zones. The services would be managed and coordinated by
State Government which would include pre/post harvest treatment and operations, plant
protection, processing, packaging, storage and related developments etc. APEDA will
supplement these efforts.
Units in AEZ will be entitled for all facilities available for export of goods. 45 such zones have
been approved. Work in 15 zones has already started and five zones have been approved in
March 2002.
Unit in agro processing zone can obtain capital goods under EPCG scheme, on export
obligation equivalent to 8 times of duty saved on capital goods. Export obligation is to be
fulfilled in 12 years.
38

39. Transport assistance is proposed to be made available for export of fresh and processed fruits,
vegetables, floriculture, poultry, dairy products, wheat and rice.
Oil
·Oil companies with marketing licences permitted to import petroleum products directly
rather than use the canalised route.
Sectorwise Operational EOUs
Sectorwise Total Operational Units
Food, Agriculture & Forest products 184
Textile & Garments & Yarn 549
Chemicals, Plastics & Allied Industry 163
Granties 160
Engineering Industry 207
Electonics & Software 155
Leather & Sports Goods 22
Minerals & Ores 3
Gem & Jewellery 21
Miscellaneous 340
Granites 57
Total 1701
39

40. Sectorwise Break up of EOUs Exports

Sectorwise Break up of EOUs Exports
Sector Industry
2000-
2001
2001-
2002
2002-2003
Chemical, Plastic and Allied
Industry
1281.141508.011948.36
Electronics and Software2532.972982.292754.6
Engineering Industry897.171056.542000.04
Foods Agriculture & Forest
Products
2142.942523.342570.11
Gem & Jewellery46.7854.33319.02
Granites626.63738.08396.49
Leather & Spots Goods37.7644.96357.1
Minerals & Ores666.69784.91907.21
40

41. Miscellaneous1138.671341.283271.93
Textiles & Garments, Yarn6541.417701.14

8204.08
Total15912.1618734.8822728.94
Sectorwise Break up of EOUs Exports

INCOME TAX AND E O U
E O U units are exempt from income tax,as per the provisions contained in section 10B of
income tax Act.
E O U units are exempt from income tax in respect of profit from export turnover u/ss 10B of
income tax act. This exemption will be discontnued w.e.f. 1.4.2009.
Conditions for income tax exemption
Section 10B is applicable to E O U units.Conditions for income tax exemption under the section
10B are broadly as follows:
THE EPIP, AMINGAON AND ITS MANAGEMENT
The EPIP is located at Amingaon, outskirts of Guwahati city and just on north bank of
Brahmaputra. The Park is well connected by B.G. Railway, Airways, Road and Waterways.
EPIP is a Govt. of India sponsored project. AIDC being the sole implementing agency of the
park, will look after they day to day management including maintenance etc.
SALIENT FEATURES OF THE PARK
· Total area of the park is 68.10 acres.
·15 kms. from of the heart of the Guwahati City
·15 kms from Guwahati Airport.
·15 kms from Guwahati Railway Station.
·N.H. 31 is passes by the Park.
·Adjacent to the Inland Container Depot (Dry Port) and Warehouses of Stat Warehousing
Corporation.
·Located in the Industrial zone of Guwahati Metropolitan Development Authority and
enjoy the facilities of the urban area.
41

42. ·Excellent infrastructural facilities.
INFRASTRUCTURAL FACILITIES AT THE PARK
ROAD
The main approach road of 20 mtr., width and 9 mtr, 7.5 mtr and 4.5 width internal roads with
metalled surface have been developed within the park. Sewerage and storm water drains and
water pipe lines are along the road.
POWER
Uninterrupted Power will be made available by a dedicated 33 KV Feeder line and a 33/11 KV
substation in the park. Power to the units will be provided by a few numbers of 11/0.433 KV
substations as per their requirement.
WATER
Sufficient supply of water will be made available in the park by the management from its own
water supply system through deep tubewells.
COMMUNICATION
Latest communication system like STD, ISD, FAX and Internet facilities will be available
within the park.
CENTRAL EFFLUENT TREATMENT PLANT
To treat the polluted water, a common effluent treatment plant will be provided in the park.
THRUST AREAS
The following thrust areas have been identified taking into account the availability of local raw
materials as well as domestic and export market potential for setting up of EOUs in the EPIP,
Amingaon
·Tea blending and packaging
·Jute yarn and Jute blended fabrics
·Diversified jute products
·Silk garments
·Handloom and handicrafts
·Food Processing units
·Ayurvedic medicine
42

43. ·Spice based unit
·Software development project
·Cane and bamboo products
Apart from the above projects any viable and potential export oriented units is welcomed in the
Park.
STATES INCENTIVES (GENERAL)
·Power subsidy
·Interest subsidy on working capital
·State Capital Investment Subsidy
·Sale tax exemption
·Subsidy on generating set
·Contribution to the feasibility study cost
·Equity participation in the assisted sector
·Misc., subsidy comprising of drawal power line, subsidy on fees for procurement of
NRDC technology, subsidy on pollution control measures and quality control measures.
·Subsidy on infrastructure facilities.
·Man power development subsidy
·Special subsidy on Pioneer units
·Special package of incentives for women entrepreneurs, physically handicapped persons
and agro food processing industries.
·
SPECIAL INCENTIVES FOR EXPORT ORIENTED UNITS
· Additional State Capital Investment Subsidy of 10% subject to a ceiling of Rs 10 lakh.
·Additional 20% subsidy on purchase of testing equipment for obtaining ISO 9000/BIS
14000 series registration subject to a ceiling of 2 lakh.
·Special incentives for units other then 100% EOUs with an export effort of a minimum of
25% of the value of the turnover will be as below.
·Subsidy on purchase of testing equipment for obtaining ISO 9000/BIS 14000 series
registration @30% of the cost of the equipment subject to a ceiling of 5 lakh. This is
proposed to support quality improvement effort.
In addition to these State Government Incentives the units will enjoy all the incentives offered
by the Central Government. The Central Government is in the process of formulating a new
Industrial Policy especially for the North Eastern Region.
(Source: Assam Industrial Development Corporation (AIDC), Guwahati.)
Report on EOUs (2003-2004) (upto October-2003)

