Export Oriented Unit Scheme

100% EOUS

Introduction

The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31st 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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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 CoverageWhile 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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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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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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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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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. .

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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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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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 EOUFor 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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(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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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 ownvWith foreign participation and nature of participation (foreign investment allowed 100%)

ii) What product do you intend to manufacturevProduct/By-productvDoes it requires clearance from Central/State Government authoritiesvIs it an SSI Unit. If so, registration is required as an SSI

iii) Technology to be usedvIndigenous/foreignvRelated costs and conditions

iv) Feasibility reportvOn your own or with help of consultant

v) The finances involvedvLand, structure, buildings etc (Please note, building construction material is not exempted from duty)vCapital goods, machinery etcvPayment for royalties etc.vAdministration and establishmentvOthers : like interest on loans, related taxes and levies etc.

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vi) The current competition overseasvMain competitorsvDemand and price-levels.

vii) The import laws and other requirements in target marketsvAny fiscal/non-fiscal barriers, like anti-dumping lawsvQuota restrictionsvPreferential treatment to competitor countries

viii) Location of the unitvWhether it is located close to a port or railroadvAvailability of raw materialsvManpower availabilityvEnvironment clearance needed if unit is located 25 kms from an urban town

ix) Capital goods, machinery and equipment to be usedvindigenous or foreignvRelated costs

x) The raw materials and other inputs, like consumables etc that would be required:vSourcevCostvMonthly, quarterly and annual requirements

xi) The production process and the related inputsvWhether 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-contractorsvRelated costs

xiii) Any by-products turned out in the production processvDetails of by-productsvWhether these would be exported or sold in Domestic Tariff Area (DTA)

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xiv) Effluents or waste-materialvHow do you propose to treat these or discharge them.

xv) PackagingvDetails of packagingvSourcevCost

xvi) PowervWhether the normal grid could supply adequate powervWhether there would be need for a captive power plantvCost of power plantvFuel 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-levelvCustoms and Excise leviesvSales tax, Octroi etcvPower tariffs and duties

xviii) Other informationvThe company should be registeredvA 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'svPollution clearance certificatevApproval of building plan in cases where building is proposed to be constructed.vRegistration as a small scale industrial unit, if applicablevRegistration 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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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 BOANote:-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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(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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(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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(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 positiveFE Inflows> FE Outflowswheren 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

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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.

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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.

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(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.

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(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.

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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.

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(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:

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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.

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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 farmingc) 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.

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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

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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; and2.5 % 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

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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.

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(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.

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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;

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(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.

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(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 CertificateImporter-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.

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(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.

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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

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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 RELATIONSPublic 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

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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

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Other special sectors under EOUEOU 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;

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(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].

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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.

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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

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Sectorwise Break up of EOUs Exports

Sectorwise Break up of EOUs Exports

Sector Industry2000-2001

2001-2002

2002-2003

Chemical, Plastic and Allied Industry

1281.14 1508.01 1948.36

Electronics and Software 2532.97 2982.29 2754.6

Engineering Industry 897.17 1056.54 2000.04

Foods Agriculture & Forest Products

2142.94 2523.34 2570.11

Gem & Jewellery 46.78 54.33 319.02

Granites 626.63 738.08 396.49

Leather & Spots Goods 37.76 44.96 357.1

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Minerals & Ores 666.69 784.91 907.21

Miscellaneous 1138.67 1341.28 3271.93

Textiles & Garments, Yarn 6541.41 7701.14 8204.08

Total 15912.16 18734.88 22728.94

Sectorwise Break up of EOUs Exports

INCOME TAX AND E O UE 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.

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Located in the Industrial zone of Guwahati Metropolitan Development Authority and enjoy the facilities of the urban area.

Excellent infrastructural facilities.

INFRASTRUCTURAL FACILITIES AT THE PARK

ROADThe 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

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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)

Marketing Development Assistance (MDA)43

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:

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.

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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 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

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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 indicating following may be sent:

* Name of the traveler. * Ticket Number.

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* 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.

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.

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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.

Future Scenario:

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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)

PercentageComposition

Garments 38 1015 28Minerals 2 597 17Electronics 19 370 11Textiles 20 298 9Software 20 280 8Agro and Food Processing

29 201 6

Engineering 25 191 5Services 1 176 5Granites 27 117 3Gem & Jewellery 4 107 3Chemicals / Drugs

5 64 2

Rubber 4 36 1Miscellaneous 18 26 1Biotechnology 5 20 1Floriculture 19 3 0Total 236 3501 100

SECTORAL PERFORMANCE

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28%

17%

11%

9%

8%

6%

5%

5%3%

3% 2%1%1%1%0%

Garments

Minerals

Electronics

Textiles

Software

Agro and Food Processing

Engineering

Services

Granites

Gem & J ewellery

Chemicals / Drugs

Rubber

Miscellaneous

Biotechnology

Floriculture

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Export Performance of EOUs in Karnataka for the Fast 5 years(Rs.in crores)

Sector 1997-98 1998-99 1999-00 2000-01 2001-02

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

Textiles 190 231 282 276 298

Total 1641 1816 2267 2957 3501

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1641 18162267

29573501

1997-98 1998-99 1999-00 2000-01 2001-02

EOU's EXPORT PERFORMANCE

District-wise break-up of EOUs in Karnataka as on 31.03.2002

Factory District Exporting Units Units under ImplementationBangalore 186 42Mysore 9 3Tumkur 8 2Dakshina Kannada 7 1Kolar 7 1Dharwad 6 1

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Belgaum 3 0Bellary 3 0Davangere 2 0Hassan 2 1Bidar 1 0Chickmagalur 1 0Kodagu 1 0Bagalkot 0 1Bijapur 0 1Raichur 0 2Udupi 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 14th September 2001

NOTIFICATIONIn 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,

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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.

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;

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(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,

Vidhana Soudha,

Bangalore, Dated 30-11-2001

55

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;

(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;

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(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).

(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.

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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).

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.

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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 authorizedperson of the Hundred percent Export Oriented Unit R.C.NO. of the Hundred percent Export Oriented Unit Special concessions in karnatka state

PROCEEDINGS OF THE GOVERNMENT OF KARNATAKA

Subject:- Special Concessions for New Export Oriented Units.

Preamble:-

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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.

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

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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).

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

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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 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

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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 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.

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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. 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

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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 orcomputer 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 servicesoutside 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 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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