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How to set-up an Export Oriented Unit

EOU Scheme

The needs for higher level of technological and industrial progress made the Government devise a series of export promotional schemes. EOU & SEZ Schemes are one among them, which provides an internationally competitive duty free environment coupled with better infrastructural facilities for export production.

Export Oriented Units (EOUs) now constitute a very important sector in the country’s Export Production scenario. They have become dominant players in our export strategy, and their share in the Country’s export performance is about 10%. The export growth rate of 30% compares very favorably with the National export growth rate.

How to set-up an Export Oriented Unit (EOU)

“How to set-up an Export Oriented Unit (EOU)” is a step-by-step process.

The information is divided into 5 parts:

Eligibility Criteia

Prior to Approval

How to apply

Approval Procedure

After Approval (what to do for commencement of Production)

I.   ELIGIBILITY CRITERIA

Who is eligible to become an EOU?

An EOU can be set up by any entrepreneur for manufacturing of goods and also for rendering services.  An EOU can be set up for repair, reconditioning, re-making  and re-engineering also.

Trading activity is not allowed in the EOU Scheme.

EOU unit is required to achieve only positive Net Foreign Exchange (NFE) over a period of  5 years.

Policy for EOU is given in Chapter-6 Foreign Trade Policy and Chapter 6 of Handbook of Procedure (Vol. – I)

EOU can also be set up in the following sectors: -

Agriculture
Animal Husbandry
Aquaculture
Floriculture
Horticulture
Pisciculture
Viticulture
Poultry or
Sericulture

Conversion of existing DTA/EPCG (Export Promotion Capital Goods) units to EOU Scheme

Existing DTA units or EPCG units are permitted for conversion into EOU Scheme as one time option. In case there is an outstanding export commitment under the EPCG Scheme, it will be sub summed in the export performance (EP) of the unit. If the unit is having outstanding export commitment under the Advance Licensing Scheme, it will discharge the same as well, as per its conditions before conversion into EOU Scheme. However, duties of Customs and Central Excise already suffered shall not be refunded on conversion into EOU.

II.PRIOR TO APPROVAL

1) Planning your venture:

Is it your own or
Is it with foreign participation and, if so, nature of participation (foreign investment allowed 100%)

2) What process do you intend to do i.e. Manufacturing, rendering and export of services or: -

Agriculture
Animal Husbandry
Aquaculture
Floriculture
Horticulture
Pisciculture
Viticulture
Poultry or
Sericulture
Repair, reconditioning, re-making, re-engineering etc.

3) Technology to be used:

Indigenous/ foreign
Related cost and conditions

4) Feasibility report:

On your own or with help of consultant

5) The finances involved:

Land, structure, buildings etc.(Please note, building construction material is not exempted from duty).
Capital Goods, machinery etc.
Payment for royalties etc.
Administration and establishment
Others : like interest on loans, related taxes and levies etc.

6) The current competition overseas:

Main competitors
Demand and price levels.

7) The import laws and other requirements in target markets:

Any fiscal/ non-fiscal barriers, like anti-dumping laws.
Quota restrictions.
Preferential treatment to competitor countries.

8) Location of the Unit:

The first thing before setting up an EOU the entrepreneur has to decide the location of  unit: -

i.   close to port or rail/ road.
ii.  availability of raw material and
iii. Environment clearance needed if unit is located  within 25 kms of an urban town

Accordingly the application will be submitted to the concerned Development Commissioner under whose jurisdiction that state comes.

9) Capital goods, machinery and equipment to be used:

Indigenous or foreign (allowed duty free)
Related cost

10) The raw materials and other inputs, like consumables etc. that would be required:

Source (allowed duty free)
Cost
Monthly, quarterly and annual requirements.

11) The production process:

Whether production process requires air-conditioning plant, special furnaces or kilns etc.
Details and cost. (Please note, air-conditioning equipment  permitted duty free only if it is essential for production process).

12) The production capacity and spare capacity:

Do you intend to utilize the same by doing sub-contracting work for other export units in DTA or Export Oriented Units.
Whether you want to get job work done outside the EOU.
Details of sub-contractors.
Related costs.

13) Any by-products turned out in the production process:

Details of by-products
Whether these would be exported or sold in Domestic Tariff Area (DTA)

14) Effluents or waste-material:

How do you propose to treat these or discharge them.

15) Packaging

Details of packaging (packaging material allowed without payment of duty)
Source
Cost

16) Power:

Whether the normal grid could supply adequate power.
Or there would be a need for a captive power plant.
Cost of power plant
Fuel required for captive power plant (e.g. furnace oil, LPG,  HSD, coal etc.) (allowed duty free)

17) Other information:

Firm/company should be duly registered and details about Proprietor/Partner/ Directors etc.
A current account with the bank authorized to deal in foreign exchange should be opened.
Sale tax registration to be obtained from the Sale Tax Department.
Investment details

18) Mandatory clearances from State Government: -

Pollution clearance certificate.
Approvals of building plan in cases where building is proposed to be constructed.
Registration as a small scale industrial unit, if applicable
Registration under Factories Act.

