Chapter6 Export oriented units (EOUS), electronics hardware technology parks (EHTPS) software technology parks (STPS

01 September 2004

(a)	An EOU/EHTP/STP/BTP unit may export all kinds of goods and services except items that are prohibited in the ITC (HS). Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) shall be subject to fulfillment of the conditions indicated in the ITC (HS).
(b)	An EOU/EHTP/STP/BTP unit may import and/or procure from DTA or bonded warehouses in DTA/international exhibition held in India without payment of duty all types of goods, including capital goods, required for its activities, provided they are not prohibited items of import in the ITC (HS). Any permission required for import under any other law shall be applicable. The units shall also be permitted to import goods including capital goods required for the approved activity, free of cost or on loan/lease from clients. The import of capital goods will be on a self certification basis.
(c)	State Trading regime shall not apply to EOU manufacturing units.
(d)	EOU/EHTP/STP/BTP units may import/procure from DTA without payment of duty certain specified goods for creating a central facility which will be used by software units. These software units can be EOU/ DTA units who will use the facility for export of software.
(e)	An EOU engaged in agriculture, animal husbandry, aquaculture, floriculture, horticulture, pisciculture, viticulture, poultry or sericulture may be permitted to remove specified goods in connection with its activities for use outside the bonded area.
(f)	Gems and jewellery EOUs may source gold/silver/platinum through the nominated agencies also. Units obtaining gold/silver/platinum from the nominated agencies shall export gold/silver/platinum jewellery within 60 days from the date of release. This shall not, however, apply to outright purchase of precious metal from the nominated agencies.
(g)	EOU/EHTP/STP/BTP units, other than service units, may export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of the buyer subject to RBI clearance, if any.
(h)	Procurement and supply of spares and consumables required for the goods manufactured by the units may be allowed to be exported along with goods upto 1.5% of FOB value of exports. This shall, however, not count towards NFE calculation, for concessional rate DTA sales or for Income Tax exemption.

Second Hand Capital Goods

6.3

Second hand capital goods without any age limit, may also be imported duty free.

Leasing of Capital Goods

6.4

An EOU/EHTP/STP/BTP unit may, on the basis of a firm contract between the parties, source the capital goods from a domestic/foreign leasing company without payment of customs/excise duty. In such a case, the EOU/EHTP/STP/BTP unit and the domestic/foreign leasing company shall jointly file the documents to enable import/procurement of the capital goods without payment of duty.

Net Foreign Exchange Earnings (NFE)

6.5

EOU/EHTP/STP/BTP unit shall be a positive net foreign exchange earner. Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively in blocks of five years, starting from the commencement of production.

Letter of Permission/ Letter of Intent and Legal Undertaking

6.6

(a)	On approval, a Letter of Permission (LOP) /Letter of Intent (LOI) shall be issued by the Development Commissioner to EOU/EHTP/STP/BTP unit. The LOP/LOI shall have an initial validity of 3 years by which time the unit should have commenced production. Its validity may be extended further up to 3 years by the competent authority. However, proposals for extension beyond six years shall be considered in xceptional circumstances, on a case-to-case basis by the BOA. Standard format for the extension of LOP is given at Appendix MM. Once the unit commences production, LOP/LOI issued shall be valid for a period of 5 years for its activities. This period may be extended further by the Development Commissioner for a period of 5 years at a time.
(b)	LOP/LOI issued to EOU/EHTP/STP/BTP units by the concerned authority would be construed as a licence for all purposes.
(c)	The unit shall execute a legal undertaking with the Development Commissioner concerned . Failure to ensure positive NFE or to abide by any of the terms and conditions of the LOP/LOI/IL/LUT 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 there under without prejudice to action under any other law/rules and cancellation or revocation of LOP/LOI/IL.

Investment Criteria

(d)

Only projects having a minimum investment of Rs.1 crore in plant and machinery shall be considered for establishment as EOUs under the scheme. This shall, however, not apply to existing units and units in EHTP / STP/ BTP, Handicrafts/ Agriculture/ Floriculture/Aquaculture/ Animal Husbandry/Information Technology, Services, Brass hardware , handmade Jewellery and such other sectors as may be decided by the BOA. Sector-wise investment criteria shall be fixed by BOA.