43

44. Marketing Development Assistance (MDA)
Subject : Procedure for disbursement of Market Development Assistance (MDA) to EOUs for
export promotion activities abroad by Export Promotion Council for EOUs
As informed vide our EPCES Circular No.5 dated 9.7.03, Ministry of Commerce has
recognized this Council as an agency for disbursement of Market Development Assistance
(MDA) to EOUs and SEZ Units. The Market Development Assistance (MDA) will be available
to EOUs/SEZ Units for the following activities:
Participation in trade fairs/exhibitions abroad.
Publicity abroad through printed material.
Now EOUs and SEZ Units in the country can directly apply to EPCES for reimbursement of the
expenses incurred for the above mentioned activities.
EXPORT PROMOTION COUNCIL FOR EOUs
GUIDELINES FOR CLAIMING MARKET DEVELOPMENT ASSISTANCE
The Market Development Assistance (MDA) will be available to EOUs/SEZ Units for the
following activities:
1.Participation in trade fairs/exhibitions abroad.
2.Publicity abroad through printed material.
The detailed guidelines for claiming MDA are as under:
I. MDA FOR PARTICIPATION IN TRADE FAIRS/EXHIBITIONS ABROAD:
i. The MDA is available for participation in trade fairs and exhibitions abroad two times in a
financial year. One additional tour to Latin American Countries and Focus African Countries
would also be permissible.
ii. The MDA is permissible for travel expenses by air, eurorail etc., in economy excursion class
fare and/or charges of the built up furnished stall, electricity and water charges @ 90% for
exporters having valid SSI registration certification and 75% for others including merchant
exporters. iii. The upper ceiling would be Rs.1,10,000 per participation (Rs.1,40,000 for Latin
American Countries and Focus African countries).
This would also be subject to the following conditions:
44

45. a) A maximum number of three participations in a particular trade fair/exhibition would
be eligible for MDA and exporting companies after availing assistance three times
including past cases for a particular fair/exhibition, have to participate in that fair, if any,
on self-financing basis.
b) The Assistance would be permissible to one regular employee/
Director/Partner/Proprietor of the Company.
c) Assistance for participation in trade fair/exhibition, wherein national participation is
arranged by ITPO/EPC/Commodity Board/Export Development Authority, would be
provided if participated in the Indian Pavilion through the concerned organization or after
getting waiver certificate from the concerned organization.
d) The Application must be received in the Council’s office with 14 days clear advance
notice excluding the date of receipt of application and the date of departure from the
country.
e) The Company shall not be under investigation/charged /prosecuted/ debarred/black
listed under EXIM Policy of India or any other law relating to export and import
business.
f) Maximum MDA assistance shall be inclusive of MDA assistance received from all
Govt.bodies/FIEO/EPCs/Commodity Boards/Export Development Authorities/ITPO etc.
iv. The Application Form for MDA is given at Annexure-I and Claim Form for MDA is given
at Annexure-II.
3.MDA FOR PUBLICITY THROUGH PRINTED MATERIAL:
ii. The Assistance is available @ 25% of the total approved cost subject to an upper ceiling of
Rs.15,000.
This is Subject to the following conditions:
a) The Assistance would be provided once in a financial year.
b) A copy of the publicity material is to be submitted along with the claim.
c) Quotations from a minimum of three printers is to be obtained and submitted
alongwith the claim. The MDA will be permissible on the lowest quotation subject to the
upper ceiling as mentioned above.
d) The Application must be received in the Council’s office with 14 days clear advance
notice excluding the date of receipt of application in the office of EPCES and the date of
45

46. the publication of the material
e) The Company shall not be under investigation/charged /prosecuted/ debarred/black
listed under EXIM Policy of India or any other law relating to export and import
business. f) Maximum MDA assistance shall be inclusive of MDA assistance received
from all Govt.bodies/FIEO/EPCs/Commodity Boards/Export Development
Authorities/ITPO etc.
iii. The Application Form for MDA is given at Annexure-III and Claim Form for MDA is given
at Annexure-IV. PROCEDURE FOR CLAIMING MDA:
1.The Applications duly filled and signed [Annexure-I in the case of Participation in Trade
Fairs/Exhibitions abroad and Annexure-III in the case of Publicity through printed material] as
per proforma mentioned above are to be submitted in the Council’s office with 14 days clear
advance notice as explained in Paragraph 1 & 2 above.
4.On receipt of the Application, the Council will issue an approval letter (as per Annexure-
V enclosed) within five working days of the receipt of the application. In case, any deficiency is
observed, the application is liable to be rejected.
5.The Claim along with the declaration duly completed shall be submitted by the exporter
to the Council in the prescribed format (Annexure-II in case of participation in Trade
Fairs/Exhibitions abroad and Annexure-IV in case of Publicity through printed material) along
with undermentioned papers immediately on return to India after completion of the activity but
positively within three months of return to India after completion of activity. -:
6.
4 :- 1.For participation in trade fairs and exhibitions:
a) Details of participation in the past with MDA assistance in the same trade
fair/exhibition.
b) Self-certified copy of the export house/trading house certificate, if applicable.
c) Self-certified copy of SSI registration certificate issued by the concerned Directorate of
Industries, if applicable.
d) Legible photocopy of passport highlighting the entries about departure from and
arrival into India and also the countries visited. In case, passport does not have
arrival/departure dates regarding visits to various countries, some documentary evidence
such as Hotel Bills, Boarding pass, lodging pass etc. be submitted.
e) Original air-ticket/jacket used during the journey. If original air ticket/jacket is lost, a
legible photocopy of the same alongwith a certificate from the concerned airline
46

