Export Oriented Units (EOUs) have been defined under the Foreign Trade Policy (FTP) as
those units undertaking to export their entire production of goods and services [except
permissible sales in Domestic Tariff Area (DTA) for manufacture of goods, including repair,
re-making, reconditioning, re-engineering, rendering of services, development of software,
agriculture including agro-processing, aquaculture, animal husbandry, biotechnology,
floriculture, horticulture, pisciculture, viticulture, poultry and sericulture. Trading units are
not covered under the EOU.
The legal provisions for EOUs are given in Chapter 6 of the Foreign Trade Policy (FTP),
Chapter 6 of Handbook of Procedures (Vol 1), Appendix 6 and Aayat Niryat Forms (ANF) 6.
Any amendments to these provisions are notified by the office of DGFT through
notifications, public notices, circulars etc.

The objectives of the EOU Scheme are to promote exports, enhance foreign exchange
earnings, attract investment for export production and employment generation.

An application for setting up an EOU needs to be made in ANF 6A (in triplicate) to the
office of the DC. Apart from the application fee of Rs 5000/- (demand draft), some of the
other documents required are the Certificate of Incorporation, Articles of Association (AOA),
Partnership Deed as the case may be, existing and proposed capital structure, would need to
be submitted.
Application for setting up of EOU shall be approved or rejected by Unit Approval Committee
(UAC) within 15 days, as per the criteria specified in appendix 6A
On approval, a Letter of Permission (LoP) is issued by Development Commissioner of the
Special Economic Zone (SEZ) under whose administrative control the EOUs comes. The
validity of LoP is for a period of 5 years (excluding the period of 2 years for commencement
of production). The LoP would be construed as an Authorisation for all purposes.

An EOU shall execute a Legal Undertaking (LUT) with the DC. It has to account for the
utilisation of inputs as per the Standard Input Output Norms (SION). However, where there is
no SION, the norms for waste, scrap and remnants would be 2%. The export proceeds have to
be realized within nine months
It has to ensure a positive Net Foreign Exchange (NFE) which is computed as per the
following formula.
NFE = (A-B) where
A is the sum of physical exports in free foreign exchange and deemed exports (as per para
6.09 of FTP)
B is the sum of the imported and domestic procured raw materials and consumables along
with the amortised value (10% per year over a 10-year period) of the capital goods and
foreign technical know-how fees
The failure to ensure positive NFE or to abide by any of the terms and conditions of LoP/
Industrial Licence (IL) / LUT shall render the unit liable to penal action under provisions of
the FT (D&R) Act, as amended, and Rules and Orders made there under, without prejudice to
action under any other law / rules and cancellation or revocation of LoP.

• Only projects having a minimum investment of Rs.1 Crore in plant & machinery shall
  be considered for establishment as EOUs. However, this shall not apply to existing units,
  units in Handicrafts /Agriculture/ Floriculture/Aquaculture/Animal Husbandry/Information
  Technology, Services, Brass Hardware and Handmade jewellery sectors. BOA may allow
  establishment of EOUs with a lower investment criterion.

Supplies from DTA to EOU units for use in their manufacture for exports will be
eligible for benefits of deemed exports under Chapter 7 of FTP. DTA supplier shall be
eligible for relevant entitlements under Chapter 7 of FTP, besides discharge of export
obligation, if any, on the supplier. The refund of GST paid on such supply from DTA to EOU
would be available to the supplier subject to such conditions and documentations as specified
under GST rules and notifications issued there under.
(Suppliers of precious and semi-precious stones, synthetic stones and processed pearls from
DTA to EOU shall be eligible for grant of Replenishment Authorisations at rates and for
items mentioned in HBP.
Other entitlements of EOU units are as under:
(a) Exemption from industrial licensing for manufacture of items reserved for SSI sector.
(b) Units will be allowed to retain 100% of its export earnings in the Exchange Earner’s
Foreign Currency (EEFC) account.
(c) Unit will not be required to furnish bank guarantee at the time of import or going for job
work in DTA, where:
(i) The unit has turnover of Rs.5 crore or above;
(ii) The unit is in existence for at least three years; and
(iii) The unit:
(1) has achieved positive NFE / export obligation wherever applicable;
(2) has not been issued a show cause notice or a confirmed demand, during the
preceding 3 years, on grounds other than procedural violations, under the penal
provision of the Customs Act, the Central Excise Act, the Foreign Trade (Development
& Regulation) Act, the Foreign Exchange Management Act, the Finance Act, 1994
covering Service Tax or any allied Acts or the rules made there under, on account of
fraud / collusion / wilful misstatement / suppression of facts or contravention of any of
the provisions thereof;
(d) 100% Foreign Direct Investment (FDI) investment permitted through automatic route.

• Yes, the Units Approval Committee may consider on a case-to-case basis request for
  sharing of infrastructural facilities among EOUs and it shall forward its recommendation to
  the Board of Approval for its consideration. While accepting such proposals, the NFE
  obligations of the units shall not be altered. However, sharing of facilities between EOUs and
  SEZ units shall not be permitted

• Second hand capital goods, without any age limit, may also be imported with or without
  payment of duty/ taxes (as provided under Para 6.01(d) (ii) of the FTP)

• 1. The annual review of performance of each operational unit and its compliance with
  the conditions of approval shall be undertaken by the Development Commissioner before the
  end of the first quarter of the following financial year;
  2. A summary of annual performance review will be sent by each Development
  Commissioner to the Ministry of Commerce for information under the three formats indicated
  below latest by 30th September every year;
  Proforma I: Comparative statement of performance and monitoring as compared to previous
  year;
  Proforma II: Summary of annual performance of the EOU units, sector – wise with sectoral
  sub – totals.
  Proforma III: Unit-wise statement on Net Foreign Exchange (NFE) showing the result of
  review.

