Overview The investment by foreign entities has significantly improved in the last few years in...
The scheme of export oriented units was introduced at the beginning of the 1980s. It is complementary to the SEZ scheme and has the same production regime; however, it offers a wide range of options in locations with reference to factors such as:
Following are the objectives of Export Oriented Units’:
The units that are undertaking to export the whole of their production of goods and services apart from permissible sales in DTA (Domestic Tariff Area) under this policy can be set up under various schemes like Export Oriented Scheme, Electronic Hardware Technology Park, scheme for the manufacture of goods and rendering of services.
Different forms of incentives for the EOU’s are as follows:
The application for EOU set up is made to the Board of Approval. Once it approves, the letter of permission is provided for setting up the EOU. The letter provides you two years for the construction of the plant and installation of machinery. It may be extended by another year. The EOU shall have to achieve positive foreign exchange within five years once the operation begins.
In order to assume the status of an EOU, the minimum investment required to be put into plant and machinery is one crore. However, it may be noted that this is not applicable to software technology parks, electronic hardware technology parks, and biotechnology parks.
EOU’s location should be minimum 25 kilometers away from the standard urban area limits except if it is set up in the industrial area or if it deals in non-polluting products or services. Apart from the local zonal office and state government, EOU’s set up is also guided by the rules and regulations of the environment. Therefore it is essential to understand that even if the EOU fulfills all the location policy but is not in accordance with the environmental rules, then the Ministry of Environment under the Government of India can cancel such a proposal.
In the beginning, the EOU’s revolved around the industries such as textile, electronic, food processing, chemical industries, plastic and minerals, but over the years the EOU’s have been set up for engineering, manufacturing, agriculture and allied sectors, services, etc.
A special license is essential for setting up an EOU for sectors such as atomic, defense sector, narcotics and psychotropic substances, and certain tobacco products.
The EOU’s are licensed to manufacture goods and exports within a bonded time period of five years. This time period may be extended five more years by the Development Commissioner.
The positive effect of the EOU scheme was eminent in the first two decades of its beginning till the floating of the SEZ scheme. EOU’s provided exporters the freedom to set up an export business in places of their choice, which were different from free trade zones and export processing zones that were having certain locational restrictions. It has provided the exporters to choose from a range of industrial sectors while setting up their Export Oriented Units.
Export Oriented Units have various benefits as they can claim reimbursement on the GST amount they pay. The EOU may apply for an input tax credit on the paid GST while providing supplies to the DTA, or it can claim a refund of the GST.
Also, Read: Options for Exiting from a SEZ Unit.