47. indicating following may be sent:
* Name of the traveler.
* Ticket Number.
* Flight No.
* Date of departure from India.
* Sectors/countries visited.
* Class in which travelled.
* Economy excursion class fare for sectors/countries visited.
f) Self certified copy of receipts/bank advice etc., evidencing payment(s) made.
g) Self certified f.o.b. value export figures during the last three financial years, yearwise.
h) Brief report about the participation and achievements.
2.For Publicity through printed material:
·Copy of the publicity material, self-certified.
·Self certified copy of the invoice.
·Self certified copy of receipt/bank advice etc., evidencing payments made.
·Copies of quotations from printers, self certified.
·Self certified f.o.b. value export figures during the last 3 financial years, yearwise.
4. The Claim Forms received after three months of return to India or wherein the deficiency in
the claim as intimated by the Council are not fully completed within 30 days of the date of
directions given in this regard by the Council will not be considered and rejected.

KARNATAKA
- Second largest state in concentration of EOUs in the country and contributes 20% of all India
exports from EOUs.

The success of the schemes depends largely on the co-operation of Customs and Central Excise
Departments, as they extended the formal clearances to the EOUs.
47

48. The Department of Commerce has divided the country into 7 Zones for tending to the Eous.
EOUs in Karnataka are looked after by the Development Commissioner, Cochin Special
Economic Zone from an office in Bangalore since 1991.
100% EOUs in Karnataka:
Karnataka has the second largest concentration of EOUs in the country. Out of the little over
1500 units in India, Karnataka alone has about 236 units (Excluding about 1000 STP units
exporting Rs. 10,000 crores of software) accounting for exports of more than Rs. 3,500 crores.
The chief contributors are garments, minerals, electronics, textiles.
Export Growth from Karnataka scored much higher rate than the national growth: EOUs
contribute more than Rs. 18,700 crores exports which is about 10% of the country’s exports.
Karnataka’s EOUs generated exports of Rs. 3500 Crores (Provisional) in 2001-2002, out of
which ready-made garments has contributed Rs. 1015 crores. There was tremendous growth in
EOUs and their contribution from the year 1991, when there were just 63 units with exports of
Rs. 450 crores. In the year 2001-2002, exports from Karnataka EOUs grew at 18% year – on-
year, compared to a much lower rate for the country as a whole. Karnataka’s contribution to
total exports from EOUs in India is around 20%..
Role in Employment Generation: The total investment involved in the EOUs in Karnataka is
Rs. 2,278 crores. These EOUs generate direct employment of about 37,000 people. The
indirect employment is estimated to be at least 10 times more.
Karnataka EOUs span a whole range of sophisticated industries. Among the more important
sectors are Garments, Minerals, Electronics, Textiles, Software, Agro & Food Processing,
Engineering and Services.
Separate EOU Division at Bangalore Customs: Since most of the EOUs are located in
Bangalore, Customs have a separate EOU Division. This is the only such division in the whole
country.
Benefits and Incentives:
Some of the major benefits and incentives enjoyed by EOUs are duty free import / local
purchase of the required capital goods and raw materials, income tax holiday, 100% foreign
equity participation under RBI’s automatic route, State tax concessions and more favorable
treatment in all regulatory requirements.
48

49. Future Scenario:
Meeting the imperative needs of strengthening the foreign trade of the country, EOUs are bound
to be strengthened and enabled to achieve greater heights in contributing to the economic
growth of the country. Some of the important expectations of the EOUs are:
·Further liberalization and autonomy of operations..
·Comparatively more attractive benefits and incentives to EOUs
·Relief from some of the uncomfortable, State laws, like labour laws, Pollution control
laws, ESI, Contract labor Act, etc.
·Improvement in infrastructure, including power.
·A separate Export Promotion Council for EOUs supported by government.
EXPORT PERFORMANCE OF EOUs IN KARNATAKA – 2001-2002 (Prov.)
(Rs. in Crores)
Sector Number of Units Exports
(Rs. in crores)
Percentage
Composition
Garments 38 1015 28
Minerals 2 597 17
Electronics 19 370 11
Textiles 20 298 9
Software 20 280 8
Agro and Food
Processing
29 201 6
Engineering 25 191 5
Services 1 176 5
Granites 27 117 3
Gem & Jewellery 4 107 3
Chemicals /
Drugs
5 64 2
Rubber 4 36 1
Miscellaneous 18 26 1
Biotechnology 5 20 1
Floriculture 19 3 0
49

50. Total 236 3501 100
SECTORAL PERFORMANCE
28%
17%
11%
9%
8%
6%
5%
5%
3%
3%
2%1%1%1%
0%
Garments
M inerals
Electronics
Textiles
Software
Agro and Food Processing
Engineering
Services
Granites
Gem & Jewellery
Chemicals / Drugs
Rubber
M iscellaneous
Biotechnology
Floriculture
50

51. Export Performance of EOUs in Karnataka for the Fast 5 years
(Rs.in crores)
Sector 1997-981998-991999-002000-012001-02
Agro & Food 78 74 95 263 201
Biotechnoloy 0 3 6 17 20
Chemical 31 33 82 54 64
Electronics 56 89 135 248 370
Engineering 55 87 112 139 191
Fisheries 5 7 0 0 0
Floriculture 14 12 9 11 3
Garments 444 482 647 906 1015
Gem &
Jewellery
0 0 1 52 107
Granites 86 81 100 115 117
Minerals 528 487 534 497 597
MISC 8 10 5 4 26
Rubber 31 44 52 50 36
Services 0 0 0 59 176
Software 114 176 207 268 280
51