• Although both EOUs and SEZs, were initiated to boost exports, there are differences between
  the two. An EOU can be set up anywhere in the country, provided it meets the scheme’s criteria. On
  the other hand, an SEZ is a specially demarcated enclave that is deemed to be outside the Customs
  jurisdiction and therefore, a foreign territory. Thus, any sale made from within an SEZ to DTA is
  considered export while any sale made by an EOU to DTA is regarded as deemed exports. Sale from
  SEZs to DTAs are more common, compared to sales from EOUs to DTAs.
  Being a clearly demarcated area, there is substantial control over the physical movement of goods to
  and from SEZs, but the same cannot be said about EOUs. In terms of taxability, an SEZ based
  establishment is not required to pay tax, while an EOU has to pay tax which it can claim as a refund
  later.
  Minimum investment in plant and machinery and building is Rs 1 crore for EOU. This should
  be before commencement of commercial production, there is no such limit for SEZ.

• (a) With approval of DC, an EOU may opt out of scheme. Such exit shall be subject to
  payment of applicable Excise and Customs duties and on payment of applicable IGST/
  CGST/ SGST/ UTGST and compensation cess, if any, and industrial policy in force.
  (b) If unit has not achieved obligations, it shall also be liable to penalty at the time of exit.
  (c) In the event of a gems and jewellery unit ceasing its operation, gold and other precious
  metals, alloys, gems and other materials available for manufacture of jewellery, shall be
  handed over to an agency nominated by Department of Commerce (DoC), at price to be
  determined by that agency.
  (d) An EOU unit may also be permitted by DC to exit from the scheme at any time on
  payment of applicable duties and taxes and compensation cess on capital goods under the
  prevailing Export Promotion Capital Goods (EPCG) Scheme for DTA Units. This will be
  subject to fulfilment of positive NFE criteria under EOU scheme, eligibility criteria under
  EPCG scheme and standard conditions indicated in HBP.
  (e) Unit proposing to exit out of EOU scheme shall intimate DC and Customs authorities in
  writing. Unit shall assess duty liability arising out of exit and submit details of such
  assessment to Customs authorities. Customs authorities shall confirm duty liabilities on
  priority basis, subject to the condition that the unit has achieved positive NFE, taking into
  consideration the depreciation allowed. After payment of duty and clearance of all dues, unit
  shall obtain “No Dues Certificate” from Customs authorities. On the basis of “No Dues
  Certificate” so issued by the Customs authorities, unit shall apply to DC for final exit. In case
  there is no proceeding pending under The Foreign Trade (Development and Regulation) Act,
  as amended, DC shall issue final exit order within a period of 7 working days. Between “No
  Dues Certificate” issued by Customs authorities and final exit order by DC, unit shall not be
  entitled to claim any exemption for procurement of capital goods or inputs. However, unit
  can claim Advance Authorisation / Duty Free Import Authorization (DFIA) / Duty
  Drawback. Since the duty calculations and dues are disputed and take a long time, a Bank
  Guarantee (BG) / Bond / Instalment processes backed by BG shall be provided for expediting
  the exit process.
  (f) In cases where a unit is initially established as DTA unit with machines procured from
  abroad after payment of applicable import duty, or from domestic market after payment of
  excise duty/GST, and unit is subsequently converted to EOU, in such cases removal of such
  capital goods to DTA after exit would be without payment of duty. Similarly, in cases where
  a DTA unit imported capital goods under EPCG Scheme and after completely fulfilling
  export obligation gets converted into EOU, unit would not be charged customs duty on
  capital goods at the time of removal of such capital goods in DTA when exit.
  (g) An EOU unit may also be permitted by DC to exit under Advance Authorisation as onetime option. This will be subject to fulfilment of positive NFE criteria.

• EOU is like any other supplier under GST and all the provisions of the GST Law will
  apply. However, the benefit of Basic Customs Duty exemption on imports will continue.

• The duty free imports under GST regime will be restricted to Basic Custom duty.
  Exemption from the additional duties of Customs, if any under Section 3(1), 3(3) and 3(5) of the
  Customs Tariff Act, 1975 and exemption from Central Excise duty will be available for goods
  specified under the Fourth Schedule to the Central Excise Act. IGST or CGST plus SGST will
  be payable by the suppliers who make supplies to the EOU. The EOU will be eligible, like any
  other registered person, to take Input TaxCredit of the said GST paid by its suppliers.

• No, under the GST law, IGST or CGST plus SGST will be payable by the suppliers
  who make supplies to the EOU. The EOU will be eligible to take Input Tax Credit of the said
  GST paid by its suppliers.
  The supplies from EOU will not be exempted from GST, except in the case of zero rated
  supplies defined under section 16 of the IGST Act, i.e. Supplies made by EOU in the form
  of physical export or supplies to a SEZ unit or SEZ Developer for authorized operations.

• To avail such import benefits, EOUs will have to follow the procedure under the
  Customs (Import of Goods and Concessional Rate of Duty) Rules, 2017.

• Supply of goods from one EOU to another EOU will be treated as any other supply
  under GST Law. An EOU can send goods for job work as per section 143 of the CGST Act,
  2017 and rule 45 of the CGST Rules, 2017 and the tax liability shall be discharged
  accordingly.