Application & Approvals

6.7

(a)	Applications for setting up of units under EOU scheme other than proposals for setting up of unit in the services sector (except R&D , software and IT enabled services, or any other service activity as may be delegated by the BOA), shall be approved or rejected by the Units Approval Committee within 15 days as per the criteria indicated in Handbook (Vol-I).
(b)	In other cases, approval may be granted by the Board of Approval (BOA) set up for this purpose as indicated in the Handbook (Vol-I)
(c)	Proposals for setting up EOU requiring industrial licence may be granted approval by the Development Commissioner after clearance of the proposal by the Board of Approval and Department of Industrial Policy and Promotion within 45 days.

DTA Sale of Finished Products/ Rejects Waste/ Scrap/ Remnants and By-products

6.8

The entire production of EOU/EHTP/STP/BTP units shall be exported subject to the following:

(a)	Units, other than gems and jewellery units, may sell goods upto 50% of FOB value of exports subject to fulfillment of positive NFE on payment of concessional duties . Within the entitlement of DTA sale, the unit may sell in DTA its products similar to the goods which are exported or expected to be exported from the units. No DTA sale at concessional duty shall be permissible in respect of motor cars, alcoholic liquors, books and tea (except instant tea) or by a packaging/ labeling /segregation/ refrigeration unit/ compacting/micronisation/pulverization/granulation /conversion of mono-hydrate form of chemical to anhydrous form or vice-versa and such other items as may be notified from time to time. Sales made to a unit in SEZ shall also be taken into account for the purpose of arriving at FOB value of export by EOU provided payment for such sales are made from EEFC Account. Sale to DTA would also be subject to mandatory requirement of registration of pharmaceutical products (including bulk drugs).
(b)	For services, including software units, sale in the DTA in any mode, including on line data communication shall also be permissible up to 50% of FOB value of exports and /or 50% of foreign exchange earned, where payment of such services is received in foreign exchange.
(c)	Gems and jewellery units may sell upto 10% of FOB value of exports of the preceding year in DTA subject to fulfillment of positive NFE. In respect of sale of plain jewellery, the recipient shall pay concessional rate of duty as applicable to sale from nominated agencies. In respect of studded jewellery, duty shall be payable as applicable.
(d)	Unless specifically prohibited in the LOP, rejects may be sold in the Domestic Tariff Area (DTA) on payment of duties as applicable to sale under paragraph 6.8(a) on prior intimation to the Customs authorities. Such sales shall be counted against DTA sale entitlement. Sale of rejects upto 5% of FOB value of exports shall not be subject to achievement of NFE.
(e)	Scrap/ waste/ remnants arising out of production process or in connection therewith may be sold in the DTA as per the Standard Input-Output norms notified under the Duty Exemption Scheme on payment of concessional duties as applicable within the overall ceiling of 50% of FOB value of exports. Such sales shall not, however, be subject to achievement of positive NFE. In respect of items not covered by the norms, the Development Commissioner may fix ad-hoc norms on the basis of data for a period of six months and within this period, he shall get the norms fixed by the BOA. Sale of waste/scrap/remnants by units not entitled to DTA sale or sales beyond the DTA sale entitlement, shall be on payment of full duties. The scrap/waste/remnants may also be exported.
(f)	There shall be no duties/taxes on scrap/waste/ remnants in case the same are destroyed with the permission of Customs authorities.
(g)	By-products included in the LOP may also be sold in the DTA subject to achievement of positive NFE on payment of applicable duties within the overall entitlement of paragraph 6.8(a). Sale of by-products by units not entitled to DTA sales or beyond the entitlements of paragraph 6.8 (a) shall also be permissible on payment of full duties.
(h)	EOU/ EHTP/ STP/BTP units may sell finished products, which are freely importable under the Policy in the DTA under intimation to the Development Commissioner against payment of full duties provided they have achieved the positive NFE.
(i)	In the case of units manufacturing electronics hardware and software, the NFE and DTA sale entitlement shall be reckoned separately for hardware and software.
(j)	In case of DTA sale of goods manufactured by EOU/EHTP/STP/BTP , where basic duty and CVD is nil, such goods may be considered as non-excisable for the purpose of payment of duty.
(k)	In case of new EOUs, advance DTA sale will be allowed based on its estimated exports for the first year .