52. Textiles 190 231 282 276 298
Total 1641 1816 2267 2957 3501
1641
1816
2267
2957
3501
1997-981998-991999-002000-012001-02
EOU's EXPORT PERFORMANCE
District-wise break-up of EOUs in Karnataka as on 31.03.2002
Factory DistrictExporting UnitsUnits under Implementation
Bangalore 186 42
Mysore 9 3
52

53. Tumkur 8 2
Dakshina Kannada 7 1
Kolar 7 1
Dharwad 6 1
Belgaum 3 0
Bellary 3 0
Davangere 2 0
Hassan 2 1
Bidar 1 0
Chickmagalur 1 0
Kodagu 1 0
Bagalkot 0 1
Bijapur 0 1
Raichur 0 2
Udupi 0 1
Total 236 56
Sales tax exemption in karnatka
GOVERNMENT OF KARNATAKA
NO.FD 102 CSL 2001(I) Karnataka Government Secretariat,
Vidhana Soudha,
Bangalore, dated 14
th
September
2001
53

54. NOTIFICATION
In exercise of the powers conferred by Section 8-A of the Karnataka Sales Tax Act, 1957
(Karnataka Act 25 of 1957), the Government of Karnataka hereby reduces with immediate
effect, the rate of tax payable under the said Act to ‘Nil’ on the sales of raw materials,
component parts and packing materials, by a registered dealer to Hundred per cent Export
oriented Units located in the State subject to following conditions and restrictions:
(i)such goods are put to use by the Hundred per cent Export Oriented Unit in the
manufacture of goods for export;
(ii)the time limit for use of such goods in the manufacture of goods for export shall be
before the expiry of the accounting year immediately succeeding year in which the goods
are purchased;

(iii)the Hundred per cent Export Oriented Unit shall export its entire production of goods
subject to relaxation permitted by Government of India from time to time;
(iv)where for any reason, the Hundred per cent Export Oriented Unit fails to comply with the
condition (iii) above, it shall forthwith cease to be eligible for the benefit of this
Notification;
(v)where for any reason the restriction or condition stipulated under (i), (ii) and (iii) above is
contravened or not complied with, either wholly or partly, the provisions of clauses (a)
and (b) of sub-section (5) of Section 8-A of the said Act shall apply and the Hundred per
cent Export Oriented Unit shall be liable to pay an amount equal to the tax payable at the
rates prescribed under the said Act, on such purchases in respect of which such
contravention or non-compliance has taken place. The amount so payable shall be
deemed to be amount due for the purposes of Section 13 of the said Act;
(vi)Registered dealer effecting the sales to Hundred per cent Export Oriented Unit shall
produce before the assessing authority, a declaration in the enclosed format signed by the
said Export Oriented Unit:
(vii) The Hundred per cent Export Oriented Unit seeking this facility shall produce before the
assessing authority a Certificate issued by the authority authorized by the Government of India
certifying that it is registered as a Hundred per cent Export Oriented Unit. The said Certificate
shall be produced, in proof of its being valid, in each assessment year, within sixty days of
commencement of the assessment year.
54

55. Explanation I.—For the purpose of this Notification:
(1)“Hundred per cent Export Oriented Unit” means a unit which is certified to be so by the
authority authorized by the Government of India;
(2) “Export” means export as defined to sub-sections (1) and (3) of Section 5 of Central Sales
Tax Act, 1956 (Central Act 74 of 1956).
Explanation II.—The export oriented units are also eligible for exemption from payment of tax
on the turnover relating to purchases of goods liable to tax at the purchase point.
By Order and in the name of the
Governor of Karnataka,
(S.DIVAKAR)
Under Secretary to Government,
Finance Department (C.T.-1).
To:
The Compiler, Karnataka Gazette, Bangalore for publication in the Extraordinary Gazette dated
13.09.2001 and supply 300 copies to the Finance Department (C.T.-1) and 1600 copies to the
Commissioner of Commercial Taxes, Gandhinagar, Bangalore.
Copy to:
1. The Commissioner of Commercial Taxes, Gandhinagar, Bangalore-9.
2. The Accountant General (Audit)/ (Accounts), Karnataka, Bangalore.
3. The Secretary, Karnataka Legislature Secretariat, Vidhana Soudha, Bangalore.
4. The Secretary, Department of Parliamentary Affairs and Legislation, Vidhana Soudha,
Bangalore.
5. Weekly Gazette.
6. Spare copies
entry tax exemption in karnatak
GOVERNMENT OF KARNATAKA

NO.FD 161 CSL 2001(II) Karnataka Government Secretariat,
55

56. Vidhana Soudha,
Bangalore, Dated 30-11-2001


NOTIFICATION

In exercise of the powers conferred by Section 11-A of the Karnataka Tax on Entry of Goods
Act, 1979 (Karnataka Act 27 of 1979), the Government of Karnataka being of the opinion that it
is necessary in public interest so to do, hereby reduces the tax payable by one hundred per cent
Export oriented Units under the said Act to ‘Nil’ on raw materials, component, packing
materials, consumable, (excluding petroleum products like petrol, diesel, furnace oil, naptha and
LSHS used as consumables or for captive power generation units) machinery and equipments,
spares, material handling equipment, intermediates, semi-finished goods and sub-assemblies
brought into a local area for use in the manufacture of goods, subject to following restrictions
and conditions:

(i) Such goods are put to use by the One Hundred per cent Export Oriented Unit in the
manufacture of goods for export; the availment of Entry Tax at ‘Nil’ rate shall be limited to the
Entry Tax paid on the above mentioned goods which are used in the manufacture of processing
of goods in the unit in Karnataka and the goods so manufactured or processed are exported out
of the territory of India.