III. HOW TO APPLY

All applications are to be filed with the concerned Development Commissioner of Special Economic Zone (For jurisdiction of Development Commissioner) Appendix 14-I- K

The unit/ promoter has to apply in the application form, to be given in triplicate given in Handbook of Procedures in Appendix 14-1A (Please click here)

Project Report including a write up on the background of the promoters establishing their credentials and standing.

Please see Appendix 14-1B (Please click here) for documents required by the Development Commissioner for approval.

For sector specific conditions Please see Appendix 14-1C (Please click here)

DD for Rs. 5,000/- drawn in favour of The Pay & Accounts Officer, Ministry of Commerce and Industry, Department of Commerce, payable at the Central Bank of India, Udyog Bhavan, New Delhi.

Registration –cum-Membership Certificate (RCMC) should be obtained from the office of the concerned Development Commissioner.

Import Export Code: If the  unit does not have an Import Export code (IEC), it will apply in the prescribed form (Appendix 18-B)  to the Zone Administration for the same.

IV. APPROVAL PROCEDURE

Letter of Permission (LOP)

After submitting the application form and if every thing is in order, Letter of Permission (LOP) is issued by the Zone Administration within 2 weeks after interview of the promoter by the Approval Committee.  For format of LOP please see Appendix 14-IE (Please click here)

Legal undertaking (LUT)

A legal undertaking in the prescribed form undertaking to abide by the terms and conditions of the LOP has to be executed  by the unit in format given at Appendix 14-1F (Please click here ).

A Green Card will be issued  to the unit by the Zone Administration on request.

Approval from State Government  Agencies:

V. AFTER APPROVAL

After the approval from the Development Commissioner concerned, the manufacturing and other activities have to be undertaken under customs bond for which formal application is to be made to the jurisdictional Assistant Commissioner/ Deputy Commissioner of the Customs/ Central Excise for issuance of a Private Custom Bonded Warehouse Licence under section 58 and 65 of the Customs Act, 1962. The application shall be accompanied by the following documents/information: -

Copy of notification whereunder the place (proposed location of unit)  has been declared as warehousing station under section 9 of the Customs Act. In case the approved place is not a notified warehousing station, a separate application for issuance of such notification is to be submitted to the Commissioner of Customs through the jurisdictional Assistant Commissioner/ Deputy Commissioner.

Copy of LOI/LOP issued by Development Commissioner concerned and LUT accepted by the Development Commissioner.

Details of the premises including ground plan, purchase/rent/lease deed, allotment letter from Industrial Development Corporation/ Authority (if any)

Details about the constitution of the firm/company including its Proprietor/Partners/Directors etc.

Project Report indicating stage wise manufacturing process.

List of raw material, consumables and capital goods etc. required.

Undertaking that cost recovery and other charges shall be paid.

After verification of the premises and relevant documents, the requisite licence under section 58 and 65 of the Customs Act will be issued by the Assistant Commissioner/ Deputy Commissioner Customs/ Central Excise on priority basis.

B-17 Bond:

B-17 bond is a multi – purpose surety bond which the unit has to execute with the Jurisdictional Assistant/ Deputy Commissioner Customs/ Central Excise on a non-judicial stamp paper of Rs. 300/-. Format of the Bond is prescribed under Notification No. 6/98 CE (N.T) dt. 2-3-98.

B-17 Bond is a surety bond and in case valid surety cannot be arranged security @5% of the bond amount has to be furnished. The bond amount shall be equal to 25% of the duty foregone on the capital goods required in the next 5 years plus duty foregone on the value of raw material for a period of 3 months.

B-17- Bond covers the following activities:-

Duty free import/ procurement of goods as per relevant notification and warehousing/storage in the unit and their utilization.

Transhipment of import/ export of goods duty free between port of import/ export and units premises.

Movement of duty free goods for job work and return.

Temporary clearance for repair and display in exhibitions, testing/ approval etc.

However it dose not cover differential duty amount against advance DTA sale for which a separate bond is to be executed.

The unit has also to take a Central Excise Manufacture Code No. from the Superintendent, Central Excise to enable them to sell in the domestic market.

The Development Commissioner is empowered to grant approvals on the following matters: -

Import of additional capital goods
Enhancement of production capacity
Broad-banding/diversification
Change in name/ constitutions
Change of location/expansion
Extension of validity of LOP/LOI/LOA:
Import of Office equipment:
Merger of two or more EOU/SEZ Units 
Import of spares and accessories of DG sets    
Eligibility certificates for grant of employment visa to low level foreign technicians to be engaged by EOUs as per Ministry of Home Affairs Letter No. 250227/7/99-F-1 dated 20-9-1999 (Annexure-XI).
Sale of goods in DTA.
De-bonding/ Exit from EOU scheme.

Approval from State Government  Agencies:

The unit has to secure approval for its wiring and electrical plan from the Electrical authorities.

It has  also to secure power allocation and wiring approval from the State Electricity Board.

The industrial water supply is undertaken by the

The unit has to take a registration under the State Government Sales Tax Act and Central Sales Tax Act.

In case the unit already has a registration with the State Sale Tax Department the address of the additional premises should also be endorsed in the registration certificate.

The unit has also to take Small Scale Industry (SSI) Registration from the District Industries Center to apply for State Government’s Investment Subsidy.

In case there are effluents or emissions the unit has to secure approval form the Pollution Control Board.

Every Zone has a statutory Single Window Clearance Board.