Other Supplies in DTA

6.9

Following supplies effected from EOU/EHTP/STP/BTP units to DTA will be counted for the purpose of fulfillment of positive NFE:

(a)

Supplies effected in DTA to holders of advance licence, advance licence for annual requirement/DFRC /EPCG scheme.

(b)

Supplies effected in DTA against payment from the Exchange Earners Foreign Currency (EEFC) Account of the buyer in the DTA or against foreign Exchange remittance received from overseas.

(c)

Supplies to other EOU/EHTP/STP//BTP/SEZ units provided that such goods are permissible for procurement in terms of paragraph 6.2 of the Policy.

(d)

Supplies made to bonded warehouses set up under the policy and/ or under section 65 of the customs act and warehouses in Free Trade and Warehouse SEZ, where payment is received in foreign exchange.

(e)

Supplies of goods and services to such organizations which are entitled for duty free import of such items in terms of general exemption notification issued by the Ministry of Finance .

(f)

Supply of services (by services units) relating to exports paid for in free foreign exchange or for such services rendered in India Rupees which are otherwise considered as having been paid for in free foreign exchange by RBI.

(g)

Supplies of Information Technology Agreement (ITA -1) items and notified zero duty telecom/ electronic items.

Export through others

6.10

An EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through another exporter or any other EOU/EHTP/STP/SEZ unit subject to the conditions mentioned in para 15 of Handbook.

Entitlement for supplies from the DTA

6.11

(a)

Supplies from the DTA to EOU/EHTP/STP/BTP units will be regarded as "deemed exports" and the DTA supplier shall be eligible for the relevant entitlements under chapter 8 of the Policy besides discharge of export obligation, if any, on the supplier. Notwithstanding the above, EOU/ EHTP/ STP/BTP

units shall, on production of a suitable disclaimer from the DTA supplier, be eligible for obtaining the entitlements specified in chapter 8 of the Policy. For the purpose of claiming deemed export duty drawback, they shall get Brand Rates fixed by the Development Commissioner wherever All Industry Rates of Drawback are not available.

(b)

Suppliers of precious and semi-precious stones, synthetic stones and processed pearls from DTA to EOU shall be eligible for grant of Replenishment Licenses at the rates and for the items mentioned in the Handbook (Vol.1).

(c)

In addition, the EOU/EHTP/STP/BTP units shall be entitled to the following:-

i.	Exemption from payment of Central Sales Tax on goods manufactured in India .
ii.	Exemption from payment of Central Excise Duty on goods procured from DTA on goods manufactured in India.
iii.	Reimbursement of Central Excise Duty/ additional excise duty paid on bulk tea procured from licenced auction centres.
iv.	Reimbursement of Duty paid on fuels procured from domestic oil companies. as per the rate of Drawback notified by the DGFT from time to time.
v.	Exemption from payment of service tax.

Other Entitlements

6.12

(a)	Supplies effected in DTA to holders of advance licence, advance licence for annual requirement/DFRC /EPCG scheme.
(b)	Supplies effected in DTA against payment from the Exchange Earners Foreign Currency (EEFC) Account of the buyer in the DTA or against foreign Exchange remittance received from overseas.
(c)	Supplies to other EOU/EHTP/STP//BTP/SEZ units provided that such goods are permissible for procurement in terms of paragraph 6.2 of the Policy.
(d)	Supplies made to bonded warehouses set up under the policy and/ or under section 65 of the customs act and warehouses in Free Trade and Warehouse SEZ, where payment is received in foreign exchange.
(e)	Supplies of goods and services to such organizations which are entitled for duty free import of such items in terms of general exemption notification issued by the Ministry of Finance .
(f)	Supply of services (by services units) relating to exports paid for in free foreign exchange or for such services rendered in India Rupees which are otherwise considered as having been paid for in free foreign exchange by RBI.
(g)	Supplies of Information Technology Agreement (ITA -1) items and notified zero duty telecom/ electronic items.