(ii) Time limit for use of such goods in the manufacture of goods for export shall be before the
expiry of the accounting year immediately succeeding year in which the goods are purchased;

(iii) The One Hundred per cent Export Oriented Unit shall export its entire production of goods
subject to relaxation permitted by Government of India from time to time;

56

57. (iv) Where for any reason, the One Hundred per cent Export Oriented Unit fails to comply with
the condition (iii) above, it shall forthwith cease to be eligible for the benefit of this
Notification;

(v) Where for any reason the restriction or condition stipulated under (i), (ii) and (iii) above is
contravened or not complied with, either wholly or partly, the provisions of sub-section (3) of
Section 11-A of the said Act shall apply and the One Hundred per cent Export Oriented Unit
shall be liable to pay an amount equal to the tax payable at the rates prescribed under the said
Act, on such purchases in respect of which such contravention or non-compliance has taken
place. The amount so payable shall be deemed to be amount due for the purposes of Section 8
of the said Act;

(vi) Registered dealer effecting the sales to One Hundred per cent Export Oriented Unit shall
produce before the assessing authority, a certificate prescribed hereunder duly filled and signed
by the said Export Oriented Unit.

Explanation I.—For the purpose of this Notification:

(1) “One Hundred per cent Export Oriented Unit” means a unit which is certified to be so by
the authority authorized by the Government of India and which undertakes export of its entire
production of goods subject to relaxation as permitted by Government of India from time to
time and includes units set up either under the Export Oriented Unit or under EPIP (Export
Promotion Industrial Park) Scheme or under the EHTP (Electronic Hardware Technology Park)
Scheme or Software Technology Park Scheme or Special Economic Zone;

(2) “Export” means export as defined in sub-section (1) and (3) of Section 5 of Central Sales
Tax Act, 1956 (Central Act 74 of 1956).

57

58. (3) Eligibility to reduction of the rate of tax to ‘Nil’ under this Notification is restricted to One
Hundred per cent Export Oriented Units under the package of Incentives and Concessions as
per Government Order No.CI 167 SPI 2001, dated 30th June 2001.

Procedure. - The One Hundred per cent Export Oriented Units shall,
a) produce before the assessing authority,
i) Certificate issued by the Director of Industries and commerce, Government of Karnataka
or by Government of India certifying that it is registered as One Hundred per cent Export
Oriented Unit;
ii) The said certificate shall be produced, in proof of it being valid, in each assessment year,
within 60 days of commencement of the assessment year;

b) obtain an Entitlement Certificate issued by the assessing authority certifying that the unit is
covered under G.O.No.CI 167 SPI 2001, dated 30th June 2001.

This Notification shall be valid upto 31st March 2006.
Certificate
(Under G.O.No.CI 167 SPI 2001, dated 30th June 2001)
(To be completed by the purchasing dealer)
To:
……………………………… (Selling dealer’s name and
……………………………… address and registration
……………………………… certificate number).
58

59. Certified that the goods, as per details below are purchased from you by us for use in the
manufacture of goods for export out of the territory of India.

Sl.No.
Purchase Bill No. and Date
Description of goods
Quantity
Value

(1)
(2)
(3)
(4)
(5)
Certified further that our unit is eligible for package of Incentives and Concessions as
per G.O. No.CI 167 SPI 2001 dated 30th June 2001 and is registered as such with the Director
of Industries of Commerce, Government of Karnataka and the eligibility certificate bearing
No……………………………….
I/ We, are the roles of ………………………………(mention the name of the office)
bearing KST registration no………………………..
Place :
Signature.

Date :
Name and Status of the authorized
person of the Hundred percent Export Oriented Unit


R.C.NO. of the Hundred percent Export Oriented Unit


Special concessions in karnatka state
59

60. PROCEEDINGS OF THE GOVERNMENT OF KARNATAKA
Subject:- Special Concessions for New Export Oriented Units.
Preamble:-
Government of Karnataka, since the year 1989, has been extending concessions, to
encourage investments in industries for boosting exports. Further concessions have been
offered as announced in the Budget 2002-2003 of Karnataka. In order to encourage exports
from the State, Government of India has announced a scheme of assistance in the form of grants
to State for Infrastructure development of this sector. The extent of the grants is based on
export performance and growth in exports from the individual States. States are therefore
expected to play a key role to augment exports. In furtherance of this objective certain
incentives and concessions are proposed for ensuring growth of this sector. Hence the
following Government Order:-

ORDER NO.CI 167 SPI 2001(P3)/BANGALORE DATED: 24.09.2002
Under the circumstances explained above, Government is pleased to extend the
following incentives and concessions to one Hundred per cent Export Oriented Units/Other than
One Hundred Percent Export Oriented Units effective from 1st April, 2001.
I. New One Hundred per cent Export Oriented Units: Exemption from
payment of Sales Tax payable on purchase of raw materials, component parts, packaging
materials, consumables (excluding petroleum products like petrol, diesel, furnace oil, naptha
and Low Sulphur Heavy Stock), machinery and equipment, spares, material handling
equipment, intermediaries, semi finished goods and sub-assemblies from a registered dealer.
The Sales Tax exemption on purchases of various items will be available provided the
procurement is from a registered dealer located within the State.
II. New units other than One Hundred per cent Export Oriented Units with an
export effort of a minimum of 25% of the value of total turnover: Refund of Sales Tax
paid on purchase of raw materials, component parts, packaging materials, intermediates, semi-
finished goods and sub-assemblies used for exports. Sales Tax refund on purchases of various
items as detailed above would be available provided the procurement is from registered dealers
located within the State.
III. In both the cases of clause I and II above, Sales Tax on purchases would be
payable in respect of items listed therein used for production for sale within the country.
60

61. IV. The incentives and concessions granted above are available only to new units
making investments in establishing the units on or after 1st April, 2001 which manufacture
goods and exports out of the territory of India either directly by the unit or through another of
the very same goods manufactured by the unit. The exemption from payment of tax on the
above mentioned goods will be limited to the extent relatable to the quantum of actual exports,
used in the manufacture of goods in the unit in Karnataka and the goods so manufactured are
exported, subject to the terms, conditions and procedure to be specified in the Separate
Notification to be issued by the Finance Department.
This issues with the concurrence of Finance Department vide U.O. Note No.FD
314/CSL/2001 dated 6.5.2002 and 18.09.2002.
By order and in the name of the
Governor of Karnataka

Sd/-
(T. PREMANARASIMAIAH)
UNDER SECRETARY TO GOVT (ID)
COMMERCE AND INDUSTRIES DEPARTMENT


Tax Concessions for EOUs
New EOUs are entitled under to New EOUs are entitled under to Corporate Income Tax exemption Corporate Income Tax exemption on physical exports out of on physical exports out of
India till 2009India till 2009
Central Sales Tax is reimbursed on all purchases from Indian DTA sourcesCentral Sales Tax is reimbursed on all purchases from Indian DTA sources
Supplies from Indian sources are free of Central Excise Duty Supplies from Indian sources are free of Central Excise Duty
In case duties are paid, Terminal Excise Duty is reimbursedIn case duties are paid, Terminal Excise Duty is reimbursed
EOUs have exemption from State Sales Tax on all inputs (excepting fuel).
61

62. TAX PLANNING THROUGH 100% EOUs U/S 10B TAX PLANNING THROUGH 100% EOUs U/S 10B


INTRODUCTION : INTRODUCTION :
The tax exemption under section 10B is available to a 100% export oriented undertaking The tax exemption under section 10B is available to a 100% export oriented undertaking
(EOU) w.e.f. Assessment Year 1989-90. It shall now be available for 10 consecutive (EOU) w.e.f. Assessment Year 1989-90. It shall now be available for 10 consecutive
assessment years or upto assessment year 2009-10 whichever is less. Before introducing this assessment years or upto assessment year 2009-10 whichever is less. Before introducing this
section, such undertakings were eligible to claim only the deduction in respect of export profits section, such undertakings were eligible to claim only the deduction in respect of export profits
under section 80 HHC. Section 10B was inserted with a view to provide further incentive for under section 80 HHC. Section 10B was inserted with a view to provide further incentive for
earning foreign exchange. This section has been substituted w.e.f. assessment year 2001-02 and earning foreign exchange. This section has been substituted w.e.f. assessment year 2001-02 and
the provisions are similar to exemption provided under section 10A.the provisions are similar to exemption provided under section 10A.


TAX HOLIDAY under section 10B FOR 100% EOUs : TAX HOLIDAY under section 10B FOR 100% EOUs :
Tax holiday under section 10-B is available for 10 years or upto Asst. Year 2009-10 whichever Tax holiday under section 10-B is available for 10 years or upto Asst. Year 2009-10 whichever
is less (earlier it was 5 years) to an 100% export oriented undertaking in respect of profits and is less (earlier it was 5 years) to an 100% export oriented undertaking in respect of profits and
gains derived by such 100% EOU from export of articles or things or computer software. gains derived by such 100% EOU from export of articles or things or computer software.

The deduction shall be available for 10 years beginning with the assessment year relevant to The deduction shall be available for 10 years beginning with the assessment year relevant to
the previous year in which the undertaking begins to manufacture or produce any article or the previous year in which the undertaking begins to manufacture or produce any article or
thing or computer software. thing or computer software.


DEFINITIONS : DEFINITIONS :
For the purpose of this section - For the purpose of this section -
‘100% export-oriented undertaking' means an undertaking which has been approved as a 100% ‘100% export-oriented undertaking' means an undertaking which has been approved as a 100%
export oriented undertaking by the Board appointed in this behalf by the Central Government inexport oriented undertaking by the Board appointed in this behalf by the Central Government in
exercise of the powers conferred by section 14 of the Industries (Development & Regulation) exercise of the powers conferred by section 14 of the Industries (Development & Regulation)
Act,1951 and the rules made under that Act ; Act,1951 and the rules made under that Act ;

BASIC CONDITIONS : BASIC CONDITIONS :
i) Profit from domestic vis-a-vis export sale : W.e.f. assessment year 2001-02, 75% of the i) Profit from domestic vis-a-vis export sale : W.e.f. assessment year 2001-02, 75% of the
profits should be derived from export. In case profit from domestic sale does not exced 25 per profits should be derived from export. In case profit from domestic sale does not exced 25 per
cent, it shall be deemed to be the profit and gains derived from export. For this purpose, export cent, it shall be deemed to be the profit and gains derived from export. For this purpose, export
'profit derived from export' means the amount which bears to the profits of the business, the 'profit derived from export' means the amount which bears to the profits of the business, the
same proportion, as the export turnover in respect of such articles or things or computer same proportion, as the export turnover in respect of such articles or things or computer
software bears to the total turnover of the business carried on by the assessee. software bears to the total turnover of the business carried on by the assessee.

Earlier position : In case an undertaking began to manufacture or produce any article or thing Earlier position : In case an undertaking began to manufacture or produce any article or thing
on or after 1.4.1994, its exports (including deemed exports) should not be less than 75% of the on or after 1.4.1994, its exports (including deemed exports) should not be less than 75% of the
62

63. total sales during the previous year . This condition was applicable in relation to assessment total sales during the previous year . This condition was applicable in relation to assessment
year 1995-96 to 2000-01. year 1995-96 to 2000-01.

ii) The EOU is not formed by the splitting up or the reconstruction, of a business already in ii) The EOU is not formed by the splitting up or the reconstruction, of a business already in
existence. However, this condition shall not apply in respect of any industrial undertaking existence. However, this condition shall not apply in respect of any industrial undertaking
which is formed as a result of the re-establishment, reconstruction or revival by the assessee of which is formed as a result of the re-establishment, reconstruction or revival by the assessee of
the business of any such industrial undertaking as is referred to in section 33B, in the the business of any such industrial undertaking as is referred to in section 33B, in the
circumstances and within the period specified in that section; circumstances and within the period specified in that section;

iii) It is not formed by the transfer, to a new business of machinery or plant previously used for iii) It is not formed by the transfer, to a new business of machinery or plant previously used for
any purpose. However,as per explanation to section 10B(2) read with Explantation 1 and 2 of any purpose. However,as per explanation to section 10B(2) read with Explantation 1 and 2 of
section 80I(2), any machinery or plant which was used outside India by any person other than section 80I(2), any machinery or plant which was used outside India by any person other than
the assessee shall not be regarded as machinery or plant previously used for any purpose, if the the assessee shall not be regarded as machinery or plant previously used for any purpose, if the
following conditions are fulfilled : following conditions are fulfilled :

a. such machinery or plant was not previously used in India; a. such machinery or plant was not previously used in India;
b. such machinery or plant is imported into India from a foreign country; and b. such machinery or plant is imported into India from a foreign country; and
c. no deduction on account of depreciation in respect of such machinery or plant has been c. no deduction on account of depreciation in respect of such machinery or plant has been
allowed or is allowable under the Income Tax Act,1961, in computing the total income of any allowed or is allowable under the Income Tax Act,1961, in computing the total income of any
person for any period prior to the installation of the machinery or plant by the assessee. person for any period prior to the installation of the machinery or plant by the assessee.

Further, such undertaking is allowed to transfer the used machinery or plant to the new Further, such undertaking is allowed to transfer the used machinery or plant to the new
business to the extent the value of such used machinery does not exceed 20% of the total value business to the extent the value of such used machinery does not exceed 20% of the total value
of the machinery or plant used in the new business. of the machinery or plant used in the new business.

iv) W.e.f. Asst.Year 2001-02, if the sale proceeds of articles or things or computer software, iv) W.e.f. Asst.Year 2001-02, if the sale proceeds of articles or things or computer software,
exported out of India are received in or brought into India by the assessee in convertible foreignexported out of India are received in or brought into India by the assessee in convertible foreign
exchange within a period of 6 months from the end of the previous year or such further period exchange within a period of 6 months from the end of the previous year or such further period
as the RBI may allow. as the RBI may allow.

For this purpose the sale proceeds shall be deemed to have been received in India where such For this purpose the sale proceeds shall be deemed to have been received in India where such
sale proceeds are credited to a separate account maintained for the purpose by the assessee with sale proceeds are credited to a separate account maintained for the purpose by the assessee with
any bank outside India with the approval of RBI. any bank outside India with the approval of RBI.

v) The assessee is required to file a report of a Chartered Accountant along with the return v) The assessee is required to file a report of a Chartered Accountant along with the return
certifying that the deduction has been correctly claimed under this section w.e.f. assessment certifying that the deduction has been correctly claimed under this section w.e.f. assessment
year 2001-02. year 2001-02.

vi) In case of transfer of ownership or beneficial interest in the undertaking by any means the vi) In case of transfer of ownership or beneficial interest in the undertaking by any means the
undertaking shall cease to get the deduction from the year of such transfer. For this purpose in undertaking shall cease to get the deduction from the year of such transfer. For this purpose in
the case of a company, where on the last day of any previous year, the shares of the company the case of a company, where on the last day of any previous year, the shares of the company
63

64. carrying not less than 51% of the voting power are not beneficially held by the persons who carrying not less than 51% of the voting power are not beneficially held by the persons who
held the shares of the company carrying not less than 51% of the voting power on the last day held the shares of the company carrying not less than 51% of the voting power on the last day
of the year in which the undertaking was set up, the company shall be presumed to have of the year in which the undertaking was set up, the company shall be presumed to have
transferred its ownership or the beneficial interest in the undertaking. transferred its ownership or the beneficial interest in the undertaking.


SOME IMPORTANT POINTS : SOME IMPORTANT POINTS :
i) For export-oriented units the tax holiday was introduced from assessment year 1989-90 and i) For export-oriented units the tax holiday was introduced from assessment year 1989-90 and
onwards. onwards.
ii) Complete tax holiday is available for 10 consecutive years or upto assessment year 2009-10, ii) Complete tax holiday is available for 10 consecutive years or upto assessment year 2009-10,
whichever is less, beginning from the year in which the undertaking begins to manufacture or whichever is less, beginning from the year in which the undertaking begins to manufacture or
produce articles or things or computer software, as the case may be. produce articles or things or computer software, as the case may be.

iii) In case of an undertaking which has already been availing the benefit under section 10B, (as iii) In case of an undertaking which has already been availing the benefit under section 10B, (as
it stood prior to its substitution by the Finance Act, 2000), the undertaking shall be entitled to it stood prior to its substitution by the Finance Act, 2000), the undertaking shall be entitled to
this deduction only for the unexpired period of the aforesaid 10 consecutive assessment years. this deduction only for the unexpired period of the aforesaid 10 consecutive assessment years.

iv) New entity not essential. The benefit under section 10B is available even to the 100% EOUs iv) New entity not essential. The benefit under section 10B is available even to the 100% EOUs
existing prior to introduction of this section. Further, a 100% EOU can be part of an existing existing prior to introduction of this section. Further, a 100% EOU can be part of an existing
organisation. organisation.

v) To avail the exemption under section 10B is optional. If the assessee does not want to claim v) To avail the exemption under section 10B is optional. If the assessee does not want to claim
the exemption, he can furnish a declaration to the A.O. before the due date of furnishing the the exemption, he can furnish a declaration to the A.O. before the due date of furnishing the
return under section 139(1). return under section 139(1).

vi) The moment one claims tax holiday for exports, it is presumed that the allowances under vi) The moment one claims tax holiday for exports, it is presumed that the allowances under
the following sections had been given full effect to, whether actually shown in the computation the following sections had been given full effect to, whether actually shown in the computation
or not.or not.

S.32 Depreciation S.32 Depreciation
S.32A Investment allowance S.32A Investment allowance
S.33 Development rebate S.33 Development rebate
S.35 Expenditure on scientific research S.35 Expenditure on scientific research
S.36(1)(ix) Capital expenditure in relation to family planning S.36(1)(ix) Capital expenditure in relation to family planning
Further, it is presumed that these allowances were fully absorbed.In other words, no amount of Further, it is presumed that these allowances were fully absorbed.In other words, no amount of
unabsorbed allowances under the above sections in respect of the tax holiday period is to be unabsorbed allowances under the above sections in respect of the tax holiday period is to be
carried forward to any assessment year following the ten years tax holiday period or upto Asst. carried forward to any assessment year following the ten years tax holiday period or upto Asst.
Year 2009-10 whichever is less. Also, no business loss or loss under the head “Capital gains” inYear 2009-10 whichever is less. Also, no business loss or loss under the head “Capital gains” in
respect of any of the assessment years comprised in the tax holiday period is allowed to be respect of any of the assessment years comprised in the tax holiday period is allowed to be
carried forward. carried forward.

64

65. vii) Minimum threshold of employment strength is not prescribed for the purpose of section vii) Minimum threshold of employment strength is not prescribed for the purpose of section
10B. 10B.
viii) "Export Turnover" means - the consideration in respect of export of articles or things or viii) "Export Turnover" means - the consideration in respect of export of articles or things or
computer software received in, computer software received in,
or brought into India by the assessee in convertible foreign exchange in accordance with sub-or brought into India by the assessee in convertible foreign exchange in accordance with sub-
section (3), but does not section (3), but does not
include freight, telecommunication charges or insurance attributable to the delivery of the include freight, telecommunication charges or insurance attributable to the delivery of the
articles or things orarticles or things or
computer software outside India or expenses, if any, incurred in foreign exchange in providing computer software outside India or expenses, if any, incurred in foreign exchange in providing
the technical servicesthe technical services
outside India. outside India.

ix) "Hundred per cent export Export-oriented undertaking" means- an undertaking which has ix) "Hundred per cent export Export-oriented undertaking" means- an undertaking which has
been approved as a hundred been approved as a hundred
per cent export-oriented undertaking by the Board appointed in this behalf by the Centralper cent export-oriented undertaking by the Board appointed in this behalf by the Central
Government in exercise of the powers conferred by section 14 of the Industries (DevelopmentGovernment in exercise of the powers conferred by section 14 of the Industries (Development
and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act.and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act.
CERTAIN DEDUCTIONS NOT AVAILABLE : CERTAIN DEDUCTIONS NOT AVAILABLE :
A taxpayer claiming the above exemption under section 10B, will not be entitled to claim the A taxpayer claiming the above exemption under section 10B, will not be entitled to claim the
following deductions following deductions
Section 80HH :- relating to deduction in respect of profits and gains from newly established Section 80HH :- relating to deduction in respect of profits and gains from newly established
small-scale industrial undertakings in backward areassmall-scale industrial undertakings in backward areas

Section 80HHA :- relating to deduction in respect of profits and gains from newly established Section 80HHA :- relating to deduction in respect of profits and gains from newly established
small-scale industrial undertakings in rural areassmall-scale industrial undertakings in rural areas

Section 80IA and IB :- relating to the profits and gains of the industrial undertaking Section 80IA and IB :- relating to the profits and gains of the industrial undertaking
Out of above deductions, tax holiday for new industrial undertakings under section 80-IA and Out of above deductions, tax holiday for new industrial undertakings under section 80-IA and
80-IB are the only one which still survives. It may be noted that the deduction under section 80-80-IB are the only one which still survives. It may be noted that the deduction under section 80-
IA or 80-IB, as the case may be, will not be available even for the years, subsequent to the 5 IA or 80-IB, as the case may be, will not be available even for the years, subsequent to the 5
assessment years of the tax holiday claimed by taxpayers under section 10B. assessment years of the tax holiday claimed by taxpayers under section 10B.

However, deduction under section 80HHC in respect of export profits will be available. However, deduction under section 80HHC in respect of export profits will be available.

TRANSFER PRICING : TRANSFER PRICING :
An internationally tried method of tax avoidance, is the dubious concept of “transfer pricing”. An internationally tried method of tax avoidance, is the dubious concept of “transfer pricing”.
If an assessee avails of the tax holidays and he has several units, some EOU and some not , the If an assessee avails of the tax holidays and he has several units, some EOU and some not , the
profit of the EOU is to be computed after taking the cost of the goods transferred to or from the profit of the EOU is to be computed after taking the cost of the goods transferred to or from the
unit(s) which are not EOU, on the basis of the market value of such goods. In other words, if unit(s) which are not EOU, on the basis of the market value of such goods. In other words, if
inter-firm transfers do not reflect the market value and profits of the tax holiday units are inter-firm transfers do not reflect the market value and profits of the tax holiday units are
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66. artificially inflated, the Assessing Officer has the power under section 10B(7) read with section artificially inflated, the Assessing Officer has the power under section 10B(7) read with section
80IA(8) and 80IA(10) to arrive at the correct profit. Also, if there are other dubious 80IA(8) and 80IA(10) to arrive at the correct profit. Also, if there are other dubious
arrangements whereby profits of the tax holiday unit are increased, the Assessing Officer can arrangements whereby profits of the tax holiday unit are increased, the Assessing Officer can
suitably adjust the profits. suitably adjust the profits.

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